Book Reviews | Gordon Campbell | News Flashes | Scoop Features | Scoop Video | Strange & Bizarre | Search

 


Can cloud computing revive IT dinosaurs?

What do IBM, Dell, HP, Oracle and SAP have in common?

All are mature technology companies - the youngest is Dell formed in 1984 - and they all banking on cloud computing getting them out of the doldrums.

There are a few things wrong with that idea.

First, it was cloud computing that got them into trouble in the first place. Hardware sales, particularly servers, fell as companies switched applications and processing to the cloud.

Cloud hosted applications disrupt high-end software. It challenges high-margins, undermines the need for infrastructure and support than allows software giants to get away with huge costs.

Oracle, originally a software company but since buying Sun Microsystems with a large hardware business, is in a more nuanced position. It lost server sales to cloud computing while its software business is challenged by nimble, commoditised cloud-based apps. SAP faces just the app challenge.

Second, the old school companies have enjoyed relatively high margins in at least parts of their businesses. Even Dell's commodity hardware margins were higher than the wafer thin margins Amazon squeezes from its IaaS - infrastructure as a service - business.

Amazon makes money because of scale. Huge scale. According to Gartner, the company has five times the IaaS capacity of the next 14 competitors added together.

The economics of scale mean each additional customer is cheaper to serve and sheer market size cuts the cost of acquiring customers.

Amazon's scale means it sits bestride the cloud market like a colossus.

Third, Amazon has a huge first-mover advantage. That's always a problem when any new technology comes along. It's a bigger problem than usual with the cloud where being first means being ready to meet demand while others are still building capacity.

It means learning how to make savings - Amazon has dropped cloud prices 40-odd times in eight years of operation.  Do IBM, Oracle and SAP really want to follow Amazon down that path?

It also scores because it doesn't have any legacy. There's no existing business or customer contracts to protect. Apart from anything else, this means Amazon is quick to innovate, there's nothing to lose from moving fast. And that's scary for competitors.

None of the would-be cloud giants can move without pain. In many cases the pain involves converting high-value, high-margin products and services into commodities. There's no path around this, but it will make it harder for them to bite the bullet.

Fourth, Cloud computing leaves little room for differentiation.  IBM, Oracle, HP and SAP all think they can add value, perhaps they can do a little around the edges, but on the whole,  customers aren't willing to pay for it when the alternatives are almost as sophisticated, but an order of magnitude cheaper.

To sum up: The big IT companies have little alternative to head to the cloud, their customers are going there with or without them.

Whether they can maintain customer relationships, add value and continue to prosper is far from given. You'd have to pick that one or more of the brands, IBM, Dell, Oracle, HP and SAP, isn't going to make the transition.

[digitl 2014]

digitl on Google+

© Scoop Media

 
 
 
 
 
Top Scoops Headlines

 

Syriza Win Greek Election: The Rumblings Of The Left

Binoy Kampmark: The left – and by this, the genuine, progressive, unmanagerial left – is getting noisy. The Greek elections are upon us, with the similar challenges being played out from 2012. There are fears of Grexit – a heavy breathing departure from the eurozone that will do everything to rattle the central currency mechanism that has been taking a battering... More>>

ALSO:

A Public Conversation: Reinventing News As A Public Right

Alastair Thompson: Oh how the mighty have fallen. Once journalism was possibly a noble profession, though that is certainly now, to quote our Prime Minister, a 'contestable' notion. It certainly seemed at least a little noble when I joined the ranks of reporters in 1989 . But ... More>>

ALSO:

Bear Baiting: Michael Hammerschlag On The View From Inside Ukraine

Russia's economy and currency are collapsing from oil price drop and sanctions, but Ukraine's is dropping faster: 60% drop in hryvna. Russia can survive it, but Ukraine is tottering on collapse and default... MORE >>

More On Oil & Russia :

More Year End Commentary :

Get More From Scoop

 
 
 
 
 
 
 
Top Scoops
Search Scoop  
 
 
Powered by Vodafone
NZ independent news