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Top Five Strategies for Cloud Vendors

By April 21, 2010Article

In this article, we will examine the top five strategies vendors should pursue to succeed in a fast-moving and competitive cloud computing market place.
One Fortune 500 financial company CIO we interviewed as part of our “Leaders in the Cloud” research study said their company will move 20% of their application portfolio to the cloud in the next 3 – 5 years. With a typical large enterprise application landscape of between 10,000 and 15,000 applications, that 20% translates to 2,000-3,000 applications! These are truly staggering numbers if you expand it out to the totality of potential applications from all the Global 2000 enterprises.
This dramatic shift of services into the cloud will have profound implications on the IT ecosystem as well as on the IT competitive landscape. The dynamics and expectations of user buyer patterns will undergo a fundamental change which in turn will have wide-ranging implications on the vendor business model and the way technology-enabled services are distributed, managed, and supported.
Consider the following strategies to help you navigate your course through a successful cloud transition:
1. Extend Your client relationship beyond IT
By abstracting the underlying infrastructure and applications from the business services delivered to the end user, cloud computing is increasingly blurring the boundaries between IT and the business. To be sure, the cloud’s disruptive impact extends beyond the IT department. As the IT department gets more tightly integrated with the business processes of the organization, IT success will be evaluated based more on its impact on business metrics and less on traditional IT metrics.
Finance, accounting and other administrative departments in the company must also change their practices to incorporate new types of cloud pricing and contracts. You need to create new relationships across organizational boundaries to deal with the new reality of tighter integration with IT and the business.
It’s not enough to speak the language of the CIO alone; you should also plan to field teams with specialized expertise to educate non-IT executives on how to revise internal processes to allow for the cloud’s flexibility. To account for these new buying influences, you need to update your go-to-market as well as your sales and delivery strategies.
2. (Re)position your products and services for a hybrid cloud world
We found compelling evidence in our study that hybrid clouds will be a dominant deployment model that companies will be using in the next several years. Your products and services must account for this reality. If you are an IT service provider, this represents a golden opportunity for providing value-added services at the business process and architectural layers that orchestrate the migration, federation, aggregation, and integration of on-premise and external cloud services within a hybrid environment. Make sure you have “hybrid cloud” messaging and clearly differentiated and articulated hybrid cloud services and associated sales approach to take full advantage of this opportunity.
If you are a SaaS, PaaS, or IaaS vendor, your route to success in this hybrid cloud context lies in being able to openly interoperate with other services within the datacenter and with other cloud products and vendors. This means rich Web Services and APIs should be an integral and core part of your product roadmap. Without these, you will not be able to operate in a hybrid environment effectively and consequently will drop out of favor with your customers. One CIO we interviewed for our study commented:

“If a SaaS company doesn’t have a good Web services interface, API, I’m not interested—it’s a show stopper. These applications have got to be to able to integrate, synchronize and be extendable in a way that enables me to see them as one application.” – CIO, electronics engineering company

3. Invest in long-term “true” cloud product/services strategies
It continues to be fashionable with many IT services vendors to be associated with the “cloud” in any way possible. Don’t forget, your customers are getting savvier and better educated about the cloud and can see through service offerings driven by empty cloud marketing slogans. In order to be truly considered a cloud offering, your products and services must offer the following characterizes:

  • On-demand elasticity – the ability to increase or decrease of services/resources as demand goes up or down
  • Pay-as-you-go and associated “metering” or measurement of the service – customer only pays for the services consumed
  • Resource pooling – multi-tenant architectures meaning resources are shared among many customers
  • Ubiquitous anytime, anywhere access – via mobile, Internet, PDAs, laptops
  • Automated self-service capabilities

These are the cloud characteristics that drive business value, and business value is what you need to lead your offering with. If you merely develop a thin veneer of cloud-like frosting (even leading with virtualization is not going to be enough) on top of your traditional technologies and business models, you will only confuse your customers and your salesforce. That is clearly not a winning long-term strategy as many of your customers – -and your competitors– will notice very quickly that you just applied “lipstick to the pig.” Moreover, it’s not going to be too long before the revenue streams from your traditional offerings will start to dwindle in the face of the new cloud market reality.

“I have told all the vendors I work with: You guys need to stop the hype on the cloud. You need to focus on the results you have delivered. You have got your press. What I want know are your use cases, and case studies on companies that have utilized your services and what value the services bought to the organization.” – CIO, healthcare company

The market change is happening now and you cannot afford not to have a “true” cloud offering.
This means fresh investments in cloud technology platforms, new business models, fresh new marketing messages, and a salesforce (preferably focused on selling cloud only services and products) that has a clear and crisp business value proposition for your customers. Begin the planning process now and invest wisely in an integrated cloud offering that will serve you well into the next decade.
4. Do not underestimate the cultural barriers: help alleviate the impact
Every cloud vendor worth its salt must address the security and privacy objection. This is the first and arguably easier barrier you need to cross. Make sure you have a solid case to address them, but masking these two perennial favorite objections are bigger issues: resistance to change, die-hard managers stuck in the old ways, fear of job loss, etc.
Make no mistake, if you can convince your customer with a strong business case and ROI argument to move their services to your cloud offering, they will inevitably have to deal with having to dramatically reduce their IT staff footprint — a very difficult decision to make in the best of circumstances. You need to have a strategy in place to help alleviate this impact on your customer IT organization. For example, you could help your customer analyze and reallocate IT resources, provide training in new skills, and reorient the IT organization to a new business-driven cloud IT reality.
The CIO will be instrumental in a company’s decision to jump into the cloud – or not. While some CIOs are savvy to the business benefits of the cloud, many remain in the dark. You can reduce anxiety and enhance knowledge of cloud pros and cons with a cloud CIO education program.

“We have brought in IT people with new skills, trained existing team members and let some go on our journey to the cloud.” – CIO, media company

5. Offer More Granular Contracts
Although the flexible pricing model is often cited as a key benefit of cloud technology, CIOs want it to be even more flexible. Interviewees in our study lamented their inability to ramp down capacity or seats if business drops off. Most cloud contracts lock in service levels for a year – much too long a period to be able to flex capacity up and down with the on-demand and agile business of the future. As one CIO at a media company told us:

“With some of the leading cloud vendors, for example, you have a yearly contract, which is not very flexible or granular. I would love to have monthly deals. Perfect elasticity is when the costs go up and down per my business need. So we have this concept of granularity at the commodity, infrastructure layer but we don’t see it as we move up the application stack. I don’t think IT and vendors have wrapped their heads around the fact that this is how business wants to buy and pay for technology: where the technology delivered is aligned with the value received by the business.”

Kamesh Pemmaraju heads cloud research at Sand Hill Group. Follow him on Twitter @kpemmaraju.

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