Money, not technology, drives cloud growth, IT shrinkage

CFOs making larger chunk of decisions in IT matters, without consulting CIOs

Cloud computing may be the biggest thing ever to hit IT, but not for good solid technical reasons, and not because it gives IT the chance to show it really does know what their companies really need from technology to make the business shine.

Unfortunately, it's finance, not technology driving the market for and implementations of cloud. It is also business units, not IT, that is driving adoption of cloud and the drastic changes to which IT is more observer than driving force.

IT economic expert Howard Rubin writes that both consumerization and cloud computing recently hit periods of rocket-powered growth due to "Jevon's Paradox:" " Technological progress that increases the efficiency with which a resource is used tends to increase (rather than decrease) the rate of consumption of that resource."

The success of Salesforce and Gmail bred Microsoft's Office 365, Evernote, Dropbox, a thousand other SaaS providers as well as the launch of cloud-based rent-a-data-center services such as Amazon Web Services, Microsoft's Azure, cloud-based platform services from Rackspace, TerreMark, 3Tera and other companies with years of experience offering high-quality co-location, hosting or outsourcing services that expanded their businesses by offering cloud as well.

Only 20 percent of businesses have completed any significant cloud migrations, according to a Symantec study of 5,300 IT executives that was released in October.

A February, 2012 survey of 100 corporate financial decision-makers found 68 percent of large companies are already building out some form of cloud-computing capability, whether that meant SaaS services from outside or adding cloud-based IT management capabilities in-house.

Not only has cloud changed the economics of IT, it has changed both the culture and the politics.

The positive shift in cost/benefit ratio of a service the company can add or drop at will without having to buy or maintain the servers to run it made CFOs the biggest fans of external cloud offerings such as SaaS, , according to Forrester analyst James Staten.

Not only do cloud services come with lower upfront capital and operational costs, they make it easier for CFOs to put a dollar value on IT functions for which they had no valid comparisons when the only option other than having IT build something was to outsource the whole project to India.

That change has turned every technology conversation in IT into one about the effective management of IT budgets, opportunity costs and comparisons of the cost/benefit of external services versus control over data and security systems, according to Forrester's Thomas Mendel, who predicted in 2010 how drastically the availability and economics of cloud would change the financial analysis of IT.

Cloud computing took off so quickly IT didn't have the chance to adjust: IT economic expert Howard Rubin writes that both consumerization and cloud computing recently hit periods of rocket-powered growth due to "Jevon's Paradox: " Technological progress that increases the efficiency with which a resource is used tends to increase (rather than decrease) the rate of consumption of that resource." (i.e. No good deed goes unpunished.)

Increasingly, CFOs are making the technology decisions on their own as well. Last year CFOs, – not CIOs – made 26 percent of IT investment decisions by themselves and collaborating with CIOs on a total of 51 percent of IT decisions, according to a June, 2011 study by Gartner and Financial Executives International (FEI).

Almost half of CIOs now report to CFOs than to the CEO, according to a Forrester study.

Of those who responded, 93 percent of CFOs said cloud computing would play important roles in corporate strategies during the next 18 months.

According to Symantec's (unrelated) study of senior-level IT people involved in cloud, as many as 19 percent said their companies have considered launching a cloud project, but have done nothing about it. Twenty- to twenty-five percent aren't even thinking about it. Only 34 percent are in trials or active implementation.

If that sounds like a big gap between the CFOS' perceptions of how cloudy most companies are becoming and IT's, it is.

IT has already lost the silver lining on this cloud

The biggest change cloud computing has brought to the relationship between IT and end users is the ability of end users to buy their own IT with no help from geeks.

So the low percentage of IT people who told Symantec their companies don't have much going on with cloud almost certainly represent the segment of IT being bypassed by aggressive business units who contract with SaaS or cloud platform vendors directly, leaving IT to sit quietly and play with its orderly collection of toys that no one wants to play with any more.

At least, that's the more charitable interpretation. The one that came out of studies that showed the same results a year ago, seasoned with 12 months worth of user frustration at IT departments too afraid of cloud to do anything useful about it.

The shift in business-unit-managers' minds toward cloud and refusal of IT to keep pace is changing more than just the organizational structure and budget of IT, according to IDC analyst Joseph Pucciarelli.

Not only has the cloud changed the relationship between business units and IT, failing to deal with it promptly has knocked many CIOs out of their relatively new position within the inner circles of executive management.

Cloud – actually the business functions users are after when they buy cloud services – has made clear to business-unit managers that the decision of where to buy those services is too important to be left to IT to implement or deploy.

Cloud players may devour each other but the cloud will abide

Business unit managers will continue to hold the reins and will continue to drive more sales of cloud services, according to nearly every study.

Public cloud services generated $21.5 billion in 2010, but will rise at close to 28 percent per year to $72.9 billion in 2015, according to IDC.

By 2015, public clouds will take in 46 percent of all the new money spent in IT on apps, app

The result will be a merger and acquisition "feeding frenzy as these companies seek to gain a competitive edge," according to IDC's report.

That may thin out the market, but won't hurt cloud computing as a category, according to Gartner's Chris Howard.

Over a relatively short period, cloud computing will "become one of the ways we 'do' computing and workloads [apps/VMs] will move around in hybrid internal/external IT environments," he said following release of Gartner's report How internal and External Cloud Services are Transforming IT.

IDC goes even further, referring to both internal and external clouds simply as "the Third Platform."

By then, even with the extra space of a third platform, there may not be much room for IT except a couple of floors beneath the executive suite, where it can maintain the legacies, keep the lights on and try to keep out of the way of end users and cloud providers that will be setting the agendas, managing the budgets and occasionally phoning IT just to make sure it hasn't gotten too lonely.

Read more of Kevin Fogarty's CoreIT blog and follow the latest IT news at ITworld. Follow Kevin on Twitter at @KevinFogarty. For the latest IT news, analysis and how-tos, follow ITworld on Twitter and Facebook.

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