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Clouds Vs. Outsourcing: The Next Battleground

Clamor for private cloud services from infrastructure-as-a-service providers threatens traditional outsourcing firms like HP and IBM.

Charles Babcock

October 19, 2011

4 Min Read

IBM, HP, and other established vendors entering cloud computing are often already outsourcing partners to the firms that are now frequently looking for an infrastructure service provider. But that doesn't mean they have an inside track on the business. They do not.

Established vendors are going to face stiff competition for outsourcing business from the new infrastructure providers: Amazon, Rackspace, and others, according to a report by PricewaterhouseCoopers.

"Service providers in the IT outsourcing space have, after all, profited handsomely by taking on their customers' highly complex, one-off collections of IT assets and finding ways to manage them more efficiently than their customers are able to," states the Pricewaterhouse report.

"But the essence of cloud computing is a move towards highly standardized racks of commodity servers," with software that manages the racks and allows customers to run applications on them through self-service. "Where's the IT outsourcing opportunity in that?" said the report, sponsored by Mike Pearl, partner and cloud computing leader at PriceWaterhouse.

[Oracle wants to challenge Amazon, Rackspace in the public cloud game. Learn How Oracle's Public Cloud Is Different.]

"What we see with the large technology providers with a legacy business model is that they have the expense of legacy architecture elements built into that model," said Pearl in an interview. Traditional outsourcing suppliers, such as IBM and HP, are often able to operate Sun Sparc, IBM Power, IBM AIX, and mainframe systems and HP-UX systems as well as x86 commodity systems.

Infrastructure as a service (IaaS) providers don't invest in the skills to do that. They concentrate on x86 systems only and build them to operate in a highly automated fashion. As a result, they can charge for use by the hour and offer highly competitive rates to traditional outsourcing.

Although Amazon Web Services is the market leader in IaaS, cloud options for enterprises are about to rapidly expand, Pearl predicted.

In short, IT outsourcing is being disrupted by IaaS from cloud providers. Analysis of Pricewaterhouse's recent Future of IT Outsourcing and Cloud Computing survey of 489 firms indicates that a majority will soon favor the pureplay infrastructure service providers.

The survey indicated 77% of firms have started planning or have plans for some form of cloud computing and 64% said the cloud will be the best way to manage IT infrastructure three years from now. Asked who would be the best provider of that infrastructure three years from now, 55% said service providers who specialize in private cloud offerings; 39% said traditional outsourcing companies.

Even the 152 companies that are currently engaged with outsourcing partners said something similar. When they were asked who would make the best future infrastructure partner, 52% said "new cloud-focused providers would be best," the report said.

The survey respondents indicated they thought the cloud-only service providers would be able to provide the managed infrastructure of an outsourcer, while leaving responsibility for running workloads in the hands of the business customer, with an expected savings as a result, the report said.

Pearl said firms turning to IaaS will need to learn the services providers' methods of operation and take responsibility for the ongoing operation of their workloads. IaaS suppliers' ability to give end users the ability to self-provision a server and launch a workload has come about quickly. In a similar vein, the "tools and automation of procedures for ongoing operations is evolving at an equally rapid pace," Pearl said. In the future, if you tell IaaS to run a certain set of application services at 2 p.m. Thursday, you'll turn your back on them and know they'll be running at the appropriate time, unless you receive a notice that they have stalled.

Private cloud services may be delivered from both on-premises or in the public cloud. When delivered from the public cloud, private cloud services often include: hardware isolation from other customers instead of using shared, multitenant servers; encrypted communications over a VLAN or secure line; and secure data handling procedures.

Amazon, Rackspace, GoGrid, Verizon/Terremark, AT&T, Savvis/CenturyLink, and other IaaS providers offer such "private" cloud services. Fujitsu and Dell recently joined the ranks of IaaS providers as well.

Rackspace and Amazon have been audited and certified capable of delivering Payment Card Industry compliant services for executing credit card transactions, a type of internal enterprise or "private cloud" operation.

About the Author(s)

Charles Babcock

Editor at Large, Cloud

Charles Babcock is an editor-at-large for InformationWeek and author of Management Strategies for the Cloud Revolution, a McGraw-Hill book. He is the former editor-in-chief of Digital News, former software editor of Computerworld and former technology editor of Interactive Week. He is a graduate of Syracuse University where he obtained a bachelor's degree in journalism. He joined the publication in 2003.

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