Who is losing with Cloud Computing?

I´m guessing that if Cloud Computing is saving billions of dollars, it must also mean that “some business” are not getting that same “saved money”, and “whoever” they are, they are probably not very happy.

Maybe “Enemy” is too strong of a word, so I´m going to call these entities “not-best-friends-of-Cloud“, and I wonder if they had something to do with slowing down adoption as much as they could. But customers are the Emperors of the Digital World and the New Economy, and customers are clearly dictating towards the Cloud path.

In this post, I´m not talking about cultural resistance, challenges for Cloud Adoption or the reasons for delaying the transition, but about who has been adversely affected in their business by Cloud Computing.

For some types of business, the Cloud looked like more like a destructive hurricane than a new growth opportunity. Let´s briefly look at some of them:

  • Computer manufacturers, Computer Server distributors, and other providers of Data Center Infrastructure. Unless you have been lucky enough to manufacture and sell to Cloud providers, odds are that the selling of computer servers is slowing down quite a bit. And that is hitting even harder on distributors which used to have low margins. Some distributors are shifting to Cloud Service Brokers and/or reselling Public Cloud services, but unless they were added value service providers, they are having a hard time.
  • Legacy ¨on premises” Software Vendors. Beneath the marketing messages and the large acquisitions to appear in the Cloud leaders picture, lies a big truth: Cloud hurt them. For the giant software vendors, they had to adapt -and they still are trying hard- from “hunting elephant deals”, from a more immediate cash flow and a growing yearly maintenance fees to much lower upfront deal, to delayed cash flow a to the constant menace of the “client churn rate”. It´s true that they are all transforming their business models to SaaS models, but not without much pain, a lot of acquisition money and their own internal resistance. This issue was really well described by Todd McKinnon (@toddmckinnon), CEO at OKTA in his post A Tiger Can´t Change its Stripes. Three Reasons Why Vendors Can´t do both Legacy and Cloud.
  • IT Services Companies. The Cloud Vendors now provide a big deal of traditional IT services, system administration, monitoring, network management, upgrades, backups and other data center operations…. Everything included in their Cloud service fees, and everything under a economy of scale model. The “traditional IT Services and Consulting” companies are loosing billions of dollars, because customers don’t have to pay for technical installations, for upgrading their hardware and other IT operations which are unnecessary in a Cloud service model.

Last but not least, there is the “Really-Big-Not-Best-Friend-of-Cloud”, that we find inside those previous types of business: the Sales Executives.

Sales Executives that have been used to sell legacy application software, on premises platforms, big outsourcing contracts, large projects and hardware components are finding very hard to transition to a Cloud business model, despite the efforts of employers in finding new compensation schemes.

This is the fact about Sales Executive: they still have a sales quota and generally their commissions is still based on sales revenue (as one of the variables). Taking into consideration that in today´s competitive industry a sales exec does not know for how long she or he will have her or his job, why should they push lower monthly contracts over a bigger deal and higher commission? And on the other hand, for their employers it´s difficult to compensate based on the Total Contract Value, since the customers could cancel those contracts before the end.

The shift from a legacy model with less number of customers, bigger contracts and bigger margins to a volume sale, lower margins and deferred cash flow is provoking a typhoon within Sales Organizations of legacy IT services and software. Those winds are slowing down, but there is still a painful path ahead.

Fortunately, there are also very many new best friends of Cloud: mobility, the consumers and the customers…. and guess what? They rule!

Thanks a lot for reading this article, and please share your thoughts!

Jose A. Hernandez
Founder & Global CTO at myCloudDoor

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