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New IT business models could spark a cloud revolution

The last decade has been marked by CIO cost conservatism. So when cloud computing burst onto the scene, it was no surprise that those CIOs wanted to move internal IT applications to the cloud to save a buck. However,

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some now believe this cost-driven, throw the data center in the cloud model isn’t the best one.

The cloud offers the technology framework that creates a new way of engaging the worker and the customer. This new model could not only drive cloud adoption, it could increase IT benefits and reduce budgets as well.

Cost reduction alone can’t create a cloud revolution, because most enterprise IT budgets are fixed. Payroll, for example, depends on the number of employees and regulations; it won’t decrease 50% by running payroll in the cloud. To change the business model of IT, it’s necessary to look at what cloud adoption creates in the way of new business practices and transactions.

Incremental pricing, flexible service geography lead cloud revolution
Though simple cost metrics alone won’t jumpstart a cloud  revolution, there can be cost-driven innovations in business practices. Cloud computing creates totally incremental pricing and flexible service geography, which is the most obvious way it enables new business models.

To change the business model of IT, it’s necessary to look at what cloud adoption creates in the way of new business practices and transactions.

In this model, a public cloud vendor would allow businesses to host applications at nearly any scale; that scale would determine the cost of an application, which would be an advantage during its early test stages. Geographic flexibility lets businesses host cloud applications almost on-demand, improving quality of experience. These on-demand capabilities encourage businesses to expand their scope and launch new products and services that would have cost more at the onset than the revenue they would create.

Scalable pricing and geography aren’t always the answers to creating a cloud revolution, though. Applications that benefit most from these ideas tend to be direct-to-consumer retail apps. In addition, these cloud benefits are most meaningful when a major portion of application costs are associated with deploying the app, not building it. Productivity applications, where most IT spends most of its dollars, may not be reap the benefits of cloud.

App federation could spur enterprise cloud adoption
Cloud-hosted, software component-based, application partnerships, or federations, are likely the next most lucrative path for the cloud to enable new business models. Companies like Apple, Google and Microsoft are already exposing application features and elements as “services” that can be integrated into a business application. Service providers and other over the top (OTT) competitors are joining in, and the result is an increasingly rich set of cloud-based tools.

By building new applications on these cloud-based tools, businesses can increase worker efficiency and productivity by adding location services, document management, secure backup or other features to applications. This will also reduce costs dedicated to custom development and deployment.

The potential in adding these features to applications has cloud visionaries captivated -- particularly given the rise in user commitment to mobile devices and ubiquitous broadband. While it’s clearly not possible to distribute all types of businesses, it is certainly possible to connect workers with information more flexibly, decoupling them from a fixed work location. Though it’s difficult to get reliable data on exactly how much revenue cloud applications with a new feature set -- location services, document management and backup -- could generate, some analysts suggest it could triple the revenue associated with the basic cost-saving approach of simply running current IT applications in the cloud.

Pursuing new business models with cloud computing likely will encourage some shifts in the type of cloud services available.

Does enabling application partnerships give rise to a new cloud model, which could be called
“Feature as a Service (FaaS)?” OTT giants like Google and Yahoo, U.S. telcos such as AT&T and Verizon and international telcos BT Group and NTT have at least some support for “cloud feature publishing.” All that’s missing is a framework to build these tools into new productivity applications.

Pursuing new business models with cloud computing likely will encourage some shifts in the type of cloud services available. FaaS could possibly be created using the same software and hardware components used to supply Software as a Service (SaaS) and Platform as a Service (PaaS). Arguably, SaaS vendors like Salesforce have already started to deploy FaaS-like offerings by selling database services and extensible software platforms via an application program interface (API).

Google also provides APIs to not only access Google Docs elements and Gmail, but also for basic online services like Web searching. IBM and Microsoft both expose middleware tools, including collaboration tools, in their PaaS offerings, and IBM’s promotion of the cloud as a way to create new business models may indicate the company intends to drive both the strategy and its solutions more aggressively with businesses.

Enterprises themselves can jump on the bandwagon of business model transformation and FaaS. Even Infrastructure as a Service (IaaS) based applications can access at least some of the APIs exposed by PaaS and SaaS providers, and so it’s possible today to create cloud applications that exploit feature and capability hosting in addition to hardware and software. Doing this creates not only new ways to deploy applications, but more importantly, new and more valuable ways these applications can meet business goals. Understanding these revolutionary cloud models today may help prepare a business to fully exploit the cloud of the future.

 

ABOUT THE AUTHOR
Tom Nolle is president of CIMI Corporation, a strategic consulting firm specializing in telecommunications and data communications since 1982.

This was first published in March 2012

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