Cloudy with a Chance of Wrecking Your Business Model

December 21, 2011
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Cloud computing is changing the manner in which consumers and businesses buy, manage and use technology. However, the impact of cloud on technology providers is causing an even more pressing adjustment—as business models shift from simply selling and servicing technology to instead helping companies consume it.

Cloud computing is changing the manner in which consumers and businesses buy, manage and use technology. However, the impact of cloud on technology providers is causing an even more pressing adjustment—as business models shift from simply selling and servicing technology to instead helping companies consume it.

The business model for plenty of technology companies hasn’t changed much over the last fifty to sixty years. Sell equipment or software, install it, provide a bit of training, and reap contracts from subscriptions and/or maintenance.  And if it isn’t broken don’t fix it, right?

The rise of cloud computing is changing this paradigm.

In an October 2011 report, Bo Di Muccio and Thomas Lah of TSIA Research suggest a drastic change is coming to technology service providers.  Instead of simply installing and managing technology (via shared or managed services), cloud computing will force companies help users “consume” or use technology to achieve business benefit.

Prior to cloud computing, companies buying technology had no choice but to accept “complexity”, say Di Muccio and Lah. To reap benefits of technology, business line managers enlisted system integrators or consulting firms to install, integrate and manage technology on their behalf.  In addition, companies had to write an upfront check (capex) for hardware, software, training and implementation.

Cloud changes this model.  Instead, as more business managers get comfortable with cloud and its inherent benefits, Di Muccio and Lah argue technology service providers will be forced to adopt a “consumption economics” model where they no longer receive payment for shipping, installing and servicing a box, but instead receive revenues based on usage (pay per use).

Di Muccio and Lah also mention that cloud based computing shifts “risk” from buyers to technology service companies. For example, in previous years a business line manager might pay half a million dollars to a vendor, whether he or she uses the technology or not. With cloud computing’s pay-per-use model, the risk shifts to the vendor which only gets paid when technology is consumed.

To be sure, the shift in mix of complexity vs. consumption is not occurring overnight. However, with adoption of cloud computing increasing exponentially, technology and service providers must make plans today to meet tomorrow’s business expectations.  This means development of new pricing models, products, services, skills and training to make companies more than “buyers” but also successful “consumers” of technology.

Questions:

  • What new types of skills and services will be needed to help companies “consume” technology?
  • Di Muccio and Lah say the move towards simpler cloud based products will reduce the need for core professional services. Agree or disagree?