ACG Research

ACG Research
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Wednesday, February 29, 2012

SMBs Leading the Way to Cloud Adoption

I had the pleasure to speak at the Ethernet Alliance (EA) members meeting held on February 17th, 2012, in Santa Clara, CA. My keynote topic was how the cloud computing market is affecting enterprise customers. Side note: What I really enjoy about the Ethernet Alliance is its approach to the user community. EA members continue to seek direct input from the users of the technology the EA is developing. It is a refreshing change from the typical vendor-driven standard body that infrequently takes direct contributions from the user community. John D’Ambrosia, the outgoing chair of EA, has done a great job reinvigorating the Ethernet Alliance community.

Back to my topic, I find the cloud services pattern of adoption interesting. Since the downturn of 2008, the small and medium business market (SMB) has bravely gone on and adopted cloud-based services. Several companies ($100+M in revenue) in Silicon Valley are now 100 percent in the cloud. They have completely out-tasked their traditional IT departments. This movement was born out of necessity. With minimal funds available for capital purchases, the SMB market moved to cloud to address and change their operational and capital expense models. This movement has become so common in the last year that some large IT equipment distributors have created cloud-based solutions for their value added resellers (VARs) and systems integrators (SIs) to sell. Instead of fighting the movement to the cloud, the distributors have embraced the cloud in some fashion so they can gain revenue either by direct capital purchases or through operational expense-based cloud computing models.

How are VARs and SIs moving to cloud? At MSPWorld in Austin, TX, VARs and SIs that participated on my panel “Practical Steps to Jump Starting Cloud Based Services” agreed that integrators need to stick to what they know and incrementally move to a services-based cloud channel model. This will require a changing from a reseller of hardware to a consulting relationship with their clients as well as establishing a different approach to the SMB market. With the combination of ease of use and the movement to expense-based pricing models of the cloud, the integrators are in a good position to help this market rapidly adopt cloud services.

Large enterprises are reluctant to move to the cloud due to several factors. The first factor is a fundamental concern about the privacy of their data. Large enterprises have the most to lose because of restrictions and regulations with compliance and governance. Enterprises have dabbled with certain cloud applications such as or have implemented virtualization in their data centers. Though server virtualization is a good first step on the path to cloud computing, it is not the ultimate step. It does buy CIOs some time within their organizations because they can claim they are using cloud services when talking to their peers.

What will be interesting to watch is the development of true cloud services from the major global service providers. This group has the experiences dealing with complex, SLA based engagements with the Fortune 1000 organizations. In addition, they have invested in driving long-term, trusted relationships with CIOs in this market. As the service providers gain more practical experience with delivering reliable and secure cloud services, I believe you will see the other shoe drop into this market with large enterprises investing more heavily into cloud services.

Marshall Bartoszek

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