By Larry Walsh
If the cloud forecast of Oracle CEO Mark Hurd comes to pass, solution providers will have few customers to sell hardware and software to within 10 years.
“No one will have disks sitting in data centers unless they absolutely have to,” said Hurd in an address at Oracle Cloud World earlier this week in New York. His prediction: By 2025, 80 percent of data centers will disappear as businesses move more infrastructure, applications and workloads into the cloud.
Hurd isn’t alone in that assessment. Over the past 10 years, cloud computing has disrupted legacy technology platforms, applications and business models. Through the cloud, IT departments can develop and operate more efficient and agile infrastructures to support routine and mission-critical workloads — often at lower costs. That explains why, for years, cloud advocates have told solution providers they need to adopt cloud technologies and evolve their business models in response.
Even now, cloud and channel advocates are imploring vendors to “have the cloud talk” with partners.
The problem is that “the talk” is about adopting technologies, not about the stark realities portrayed by Hurd, who has some experience here. Remember, Oracle is itself an object lesson in the risk of not paying attention to the cloud. It’s hardly a pioneer in the technology or model, having come notably late to the game.
Today, most of the cloud warnings I see going out to solution providers are about disruptions to the indirect and two-tier model. For years, many vendors and channel strategists openly speculated about the relevance of solution providers in a cloud-based world, where applications and infrastructures are centrally hosted, operations and maintenance are consolidated, and points of sale are automated and available online. The market learned quickly, however, that the channel plays a critical role in providing points of sale and adoption guidance.
But will that remain the case?
The first generation of cloud computing was mostly about experimentation. Businesses tried hosted servers and cloud-based applications, such as e-mail, as an alternative to on-premises infrastructure and software. There wasn’t much need for the channel, as even vendors hadn’t made up their minds whether the experiment would grow up into a full-fledged business.
Unfortunately, that fogginess about cloud value misdirected the channel. According to research by The 2112 Group, the average solution provider earns slightly more than 40 percent of its gross revenue from cloud and managed services. Of that, most of the offerings are rudimentary services — productivity applications such as Microsoft Office 365, cloud-based backup, file services and that sort of thing. Most of these services are part of the second generation of cloud computing, in which cloud became an extension of managed services.
The market is now rapidly evolving to the third generation of cloud computing, in which workloads, on-demand applications and centralized processes are becoming the norm. As Hurd and others are pointing out, business C-suites want infrastructure that is adaptable, helps them remain competitive, enables innovation ahead of the market and, most of all, lowers costs.
In this context, successful technology companies are the ones that can build holistic systems, consolidate cloud and IT resources, centralize operations, develop new applications, and manage it all without undue overhead.
The vendor community is reacting:
None of these efforts is built on the notion of selling SKU-based products, and that’s the point. If Hurd and his cohorts are right, adapting to the cloud business model or having channel sales replaced by automation are the last things solution providers need to worry about. In the very near future, the cloud may take away the very customers supporting solution providers — that is, unless they adapt to meet the customer needs for agility, innovation and cost containment. That’s the real cloud conversation we need to have.