When IT no longer depreciates

Cloud computing, all about counting those pennies?

Cloud computing, all about counting those pennies?

Companies large and small are decommissioning information technology infrastructure as they move to cloud computing.

That’s not news. Cloud and as-a-service offerings have been widely discussed for years and are increasingly the new normal.

Cloud is often cheaper and more efficient than owning and maintaining infrastructure – especially where technology isn’t strategic.

Yet it isn’t always clear which approach has the lowest total cost of ownership because IT TCOs are notoriously hard to measure. Few company owners can tell you how much a specific self-hosted application costs to run. Cloud costs are much easier to gauge – you get a bill each month.

And few understand completely the financial and strategic implications of not having large IT investments on company balance sheets. Tax laws means companies depreciate installed systems over a several years. Traditional technology is capital expenditure. On the other hand cloud subscriptions are service payments and are written off immediately as operating costs.

A switch to the cloud frees capital for investment elsewhere. It also changes how people, especially at the top of businesses, think about technology. The implications of this aren’t yet fully clear, but most likely companies will become more nimble in their thinking.

There will be less sunk cost thinking – that’s where people argue “we’ve paid for this stuff we need to get a return on what we spent” – and more “what technology makes the best sense now” thinking.

This will give business owners more agility – they can better respond to changing conditions. This works just as well when expanding a business as when cutting costs.

Which could mean great turbulence. That’s not always a bad thing, change means opportunity, but it can also mean greater business uncertainty and more risk taking.

Cloud saves money, boosts profits

cloud computing savingsPropaganda, sorry research, commissioned by cloud company Rackspace and given respectability by Manchester Business School says 88% of companies who moved to the cloud saved money.

That’s impressive number, but considering cloud companies sell their service on the promise of saving money, that means one in eight companies hasn’t saved money.

And 60% of companies said moving to the cloud meant they need fewer IT staff to support infrastructure – that gives them resources for dealing with strategic matters.

Most impressive are the 56% of companies who say cloud computing has helped boost profits.

Although this kind of research is often of dubious value – do you think Rackspace would trumpet its survey if it found cloud customers weren’t saving money – there’s an important big picture. Forget Rackspace’s numbers, forget the spin. Here’s what matters:

  • Cloud computing saves money
  • Cloud improves profits
  • Cloud free resources for more productive tasks

88 per cent of cloud users point to cost savings, according to Rackspace Survey | Rackspace UK Blog.

Tech experts’ predictions from 1999

Here’s something interesting I stumbled over while searching old documents on my PC. A story I wrote in 1999 for the Australian Information Age magazine. I asked analysts what they saw as key issues facing companies in the first years of the new millennium. It makes interesting reading today.

Remember, this was before the dotcom collapse, before iPods and when the commercial Internet was still relatively new.

Asking the experts

With the calendar poised to flip over all four digits at once, you can rest assured that this is a time that historians will look back on with added interest. At the same time, people’s whose job involves looking at the future are taking stock. You can expect to read a lot of long-term predictions in the coming months – here we’ve decided to focus on more immediate matters, like the important information technology trends for the next year.

We could have spilt chicken entrails all over the editorial office. Instead, much to the relief of our publisher, we asked four groups of analysts to peer over the horizon and highlight the ten most important technology trends for the year 2000.

Our panel of seers includes Chris Morris of the Gartner Group and Graham Penn of IDC Research. Both men have drawn on work by others in their respective organizations.  The Meta Group provided a comprehensive list of predicted trends drawing on company-wide research. Internet commerce specialist Marc Phillips of APT Strategies draws on his own research and the work he does with his partners at Jupiter Communications.

Not surprisingly the analysts agree on many of next year’s expected trends. Even though they may label the trends differently. For example, Penn and Morris placed the move to GST high on their respective lists – first and fourth. Storage is on three of the lists and eBusiness, in its many guises, appears many times. The skills shortage and changes to the shape of the IT industry both appear on two lists.

GST

The arrival of GST an important move that is likely to preoccupy most Australian users over the next six months – or possibly longer. In some respects it could be as disruptive as Y2K.

Morris and Penn analysts regard the potential costs of not getting GST right as a major issue. According to Penn, companies that don’t have their GST systems working in time will pay anyway and won’t be able to claim the money back. He said, “When senior executives figure this out, they’ll shift their IT focus to GST.”

