The enterprise market is a bit like a a riddle wrapped in a mystery inside an enigma. On the one hand, the investment by service providers in “enterprise class” cloud services continues to accelerate. On the other hand, pretty much all I hear from enterprise customers is how they are primarily interested in private clouds. What to make of this, I wonder?
At “The State of the Cloud” conference in Boston today, most of the users talked about their concerns over public clouds and their plans for (or experience with) private clouds. There was some openness to low-value applications, and for specific cases such as cloud analytics. We do hear about “a lot” of enterprise cloud usage these days, but most of that is dev/test or unified communications, and not strategic business applications. So where’s the disconnect?
One of the speakers said it best — “we’re just at the beginning stages here and the comfort level will grow.” So enterprise IT is getting comfortable with the operational models of clouds while the technologies and providers mature to the point that “we can trust them.” It’s understandable that this would be the case. If enterprises fully adopt cloud automation models and cost optimization techniques internally, any scale benefits for external cloud providers will take longer to become meaningful. IT can be far more efficient than it is today in most companies, and if the private cloud model gets the job done, it will delay what is likely the inevitable shift to public cloud utilities.
Stated another way, the more successful we are at selling private clouds to the enterprise, the longer it will take for the transition to public clouds to occur.
As you see in the chart above, it is likely that the TCO gap between traditional IT and the public cloud will narrow as enterprises implement private clouds. Some enterprises are already at or below the TCO of many public cloud providers – especially the old-line traditional hosting companies who don’t have the scale of an Amazon or Google. Over time, the survivors in the public cloud space, including those with enterprise class capabilties, will gain the scale to increase their TCO advantage over in-house IT.
It may take a long time to see this out, and this is a general model. Individual companies and cloud providers won’t fit this chart, but it’s likely that the overal market will trend this way. TCO is not the only factor – but where costs matter the public cloud model will eventually win out.