Adapting To The Cloud's Mainstream Future

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The growth of cloud computing has exceeded almost everyone’s expectations over the past five years, with cloud accounting for 70% of related IT market growth from 2012 to 2015.  Revenues for public and private cloud software, services and hardware now amount to $180 billion annually, or 16% of the $1.1 trillion enterprise IT industry.

 

But cloud’s success creates some new challenges for executives selling cloud software, services and hardware, and many will need to change the way they develop and sell their offers to continue to thrive. The cloud market took off by selling to early adopters who looked beyond the security and compliance risks to the transformational advantages cloud offered.

 

In 2017, the picture has changed dramatically. Forty-eight of the Fortune Global 50 companies have publicly announced cloud adoption plans. Security remains a top concern, but doubts have moderated, as have concerns over uncertain cost savings and loss of control.

The profit pool has shifted, too. Five years ago, nearly all profits from cloud went to companies that sold the components to build public and private clouds. Profits today are four times greater than in 2012, and cloud service providers that sell to end customers now command 20% of total profits.

Executives need to have a clear understanding of this transformation so they can adjust their products, services and organizations to successfully serve the customers coming off the sidelines. Back in 2011, we surveyed about 500 North American CIOs and other IT decision makers, spoke with more than 25 cloud providers, and identified five types of companies with common approaches to cloud computing. In three subsequent studies, these groups have remained an accurate and useful way of understanding how customers are adopting the cloud.

 

Transformational. These early adopters invest in the cloud for performance and scalability, and focus less on cost savings. They look for innovative offerings with good support. In 2011, transformational customers including Netflix and GE made up 11% of companies, but generated 47% of the demand for cloud services. Today, while these transformational customers still drive innovation and set the bar for many customers, they represent only 26% of cloud demand. Transformational customers are no longer the fastest-growing segment, and their cloud adoption is slowing down as their adoption peaks.

Heterogeneous. These customers are also leaning in on cloud use, but have set a more measured pace of adoption due to the diversity of their existing IT environments and future IT needs. These are customers like Land O’Lakes, which have segmented their existing workloads, moved some to software as a service (SaaS), moved others to a variety of infrastructure as a service (IaaS) and platform as a service (PaaS) providers, and maintained others on premise.

 

Safety-conscious. For a range of reasons—such as industry specific regulation, national data sovereignty rules or the size of their companies—these companies prefer a private, dedicated cloud environment for most of their cloud applications. However, they are beginning to use the public cloud as providers show they can meet their security requirements. Progressive Insurance, for example uses a private version of Microsoft Office 365 ProPlus and has also deployed a hybrid version of Azure specifically for innovative offerings that selectively use public cloud resources.

 

Price-conscious. Customers looking to the cloud to save money made up only a small part of the market back in 2011. But as leading cloud providers including Amazon Web Services, Google and Microsoft Azure reduced prices, this segment increased their adoption, accounting for 14% of spending today. Halliburton has adopted the cloud most aggressively in new business ventures where the cost of deploying new capacity, combined with the risk of investing too much amid uncertain demand, make the cloud value proposition particularly compelling.

 

Slow-and-steady. The largest and fastest-growing segment of customers wants to minimize disruption and are carefully evaluating whether the benefits are worth the risks of new technology.  In 2011, slow-and-steady customers had only 1% of their applications in the cloud. By 2015, they had 16% in the cloud, heading to 30% by 2018. Boeing was not significantly considering the cloud in 2012, but by 2014, the company had created its own PaaS solution based on open source code, and by 2016 it was moving some applications, like aviation ****ytics, to the public cloud.

 

Technology providers should be rethinking their go-to-market and operating models, and can emphasize three things in particular to strengthen their competitive position in this market.

 

• Invest to win big in a focused set of cloud battlegrounds. Most providers are competing across too many battlegrounds to win in any of them. Focused bets stand a better chance of success.

 

• Target the customer segments that fit best. Slow-and-steady customers have very different needs from transformational ones. Choose the customers whose needs match your capabilities.

 

• Prepare for the next wave of cloud computing. Incumbent technology providers should reassess whether they have made sufficient changes to their offers, go-to-market model, organization and people, processes, incentives and systems. Successful new entrants will increasingly be challenged, requiring them to adapt, even reinvent, their operating models.

 

An industry shakeout is underway in the cloud market, with several high-profile exits and business model redefinitions of technology providers. Over the coming years, the shakeout will intensify as new buyers increasingly drive demand for cloud services, and new competitive battlegrounds replace old market definitions. Technology providers that recognize these trends early and adapt their offers and operating models most effectively will emerge as the winners.

This Article Source is from : https://www.forbes.com/sites/baininsights/2017/03/16/adapting-to-the-clouds-mainstream-future/2/#ffceda160dcf

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