Cloud Computing Could Boost IT Demand

The cloud of ash from Iceland that disrupted travel recently is a sign of substantial, yet largely hidden activity in the Earth's infrastructure. Similarly, the emergence of cloud computing is concealing tectonic shifts in the IT infrastructure business, rearranging relationships between enterprises, service providers, and tech vendors.As these shifts occur, which parts of the industry will be uplifted and which will be submerged?

For enterprises, clouds present a new option for meeting their IT needs, in addition to existing options such as do-it-yourself and outsourcing. Regardless of how much IT moves to the cloud how quickly, enterprises are already experiencing advantages such as enhanced agility, accelerated time to market, and reduced total cost.

For service providers, who may have originally been focused on search, software, books or telecommunications, cloud services represent either a way of preserving existing revenues via new models, or a means of growing new revenues via adjacent market expansion.

But, if enterprises can reduce total costs partly via the sharing and statistical multiplexing inherent in public service provider clouds and private clouds, won't enabling-technology vendors have to resign themselves to decreased revenues? After all, won't enterprises be able to make do with one server where they would have needed two or ten before?

That conclusion ignores the price elasticity of demand -- the tendency to consume more when prices drop. IT and communications often act as a means of displacing other costs in the enterprise, or of growing revenues. For example, in the case of the travel disruptions caused by EyjafjallajÖkull, audio and video conferencing spiked. Use of airline travel services shifted to a substitute: networked IT services. Business process automation, mobilization, business analytics, and the like will become more and more used as total costs drop for computation partly thanks to the cloud, including the CapEx and labor costs to provision infrastructure to run these applications.

A good analogy might be another cloud service: cellular telephony. The Motorola Dynatac 8000x was prototyped in 1973 and initially available in 1982 at a price of $3,995. In 1993, the Simon Personal Communicator was $900. Now, phones are sometimes free (disclosure: I work for AT&T and a service contract is required). The price of a typical call, meanwhile, went from dollars to cents.

With those price declines, how did the various ecosystem participants make out? As prices for both hardware and services dropped over that period, the number of mobile phones in use went from zero to nearly 5 billion. As for other components of the ecosystem in that period, service provider annual revenues reportedly jumped from zero to $865 billion, handset sales from zero to $160 billion, and infrastructure sales from zero to $45 billion.

If the cellular telephony industry is any guide, the rise of the cloud will represent a tectonic uplift for users, enterprises, service providers, and enabling-technology providers.

Joe Weinman is VP of Strategy and Business Development with AT&T Business Solutions.

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