The heaviest users of cloud applications are the companies that manufacture the technology hardware that enables cloud computing (computers/electronics/telecom equipment), while healthcare services providers are the lightest users (in terms of average number cloud apps per business function).
- Industry comparisons in number of cloud applications/company
- Industry comparisons in number of cloud applications/company by 2014
- Industry leaders and laggards in benefits from shifting on-premises applications to the cloud
- Industry leaders and laggards in benefits from launching new cloud applications
- Case study: $5 billion consumer products company
We asked our survey respondents (who worked in a variety of business functions in addition to IT) to indicate the average number of cloud applications that their function had been using in 2011. We then looked at their answers by industry in all four regions combined (in order to get larger industry samples). We had large enough industry samples to report on 16 major sectors.
The industries’ usage of cloud applications per function ranged from 8.54 at the high end (in computer/electronics/telecommunications equipment manufacturing) to 3.39 at the low end (healthcare services/providers). (See Exhibit VII-1.) For 2011, the industries with the greatest number of cloud applications per business function were:
- Computer/electronics/telecom manufacturing (by far the largest number of cloud apps per function)
- Financial services/banking/insurance
- Industrial manufacturing
- Telecommunications services (carriers)
Industries with the fewest number of cloud apps per function were healthcare services, chemicals, energy and utilities, metals and mining, and media/entertainment/sports. The media industry’s relatively low adoption of cloud computing may reflect its reluctance to put its intellectual property in the cloud – particularly, public clouds – for fear of digital theft.
We also asked the survey respondents to project how many additional cloud applications they expected their business function to have by 2014 – applications not including those today. We thus were able to calculate their projections on the total number of cloud applications that they expected to see in their functional area. The range of those applications/function went from 9.25 to 19.4 – effectively a doubling of apps/function at the high end and a nearly tripling of apps/function at the low end.
Once again the industries expecting the largest number of cloud apps/function were the same four: computer/electronics/telecom equipment manufacturing, telecom services, financial services and industrial manufacturing.
However, the projections of the retail and transportation/logistics survey respondents would have them vaulting higher in the list by 2014 – over automotive, aerospace/defense and consumer products manufacturers.
Heavier Users of Cloud Applications Get Bigger Benefits
In addition to wanting to know which industries were heavier users of cloud applications than were other industries, we wanted to know which sectors were better users of the cloud. It turned out that the industries with higher numbers of cloud apps per function in 2011 were industries that were enjoying greater benefits from cloud applications – both those that were shifted from on-premises computers and those that were entirely new applications made possible by the cloud.
To better understand which industries were generating the most value from cloud applications, we analyzed our data by first rolling up the responses across all four regions of the world and then categorizing them by industry. That left us with 16 industry segments with at least 12 respondents per industry. We then sorted these respondents out by understanding which ones finished in the upper or bottom quartile of results to date from cloud applications. That left us with “leaders” and “laggards” in each industry sector based on who had generated the greatest benefits from:
- Cloud apps they have shifted from on-premises computers. The “leaders” here were companies that had generated the greatest improvements in such metrics as IT cost reductions, increases in standard apps and business processes, cycle-time reductions in ramping IT resources up or down and in application enhancements, reductions in system downtimes and application fixes, and increases in analytics reports.
- Entirely new cloud apps for which they had no on-premises predecessors. These “leaders” finished in the upper quartile of aggregate benefits in percent increase in new business processes tested and launched, percentage increases in new products/services tested and launched, annual revenue increases from new offerings in existing markets, and cycle-time reductions to enter new markets.
Industry by industry, in each of the two areas above, we looked at which ones had a larger percentage of “leaders” than “laggards.” The findings revealed several surprises.
Industry Leaders and Laggards in Shifting On-Premises Apps to the Cloud
The industries with a much higher percentage of “leaders” than “laggards” were:
- Automotive (31% of whom were “leaders” and 19% were laggards)
- Computer/electronics/telecom equipment (29% vs. 17%)
- Aerospace & defense (29% vs. 19%), and
- Banking/financial services/insurance (29% vs. 19%).
