The Cloud

Three Gifts of the IT Magi

The cloud doesn't just transform IT, it transforms business. But only if you're willing to accept these three gifts for the coming year.
Timothy ChouDecember 20, 2011

’Tis the season of giving and receiving, so I started thinking about what I’d wish for if I were a CFO. While a good solid quarter with no revenue-recognition issues would be high on my list, if I put on my IT hat, there would be three presents I’d like to find under my tree.

Application cloud services. Last month I asked the CIOs of four companies both large (a $14 billion semiconductor outfit and a $20 billion consumer-products company) and small (a $150 million semiconductor business and a $200 million computer-hardware firm) how many cloud services they were using. Collectively, it turned out they were using more than 75 unique business-application cloud services.

Given this evidence of the widespread and ever-increasing adoption of cloud services, I’d have my team make a list of every business application we were running today, check it twice, and then ask each application vendor if it would be nice enough to manage the application for me. If the vendor said yes, I’d ask how many times it upgraded its application in 2011. (The ability to roll out upgrades quickly and smoothly is a major benefit of true cloud computing as opposed to faux.) If the answer was more than 25 times, I’d start negotiations. If the answer was once, then I’d know my provider was naughty, not really getting the cloud, and I’d start looking for another.

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A few months ago, I had breakfast with one of my Stanford students. I began (as I usually do) by explaining that we all use consumer-application cloud services, but it wasn’t always that way. We used to have to install and manage these applications ourselves. And she said, “Oh yeah, I’ve heard of that. Wasn’t that called a floppy disk?”

Me, I don’t want to keep living in a floppy-disk world. I’m more than ready to make the same move for business applications that I’ve already made for consumer applications, aren’t you?

An information-powered business. If I’m the CFO of an information-powered company, my power plant is composed of my servers, storage, data centers, and networks. To get an idea of just how information-powered I am, I’d calculate the number of servers I have per employee. It’s a simple metric: I’d just add up my total number of servers and divide by my total number of employees. (Actually, the U.S. government tracks this number for developing economies because if the server-employee ratio is zero, that country’s chance of developing economically is similarly zero. The number of servers per employee in Brazil is .04; in India it’s .02. At the other end of the spectrum, the well-known consumer Internet companies are closer to 35.) So. . .how information-powered am I?

If I were CFO, I’d start thinking of my information power plant — my servers, storage, data centers, and networks — holistically. I’d think about managing, planning, and optimizing them together, not as separate pieces. I might not need as many servers as I have, and I could save the business money by reducing the number. Or I may need more, creating new business opportunities. Who can say? Well, if I understood how my power plant drove my business, I could.

Technology I can buy and sell. The traditional business decision in IT has always been whether to build it or buy it. But in the cloud world, the choice can (and probably should) be whether to buy it or sell it. American Airlines’s SABRE system is a good example. American had a specialized reservation application cloud service that they took out of their back office and sold to other airlines, creating a revenue stream where once there was none.

Many of you have specialized applications in a particular function in financial services, health care, or real estate, and, like American Airlines, you should consider becoming an application provider yourself. But this is something to consider not only for your application investments but also for your data centers. If you’re a large company that has invested in multimillion-dollar data centers, think about utilizing those resources to become a specialized compute and storage cloud-service provider. Amazon did. Remember: it once sold books. Period. Leveraging its data centers worked out pretty well for Amazon, didn’t it? So for every service I can’t sell to others in my industry or geography, creating revenue, I resolve that I won’t keep spending money to provision it to my business. I’ll buy it.

And here’s hoping all your business wishes come true.

Timothy Chou teaches cloud computing at Stanford University. He is the former president of Oracle On Demand and the author of Cloud: Seven Clear Business Models.

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