How Cloud Computing is “Creatively Destroying” the Traditional ITO Market | Article

Ben Trowbridge, CEO of Alsbridge, talks to Outsourcing Center Senior Editor Beth Ellyn Rosenthal about the radically changing ITO landscape. Trowbridge, who has just completed a new book, “Cloud Sourcing the Corporation,” discusses the creative destruction of the IT services market. He also provides tips for buyers on how to proceed while the market is in a state of flux. Caveat emptor!

BER: What is happening to the traditional ITO market?
BT: Market forces are destroying the existing technology market. The numbers tell the story. The IT outsourcing services market is growing in the low double digits. It is barely keeping up with inflation.

BER: What is taking its place?
BT: The cloud services market. It is growing by between 20 and 35 percent a year. I predict the cloud services market will match the traditional IT services market in size in two to three years. Karl Marx called this “creative destruction.” One market goes away or stops growing while a new market comes into being.

BER: What is the value proposition for the cloud?
BT: The service providers have the capabilities to provide hardware and software at a reduced rate. If they don’t have it, they have a gateway to providers that can provide cloud services. For example, Microsoft or SpotCloud offer price points that could be as much as 85 percent cheaper than current outsourcing prices for the same services. The prices are creating the destruction. We’re not talking about a subtle 15 percent price change.

BER: ITO buyers certainly must welcome the new prices available. But are there any challenges?
BT: An immature market creates both opportunities and pitfalls. Right now it’s difficult for buyers to make sense of the cloud market. At the outset there may be massive confusion.

BER: How should a buyer proceed?
BT: First, evaluate your cloud strategy. Figure out where you want to end up so you know where to go. Once you have a clear road map, begin a series of pilots. We recommend carving out small pieces of work to test the waters. It doesn’t matter what you select. The goal is to learn how to do something a new way.

Then track your progress. See what works and what you have to tweak. This feedback will give you a good map to the next stage.

Proceeding this way means during the pilot you will have a hybrid model, because you will keep the rest of your traditional IT in place. You may determine that this, indeed, is the best way to handle your IT. The goal is to match your needs to the offerings available.

BER: How do you select the right service provider?
BT: Understand that the labor-based providers do not provide cloud services at the moment. Currently, the true providers are hundreds of small service providers most outsourcing buyers have never heard of. Since the players are changing, selecting the right one becomes a tough decision for the CIO.

After studying hundreds of cloud suppliers, our team has assembled a list of the top 100 cloud sourcing providers which we call the Cloud Sourcing 100 Index. We published the index in the book and on our website and blog www.cloudsourcing100.com. This index is an exhaustive review of the emerging cloud providers with descriptions of their offerings along with classifications and ratings.

BER: How are the traditional suppliers reacting to the change in the market?
BT: Each service provider has a distinctive set of capabilities which create a specific point of view. Coming to the cloud, each provider has its own agenda, based on its current assets. Buyers have to understand this when determining the proper match for their needs and not let these agendas “cloud” their thinking.

Buyers also have to understand that traditional ITO suppliers that are providing infrastructure capacity at $450 per unit a month are not eager to provide the same service for $50 a unit. For them, that’s “radical destruction.” For some, the prevailing strategy is to delay moving their clients to the cloud as long as possible.

BER: Why did you write your book?
BT: To give ITO buyers a holistic view of the emerging cloud market. The goal is to help them make good decisions.


1 Comment on "How Cloud Computing is “Creatively Destroying” the Traditional ITO Market | Article"

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  1. Tripti says:

    An informative article, though we see in the market that at present cloud application providers are charging premium, which does not make reduction as much as is mentioned here.

    So for an example, as a buyer when we compare the solutions, we find that in the long run we pay much higher to the SaaS applications, where as we need to pay one time to traditional client/server applications and also own them. On the contrary, subscription based applications stop working for us as soon as we miss paying them – we dont own them.

    This does not yet make such services as appealing as is mentioned in the article, though this could be a passing phase.

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