Cloud Up in Smoke

Future View Cloud Burst

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Into The Cloud –

For years I have written about the problems with the cloud computing model and my fears for business dependency on cloud providers.  Many of my concerns have come to fruition. I have met with and discussed these issues with global CIO’s, vendors and consulting firms and I believe we will see a wave of changes as companies realize losses based on flawed strategies fueled by half-truths and false promises by vendors.  

Cloud providers promise to save companies money through reduction of cost in labor, infrastructure, service, and support.  They also make promises about disaster recovery, cost avoidance on upgrades and overall business continuity including security.   Many companies built complex systems that required a lot of knowledge transfer to support, maintain and scale. Overall complexity came to a tipping point of value vs expense.

Issues in cybersecurity, talent management, scalability of capabilities and competitive advantage along with significant pressure to lower cost have driven companies to generalize many services and capabilities.  All of the pressures were a perfect storm of opportunities for cloud providers. The promises of 3-page whitepapers were enough to discount many years of IT work. 

Along with these promises of new exciting and comprehensive capabilities at a lower cost, there are newer faster development models.   A focus on speed and minimal viable product to market will provide business with the edge it needs to deliver value to clients and customers in speeds never before seen.  

Business leaders are told stories about their competition by vendors and consultants. The stories are compelling and tell of how “I shouldn’t tell you this but your competition just moved their whole data center to our cloud. They reduced headcount by 70% and ..” the story continues. Since these stories in many cases are true, senior leaders would call each other and validate this to be the truth. Leaders could validate projected savings based on what they heard from others in the market, they went in.   The problem is that many companies were in the first or second year of their cloud move. The vendors offered deep discounts on cost and partnership. They claimed partnership and strategic alignment, it was a win-win situation.

For many, this turns out to be a lie. Once the contract is over the discounts go away. You moved all of your resources to a service provider and now they have you.  The cost of moving to another service provider is high and there is a good chance that you will find yourself in the same exact situation. Now you have let go of the bulk of your internal resources and your 5-year plan is just that. In other words, your overall costs are going up now.

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Promise and Problem

  1. Cost reduction: Pressure on companies by investors, stakeholders and informed but uninterested senior leadership.   Informed but uninterested senior leadership is the most impactful. These are brilliant business leaders, CEO’s, CFO’s and board members of companies that can perform complex mathematical equations on portfolios, explain business concepts to a 5 year old, talk about market and their business including competition but can’t make themselves a cup of coffee, work their smartphone or put an entry into a calendar.  
  2. Conversion of capital expense to operational expense:  Change the fundamental way business executes. Activities here include transformation, Merger, Acquisition and Divestiture, extreme outsourcing, and technical refresh.  This also may include a change in location for corporate HQ and major shifts in business focus.
  3. Wholesale disconnection and material breakdown of human resources:  HR has become automatic, autocratic and enigmatic.  Experts say that people are important but companies make great efforts to make believe people are important but treat people poorly.  It reminds me of the late 1970’s early 80’s when the mayor of NY spent money on putting a facade on windows on abandoned buildings instead of actually resolving the problem and repairing the buildings.  It perpetuated the problem and didn’t help anyone not even the mayor.

All of this contributes to cloud computing because cloud computing offers more than a remote place or capability to store operational logic, content, and services.   It represents a fundamental shift in the way companies operate.

In some cases, there are great benefits to remote workload and cloud but these cases require strategic thinking and a clear understanding of intent vs outcome.

Near Future

The near future holds more transformation and movement to remote resources.  Companies will continue to shift money to cloud because there hasn’t been enough of a backlash yet.   Some large companies have experienced a lot of what I have described already.  They are using their size to drive vendors towards extending discounts, pressures to force the fulfillment of promises unkept and future sales.  This isn’t sustainable.   As the vendors themselves have grown, even large companies become one of many.   They (vendors) are beginning to become arrogant and callous (you know who you are) and they will tell customers “you know what you got yourself into and even if you didn’t it was your responsibility to know.”   You see eventually the bill comes due.

