Hype & High Expectations For Cloud Computing, Part 1

Cloud computingCloud computing is a much hyped but often misunderstood technology that is gaining traction in different industries around the world. Businesses are integrating the cloud into countless systems, from HR to finance. Full adoption and acceptance of cloud computing, however, are still far away.

A recent global survey by Knowledge@Wharton and SAP’s Performance Benchmarking team reveals that while the hype and excitement surrounding cloud computing is reaching a fever pitch, many businesses are still expressing concerns over cloud security and IT integration issues. The survey also shows that while many people agree that the cloud is revolutionizing business, they still do not fully understand how it works.

How will these tensions surrounding the cloud be resolved? How will the cloud transform businesses in the future? What kinds of benefits will the cloud bring, and is it worthy of the current hype? Knowledge@Wharton discussed those questions and the survey results with David Spencer, vice president at SAP, and Don Huesman, managing director at the Wharton Innovation Group.

An edited transcript of the conversation appears below.

Knowledge@Wharton: Knowledge@Wharton and SAP’s Performance Benchmarking team just conducted a survey about the business value of cloud computing. The survey found that 85% of respondents believe that cloud computing will transform business. Could you speak to us about how cloud computing can make a company more competitive by leading to measurable efficiencies and improving business processes?

David Spencer: There are three areas specifically where the cloud can help our customers be more competitive. One: The Cloud gives individuals better access to areas of their business that the traditional business model previously didn’t give them access to. Two: The speed at which you can deploy a solution gives cloud users an opportunity to realize revenue or benefits much more quickly. Three: The cloud is delivered in a way that makes the total cost of ownership much better. Also, in my opinion, the user interface is more flexible, and it is much easier to deploy.

Knowledge@Wharton: Could you offer any examples of companies where you see this happening?

Spencer: I’ll give you an example of a customer that just recently deployed our Customer OnDemand solution and did it in two weeks. The customer came back to us and said, ‘If we had done this using a traditional model, it would have taken us six months to a year. You’ve done this in two weeks!’ The deployment was completed faster than any other traditional model that was out there. As for the cost — because it’s a variable cost versus a fixed cost, they were able to budget the cost over multiple years instead of taking all the costs upfront.

Knowledge@Wharton: Don, any comments?

Don Huesman: From the Wharton side, I can tell you that the cloud has provided an opportunity for entrepreneurial-minded students with new ventures to establish fairly sophisticated capabilities quite quickly and on a relatively low start-up budget. The cloud allows them to quickly enter a marketplace or put together a platform for delivering a new service at speeds that were not possible before the existence of cloud services. The cloud has certainly provided agility for these entrepreneurs. It creates a more level playing field, and thereby generates more competition.

For example, ElectNext is an enterprise that was established to solve the problem in this country of having an essentially broken political system. By using the cloud, the organizers could efficiently respond to the level of site usage and the level of infrastructure that they needed at any one time. They added on new servers when they found that service was slowing as a result of inadequate resources. In the past, this wasn’t possible. You might have needed to make a guesstimate about possible incoming site traffic and acquired hardware and talented software people to handle this. Now you can respond almost in real time to changes in site demand.

Knowledge@Wharton: Back to you, Dave. Some 65% of survey respondents said that cloud computing would amplify other technology megatrends. Could you tell us which megatrends will be amplified, and how this might happen?

Spencer: Yes. Let’s talk about mobile, social media and big data. We’re seeing more data coming into companies. For example, people are constantly talking about company interactions and opinions on Twitter, Facebook and other sites. Now companies have a massive amount of data that need to be analyzed. One implication that I’m seeing is that companies have to take a more holistic view of their branding. They have unprecedented access to their customers via social media, and individual customers can heavily influence other customers. Now companies can individually market themselves based upon market trends that are going on.

I’ll give you an example of where I’m going with this. Recently, the NFL decided to use SAP’s cloud solutions to run their Fantasy Football service. That’s accessing four million users. The NFL’s IT division may not have had the infrastructure designed to support that before, but because of cloud computing, big data and social trends, they now have an opportunity to market individually to people.

Knowledge@Wharton: Don, do any examples of megatrends come to your mind?

Huesman: One megatrend that is central to cloud computing has been referred to in the press as the consumerization of IT. Before I go further, I would like to note that cloud services have been around a long time. They are a 20th century innovation. Gartner has just indicated that we’re currently at the top of the “hype cycle” for the concept of cloud computing. I think it’s related to the consumerization forces. So, Drop Box and other cloud services for e-mail have enabled both individuals and businesses to take control of their own IT infrastructure needs. I think this force of consumerization has been a real driver in why cloud computing is so interesting now.

Spencer: Adding onto that, the cloud was originally designed for small companies. It all started with non-strategic applications for smaller companies. But over the last couple of years, we have seen larger companies start to see the model and understand how it fits into their business. Now what you’re seeing is even larger companies running their entire HR systems in the cloud. Larger companies are, without a doubt, adopting cloud solutions more than ever.

Knowledge@Wharton: Related to your comment, our survey found that 66% of respondents said that cloud computing is helping their companies create new, strategic options. HR is one of those options. Are there any other strategic options that cloud computing opens up for companies? What value does that create for the users?

Spencer: HR and sales automation are the two that have gotten a lot of attention. But I’ll go back to what Don said, too — it’s also the commercialization piece of this puzzle. Companies are now tailoring marketing directly to customers, who influence other customers.

Knowledge@Wharton: Don, what do you think about the strategic options?

Huesman: From the point of view of students and start-ups, the consumerization of IT is an important component. The cloud provides application software that can be used on hand-held devices — such as iPads and Android — and this allows a mix of vendors to provide very specific types of application software through an app store. I see this as an opportunity to change the market for traditional enterprise services by broadening the vendor base and increasing competition. Also, I should point out that in an app store environment, and as a part of the consumerization of IT, there will be downward pressure on pricing.

This is part one of a three-part series. Stay tuned for part two.