In contrast, the industries with much higher percentages of laggards than leaders were:
- Pharmaceuticals (15% were “leaders” vs. 40% that were “laggards”)
- Media/entertainment/sports (17% to 33%), and
- Energy & utilities (21% to 33%)
Industries Leaders and Laggards in Putting New Applications in the Cloud
We did a similar analysis of leaders and laggards by industry around the data on benefits achieved to date from launching entirely new applications in the cloud. A different set of industries emerged as leaders and laggards here – including leaders that had been laggards in benefits from shifting existing apps to the cloud, and laggards that had been leaders.
The industries on this metric with the highest ratios of leaders to laggards were:
- Computer hardware/electronics/telecom equipment (46% were leaders and 33% were laggards)
- Media/entertainment/sports (42% to 33%)
- Telecommunications services (33% to 24%)
- Transportation/logistics (35% to 26%)
Technology-enabled innovations in products and services are critical to all four of the above industries, and perhaps that’s why they have more leaders than laggards in launching new cloud applications. In the computer industry, Dell Inc. is one of a number of companies that are tapping cloud services to market products and services to both enterprise and consumer customers. (See case study on Dell) In the media industry, educational publishing and testing companies like CTB/McGraw-Hill have become highly dependent on scalable technologies that enable them to shift the delivery of their content from print to online. CTB/McGraw-Hill is looking at cloud-based models as a highly cost-effective way to host its public and private school student assessment exams. (See case study on CTB/McGraw-Hill)
In contrast, five industries had a much greater number of laggards than leaders in generating benefits from entirely new applications they put in the cloud:
- Pharmaceuticals (25% were leaders vs. 55% that were laggards)
- Healthcare services (22% vs. 50%)
- Computer software (8% vs. 33%)
- Automotive (19% vs. 39%)
- Chemicals (20% vs. 38%)
How the Cloud Has Helped a Consumer Products Company Scale Up Consumer Interactions Cost-Efficiently
A $5 billion privately held consumer products company has found a cloud-based application to be critical in handling tens of thousands of contacts from consumers annually. “It is a completely [software as a service]-based model for consumer affairs,” says an IT executive in the firm, which wanted to remain anonymous. “It’s allowed us to handle huge growth in consumer contacts. It’s established cloud an acceptable option that works, not a technology fad that will go away.”
The company’s three biggest applications of cloud have been in consumer affairs (responding to the consumers who purchase its products at retailers), human resources, and travel & entertainment. “Cloud enables us to bring in a new application without needing the $10 million and 18 months to build it,” says the IT director. “And while it doesn’t solve all of our problems, it’s still a viable option.”
The company has long sold its product through retailers, which usually have the first and most personal interactions with consumers. But the cloud has given the company a highly cost-effective way to get to know its customers better. “Consumer affairs is one of those areas that most companies don’t fully appreciate,” says the IT director we spoke with. “The first thing you learn in a marketing class is that getting a new customer is five times more expensive than keeping an existing one. The amount of information you can gather from your consumers from their interactions with you is truly astounding.”
Today the cloud is helping the company understand far more about what’s on the consumer’s mind – before, during and after the time of purchase – a 360-degree view of the consumer.” The company’s head of consumer affairs is a big proponent of cloud applications as well. The cloud application lets a customer service agent review consumers’ comments and determine what teams within the company should be notified: what country unit and what business function (e.g., packaging issues go to operations, product complaints go to R&D, etc.). At the same time the agent can choose a predesigned response letter, customize it, and automatically correct it for spelling mistakes. The agent can then easily notify the relevant employee of a problem that needs to be resolved.
“The agent can use the same customer record to send what we call a ‘task’ to another one of our users,” explains the consumer affairs executive. “For example, we might alert someone in a factory’s quality assurance department to a consumer who called with [a product problem]. The agent creates a task to the quality director in charge of investigations for that product. With the use of special coding, the task will also send an email to the quality control person announcing [a replacement product] is coming in the mail.”
The head of consumer affairs uses the cloud system to send monthly reports on consumer complaints to company’s marketing, packaging, quality and other departments. The system lets the director’s team send out quick online surveys to consumers who have used the contact system.
“It’s all about building credibility in the brand,” says the consumer affairs executive. With a cloud-based system, the team has the tools to do it on a global basis.
Staying Technologically Advanced Without All the Costs
Along with providing deeper knowledge about consumers, the cloud has also dramatically increased efficiency. The IT director told us the firm can now use applications far less expensively and launch them far more quickly than they could in the past. “We’re not in the IT business, or the server farm business, or the application business,” the IT director says. “There are people out there that do that better than us.”
