Trends aren't often fully understood until they are over. One of the first big trends in the IT industry, called management information systems (MIS) back then, marked a move from a services-based market to a hardware-based market. This happened when IBM shifted from leasing hardware and providing software largely for free to selling both, thereby assuring its dominance was over and effectively launching companies such as Microsoft, Dell and Sun Microsystems.
While we wrapped this up with terms like "personal computing" or "client/server," the reality was that we changed economic models, moving from one based on how utility companies work to one based on sales.
We are doing the same thing now with "the cloud" because the change we are actually making is more about the economic model than it is about hardware, software and services. In a very real way, we are moving back to computing as a utility, and companies such as Google, Amazon and Microsoft appear to be understanding this move best.
If You Make Screwdrivers, Everything Looks Like a Screw
At the core of this misunderstanding is the common mistake made by companies that specialise in hardware or software: the need to maintain related sales and margins. They want to talk about their "public" and "private" cloud activities and position them solely in terms of what they sell.
However, this effort forces vendors to look at the world differently than what it actually is. While they could provide competitive services, they are more concerned with making sure they don't compete with customers, not recognising that the growing powerful service providers are moving to create their own hardware (Google), commoditising what they buy (Amazon) or implementing a blend (Microsoft). In short, behind the cloud smokescreen, the existing hardware/software/services market is becoming obsolete and margins are shifting to the cloud service providers.
In many ways, the systems of the future will be implemented by others and are likely to have more in common with mainframes than the server products that exist in the interim. This is why Microsoft is quietly doing a massive amount of work on massive multi-processing systems based on ARM, why AMD has announced an ARM processor strategy and why BMC is focusing increasingly on workshops that blend services and on-premises solutions.
All are shifting to address a different load model, one that will increasingly be based on tablet- and smartphone-optimised apps running on remote servers as utilities. The hardware requirement will be huge systems with secure shared service capabilities that can be charged out and provisioned with high granularity in real time. In other words, systems that are different than those in market today.
Services as Subscriptions Driving Cloud Adoption
This is also an annuity market of sorts similar to the one that made IBM dominant last century. The true cost advantages come at scale, while services are increasingly provided under a subscription, not as part of a software/hardware sale. The companies that eventually dominate this market will be those that can provide the best services at the lowest cost and most effectively market this benefit.
In short, it will be the firms that most successfully recreate the IBM model, only with cloud services rather than on-premises leased hardware. For the successful company, minimising customer churn and optimising customer advocacy will be a path to success, far more reliably steady revenue growth and increasingly constant profit margins.
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