Cloud Computing 2.0 and the Changing IT Manager

Everyone’s talking about cloud computing and Gartner has named it the top strategic technology in 2010. Yet, many CIOs and other IT managers I talk with are still trying to understand what cloud computing really means for their organizations and their own jobs. And, the irony is that a growing number of people within their own organizations are already using a widening array of cloud computing services to meet their day-to-day business needs.

The purpose of this commentary isn’t to define cloud computing or argue on behalf of its viability, but to describe why it is time for CIOs to take it seriously and identify how they should respond as the cloud computing craze enters a new stage in its evolution.

In its original form, cloud computing referred to the rapid provisioning of computing power and software functionality via the Internet. The cloud computing concept has gained widespread attention as a result of the success of Software-as-a-Service (SaaS) solutions, which have demonstrated the value of web-based, pay-as-you-go business applications delivered as services.

Cloud computing captured the imagination of an even broader audience because of the revolutionary way Amazon pioneered the new realm of Infrastructure-as-a-Service (IaaS) self-provisioned and hyper-elastic storage services. And, it has spawned a new set of online, on-demand application development tools referred to as Platforms-as-a-Service (PaaS).

In each of these three areas, the traditional software and technology worlds are being severely disrupted. SaaS leaders like Salesforce.com and SuccessFactors are challenging the dominance of legacy enterprise software vendors like Oracle/Siebel and SAP. IaaS leaders like Amazon and Rackspace are undercutting the supremacy of the major hardware and services vendors like IBM and HP. And, PaaS leaders like Google and (again) Salesforce.com are unnerving Microsoft.

Along the way, each of the upstart and insurgent players has changed the competitive landscape by circumventing traditional CXO decision-makers to sell their wares directly to the corporate end-user. They’ve succeeded by designing their cloud services with the end-user in mind and by offering free trials or low-cost pricing which made it easy to make a unilateral purchase decision using a personal credit card without official authorization.

This trend has come to be known as the “democratization of IT,” but many CIOs initially viewed it as a dangerous form of corporate anarchy instead. However, a growing proportion of CIOs are now discovering that these cloud computing alternatives not only work, but are alleviating some of the pressures they have faced keeping pace with the escalating demands of corporate executives, strategic business units, and end-users.

As a result, CIOs have become more willing to allow their constituents to take advantage of cloud computing services for specific purposes, such as seasonal spikes in demand or test/dev situations. This first round of isolated, ad hoc ‘use cases’ has fueled the initial success of Cloud Computing 1.0.

Now, that cloud computing services have proven their value in these situational computing scenarios, it is poised to move to a new stage of its evolution. It is time for CIOs to take a more proactive approach to fully leverage cloud computing to enable their organizations gain a strategic advantage.

Cloud Computing 2.0 will be characterized by more deployments of mission-critical applications and a greater reliance on cloud computing vendors for day-to-day operations. But, this new era will also witness a significant consolidation of players, as the proliferation of new entrants subsides. Today’s “cloud rush” is already giving way to a series of mergers, acquisitions and vendor failures.

This volatile environment demands that CIOs reassert themselves as the arbiters of the technology acquisition, management and optimization processes within their organizations. They must first sort out the myths and realities of today’s cloud computing capabilities and future possibilities. They must then determine how to match these capabilities against their organizations’ own strategic objectives and core competencies.

And, finally CIOs must establish a clear set of guidelines to help their executives and end-users properly evaluate, select, engage and manage their cloud computing vendors in a coordinated fashion to obtain the maximum value from these powerful services while mitigating the potential risks associated with relying on any third-party to support their day-to-day operations.

Kaplan is Managing Director of THINKstrategies (www.thinkstrategies.com), an independent consulting firm focused on the business implications of the on-demand services movement. He is also the founder of the SaaS Showplace (www.saas-showplace.com) and Managed Services Showplace (www.msp-showplace.com). He can be reached at jkaplan@thinkstrategies.com.