Using cloud technology also freed up money previously spent on corporate IT, helping the firm focus its investments on new products (through acquisitions and launches), and manufacturing and marketing them. Part of the company’s expansion strategy has been to keep a tight grip on costs, including IT. The company’s IT budget is less than half its industry average.
The company uses cloud applications hosted at a third-party data center (which has multiple tenants, and thus is a public cloud). And although the IT director says that a public cloud can limit how a company configures an application (since other companies may share it), the cloud vendor customized it for the company.
Security in a Public Cloud Seen as a Red Herring
The IT director hears many IT executives outside the firm worrying about the security of public cloud services providers. However, he says such concerns are unfounded. “It continues to surprise me that security is a big issue with cloud. I can guarantee that security of certain cloud vendors is better than what you can do in-house. Some of these cloud vendors do a better job security-wise than we do, because they do it for so many people, and they know that they’re going to get hit on that.”
He says the bigger issue is about the legal and regulatory implications of where data is housed. Nonetheless, these concerns haven’t stopped the company from aggressively adopting public cloud applications in its business.
Many companies are reluctant to put applications with sensitive data in the cloud. In the U.S. and Europe, the applications least frequently shifted from on-premises computers to the cloud were those that compiled data on employees (e.g., payroll), legal issues (legal management systems), product (pricing and product testing), and certain customer information (e.g., customer loyalty and e-commerce transactions). Still, some companies had shifted applications with customer data to the cloud, especially in customer service, and many planned to shift a number of customer-related applications to the cloud by 2014.
- Cloud applications most frequently shifted from on-premises technology
- Cloud applications least frequently shifted from on-premises technology
- Case study: Dell Inc.
In the previous section, we mentioned that across all four regions of the world, companies were in most cases putting the largest share of their cloud applications budgets in marketing, sales and service. Yet in spite of that, many companies appear to be staying clear of putting sensitive data into cloud applications.
We found this to be the case in looking at other data in our survey. In the U.S. and Europe (where we had large-enough sample sizes to explore what applications companies had in the cloud in each of the 10 core business functions), we found that the applications that were most frequently shifted from on-premises computers to the cloud were those that typically do not have highly sensitive information on employees, customers, new-product plans, and other data that companies go to great lengths to protect (see Exhibit VI-1).
In the U.S., when we looked at the applications that were least frequently shifted to the cloud from on-premises computers, several of them were applications that often store highly sensitive data:
- Legal-related – legal management solutions (which can contain the status of lawsuits against a company)
- Employee-related – compensation planning (employee salaries) and payroll/time and attendance systems (which, of course, in the U.S. can have Social Security information)
- Product-related – product testing systems (which often compile data on product efficacy and of course reveal a company’s product launches), and pricing and promotions systems (which, in competitors’ hands, can tip off pricing changes)
- Customer-related — customer loyalty (which can reveal buying preferences), customer/market research applications, E-commerce, and customer analytics — all of which can risk customer privacy and provide competitors with useful targeting information
- Risk-related – risk assessment and monitoring systems, which compile data on a company’s most vulnerable activities
In all five areas, less than 20% of companies had shifted on-premises apps to the cloud (see Exhibit VI-2).
Still, that doesn’t mean that all customer data is being kept out of the cloud. For U.S. companies’ customer service applications, 42% have shifted customer order-entry systems from on-premises technology to the cloud. And 37% have moved their archived customer records to the cloud. (See Exhibit VI-3.)
In addition, the numbers in the chart above indicate that many companies’ fears about putting customer records in the cloud are likely to subside. When asked what customer service applications they expected to be in the cloud by 2014, the majority expected to shift their customer order entry, archives of past customer records, post-sales inquiries and online customer communities from on-premises to cloud-based applications.
In looking at marketing applications, we found such hesitation to put customer data in the cloud looks like it will decline by 2014. At least half of U.S. companies plan to shift customer research, e-commerce, customer analytics and social media data to the cloud by then. And even 39% of companies say they’ll shift customer loyalty systems to the cloud by 2014. (See Exhibit VI-4.)
