Cloud computing significantly changes the strategic playing field. Core to this change is both a philosophical and physical change to how infrastructure is managed. One doesn’t have to look far to see similarities in other industries where this transformation has taken place. Paramount among them is the electric industry. In the late 1800’s, companies built their own power generation facilities. By the turn of the century, companies were leveraging central facilities to provide power. This afforded companies several advantages. First, economies of scale provided economic benefit. Companies could acquire power cheaper than they could produce it themselves. Second, it allowed companies flexibility to move their companies further from the power sources themselves. Centralized power generation lead to additional power transmission possibilities. Third, it allowed companies to focus on strategic priorities and avoid becoming masters at power generation. Lastly, the economic model changed for the companies. Instead of making capital investments in power generation, they moved to a pay-as-you-go service based model. This provided further flexibility for the company
Turning back to present day…
In the short term, there are a number of questions that come up when considering cloud computing and specifically IaaS. Many enterprise and SMB companies are already starting to consider pay-per-use services to replace their existing systems. Some estimates peg this number at ~40% of companies use some form of cloud computing service (2009). But this story is not all positive. There are a number of challenges that come with these opportunities. The first challenge is in IT portfolio management. As an organization evaluates their existing (and projected) portfolio offering, consideration needs to be given on which services are strategic to the company. Similar to power generation, is compute/ storage capacity strategic? Or is it simply a requirement? Second, providers need evaluations that consider internal operations. Asking the right questions and probing into sensitive areas will provide confidence in the provider’s ability…and risks. One cannot absolve themselves of risk assessments simply by leveraging a third-party provider.
Similarly, is one provider enough to meet the requirements? As we have already seen, infrastructure providers will have failures too. How do you ensure that you’re protecting the interests of the company through your arrangements?