Many companies are today in their 3-5th year and are seeing this trend across platform and service provider.  Companies experience operational failure, production, delivery setbacks, and client market delivery.    In many cases, there is nothing they can do about service issues aside from looking for some form of recovery from a vendor weighted service level agreement.  The vendor often times had better lawyers and contract administrators.   It isn’t catastrophic but it is NOT good.  Many companies will have to reorganize their leadership to really understand and account for why the overall costs are increasing.  The secret here is right in front of us.  The costs were really never meant to decrease, they were meant to shift.  The vendors knew this but the business leaders couldn’t see the ball under the shell.

Not so Distant Future

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The robots are coming (just kidding).  Companies are going to continue to benefit from the scale of vendors and cloud capabilities.  The vendors are going to make a lot of money and produce more technologies.  They will also continue to consume smaller companies with great technologies and fit them into their portfolio.  They will use the power of their size to influence lobbyists and government agencies in order to delay or prevent regulation.  Offshore resources will continue to increase in price and talent in domestic markets will continue to struggle.  Companies will come to realize the cost savings in the reduction of capital were temporary.  The operational costs will have increased and with it, the ability to influence, control or even have a competitive advantage due to technology will dimish.  Just think if everyone has service from cloud providers and they are all the same, it levels the field.   As companies start to realize this as fact, smaller companies and small business will have also invested and moved to cloud services.  Everything will be subscription.   This means no one owns anything aside from the vendors and the vendors have your data.  You know they are protecting you and backing it all up and offering you assurance.  The subscription models will continue to become more granular and complex.  Many companies will charge for microtransactions and these will be in the form of pennies on the dollar.   These “pennies” will add up.  In addition to the increase in the subscription model, the complications of subscription pricing and modeling will create new roles for companies.  Companies will need to hire more license administration, data modeling, finance and legal to handle the complexity.   Since the technology that vendors build and deliver changes so often, there will need to be more advanced change management activities and global workforce will need to spend more time learning on their own in addition to performing their normal work.   The result will increase cost and decrease operational effectiveness.

More Distant but Not that Far

Small and medium business will start to suffer due to technological complexity and overhead.  They will also be forced to a subscription model and it will take the government a long time to adjust rules and regulations to compensate for the additional expense profile.  Accounting practices will need to change and adjust.  Small business owners with very small workforce will have to continue to learn and keep up with changes in capabilities.  This is due to cloud vendors making adjustments to technologies based on larger corporate enterprise influence.  As this starts to impact smaller businesses there will be a call for regulation and there is potential for large cloud providers to gain the same treatment as utilities.  The internet will get the same treatment as water and cloud services won’t be far behind the internet itself.

There are some things that I haven’t seen yet that I believe could change the future. For example, if large companies that compete in different market verticals come together to create node based capabilities in which they share resources with each other through co-location they could create their own micro cloud services.  They could scale themselves and manage their talent pool and create competitive advantage.   This would be like a healthcare company partnership with an automaker.  They create a shared service model which could be replicated in other markets.   Compute clusters with redundant networks could grow organically and network partnerships would limit the scope of control that third-party vendors have.  I can also see in like markets where this may happen as the enemy of my enemy can become a friend.  Global partnerships within market verticals with like interests but market differentiation on services or delivery.  This could be something like a healthcare provider partnership with an insurance company for tech services or an automaker partnership with other automakers for share services.   You may ask, why they would agree to that.  The answer is because they are already doing it today.  In the sense that they are using the same exact platform and services to deliver capabilities and services.  The only difference is they placed it all in the hands of a third or fourth or fifth party and they have no control.

 

I recognize this was a long post.  If you have a comment, question or disagree, let’s discuss.

1 Comment

  1. Howie you are spot on in your observation and comments. Everything is going to prescription services and giving controls to the vendors. Just look at what is happening with ink for our printers these days. The cost of services seem cheap but as you say the more you rely on the service to manage your needs the more they will build dependent micro services to support you and that just pulls you further into the service providers web. There is much to discuss here but let me throw out a couple of words for discussion: cooperatives and commodities franchises for the common good of the customer base. Both require skin in the game and shared controls. Just as we thought that SOA was the answer to combining network solutions instead we found that competition (budgets) was stronger than cooperation. When competition drives companies to mergers and monopolies instead of the good of the customers we all lose.

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