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The Cloud Computing Tsunami Gartner Predictions - Efficiency and Cost Control Will Transform the IT Industry

Originally published August 19, 2009

The cloud computing wave is the most dramatic change I have observed in the computing industry since the wave of the Internet. Cloud computing will significantly change data centers and IT organizations as well as the infrastructure and software vendors’ business models. In fact, the cloud computing wave is not just a wave – it is more like a tsunami. What is causing this cloud tsunami?

I start with listing 4 of the Gartner top 10 IT predictions for the next three to five years for cloud computing, software as service (SaaS), data center power/cooling efficiency and open source software. All of these predictions indicate that data center efficiency and cost containment will transform the IT industry over the next 5 years.

Key Gartner predictions for the data center for the next 5 years:


  • By 2011, early technology adopters will forgo capital expenditures and instead purchase 40 percent of their IT infrastructure as a service.

  • By 2012, at least one-third of business application software spending will be as service subscription instead of as product license.

  • By 2009, more than one-third of IT organizations will have one or more environmental criteria in their top six buying criteria for IT-related goods. Initially, the motivation will come from the wish to contain costs. Enterprise data centers are struggling to keep pace with the increasing power requirements of their infrastructures.

  • By 2012, 80 percent of all commercial software will include elements of open source technology.
These Gartner predictions clearly indicate that data center efficiency and cost are forming massive waves for increasing data center efficiency with virtualization, better server utilization, cost reduction with more efficient power/cooling and the leveraging of open source software.

The main drivers that have caused poor data center efficiency and increasing costs are enormous IT infrastructure growth, low system utilization, software acquisition costs and maintenance costs.

Let's look at this in more detail.

A National Institute of Standards and Technology (NIST) document states that there are 11.8 million servers in data centers, which are used at only at 15% of their capacity.

A white paper published by IBM states that utilization rate of commodity servers hovers around 5% on average, leading to excess capacity going to waste; and the annual operational costs (power, cooling, and management) of distributed systems and networking exceed their acquisition cost by 2-3x and continue to climb. 

By analyzing the above information from NIST and IBM, it is obvious that a key culprit for low data center efficiency is the anemic 5-15% server utilization rate. In other words, nearly 90% of the servers in a typical data center are consuming power and doing nothing. Considering that the operational costs (power, cooling and management) of these servers exceeds the acquisition costs by 2-3x, server utilization and power and cooling have become a massive IT cost burden for enterprises.

The NIST document also states that $800 billion is spent annually on purchasing and maintaining enterprise software, of which 80% is spent on installation and maintenance. This, along with the Gartner prediction that by 2012, 80% of all commercial software will include elements of open source technology, indicates that software acquisition and maintenance cost containment is also significantly driving the IT purchasing decision making.

The massive need for increased data center efficiency, cost containment, adoption of cloud computing and SaaS are changing the landscape for the entire IT industry including the data center, IT organizations and their budgeting, and infrastructure and software vendors, creating an enormous opportunity for both cloud infrastructure and SaaS vendors.

Following are CloudTalk predictions for the impacts of the cloud computing tsunami on the IT industry:

The Cloud Impact on Data Centers:
  • A mix of private and public clouds will become the norm.

  • Many organizations and lines of business will bypass IT to secure cloud-based infrastructure and SaaS applications.

  • Virtualization and cloud-based infrastructure will become the norm.

  • Power and cooling efficiency and green data centers will become critical and the norm.

  • A new breed of cloud computing skills will become common in data center operations.

  • Private cloud technology, such as cloud storage, will find its way to the IT organizations.

  • Service oriented architectures (SOAs) will drive the IT infrastructure and application architecture.
The Cloud Impact on IT Organizations:
  • We will see a transformation from programming to service integration and customization.

  • Security will be a huge issue.

  • With the cloud and SaaS usage-based pricing, IT budgets will transform from CAPEX to more OPEX, opening the door for immediate IT investments.
The Cloud Impact on Cloud Computing Vendors:
  • Significant market growth and momentum will fuel hypergrowth.

  • Cloud infrastructure utilization and efficiency will become critical to success.

  • Power and cooling costs will become enormously important factors to profitability.

  • Cloud infrastructure and SaaS vendors will become the new giants of the industry where the IT operations shop for infrastructure and SaaS applications.

  • Merger and acquisition frenzy will become the norm for hypergrowth.
The Cloud Impact on SaaS Vendors:
  • There will be hypergrowth in the number of SaaS applications and vendors.

  • Venture spending will grow significantly.

  • New requirements and standards for APIs, reporting, security and service-level agreements (SLAs) will emerge.

  • SaaS vendors will become the main source of applications.
The Cloud Impact on Infrastructure Vendors:
  • Server, storage and networking customer influence will decrease.

  • Server, storage and networking vendors will be selling to cloud vendors.

  • Infrastructure vendors will be fighting for mind-share with both cloud and SaaS vendors.

  • Infrastructure vendors will lose contact with many enterprise customers as they flock to cloud infrastructure and SaaS.

  • Merger and acquisition frenzy will become the norm for survival.

  • Infrastructure vendors will experience a dramatic change of business model.
The Cloud Impact on Application Software Vendors:
  • Application software vendors will have to adopt the SaaS model to survive.

  • They will lose business to SaaS companies.

  • Software licensing will dramatically change.

  • Merger and acquisition frenzy will become the norm for survival.

  • Cyrus GolkarCyrus Golkar
    Cyrus Golkar is an information technology executive with a unique combination of entrepreneurial, business and technical expertise, and more than 20 years of experience in enterprise software, database, analytics, web services and cloud computing.

    Previously, Cyrus led Sun Microsystems (now Oracle) $2 billion database, business intelligence and data warehousing business for 9 years, recommended the acquisition of and investment in database companies, and led the development of Sun's data warehouse appliance.
    He is also the co-founder of several companies, including 3Bubbles
    (acquired) with the creators of Jabber, the open standard for web-based instant messaging.

    At Siemens/Pyramid, Cyrus was recognized by the CEO for the creation of "Smart Warehouse" an industry leading data warehousing business that generated $200 million in annual revenue. He also held leadership and technical positions at Open Text and GE.




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Comments

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Posted September 24, 2009 by Fernando Labastida flabastida@bitam.com

Cyrus this article makes perfect sense. The data confirms what we've been witinessing with our own eyes. I especially like the bullet point where you said that many organizations will "bypass IT to secure cloud-based infrastructure and SaaS applications."

As Saas-based applications go downstream to the smaller business market, IT won't even be a factor. This is enabling the democratization of powerful computing resources, enabling organizations with tiny or non-existent IT staffs to gain access to the same kind of power their medium and large counterparts do.

The trick is to make these applicatons intuitive and easy to use.

Thanks for a great article!

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