Forecast for the cloud: Changeable

The cloud is changing the way businesses operate, spend their money and make decisions, leading many managers to reconsider their current and future operations. Microsoft, IBM, Amazon and others are competing to control the cloud service sector. At the same time, Netflix, Hulu and HBO are providing streaming services that are complicating traditional content delivery. So what is the future of cloud technology over the next year and how will this impact on-demand content delivery services? We spoke with two information systems professors to find out what they forecast for the future of the cloud and on-demand content.

On-demand workflows

“In the new world,” says information systems Professor Raghu Santanam, “you’re sourcing from multiple companies.” The cloud is allowing businesses to outsource their IT infrastructure, saving the money and time it would take to implement a new infrastructure themselves, Santanam says. This allows organizations to economically increase computing power, security and storage. Santanam says outsourcing infrastructure and computers is a well-documented revolution in IT, but what he sees changing over the next year and completely altering the business landscape is how cloud applications work together to improve workflow. “There are some interesting companies that are trying to build connections between apps,” says Santanam.

The services offered by cloud providers allow companies to build workflows on the fly. The benefits of creating an on-demand workflow is enormous, because this will allow companies to experiment with cloud applications like Dropbox, Basecamp and Gmail that can work in concert to enhance business processes. Santanam points to Zapier and Asana as examples of services that enable on-demand workflows, and that are leading to an evolution in the way businesses define and measure services for their clients. Santanam points out that if a company is putting together an assembly of multiple cloud providers, then they have to consider how this affects the service level from each of the cloud providers.

Then they have to determine what each application accomplishes in terms of reliability, security and performance for most effective business processes. This is where the role of the IT department begins to change. “The IT team has to tell you about the pricing mechanism, the application performance, and the availability and security implications,” says Santanam.” “The IT department has to be much more business orientated in trying to understand how these applications work and not just from the technology side, because the technology piece might be much simpler.” IT professionals, according to Santanam, will have to experiment and learn how each of these different cloud applications work together to create an efficient workflow that serves individual business processes and clients.

They will also have to learn to think more analytically in determining how data can impact the bottom line. For example, IT analysts will need to make cloud capacity decisions based on transaction flow and demand. This shift to dynamic procurement decisions will require IT professionals to be more business savvy, Santanam says, and the IT budget will move from a capital expenditure to an operational cost. The money spent on IT will depend upon the usage of the cloud infrastructure. The cloud is not only changing the in-house technology infrastructure, it’s changing the roles of the people who used to run them.

The cloud as a complement to streaming services

While Santanam points out the importance of how multiple cloud applications can work together in innovative ways, he also notes that Microsoft, IBM and Amazon’s cloud services are the foundation that allow for on-demand workflows. So for insight into the future of IBM, Microsoft and Amazon cloud services, we talked to Pei-yu Chen, associate professor of information systems, who co-authored a paper with colleague Associate Professor Shinyi Wu about on-demand computing.

By freeing companies from maintaining their own IT systems and infrastructure, companies can focus more on differentiating their services. In Chen and Wu’s paper, cloud services enable small or new businesses to enter a market quickly and compete directly with big incumbent firms. And this significant reduction of entry barriers will erode competitive margins companies used to have, especially for incumbent firms. However, Chen and Wu showed that companies may be able to demand even higher premiums than before if they are able to differentiate their services while adopting the cloud.

Overall, more and more companies adopting the cloud is an inevitable trend, they say. Chen points out that the cloud brings exponential value to individual companies, and it is turning storage and computing power into a quasi-commodity. Companies can receive different value from the cloud by interpreting the insights from data and learning to differentiate their services and products from other companies. Small businesses are using these commodities to create a competitive edge. “So basically companies might still be doing the applications or end data processing and analysis in house,” says Chen, “but they run everything off the cloud, because otherwise they would have to maintain a really powerful server in order to analyze all the big data.”

Microsoft, IBM, and Amazon, according to Chen, are competing to take ownership of the cloud services sector. Amazon and Microsoft are competing for the public cloud. Microsoft’s entry is a big threat to Amazon because of its very competitive pricing and its wide variety of applications, particularly widely adopted productivity software. IBM, on the other hand, seems to focus more on selling the private cloud, although it is building up its public cloud infrastructure as well. However, Chen notes that, even though Microsoft’s cloud services are a big threat to Amazon web services. Amazon is well positioned to utilize the cloud services for on-demand streaming services, related to digital content.

According to Chen, the widely adopted mobile devices and dramatic increase in mobile users would go hand-in-hand with higher demand for streaming content, putting traditional content delivery, such as the cable companies, at a severe disadvantage. The trend is clearly toward more streaming content, which will impact Amazon’s cloud services. Amazon is building an infrastructure that will support a larger content delivery system while competing in the public cloud sector.

“Once you have the (cloud) infrastructure, then digital content delivery or on-demand content delivery becomes very easy,” says Chen, “because they essentially (require) pretty much similar infrastructure and the marginal cost is essentially zero, so there are huge economies of scale.” Chen believes that Microsoft’s and IBM’s entrance will lead to severe competition in the cloud service space because higher volume of services served would mean lower average operation costs for them.

Since storage and computing power are commodities, differentiation will be at the level of application, data processing and analysis, service level agreements and security and will play a key role in determining the market share of the three companies. The big three in the cloud space seem all well-positioned to stay competitive in the market.