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IT consultant says economics driving shift to cloud computing

Despite continued security concerns, an IT consultant thinks economic realities will push big business towards cloud computing.

IT spending looks ready to increase next year, but many companies remain as apprehensive as ever about adopting cloud computing services. Thomas Young, partner and managing director for media, telecommunications and financial services at Houston, Texas-based TPI, says it's time for CIOs to make room for the cloud. TPI is an IT contract broker focusing on Fortune 1000 firms, so Young sees the buyers and the market up close and personal. He says the shift won't happen overnight, but it will happen.

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What's the potential attraction of cloud for the enterprise? They already have plenty of computers.

Thomas Young: The unanswered question to me is, "Is it an asset to have that big a footprint or is it a liability?" If you look at the telecom market in the US, the average revenue per customer [per month] is $60, and the whole economic basis for wireless providers in the US is based on that $60. Well, in India, they don't have $60 a month [per customer], and they need wireless penetration. They're down in the $7-10 [per customer] per month range, so they had to completely and radically re-invent their market.

Bharti Airtel is a huge company in terms of revenue [$6.7 billion last year], but they only have a few hundred employees and they outsource absolutely everything. Everything gets outsourced, and they've become a force. If you take that model and bring it into the US, it's going to be a game changer -- the enabler to that is going to be cloud computing.

What is the route big business needs to take to get into cloud computing?

Young: For most large enterprises, there's two steps to the cloud. The first step is, they need to organize themselves in a way that allows for an elastic cost structure for their business. The second step is moving to the clouds, and it's not going to happen all at once. It's going to happen in chunks. You're not going to wake up and all of a sudden your $500 million budget is in the cloud. Different things will move in stages, and what you don't want to be left with is a physical infrastructure that's a fixed cost, where you've got stranded assets and now, you're the problem. CFOs and CEOs are sitting there saying, "We need to move to the cloud," for whatever reason. "We need to be more cost-competitive, our customers are demanding it, they want cloud and you're killing me with your cost structure."

Tell our CIOs and IT managers how to avoid that hot seat.

Young: We are telling clients, especially as they're making capital investments and big decisions over the next couple of years, to think about how to move to that elastic cost structure. So then when slivers or pockets of your operation move to the cloud, either through Software as a Service (SaaS) or Infrastructure as a Service (IaaS), you're able to shed your costs and offset the payment you're going to be making to those firms, whether implicitly or explicitly. Most of the time we say look, if you're in the business and you've got all this stuff, be thinking about how to get out of it, so you can be very aggressive in looking for tactical opportunities and be a driver of the movement into cloud instead of being a hindrance.

Is there novelty in this? Has outsourcing paved the way or is this still a concept that people are struggling with?

Young: I think people get it, especially if they already have pockets of their business that are outsourced. If I change my business drivers, my IT costs go with it, so they see the benefits. [CIOs should be saying], "If I'm looking at a major capital deployment in the next six months to a year, do I really want to make that? Do I want to invest that time and effort into looking at a service-based offering that's not capital intensive?"

It's not going to go away overnight, but pick some point in the future. 20 or 30 years from now, the notion of having your own complicated IT department that does all this legacy stuff is going to be a throwback.

The bottom line: Is this going to happen when the money adds up?

Young: People will do it if you make a good offer. There are concerns about security, but those are just technical problems. Smart CIOs will be thinking about how they will prepare their organization for the shift, but nobody knows how fast it's going to happen. I believe in five years it'll be more than we expected, in two years it'll be less. Bottom line: If people are interested in the status quo, they are going to be very sad.

THOMAS YOUNG'S BIO:   
Thomas Young, partner and managing director of media, telecommunications and financial services at TPI, advises the company's clients on aspects of their service alternatives. Tom has expertise in the use of technology to meet changing business needs and all aspects of accounting, financial analysis and IT outsourcing (ITO).

Prior to joining TPI, Tom worked as a financial director at AT&T Labs with responsibility for providing financial advice and leadership to the applications maintenance taskforce, ITO strategy development and offshore outsourcing initiatives.

Tom also served as a vice president and CFO of AT&T ImagiNation Network (INN), ultimately responsible for soliciting, selling and negotiating the sale of INN to America Online.

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