The Cloud’s Disruptive Potential

CloudLike most entrepreneurs, Conor O’Riordan had a vision. His was to help small and medium businesses break in to export markets by cutting red tape.

But like start ups everywhere, O’Riordan had to make some trade offs.

Although he didn’t have a technical background, his company, TradeFacilitate.com, would rely heavily on technology to provide an online, validated invoicing solution.

Partnering with a developer, O’Riordan embraced the Cloud. And realizing his customers — mostly SMEs — were as likely to be as technically challenged as he was, O’Riordan gladly bypassed the headache of managing his own data center.

It has been a blessing, he said.

When dealing with his customers or customs officials, they never talk technology. Yet they all realize they are harnessing its power without needing the expertise to run it.

But is Cloud Computing the latest IT fad in an industry more fashion driven than women’s clothing? as Oracle CEO Larry Ellison famously asked. Or, is it, as the cliché has it, a paradigm shifter?

With a meaning so nebulous that it was just last September when the U.S. National Institute for Standards and Technology (NIST) laid out its “final” definition, Cloud Computing can still mean different things to different people.

Stamping its mark on the discussion, tech research powerhouse Gartner issued a lean definition where it said Cloud Computing is a “style of computing where scalable and elastic IT-enabled capabilities are delivered as a service using Internet technologies.”

But, Gartner’s Dan Sholler said the exact definition is immaterial. Drawing on his industry experience, Sholler recalled when client-server computing was all the rage.

While academics, researchers and consultants argued over the precise definition, the meaning was crystal clear to everyone in IT: not on the mainframe. The same is true now about the Cloud, Sholler said. When IT talks about Cloud Computing, it means “not in my data center.”

Although the IT industry is prone to hype, there is a sense that, this time, things may be different. So before getting in to specifics, let’s step back and first look at something else: disruptive innovation. First coined by Harvard business professor, Clayton Christensen, the term is used to describe either business-model or product innovations that destroy incumbents.

Typically the new product or service will be of little concern to high-end producers who easily dismiss the cheap, new entrant as a threat of little concern. But as it begins to gain traction in the lower end of the market, quality improves and the innovation begins to eat away at more valuable market segments before finally displacing even the most secure incumbents.

There are many examples. The classic is the Ford Model T, which was cheaper to maintain than a horse but much less desirable than the high-end cars being sold to the wealthy.

more recent example is the 5.25-inch hard drive which was deemed unfit for high-value midrange computers. But the lowly drive was good enough for the nascent PC market because they were much less expensive than mini-computer 8-inch drives.

Then there is Netflix, which practically nuked the traditional video-store business by introducing postal delivery of movies. Now Netflix is disrupting its own model by offering streaming television and films on demand.

Is Cloud Computing likely to be as disruptive? Can it do to traditional IT what the internet did to newspapers, travel agents and many other businesses? Or will the Cloud merely shift infrastructure to off-site data centers?

For traditional IT, on the one hand, the portents are ominous. On the other hand, there are still significant hurdles. But once those are overcome, the implications of Cloud-driven change are far reaching.

Traditionalists can already see the writing on the wall. Despite the long-running Great Recession, there is still a shortage of IT staff. But there is no shortage of work faced by IT support. Desperate to satisfy business demands, they need quick hits.

Want an extranet or some kind of facility that allows document sharing and collaboration? Your old option was to price a server — not forgetting spare capacity! — software, support and hosting. Tie that up in corporate procurement procedures. Then queue it in IT’s never-ending list of projects.

Your new option is to say “Dropbox” or “Google Docs.” It has a touch of the poor-man’s Cloud about it, but the price is right and the impact is immediate.

And look how Cloud-based email has upended university email systems: Hosting of the temporary student accounts have been farmed out en masse to Google and Microsoft.

Many Cloud-based services may not be an exact match for some corporate needs, but they can be of high quality. More importantly, the Cloud, has its foggy foot in the data-center door.

Another worry for existing IT staff is the perception that they are not “fully up to the challenge of moving to the cloud,” according to Symantec’s State of the Cloud Survey 2011. The security firm estimates that fewer than 25 percent of existing staff have any Cloud experience.

This points to a need to upskill quick. No one wants to be the “mainframe guy” in the internet era.

Some of the most serious drags on implementation, however, include concerns about security and jurisdictions. The U.S. and E.U., for example, are still far apart on data protection. Even within the E.U., countries like Germany take a much firmer approach to privacy issues than other member states.

Finally, there is the argument of sunk costs. Vast sums of money have been spent on corporate data centers, redundancy, resiliency, licensing and training. The economics of moving won’t make sense for some time.

Even then, the economic argument will have to converge with the “if it ain’t broke don’t fix it” argument. It’s a brave IT exec that decides to move house. The argument will have to be compelling.

But while the forecast for large companies calls for continued struggles with the Cloud, nimble start-ups like TradeFacilitate.com and the Cloud play to each other’s advantages. And by going with the Cloud, the start-ups retain the ability to scale quickly and overtake competitors.

Image courtesy of karindalziel on Flickr.