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“Cloud” computing is the new buzz word in IT circles, and is tipped to be the next big thing. “CloudSourcing” is following hot on its heels, promising easy and cheap access to computing power and to business applications. Is it hype or is it reality? Or, as is usually the case, is it a bit of both?
Firstly, what are we talking about when we mention the “Cloud”? The key underlying technology is “virtualisation”, which is effectively wrapping every piece of data/process instruction with sufficient information to give it an independent identity. Which means much more efficient computing. To give an example of what this means, – and for the purpose of this article we will just focus on IT infrastructure services, rather than software or processes – in traditional computing environments up to 85% of computing capacity sits idle, whereas in a “Cloud” environment the ratio is reversed.
There are high profile examples of the efficiency impact of virtualisation. For example IBM’s internal transformation programme has reduced 155 data centres to 5, generated significant savings and reduced their carbon footprint.
Google and Amazon have been leaders in applying virtualisation for their businesses, and are now (along with others including Microsoft) offering Cloud computing to the corporate market on an outsourced basis.
Characteristics of Cloud-based services are that they are:
Two other terms are bandied about – “Public cloud” and “Private cloud”. Essentially the Public Cloud is the provision of outsourced services to third parties by, for example, a Google or an Amazon, utilising their enormous virtualised computing power, and providing shared access and standard services. The Private Cloud is essentially an in-house solution – the client organisation virtualises its own data centres so that they are as efficient and flexible (or nearly) as the Public Cloud.
So what does all this mean for the IT outsourcing market, and in particular for the buyers and users of IT infrastructure services?
The really big impact is likely to be access to much cheaper computing power – essentially much more efficient data centres. In our view the likelihood is that big organisations will take advantage of this by either setting up their own Private Cloud (ie super efficient virtualised data centres), or by buying into an efficient but customised Private Cloud environment through an outsourcing provider – which is not very different to the current ITO model, just more efficient and cheaper. Why don’t we think that they will make use of the Public Cloud? Mainly because big organisations have the scale to access most of the benefits from their own Private Clouds, or from Private Clouds run for them by outsourcers, and they don’t need to compromise on customised services, security , data protection and other issues which potentially surround the Cloud. Which doesn’t mean that they won’t use the Public Cloud services at all – what Private Clouds don’t do is provide the flexible scaling up and down which the Public Cloud can do, so we would expect major organisations to make some use of the Public Cloud, for example when peaks of capacity are required – perhaps for testing, or to accommodate seasonal demands.
SMEs, on the other hand, may well make significant use of the Public Cloud. Where they do however, they will have to get used to buying standard services, not the highly customised outsourcing services which the industry has been used to. This is partly attributable to the B2C heritage of the major Public Cloud providers, and also to the need to drive standardisation to keep costs low.
So will the Cloud transform ITO? Yes and no, of course. Infrastructure services will certainly become cheaper, and the Cloud will allow access to more flexibility and scalability. But the likelihood is that for the foreseeable future major organisations will continue to demand customised services contracted for in the traditional way for the bulk of their outsourcing requirements.