Few would dispute that cloud computing has a huge potential for making IT service expenditures more cost-effective and flexible. But as is often the case, what is now possible is not necessarily practical or even desirable from the standpoint of the buying customer in terms of both accommodating longstanding preferences as well as specific contractual terms.
For example, consider these aspects of cloud computing:
Variable pricing means unpredictable in spending. One of the lessons of the early utility models of the early 2000s was that customers’ preference for predictable expenditures often trumped variability based on consumption. The same is true today with even more inherently fungible cloud services. Moreover, a sudden, wholesale shift from capital spending to expense spending is impractical for many customers.
Rapid provisioning taxes customer lead times. Rapid provisioning, one of cloud computing’s principal calling cards, presents huge advantages compared to server provisioning times measured in months, but customer provisioning systems cannot usually take full advantage of provisioning times measured in mere minutes.
Pricing based on resource units can bring challenges. For example, testing-as-a-service allows customers to pay on the basis of test cases executed, but few customers are as yet ready or comfortable paying in this manner.
When I moved to India about two years ago, I arrived with my own expectations regarding emerging markets. One of them was that the lack of legacy IT applications and infrastructure would make these markets an ideal place for new technologies and delivery models like as-a-service to thrive. In other words, organizations in emerging markets would “leapfrog” to new technologies without going through some of the prior technology investments witnessed in developed markets. Unfortunately, the reality is not that simple.
One of the key takeaways of my recent reports (Australia, China, India Set The Pace For Asian IT Services and The Changing Face Of ASEAN IT Services — to be published in January 2012) is that most of the growth in emerging countries will come from traditional IT services such as ERP implementation, infrastructure deployment, and system integration. Against common belief, emerging services — including cloud and mobility — will represent less than 20% the total annual growth in emerging markets in 2015.
I see several reasons for this:
Lack of governance and planning. An IT department’s role is merely one of provider of applications and infrastructure, whose main objective is to react to business needs.
Lack of internal skills. Client organizations do not have the adequate skills internally to take on complex transformational projects involving new technologies such as virtualization, business analytics, and mobile enterprise application integration platforms.
Lack of IT services culture. Most client organizations in emerging markets leverage external skills to help them with basic tasks such as hardware maintenance and software deployment.
Just over a week after SAP published its intention to buy Success Factors, IBM announced yesterday that it will acquire Emptoris, one of the leading ePurchasing suite vendors. My colleague Andrew Bartels has described in his blog some of the implications for other vendors in the ePurchasing market:
My interest is in what the acquisition means for sourcing professionals, not just the CPOs who might be Emptoris customers, but the IT sourcing professionals setting strategies for dealing with major suppliers such as IBM and SAP.
· Emptoris customers should give IBM the benefit of the doubt, for now. Craig Hayman, General Manager of IBM’s Industry Solutions division, assured me that he would take great care not to damage Emptoris’s strengths, the ones that attracted him to the company, as they did you, its customers. Emptoris consistently does well in Forrester Wave™ evaluations, not only for its functionality but also its focus on sourcing and procurement, its emphasis on ensuring customer success, and its consistent record of innovation. The good news is that Hayman doesn’t underestimate the challenges of integrating Emptoris into IBM, but is confident he can overcome them. It will take a couple of years before we can judge his success.
Anecdotal evidence from several dozen Forrester IT client inquiries and consulting engagements during the past two years suggests that large MNCs are almost always multisourcing their international WANs and other global telecom services. We estimate that more than nine in ten large user companies (firms with 1,000 or more employees in overseas offices) buy international WAN, Internet access, and fixed voice services from three or more network operators or specialists. The larger the firm, the more likely they are to use one and sometimes two top-tier global telecoms providers (like AT&T, Verizon, BT, Orange) for multiregional international telecoms, and additional — often smaller players or VPN specialists (e.g., Level 3/Global Crossing, Azzurri, Virtela, Masergy) — for important international markets, or regional providers such as in Europe (e.g., BT Global Services, Orange Business Services, T-Systems) and Asia-Pacific (e.g., NTT, SingTel, Telstra). Global firms also increasingly are interested in buying some services from emerging market players like Tata Communications and Reliance Globalcom.
Global enterprises’ rationale for multisourcing falls into two broad categories:
1) Global telecoms — networks and comms apps running over them — are considered “too strategic” to entrust to just one service provider.
2) As we keep hearing over and over, “There’s not actually a truly global network operator — they all rely on others, sometimes many others.”
Today, SAP announced plans to acquire SuccessFactors, a leading human capital management (HCM) cloud platform with more than 15 million subscribers. This greatly accelerates SAP’s move into the cloud and makes it a provider of one of the world’s leading cloud solutions. SAP plans to operate SuccessFactors as a separate company.
For SuccessFactors customers, this will create more integration opportunities between their best-of-breed cloud HCM solution with SAP’s suite of enterprise applications products, in-memory computing platform HANA, and mobile computing platform Sybase.
For SAP customers, this creates an immediate opportunity to buy an innovative, proven, fast-growing cloud solution from their strategic enterprise software partner. Today, there is only a small overlap between SAP customers and SuccessFactors customers — meaning most SAP customers do not currently use SuccessFactors (and vice versa).
While there are great opportunities and synergies with this acquisition, it also runs the risk of potential downsides for customers: pricing and contract terms are likely to change and the pace and direction of innovation could slow down as the provider moves from a nimble, niche supplier to a new parent company with many competing initiatives.
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