Morris describes GST as a multi-layered, complex challenge with serious deadline constraints and substantial cost implications for the IT department and the business as a whole.  He said, “If we take a systems perspective, a list of areas that need updating or change must include all systems and software involved in processing and tracking transactions within the enterprise such as point-of-sale (POS) equipment, warehousing and stock databases, all accounting and finance software, internal and external financial reporting templates, websites and e-commerce solutions, billing software and internal expense spreadsheets.”

eBusiness

Just about all the analysts agree that eBusiness in its various guises will feature strongly in 2000. Outside of Australia it will be the main issue. Here there is a fear that GST implementation will distract organizations at a time when their international competitors are ramping up online commerce projects.

Gartner and IDC rank eBusiness third; it crops up several times in the Meta Group’s list and in almost every item listed by Phillips. Phillips said that eBusiness is maturing to the point where technology itself is no longer the main issue, “functionality and service levels are what will matter in 2000 customers are unlikely to care how these things are delivered.”  He sees a shift away from business to consumer transactions in favour of more action along the supply chain.

Morris emphasises that most eBusiness projects will be of a tactical nature and not the kind of business transforming strategic mandates. He believes that the move to eBusiness will be one of the factors driving the continued increases in IT spending. He said, “although Y2K spending will consume 40% of the US$2.2 trillion IT market in 1999, spending will dramatically shift to enabling e-business capabilities and processes over the next three years. In fact, up to 50 percent of the $3.3 trillion IT market in 2002 will be e-business based.”

Storage

The Meta Group said storage-related costs would make up 60%-75% of server purchases by 2000. However, as storage hardware prices continue to decline at 30% plus per year the emphasis will shift to storage software and SANs. In the following year, storage traffic will be offloaded from application networks to SANs. Gartner’s cost numbers are similar (65% of server costs), but Morris said the Total Cost of Ownership (TCO) would become an issue.

ISC Research’s Penn said that the total amount of corporate storage is growing at 60% to 80% each year, which effectively means a company’s total storage doubles every 18 months. He said, “but companies are not increasing the resources for managing storage. They don’t hire extra staff to manage their data. Soon they will need to re-architect their systems to handle this increase.”

The Industry

IDC sees the changes to the IT industry from a channel point of view. Penn said that vendors are trying to take more costs out of their chain as prices keep falling. “Even if you maintain margins, lower prices mean that profits are falling. At the end of the day, channel partners are only interested in selling products in there is enough profit. On the other hand, vendors need the channel because it is a cost-effective way of putting feet on the ground”. Penn sees further industry consolidation.

Gartner predicts the same consolidation; “around half of today’s vendors will not be in business by 2003.” Buyers will run for the safety inherent in the larger vendors, while the small ones will move into niches or perish.

Skills Shortage

The Meta Group believes the world’s major IT groups will continue to struggle to find or afford staff during the next year predicting a move to reallocate resources to more value-added roles (e.g., business liaison, component integrator, marketer, customer officer, enterprise project manager and new-age technologist).  Morris said, “The skills problem is either the most important of the top issues for next year or the least important, depending on your point of view”.

Gartner estimates the global demand for IT skills will outstrip supply by 20% and that many organizations will turn to outsourcing in an attempt to cope. In fact, its research predicts that the shortage is a long-term issue that will last until 2005. This will result in changes to the way IT professionals work and the way managers operate.

Gartner Group

1. IT spending explosion continues.
No spending slowdown in sight, despite end of Y2K spending. The move to eBusiness and the goal of using IT to deliver competitive advantage will keep budgets growing.

2. Application Integration
As applications become based more on Internet derived technologies and standards the emphasis for application development discipline will be on integrating products.

3. eBusiness.
With Internet technologies moving to centre stage, eBusiness will affect all aspects of every business. For now they stay tactical, but strategic applications will follow.

4. GST
Non-compliance will cost Australian enterprises a hefty A$500 million. Overpayments, misunderstanding, inadequate staff training and poorly documented procedures will all contribute.

5. Vendor consolidation
Half of today’s technology vendors will not be in business by 2003. Buyers will flock to the safe choices offered by the bigger vendors. Small vendors will take niches or die.

6. Storage
Storage costs will grow to dominate spending on servers. Total cost of ownership will become an issue.

7. Internet Security
Commercial web sites will not be adequately secure. At least one major Web-site compromise will occur that will depress an enterprise’s stock price by at least 50 percent by 2001

8. High availability
The shift from IT infrastructure to eBusiness “extrastructure” (or externally focused IT infrastructure investments) will mandate extensive high availability (e.g., people, process, technology).

