Cheap and convenient Cloud to change face of IT
Market research firm Gartnerexpects the global market for cloud-computing services to reach $176 billion this year which is still only 4% of all IT spending, but it is growing fast—as most other parts of the industry are stagnant or even declining— and by 2017 cloud spending will total $240 billion.(Image:cloudcomputing.com)
Financial analysts and many other expert observers of the information-technology (IT) industry will pay close attention when e-commerce giant Amazon releases its results for this year’s first three months, where, nearly a decade after it launched Amazon Web Services (AWS), the company will enlighten its shareholders about the size, growth and profitability of its cloud-computing business.
The announcement will also signal that cloud-computing has come of age such that AWS’s revenues are thought to have reached $5 billion in 2014 and growing at over 50% annually. Accordingly, analysts have already assigned AWS a valuation of $44 billion placing it in the same league as incumbent computer-makers such as Hewlett-Packard, which has a market capitalisation of $60 billion.
Market research firm Gartnerexpects the global market for cloud-computing services to reach $176 billion this year which is still only 4% of all IT spending, but it is growing fast—as most other parts of the industry are stagnant or even declining— and by 2017 cloud spending will total $240 billion.
Businesses are finding that the cost of putting their computing and data storage into the online cloud is getting ever cheaper, where in the past three years prices are down by around a quarter according to global financial services major Citigroup; and further significant falls look all but inevitable.
Then, the real question for cloud service providers is: “Will we ever make any money from this?”So far, all that many of them have done is run up losses due to difficulty in differentiating their products, thus the only competitive tool is to compete on price.
Just as airlines’and carmakers’losses are tourists’and motorists’gains, businesses and other organisations that make heavy use of IT services will enjoy big savings by increasingly rent ing processing power and storage space cheaply.
Companies have also put into the cloud many of what are called their “systems of engagement”, that is, the services that handle their interfaces with the public, such as smartphone apps. Any software that companies design for themselves—for instance, in “sharing economy”firms like taxi services major Uber—is increasingly being developed and tested in the cloud, as well as run there.
The again, although heavily regulated businessesmay be convinced by the cost advantages and convenience of moving their systems into the ever-cheaper cloud, they will have to persuade both their regulators and the insurers which cover them against any data leakages or system breakdowns.
Cloud geeks, legacy geeks
Today there are two kinds of IT firm: those native to the cloud, led by Amazon, on the one hand; and the incumbent sellers of hardware and software, on the other, which are struggling to adapt to the new age.
Software firms have to rewrite their applications so they can run in the cloud and move to business models in which they receive smaller, recurring subscription paymentssuch as Adobe, a maker of publishing software.
Adapting is going to be harder for makers of corporate computer hardware like HP and Dell given those now businesses will increasingly rent computing services in the cloud and they are increasingly designing their own servers by having them built by low-margin contract manufacturers, and for the software that is used to manage giant data centres, the trend is moving towards going for free, “open source”software instead of the paid-for variety.
Thus, computer-makers face a challenge choice today by either trying to establish a strong position in the cloud, or focusing on their legacy business.
To conclude on a Cloud-centric note, IT users can look forward to blue skies containing cheap and fluffy cumulus clouds while providers of online computing may be under a grey, drizzly stratus of low profitability and legacy makers of hardware and software should expect stormy cumulonimbus formations overhead.