Dell: Riding a Tsunami of New Cloud-Based Marketing Tools
As the computer company that became known worldwide for its direct model, Dell Inc. has had to master the Web, email and other online marketing tools to get customers in the fold and keep them there. Of course, the company has much to boast about, growing from a concept in the University of Texas dorm room of founder Michael Dell to a multibillion-dollar juggernaut of the global technology industry in less than 30 years.
But now comes the cloud. It ushers in a whole new set of online tools that serious online marketers such as Dell must experiment with. In fact, Dell has adopted a marketing strategy for public and large enterprises that puts cloud applications at the center of its channels to customers. “The cloud is very appealing to us,” says Rishi Dave, executive director of online marketing for Dell’s large corporate, public and government enterprise division. “I live in constant paranoia of innovation overtaking us in the online space. So we constantly are reviewing, evaluating, and testing new offerings from cloud providers to see who is at the leading edge so that we are using the latest, greatest marketing tools.”
Online marketing has become a blood sport, especially in the computer industry. Competition in the IT market has become so fierce that products are quickly commoditized and margins rapidly squeezed. Hundreds of millions of dollars ride every week on whether a technology company can troll the vast World Wide Web looking for enterprise customers ready to change vendors. A snarky comment in a LinkedIn or Facebook group, a complaint Tweeted for all to see, and other digital droppings can lead a company like Dell to identify a ripe prospect – or a customer ready to defect.
Before the advent of social media, the ways companies like Dell used software to track what was being said about them on the Web, in calls with customer reps, and in emails. But the world of marketing applications has changed dramatically. Dell uses Salesforce.com to manage its CRM efforts. And now the Round Rock, Texas-based IT giant is also using other cloud vendors’ marketing-related applications. “This means we can innovate more quickly,” says Dave.
He is experimenting with cloud-based gamification — as Wikipedia defines it, “the use of game design techniques and mechanics to solve problems and engage audiences” — to both entertain and enlighten current and prospective customers. The company sees gamification as important for getting rapid feedback on new products and marketing collateral.
Gamification Delivered in the Cloud: The New Dell Marketing Tool
A great example of how Dell drove results fast with cloud-based marketing applications came at its first annual conference for global customers, Dell World, held last October in Austin. Four months prior to the conference, Dave and other online marketers at Dell decided they needed a novel way of interacting with attendees, one that would engage them more deeply and give Dell a deeper understanding of what solutions customers cared about. Working with a cloud-based gamification vendor, Dell used mobile gamification to reward attendees for downloading Dell content at the event, sharing it with their peers, and letting others know about it through sending out Tweets, visiting physical locations at the conference, and exchanging contact information.
A big advantage of working with a cloud vendor for the game application was that Dell’s online marketing group didn’t have to request a system that would touch the company’s internal IT infrastructure.
The Biggest Barriers to Adopting Whole New Cloud Applications: Giving Up Control and Changing the Way Dell Markets
In working with vendors of cloud-based marketing applications, Dell has had to learn how to deal with a new set of business partners – many of which are small startup companies that need to handle a large, global firm. “When you no longer own the technology, you have to be much better at managing cloud vendors and developing partnerships,” explains Dave, who says the firm evaluates as many as a dozen cloud marketing application vendors at any one time. “You have to have a process to identify the right partners, and you have to learn to relinquish total control.” In contrast to marketing applications built internally (over which Dell can determine every feature, function and interface aspect of the software), using cloud vendors’ marketing applications means Dell must give up control of product features, look and feel.
This, in turn, means Dave and his team must carefully evaluate whether Dell can change its marketing processes to take advantage of a promising new cloud-based marketing application. “It is relatively easy to identify new tools but a big challenge lies in absorbing them,” he says. “This requires looking at it from an internal business process perspective.” Cloud applications that require too many internal changes – or vast amounts of training to master it – have a much higher barrier to adoption. “A limiting factor is how much training, additional resources, and process changes are needed. Also, providers must eventually be able to scale their capabilities as their organizations grow.”
Of course, one of the big attractions of cloud marketing applications to Dell (and many, many other companies) is turning a fixed cost (licensing marketing applications software and the purchase of servers to run it) into a variable cost. If the company doesn’t like a particular cloud application that it has been using to sort out sentiments aired about the firm through social media, it simply stops using the service. Dell doesn’t have to remove the software from servers in its data center – and most of all, it doesn’t have to buy the extra servers need to run the software in the first place. Those applications run on a cloud vendor’s software.
