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Why major misconceptions surround the enterprise public cloud

Rob Enderle | Jan. 27, 2014
Enterprise IT spending stalled in 2013 (though it will likely pick back up in 2014). Many say it's because enterprises have less to spend, but CIO.com columnist Rob Enderle thinks it's because they've been spending a bit foolishly -- by reimbursing users for personal cloud services instead of examining cheaper ways to provide the same services themselves.

Cloud Costs

Recently I saw yet another slide presentation showcasing the decline of enterprise IT spending and the comparable increase in public cloud business. The conclusion? Enterprises just don't have money to spend and it's killing enterprise vendors.

This is fundamentally not true. What's really happening is that users are increasingly using public cloud services, and the expenses they incur are being reimbursed, so the money's theirs. I've also seen several studies showing that moving to the cloud is expensive — twice what it would cost to build services internally, according to an internal analysis I recently reviewed, and five times as much if one uses the Oracle alternative.

Generally, that 2x number hits the company's bottom line, not the IT budget, but it does pull from money that IT would otherwise get and control. The 5x number, meanwhile, is waiting to be discovered and discussed among the CFO, CEO and CIO in a "come to Jesus meeting" that won't be pleasant.

It's time to chat about the misconceptions surrounding the enterprise public cloud.

IT Needs to Know How It's Competing With Cloud Services
Let's simplify the argument. Say you're a medieval English blacksmith and have been selling swords to the Count, who controls the town where you live and work. The aging Count increasingly turns business decisions over to his children, who went to school in France and like French swords because the ladies think they are sexy.

So the kids push more and more business to your French competitor. When you call on the Count, he says he'd like to buy more swords from you, but he just doesnt have the money. You conclude that the poor guy is going broke when, instead, someone new has gone around you and your contact to get the business. If you knew, you'd build French sword knock-offs, offer them at a fraction of the price (because you are local), and hire some ladies to drool over them in front of the Count's kids to get the business back.

To not lose, though, you need to know four things:

  • Competition exists.
  • The decision maker had changed.
  • You need a new product.
  • You need to offer it in a way that looks superior to the new buyers.

This isn't a multiple-choice problem. It's all or nothing —or you can kiss your business goodbye.

Today's problem, then, isn't that enterprises don't have money. The problem is that it's being spent around IT — and OEMs sell to IT.

Public Cloud Costs More — But Users Prefer It
This comes at a significant additional cost to the enterprise. Users don't buy at enterprise volumes; often, IT can actually provide equivalent services for less. Why? Enterprises operate at huge scale. They buy their hardware for much the same cost as Amazon does, and they don't have to maintain the sales and marketing overhead. IT also doesn't charge sales tax for what it provides to its customers.

 

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