There were a number of keynotes at last week’s All About the Cloud conference that focused on Public and Private Clouds and the market. What was interesting is that the typical hype associated with Cloud Computing appears to be calming down. It seems like it is no longer necessary to justify or explain the Cloud, or at least for the audience at that conference. According to Gartner the Cloud Computing market will be $150B in IT spend by 2013 as compared to $56B in 2009 and is the #1 Strategic Technology for CIO’s in 2010

The new Cloud attitude appears to be more about ‘when’ and ‘how’ enterprises will be utilizing Cloud solutions rather than ‘if’.

Coexistence is ‘In’

The other interesting change, which I first noticed at the end of last year at both OracleWorld and Dreamforce, was that everyone seemed to be talking about co-existence or hybrid uses of the Cloud with on-premise assets. This more reasoned approach is going to make more sense to CIO’s and business executives to who have spend millions building out their infrastructure over the past 10 years. Cloud can be complimentary. Starting with fringe or edge applications and then over time becoming more useful for mission critical functions.

The Consumer Cloud

Tuesday’s press panel with [insert names] focused mostly on the use of the Cloud for consumer applications like Facebook, Google, Amazon, eBay and future offerings like iTunes LIVE and Microsoft Office 2010 (launched on May 12^th). Cloud is everywhere but the average consumer doesn’t even know they are in the Cloud. With the advent of ubiquitous broadband access, smart devices and massive data centers, there are all sorts of Cloud based consumer services emerging. But the market is still evolving because the Generation X’ers are plugged into the Cloud but as Kevin O’Brien from Oracle said in his session, ‘My mom still doesn’t know what the Cloud is’, and she is probably isn’t alone.

Private Clouds

There were many sessions that discussed how there is money to be made in the Private Cloud market. You can have many of the advantages of the Public Cloud without the security and control issues. IDC projects that by 2014, $11.8B will be spend on servers to create Private Clouds, considering overall IT spend in the US is approximately $1T, that’s not big percentage today, but it will be in the future.

Scared of the Cloud

Are CIO’s scared of the Cloud because of their potential for loss of control, security issues and resource impacts? Several sessions touched on this aspect of the Cloud Computing market including CIO’s creating hurdles to adoption.

Given the cost and scalability advantages why wouldn’t organizations like the State of California quickly adopt Cloud based solutions? What about the switching costs like decommissioning your own data centers, software and restructuring personnel. If you already own PeopleSoft and it is working, will you really be open to a Workday ‘rip and replace’ scenario? Enterprise organizations are warming up to the idea, just ask Flextronics.

One panelist cited a recent Google Docs deal that went sideways at UC Davis where they scrapped their trial for several thousand users. Maybe there were other considerations than the Cloud but most of the sessions agreed that the benefits of the Cloud outweigh the risks and CIO’s are starting to think in terms of intelligent trade-offs instead of just being against the Cloud. This is probably smart, given the recent economic conditions and every CEO is looking to optimize their IT spend.

Cloud 2010 and Beyond

Cloud is just the new thing. According to Bill McNee at Saugatuck Technologies, their most recent Cloud Computing survey indicated that 86% of the respondents thought that the Cloud would be part of mainstream IT by 2014.

There appears to be reasonable optimism that Cloud Computing is not a fad and its going to happen, it’s just going to be the way people are operating today in the future. The Google Docs business is adding 3,000 new companies a day, that doesn’t seem like a fad. According to Gartner, their Hype Curve for Cloud Computing showed that July 2009 was the peak and it really appears that the market is maturing about the Cloud.

Venture Capital firms are only funding Cloud-based start-ups and large technology companies like Cisco, CA and IBM are buying SaaS and Cloud based companies (like CastIron Systems) because they realize they need to overcome the ‘Innovators Dilemma’ around the Cloud. There will be an increase in successful SaaS and Cloud companies as the market continues to mature, as well as a lot more M&A activity.

As one speaker so aptly described the current market situation for many companies when evaluating Cloud Computing, ‘When a piano falling from the sky, you should be worried more about will it hit you not where it is while it is falling.’

Remember the good ol’ days of selling software, when you could talk to customers about the virtues of ROI, or Return on Investment?  ‘Our new software can cut your costs by 90%,  make you more strategic and you will get that raise you were looking for!’

Funny thing, that was only about 6 months ago. Even Software-as-a-Service sales professionals were skilled at ROI selling but now ROI is out and TCO, or Total Cost of Ownership is back in.

The reason for the change is that buyers don’t care about investments or benefits, they are only concerned with reducing  and managing costs.  So this should be really good news for SaaS providers because their solutions not only provide ROI but clear TCO advantages.  Some of these advantages include:

• No hardware required: web servers, application servers or firewalls
• No software required: database, infrastructure or security software
• No IT team required: DBA’s, IT managers, security guys, etc.

It seems like most companies have already thinned their workforces, frozen their budgets and trimmed unnecessary spending in an effort to reduce costs.  What you are going to see next is IT Cost Swapping.  This is when you start doing a line item review of all of your IT and business costs and realize that your customer is probably paying a huge amount annually for ERP maintenance to your friends at Oracle and SAP and not getting much in return.  In a recent CIO magazine article about the upcoming SAP maintenance fee increase from 17% to 22%, a Forrester survey of over 200 SAP customers found that over 85% saw little or no value in these annual fees.  So it is a stroke of genius to raise the costs as the economy goes into the toilet, right?  Well SAP isn’t alone, Oracle is also planning on a large price increase in 2009 which could be as large as 10%.  In fact Oracle said that their maintenance revenue was the most profitable component of their business, that’s because it’s pure profit!

A smart Cost Swap Strategy could involved a portfolio analysis of all of your customer’s ERP software and building a plan to replace older on-premise ERP products with up-to-date SaaS products.  The advantage with this approach is that your customer can get the benefits of modern software, while actually reducing their overall IT cost structure.   For more Cost Swapping ideas, drop me an email at: kevin@montclairadvisors.com.