As the editorial team here were asked to pen their cloud nightmares for Friday the 13th, I thought I’d leave the others to do so from the client perspective and share my thoughts on the turmoil being experienced by some of the major technology vendors.
The tech sector used to be simple. Solutions were a combination of hardware, software and services and vendors competed with each other is some segments while cooperating and partnering in others. This relatively comfortable equilibrium has been thrown into chaos by the move to the cloud.
While we are massive cloud advocates here at Compare the Cloud, we are also realists – cloud is still a small market within the overall IT sector and, while growing rapidly, the whole transition to the cloud will take some time. So lets look at what’s happening to the (still very large) traditional technology markets – and you’re going to have to excuse a few sweeping generalisations in an article of this length:
Hardware: while still a massive market, most hardware segments are experiencing either revenue or margin decline or both. If you’re in one of the segments that are experiencing both at the same time (as some Unix vendors are), this is a real nightmare.
Software: traditionally the technology segment with the highest margins. Essentially once the massive upfront cost of development is covered, all incremental licence sales are almost entirely profit and many firms have lucrative software support and maintenance businesses as well. The problem is the changing delivery model. If the architecture of your software is such that moving it to the cloud and making it a Software-as-a-Service (SaaS) offering is straight forward or if you’re ahead of your competitors in doing so, then you’re sitting relatively pretty. If however you don’t have the resources or skills to move to SaaS or your application architecture prohibits it then again you’re facing a real nightmare.
Services: for years vendors have been looking for the holy grail of replicable services that would break the linear relationship between headcount and revenue in services. Be careful what you wish for. The cloud has provided a wonderland of replicable services, but at the same time is destroying margins. Clients will eventually learn, probably through bitter experience, that cheap is not always cheerful. Quality service and support comes at a cost, but it is an incredibly hard thing to measure. For vendors, differentiation is becoming harder to achieve, while for clients telling the difference between vendors that are all promise and those that have the quality to delivery on their promises is key. Marketing is therefore becoming even more important than before – if you’re not marketing-led and you haven’t grasped new disciplines such as influencer marketing, content marketing and social selling then you’ll soon be facing the biggest nightmare of all.
So what about Cloud? It’s where the growth is (if not the margins yet). Almost all net new IT investment is in areas such as analytics, mobile and social and almost all of this is cloud based. The vendor landscape will change: while all vendors want to establish a presence in the cloud some are struggling to do so; others are growing their cloud revenues at an impressive rate; many are looking to partner with the host of smaller cloud players out there; and then there are the mega-scale cloud vendors that appear to have taken the lead. Cloud will become a bigger and bigger part of the overall IT market, but as it does competition will increase (and consolidation will occur). As we are seeing with today’s services vendors, marketing will become key. Finding a niche where you can add more value than others and then being able to market yourself so that the right people understand the value that you have to provide, will make the difference between living the dream and experiencing a whole new nightmare.