The Cloud: what it is, what it isn't, and how it affects the IT sector

14 December 2009

Dan Hawker

Dan Hawker

Former Head of Tobacco, Wholesale & Retail

What is 'the Cloud'?

The phrase 'the Cloud' has helped to generate a lot of debate, and get people interested in issues that may have been ignored before, but it has also helped to oversimplify the different issues that relate to it. So a brief definition is useful before getting into any detail:

"The Cloud is a set of services at different levels of the IT stack (infrastructure, platform, or applications), which can be offered over a scalable, shared public architecture, or over a similar architecture kept in private control.  Billing for public Cloud services is usually akin to billing for a utility, which means low or zero up-front CAPEX spend, and flexible, demand-driven, ongoing spend." (OPEX)

Obviously, all of these offerings have existed for some time, but demand appears to be building for them, and the offerings are maturing. Interest in 'the Cloud' is building, and can't be ignored.

The impact of the Cloud on the IT sector

  • IT vendor revenues: For large enterprise IT vendors that wish to take advantage of the new customer demand, the impact of the Cloud could not be more dramatic. These vendors are typically organised around driving new licence revenues, with operating models that are aligned to the same thing. The Cloud changes all that. With no up-front licence costs, and ongoing fees which are entirely driven by use, income will vary depending on usage.  This means an entirely different go-to-market approach, heavier on marketing to drive up volume, and heavier on after-sale care to keep customers happy, as they can easily move to another supplier.
  • IT vendor development approach: Huge R&D investment. Infrequent upgrades. Carefully controlled releases. These are the characteristics of a traditional enterprise IT supplier. IT service providers in the Cloud can take a radically different approach. Development happens more quickly, and is more suited to 'rapid' methodologies. Enhancements and upgrades can be iteratively developed, and deployed more frequently.

Customer finances

Put simply, the Cloud allows customers to massively reduce their CAPEX spend. They don't have to put huge business cases together to justify large initial costs that have to happen before any benefits are delivered. They can simply pull out a credit card and start using a service that they pay for through OPEX budgets. In many cases, the monthly expenditure doesn't even hit approval requirements, and the spend can slip in 'under the radar'.

Reduced reliance on customers' internal IT departments

In many large organisations, the IT department is not exactly renowned for its ability to move quickly, and in line with the business. For business users, the mere fact of being able to act outside of what they perceive is the straight jacket of IT process and procedure, is in itself a benefit.

Security in the Cloud

Security is the issue which most worries people and is most raised in discussions about shifting valuable corporate data onto the public internet.  This should become a non-issue over the next 2 to 3 years. To illustrate why, I'd like to draw a comparison between valuable corporate data, and money.

In our world, money flows around all the time, and collects in places like supermarket tills, post offices, bank branches, and central bank vaults.

When was the last time you heard about a successful raid on Fort Knox, or the Bank of England?  In contrast, when was the last time you heard about a raid on a local post office or supermarket?   And how many of us can say with 100% certainty, our sales people and management accountants can't or won't print copies of sales pipeline and P&L data, to leave inadvertently on a train or elsewhere?

The point is, whilst large data centres that power the Cloud will undoubtedly be a target for criminals, the security that is (or soon will be) put in place to guard these centres will mean that Cloud-based data will generally be more secure than on-premise data. There are other issues relating to assurance, addressed later, which are longer term challenges for the IT industry.


Interest in the Cloud is building and can't be ignored. For many traditional IT vendors, the impact is huge, and many are already attempting to address the new markets. For reasons I will come onto in my next blog, the main adopters of these new services are likely to be SMEs, and the pace of change is likely to be quicker than we think.

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