Cloud value proposition

Little consensus on how the cloud will benefit enterprises

Even with all the talk about the cloud, enterprise customers seem unsure of its value proposition.
While cost reduction is a reason enterprise customers consider using a service provider to manage private clouds, it is just one among many and, for a substantial number, not the main one. When the 489 respondents to the FORFIRM IT Outsourcing and Cloud Computing Survey were asked the most important reasons for using a private cloud managed by a service provider for IT infrastructure, three reasons tied with tepid support: faster delivery of IT solutions for business requirements (23 percent), access to superior technical skills (22 percent) and cost reduction (20 percent). (See Figure 1)
In contrast, cost is the clear driver for IT outsourcing (ITO). When respondents were asked to choose the most important reasons for using external providers to manage traditional data centers, the top choice (40 percent) was reduce total cost of IT department. (See Figure 2)
In short, unlike the ITO model, no single reason stands out as a dominant driver for the cloud. This may reflect the fact that large enterprises are in the early stages of cloud adoption.


FORFIRM estimates that only 2 % of all applications run in the cloud today and that the average company spends only 5 percent of its IT budget on cloud-related activities, mostly studies and pilots.

Given the market’s immaturity, the cloud is a Rorschach test of sorts. It can mean whatever an IT department happens to need or whatever a vendor happens to sell. One IT department may outsource Web hosting and call that an externally managed private cloud, while another would only consider a private cloud to be multiple operations running on thirdparty infrastructure that is not shared with other tenants.

It’s not surprising that the value proposition of ITO is more set in the minds of executives. ITO has been through a couple of generations of development both in terms of technologies and business practices, as both vendors and users of ITO learn ways to jointly benefit from the business relationship.

Cloud computing offerings are in many cases first generation, and vendors are emphasizing different messages in terms of the value proposition. Unlike ITO, the cost control message is frequently not a big part of the cloud computing message. And many times the buyers aren’t the same—business units are more actively engaged and often making decisions without IT’s involvement.


Survey respondents’ expectations of business value from externally managed private clouds may well reflect a wish list based on experience with or perception of ITO. Comparatively few respondents have significant experience with externally managed private clouds: 31 percent make any use of the model, but on average only 12 percent of total IT resources are allocated to it today. Yet most are familiar with ITO, whether they are customers or not. Their reasons for wanting externally managed private clouds may indicate benefits they haven’t gotten or don’t believe customers get from ITO.

Most likely, respondents’ answers about the value proposition of externally managed private clouds reflect where they are in cloud adoption and the applications they are moving there, which vary widely.


Some customers are doing big campaigns and big marketing events online. Well, those people are going to look at fast delivery of IT solutions as the only thing that matters. Others might turn to cloud primarily for extra capacity during times of peak demand, which would translate to matching variable needs to variable costs, he adds.
There is some evidence that ITO customers who have developed a cloud strategy with help from their ITO providers have a better idea about the cloud’s value proposition. Among this subgroup of 147 respondents, 33 percent said faster delivery of IT solutions, and 31 percent said access to
superior skills were the two top reasons; these are statistically significant differences from the response rates for the entire group.
It is also possible that cost is a more important factor for the private cloud than the survey indicates because cloud adopters tend to think in terms of gaining business agility at a manageable cost rather than simply reducing costs.

The ability to react faster to business needs is a top driver for cloud adoption, be it private or public clouds. Enterprise customers value the flexibility of a cloud at a manageable expense.


In some cases the customer may have simply run out of space. Rather than build a new data center, which is a big chunk of expense to swallow all at once, sometimes people look at a private cloud in a hosted fashion as a way to push that expense into the future.
Asked which IT infrastructure functions were currently supplied to their organizations via any cloud option, respondents named data storage and retrieval (54 percent) first, followed by online transaction processing workload execution (40 percent). Given that data storage is growing faster than any other component of data centers today, this outcome supports the “out of space” hypothesis.

Some vendors acknowledge that CIOs are simply caught up in the hype. There are very few CIOs that are not hearing from their CEOs, ‘why aren’t we in the cloud’.