As falling prices prompt more and more businesses to embrace the cloud, the technology’s game-changing impacts on the IT industry are coming into view. Whilst most other parts of the industry are static or in decline, cloud computing services are growing rapidly. With this shift well underway, companies in all areas of IT will have to decide whether to establish themselves in the cloud or focus on legacy businesses.
Research firm Gartner expects the global market for cloud computing services to reach $176 billion this year, and $240 billion by 2017, The Economist reports. Amazon Web Services (AWS), launched nearly a decade ago, is on the move with an estimated growth rate of 50% annually. The pace is brisk for the rival cloud businesses of Microsoft and Google as well.
As they race to keep up with demand, cloud service providers continue to struggle with profitability. This is also a difficult space in which to differentiate oneself from competitors by any means other than slashing prices and expanding to attain economies of scale.
The real winners are businesses and other organisations that make heavy use of IT services. The cost of moving their computing and data storage to the cloud continues to plummet, giving them a cheap alternative to maintaining dozens of servers in-house.
Notably, there are big swaths of corporate computing that are unlikely to move to the cloud anytime soon. Many important operations must be run on outdated software, given the difficulty of replacing entrenched systems. In response, some IT departments have split in two, with one group managing systems that run in the cloud, and the other managing legacy systems. Similarly, the industry itself is composed of companies native to the cloud, and the more traditional software and hardware makers. The latter are struggling to adapt.
Software firms are having to rewrite their applications to run in the cloud, as well as switch to a business model in which revenue comes from subscriptions rather than large upfront licence fees. Adobe has made progress, but big providers of business applications like Oracle and SAP could be less agile. Hardware makers such as HP and Dell have it tougher still. Businesses that once bought servers from them are renting computing services in the cloud. Cloud providers need servers, but many are designing their own or outsourcing to low-margin manufacturers.
It becomes a matter of picking a side – either become a part of the cloud movement, or remain a stalwart of the old guard. IBM, which bought cloud service provider SoftLayer in 2013, falls into the first camp. HP seems to be tentatively straddling both. Each is behind Google and Microsoft, which have steady revenue streams from a ubiquitous search engine and operating system, respectively, to rely on while they transition – all of which explains the growing need for IT executives who are adept at change management.