9. Moore’s Law holds.
Performance will continue to double every 18 months. However 70% of the Windows NT installed base will skip the upgrade to Windows 2000.

10. Skilled Staff Shortage.
Outsourcing will increase as users struggle to overcome skills shortages and demand increased workforce flexibility.

Meta Group

1.            CRM evolution.
The hitherto piecemeal approach to CRM will start developing into fully integrated architectures leading to unified customer interaction frameworks.

2.           Infrastructure takes centre stage

IT department’s value will revolve around infrastructure rather than applications.

3.            Infrastructure Development
Will link business strategy to infrastructure investments.

4.            Multimedia Call Centres
Move towards customer interaction centres where voice, online support and agent technology support complex interactions.

5.            Staff Shortage
There will be difficulties finding resources for value added roles.

6.            Web-based collaboration.
Publishing and subscribing across multiple corporate data stores based on Internet technologies will replace mail as the main collaboration tool for workgroups.

7.            Software Pricing
ISV unit pricing to rise 10% offsetting any budget savings. IBM will displace utility software with products, services and usage-based or cost-per-user pricing models.

8.           Storage
Storage Costs will constitute 60% -70% of server purchases. Emphasis will change to software and SANs (Storage Area Networks).

9.            Enterprise Architecture
Unified management and governed evolution of the enterprise architecture will become dominant best practice.

IDC

1.            GST
Preparing for the next tax regime will occupy most of a user’s time between now and June.

2.            Large Scale Storage
Corporate data continues to grow at 60%-80% per year.

3.            eBusiness
With Y2K behind them, companies will now pour resources in to enabling their systems for online commerce.

4.            PC Standardization
Large-scale rationalisation of brands and PCs within organizations will reduce support overheads.

5.            Windows 2000
Clients will move slowly to new OS when convinced of benefits, while servers will move quicker to reap consolidation benefits

6.            Outsourcing
The trend will continue with the big question being “which functions are best outsourced”?

7.            Server Consolidation
Organizations will seek to rationalise servers in a return to big iron.

8.            CRM-ERP
Corporate software morphs towards eBusiness.

9.            Data and Voice Integration
The two communication technologies move into to the final stages of convergence.

10.         Channels
Changes coming as price falls mean vendors race to squeeze costs

APT Strategies Pty Ltd

1.            Free ISPs
International roll out of free Internet services following the success of the UK’s Freeserve operation.

2.            Linux and open source software

Developers and other industry players are lining up behind Red Hat for another tilt at Microsoft.

3.            Consumer Transactions Online
Focus moving from technology towards functionality and service levels as online transactions move into the mainstream.

4.            Voice over IP
Internet telephony set to make a return play in 2000. This time the focus will be on corporate markets.

5.            “Online Anywhere”
Wireless technologies and alliances currently being pieced together will deliver usable, affordable mobile email and browsing.

6.            Instant Messaging
New complementary communication technology will gather momentum.

7.            Virtual Communities
Any place where people gather online will become a hot acquisition property

8.            Content Aggregation
Current trend towards aggregation of online content at massive sites run by traditional media companies such as News Ltd will accelerate.

9.            Business-to-business focus
The main focus for e-commerce will move away from credit card transactions towards supply chain management and back-office functions.

10.           MP3 and online audio
Online delivery of audio will make huge inroads into traditional audio industries.

VMWare: New Zealand the world’s most virtual nation?

1999_18_160 pp

Alfred Burton, Mount Tarawera in Eruption – copyright free image from Auckland Art Gallery

VMWare took off with a hiss and a roar as companies squeezed servers into fewer and fewer boxes.

Server consolidation has been going on in earnest for more than a decade. I’ve seen numbers from analysts suggesting almost two-thirds of enterprise computing takes place in virtual machines.

The numbers could be higher in New Zealand.

Tim Dacombe-Bird, who runs VMWare’s NZ operation says Australia and New Zealand are ahead of the rest of the world when it comes to server virtualisation. He went on to say New Zealand is running well ahead of Australia. Which means New Zealand could be a world leader when it comes to virtualisation.

This makes sense to me. I still remember in the late 1980s talking to Tom West from Data General who told me New Zealanders squeeze hardware further than users in other countries.

Then as now it was all about economics. New Zealand is a relatively small economy, our organisations are smaller, our data needs are smaller so IT costs spread over a narrower base. This is less about doing things on the cheap and more about maximising efficiency.