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Summary:

2010 has been dubbed the “Year of the Cloud” — and from an adoption perspective, this assertion holds true. But when it comes to realizing the benefits of cloud computing and truly running “IT as a business,” things are just beginning to heat up.

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2010 has been dubbed the “Year of the Cloud” — and from an adoption perspective, this assertion holds true. But when it comes to realizing the benefits of cloud computing and truly running “IT as a business,” things are just beginning to heat up. With rapid, disruptive shifts in consumer technology, more pressure is on enterprise IT to deliver technology as a service. I look to 2011 as the year that enterprise IT takes a big leap forward to meet the growing demands of customers. This leap is being fueled by the momentum for “private cloud” technologies.

We’re poised for a big transformation in the coming year. Judging from a variety of moves by major vendors to either partner or acquire a number of key cloud startup companies, the landscape is poised to change quickly. The reason is simple. These early stage companies are seeing major sales to Fortune 500 customers, and possess literally hundreds of new cloud-related opportunities in their sales funnels. Thus, it is easy to predict growth in valuations of private cloud companies.

The market for hybrid or private cloud is hot. The 451 Group predicts that enterprises will spend nearly $4 billion a year by 2013 on cloud-related technology and services. Increased agility and speed with lower cost are the primary motivations. With on-demand provisioning, they can significantly reduce the cycle time for IT requests, server builds and deployments, from weeks to hours, saving millions in IT efficiency (see figure). The opportunities – from more efficient testing environments to faster deployment, from increased user satisfaction to transitioning IT from cost center to profit center – are well documented and, frankly, simply too critical to ignore.

The transformation will not be achieved without some internal hurdles. To achieve immediate results from private cloud, IT organizations must implement self-service, orchestration, automation and lifecycle management on top of a virtualized infrastructure. In other words, enterprise IT needs a business operating layer. Amazon has set the bar for cloud computing – and enterprise IT, or really any service provider, needs to offer the same experience of self-service on-demand provisioning from a catalog of standardized services, perhaps with tiered options at different price points and visibility into users’ consumption of IT resources.

While most enterprises are using private cloud for application development, testing and QA environments, they’re also increasingly extending their use to production workloads and moving beyond infrastructure to applications. And while application-development teams are using public cloud and IT operations teams are investing in private cloud, the future is likely a hybrid cloud mix of both internal private cloud and external public cloud options. The enterprise IT organization will need to evolve to be a “general contractor,” routing IT requests to the most appropriate, low cost solution – whether physical, virtual, or cloud, from either their internal IT or external service providers.

Security and compliance might continue to inhibit some cloud adoption, as many fear the “free for all” of self-service. To address this, both service providers and enterprise IT shops need role-based access, policy-based controls, approvals, and workflow orchestration to ensure the right services are only available to the right users (and workloads) and are deployed in the right environment. Only then can IT offer self-service provisioning of cloud-based services with the enterprise-grade reliability and security required.

Done right, these implementations will yield dramatically lower TCO and higher ROI – in months, not years. For 2011 then, we should all expect to see broader enterprise private cloud roll-outs – as well as service provider expansions to provide “as a service” options for their customers, with the net result of this activity to enable the vision of “IT as a business.” Customers should feel comfortable with selecting best-of-breed technologies for their private cloud initiative and expect to see significant strategic [re]alignments and new announcements among their choice of vendors throughout the coming year.

Michael Liebow is an Independent Director of newScale, former IBM executive and an Executive in Residence at New Enterprise Associates.

Image courtesy of Remi Kaupp.

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  1. Dear Michael,

    Thank you for the article. The illustration show the exciting near term goals that show “zero labour cost”. I could understand that it means that when it is the functional heads or end users who themselves can develop and deploy applications using IT as infrastructure or service offerings from cloud companies such as Amazon, Google, or Zoho, there are going to be no labour cost as such, because you are not going to employ IT guys. Is my understanding correct? Secondly, what do you mean by IT as a business? When IT can always be a support for a retailer, a manufacturer, etc, how can it be a business. If time permits, you could respond.

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    1. I can help explain that illustration – it represents the evolution to a private cloud for a large Fortune 500 enterprise. The graphic shows the example cost and time to provision a new application environment, from weeks to days and ultimately to hours or minutes.

      The zero labor cost you cited means that application developers and project teams can request those environments on-demand through self-service and automation – without manual intervention – from their own internal IT department (i.e. the IT guys).

      With a private cloud, those IT guys can spend time on more value-added activities (instead of shepherding a manual provisioning process). They may even use public cloud providers for additional capacity – as Michael points out, IT can be a general contractor to source the right services from the right provider, whether internal or external.

      As for running ‘IT as a business’, the concept is not new. It refers to an IT department operating as a service business (i.e. an internal service provider within that retail or manufacturing company) instead of a cost center. The operating model and technology innovation of cloud computing represent a fundamentally new way of doing IT, and the means to help deliver on that vision.

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  2. I can help explain that illustration – it represents the evolution to a private cloud for a large Fortune 500 enterprise. The graphic shows the example cost and time to provision a new application environment, from weeks to days and ultimately to hours or minutes.

    The zero labor cost you cited means that application developers and project teams can request those environments on-demand through self-service and automation – without manual intervention – from their own internal IT department (i.e. the IT guys).

    With a private cloud, those IT guys can spend time on more value-added activities (instead of shepherding a manual provisioning process). They may even use public cloud providers for additional capacity – as Michael points out, IT can be a general contractor to source the right services from the right provider, whether internal or external.

    As for ‘IT as a Business’, the concept is not new. It refers to the vision of an IT department operating as a service business (i.e. an internal service provider within that retail or manufacturing company) instead of a cost center. The operating model and technology innovation of cloud computing represent a fundamentally new way of doing IT, and the means to help to deliver on that vision.

    2010 was a big year for cloud computing. My company, newScale (where Michael is an advisor), saw explosive growth in private cloud and IaaS deployments for our software last year. It’s still early, but I agree with Michael – that momentum is accelerating and in 2011 we’ll really see things heat up.

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    1. Hi Schroedl

      Thank you for sharing your thoughts. I got everything you had explained clearly. Your expression: “The operating model and technology innovation of cloud computing represent a fundamentally new way of doing IT” strikes a great chord with my thinking.

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