The five faces of the cloud

Cloud Computing

For all the noise about cloud computing, many companies that sell cloud-based products and services still struggle to answer fundamental questions about how they will make money. To gain a foothold in the sector, providers have launched offers that appeal to the earliest adopters. Profitable growth has taken a backseat to being first to market and building customer awareness.

But the market is in transition. Companies that have waited on the sidelines are now entering the marketplace. Compared with the earliest adopters, later entrants have a much wider range of business needs, IT priorities and views on cloud computing. That's shaping the approach of the most effective providers, who are focused now on developing targeted offerings, marketing messages and sales approaches to address the full dimensions of the emerging customer landscape.

The evolution of cloud computing

Cloud computing is, in fact, an old idea whose time has come. It represents the latest chapter in the story of two intersecting trends that have been playing out for some time: the desire of companies to outsource an ever wider range of their capabilities and the efforts of providers to deliver IT as a utility, like electricity.

Cloud computing is different, however. Thanks to the cloud, businesses are using and administering their IT infrastructure more efficiently. The economics of cloud computing have also become attractive over a wide range of circumstances. In the next three years, we see a 30 percent to 40 percent price advantage opening up between the costs of deploying a public cloud and an on-premise server. As providers create real value for customers, some players have at last begun to turn a profit. In response, customers now have confidence that many emerging providers will be around for the long term, and buyers are growing more comfortable placing critical systems in their hands.

The result: We expect business spending on cloud computing to grow fivefold by 2020, expanding from $30 billion to $150 billion, according to some estimates, and accounting for one-fifth of all growth in technology industry profits over this period.

Of course, the field still faces many challenges. Even under the most optimistic growth projections, cloud computing will not displace existing technologies any time soon. Cloud services will represent less than 10 percent of total enterprise technology spending by 2020, for instance. From security concerns to high-profile outages, substantial barriers to customer adoption remain.

Some paths to the cloud-such as data-intensive workloads, custom legacy applications or private clouds for small businesses-hold little promise. Legacy technologies will continue to occupy a significant place in IT, as the sustained demand for mainframe computing demonstrates. For these and other reasons, cloud computing represents an important evolution, rather than a revolution, in information technology.


These companies are particularly concerned with the security and reliability of their IT environments. They understand the value proposition that cloud computing offers, but are willing to compromise to ensure that their environment is safe and secure. Private cloud and hybrid public-private cloud models have the most appeal.

Price Sensitive

These bottom-line focused companies purchase cloud technologies and services primarily for the cost savings.

Business context
Is the company experiencing revenue growth greater than 10 percent year over year?

Readiness to adopt cloud computing: Companies with aggressive growth plans, shifting priorities and rapid speed-to-market requirements use more cloud services than companies growing at a slower pace. We found that companies growing faster than 10 percent per year use 145 percent more cloud services than slower-growing companies. Cloud computing helps expanding companies more rapidly develop and scale new capabilities and in the process exploit the significant benefits the cloud has to offer.

Implications for providers: Public cloud offerings that scale automatically and can be rolled out with minimal lead time will be most attractive to high growth companies. These include SaaS offerings for CRM, email and HR functions, which often need to scale with the business.

Can a move to the cloud reduce TCO more than 20 percent?

Readiness to adopt cloud computing: While Priceconscious companies make up only 12 percent of customers, they have a high likelihood of purchasing if they can reach this 20 percent TCO savings hurdle.

Implications for providers: Effective providers know how to calculate the fully loaded TCO for customers—no mean feat considering the wide range of costs involved, from infrastructure and connectivity to professional services and administration. They understand where the economics are most attractive, identify customers for whom those uses are most relevant and then lead with a message about the savings potential. The most attractive economics lie in workloads like email, CRM, websites, team collaboration, dev/test and office suites. Successful providers of these workloads will specifically target Price-conscious customers with value-oriented messages.


Over the coming years, customers will move toward the cloud in a multitude of ways. The one-size-fits-all approach that has brought providers this far will prove unsustainable.

Companies that fail to adapt will not survive the coming industry shakeout. In contrast, the next generation of cloud computing winners will focus their product development pipelines, marketing strategies and sales approaches on the segments that they are best equipped to address. In the process, they will widen their lead against the competition.