The Cloud


As prices fall, driven down by the global cloud giants, the cloud market is on the brink of major disruption. What can CFOs do to mitigate the risk...
Rob LivingstoneMarch 12, 2013

In a recent report, Global Trends 2030: Alternative Worlds, the U.S. National Intelligence Council writes that cloud computing will “provide global access and pervasive services” that will challenge organizations, governments, and society as a whole to “capture the benefits of new IT technologies while dealing with the new threats.” 

In other words, technology-fueled disruption is (at least for the time being) the new normal.

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While cloud computing has long been regarded as a Clayton Christensenstyle disruptor of the traditional IT service delivery model, the cloud-services market itself is due for a big disruption. How this plays out will affect organizations differently, so it’s important that CFOs who are either leveraging cloud services for their businesses or are involved in the provisioning of cloud services themselves (which today includes just about every CFO of businesses both large and small) stay up-to-date on the cloud market’s evolution. Finance executives, who increasingly are being charged with making strategic decisions about cloud investments rather than simply approving or red-penciling them, need to have the knowledge to respond to the inevitable market changes this evolution will bring.

Consider this scenario: Having successfully implemented cloud computing in one form or another in your organization, your life has become a bit easier. Your IT costs are lower. Some complexity has been removed from IT operations and support. Most important, IT is beginning to deliver real value to your organization. So what’s all the fuss about cloud? From your perspective, the cloud evangelists and vendors were spot-on in their predictions that the cloud would deliver these benefits, and it has.

Given this initial successes, you’re thinking about moving more of your software systems and infrastructure into the cloud. And why shouldn’t you?  

But your cloud provider has just announced that it’s been acquired by a competitor, and there are already indications that some of its services will be changing. Prices may rise, contract terms may be renegotiated, your organization’s data may be relocated, the individuals you’ve been doing business with will be replaced by people you don’t know.

Suddenly, you’re not so sanguine about your cloud. You’re properly concerned that your organization might become collateral damage in the war for dominance within the cloud-service market. Not all providers will survive the race to the bottom on cost, which is being driven in large part by the global cloud giants  Amazon, Google, and Microsoft  seeking to grow market share. It’s a bit like living on an active fault line: you know there’s going to be an earthquake; you just don’t know when it’s going to happen or how bad it will be.   

The continued reduction of cloud compute costs that underpins the public cloud will certainly be great news for your organization. Lower costs are good for every buyer . . . at least while the music keeps playing. But there’s risk here, too, and how this downward cost spiral will affect you hinges on a number of factors.

The most obvious risk is that your vendor will be forced out of business. That can happen relatively suddenly, leaving you scrambling to replace services upon which you’ve grown to depend. And when you’re scrambling, you have little or no negotiating leverage, especially if you’re a smaller business. 

A less obvious challenge is that when the market consolidates, when vendors acquire each other, there can be a progressive homogenization (or what the acquiring entity may term “rationalization”) of products and services. The situation you don’t want to find yourself in is one in which your vendor gives notice that it will be changing or withdrawing certain products or services that will force you to reconsider your risk profile, strategy, or even change your business processes. This is especially relevant if your operational strategy hinges upon having a predictable cost-and-service long-term relationship with your cloud vendor.

So what can you do to mitigate these risks? This may be a good time to reread the contract you signed with your vendor, paying special attention to the termination and service-guarantee conditions. And start thinking about what it will cost to switch to another provider. What risks will come with migration? How will the switch be managed? Who in your organization will manage it? Who will they be working with?

The impact of these kinds of changes generally will be most acutely felt at the software layer, as it’s this layer that contains your business logic and the transactional data that has shaped your business processes. If you have to purchase bolt-ons and develop custom workarounds to meet your changed environment, the complexity the cloud abstracted away will quickly return, and that appealing, flexible, low-cost cloud will become anything but.

But don’t despair. The reshaping of the vendor’s offerings could be beneficial to you. The acquisitions it makes, the new capabilities that come along with them, the product and service changes it implements, may better support your business requirements.

This, however, is guesswork. In fact, you have no control over what’s going to happen in the vendor world. But if your organization is absolutely dependent on a public cloud offering, you ignore the volatility of the vendor marketplace at your peril. As a financial officer responsible for managing enterprise risk, you want to make sure you account for market volatility in your strategic forecasting. The alternative is becoming evolutionary road kill.

Rob Livingstone, a former CIO, is the author of Navigating Through the Cloud. He runs an IT advisory practice and is also a Fellow at the University of Technology Sydney (UTS), Australia, where he teaches strategy and innovation in UTS’s flagship MBITM program. Visit Rob at or e-mail him at [email protected].

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