Besides lower CAPEX and flexibility, how does the cloud
model surpass traditional on-premise software delivery
models?
Most organizations have spent several years in
just implementing enterprise applications such as ERP. They have
not even been able to draw the desired business value out of the
features for which they have adopted the solution. Instead they
often end up with an application which, while offering the few
useful features that the enterprise might actually use, makes it
pay for a solution loaded with other features which could be of no
use to them.
Organizations are hence looking at adopting specific solutions that
are aimed at addressing specific business challenges and would not
require them to go through lengthy implementation cycles. The cloud
seems to fit this requirement perfectly.
Salesforce.com and its success is a classic example of people
wanting an application which can be consumed more easily as
compared to the traditional CRM applications. We have also seen
similar trends in the area of Business Intelligence with companies
such as QlikTech finding major adoption and growth.
For example, a CIO whose organization has been an SAP customer
would have typically gone ahead with the implementation of a BI
application from the same vendor. But instead he chose a product
similar to what QlikTech offers because the organization only needs
to deliver a few functionalities to the users and wants to avoid
the complexities that a traditional solution brings.
How will the user benefit from a cloud from the point of
view of procurement?
If we look the extent to which the value of IT has been
delivered by the historical procurement process, it has been very
poor. Traditional procurement cycles have proven to be costly both
for the vendor and the customer. It is clear that that the
traditional procurement processes have not produced results that
maximize the delivery of value to the business.
Any organization which goes through this painstaking and
detailed procurement process ends up driving down the cost, but is
not able to fully optimize the value that could be drawn out of the
delivered technology. Organizations thus need to think about the
process that they should go through to get the right amount of
technology in the right form and at the right price. Price has
absolutely distorted the procurement process in a way that has
companies focusing on the wrong things when they procure.
How will the cloud change IT buying priorities for an
organization?
There will be conservative businesses who view IT as a cost
center and hence the CIO primarily focuses on cost. However, while
cost is an important factor what organizations need to understand
is that the cost is not just an IT cost, but an enterprise
cost. IT as a percentage of the total enterprise operating
cost is incredibly low. Even in mature sectors such as BFSI, IT
represents just about 7.5 percent of the total operating cost. In
some industries it is down to one percent.
Therefore, even if an organization reduces IT costs by 20
percent, it would not make a big difference compared to delivering
an application that might contribute to two percent of the total
revenue. CIOs therefore need to look at solutions that can be used
to drive better business value rather than be focused on a cost
reduction exercise.
How do you see the cloud ecosystem evolving? Will there be
an ‘App store’ for cloud based
applications?
Yes absolutely. Just as there are marketplaces for commodities
such as palm oil or rubber, there would be marketplaces for cloud
based applications. The very idea of a commodity is something for
which there are multiple substitutes available at a similar price.
If applications or specific technology pieces are truly
commoditized, then markets will develop for them and in some ways,
people would create markets for them.
For example, large cloud service providers will create their own
marketplaces to bring down the cost of delivery. Enterprises on the
other hand would want to deal with fewer vendors. They would not go
around these marketplaces to source the various components because
while they would theoretically get the benefits of the cloud, they
would now have a challenge of managing multiple vendor
relationships. Marketplaces therefore will be lower down the value
chain as opposed to direct interaction with the vendors.