All in all, Dell sees cloud-based marketing tools as critical to effective marketing in the present and future. Online marketing chief Dave believes that cloud vendors selling applications for mobile phones, tablet computers and other highly portable digital devices will be especially important to Dell given that its large-company customers do a large and increasing share of their daily tasks through such devices.
“We constantly trial cloud providers to see who is developing the latest tools,” Dave says. “Our use of such tools will absolutely grow. And as we ramp up our mobile strategy, cloud becomes critical.” As a case in point, he and his team are already thinking about creating games for the next Dell World conference that can be played on any digital interface – smartphones, tablets and PCs.
The early returns on cloud applications are impressive. Companies using cloud applications are increasing the number of standard applications and business processes, reducing cycle times to ramp up IT resources, cutting IT costs, and launching a greater number of new products and processes. The story of a major telco shows the ambitions of the some of the most aggressive cloud adopters.
- Operational and financial improvements from shifting on-premises applications to the cloud
- Operational and financial improvements from launching new applications in the cloud
- Case study: AOL Inc.
- Case study: Major telco
We asked the companies we surveyed whether their use of cloud applications had generated benefits – both cloud applications that they shifted from on-premises computers, as well as whole new cloud applications for which they previously had no on-premises versions. For both types of cloud applications, their answers indicate that cloud applications are generating significant improvements in operational and financial performance.
Benefits from Shifting Existing Apps to the Cloud
In all four regions of the world, the average benefits from cloud applications of this type were impressive, especially in Latin American and Asia-Pacific companies:
- In IT costs, 28% (Europe) to 55% (Latin America) average reductions
- In standard applications and business processes, between 34% (Europe) and 60% (Latin America) increases in the number of apps and business processes that have been made common across a company or business
- In cycle-time reductions to ramp IT resources up or down (a measure of “flexibility”): between 35% (U.S.) and 64% (Latin America) reductions
- In systems downtime, 33% (Europe) to 59% (Latin America) reductions
- In the time it takes to enhance applications, 37% (U.S. and Europe) to 57% (Latin America) reductions
- Application fixes, from 35% (U.S.) to 64% (Latin America) reductions in the number of patches
- In analytic reports, from 34% (Europe) to 66% (Latin America) increases in the number of reports, which gives companies greater ability to mine and analyze volumes of data
The more aggressive adopters of cloud computing – Latin American and Asia-Pacific companies (which had higher percentages of cloud apps to total corporate apps) – also reported much greater benefits from their cloud apps. Why is this the case? Perhaps greater benefits is a function of experience; the more you use cloud applications, the more knowledge you gain about how to deploy and use them, and thus the greater likelihood to generate benefits. Or it could be that using a higher number of cloud applications simply brings more cumulative benefits.
For a $5 billion consumer products company, the cloud enabled one of its business functions to implement a new application without needing the typical “$10 million and 18 months to build it,” says an IT executive in the company. And the aforementioned telco hopes that standardizing applications through its private cloud data centers will help it reduce the number of those centers by 80% and save as much as $200 million in annual IT costs.
Companies Report Sizable Benefits from Launching Whole New Apps in the Cloud
We also asked survey respondents to report on benefits received to date from new applications that they launched in the cloud. Specifically, we had them indicate improvements in six areas:
- Testing of new business processes that they would have considered too costly to test prior to the advent of the cloud (because of excessive technology costs). Here we asked them to indicate the percentage increase in new business processes tested.
- The number of new business processes they actually launched or instituted
- The number of new products/services they tested
- The number of new products/services they launched
- The annual revenue increase from launching new products/services in markets that they already served
- The average reduction in the time it took to enter new markets with new products/services
While the average percentage improvements in these areas were about half those that companies reported from shifting on-premises applications to the cloud, they were nonetheless noteworthy:
- Increases from 15% to 19% in the number of new business processes tested and launched in U.S., Europe and Asia-Pacific companies. Latin American companies, however, reported higher average numbers (22-27%)
- Increases from 13% to 19% in the number of new products or services tested and launched by companies in the U.S., Europe and Asia-Pacific (which, again, trailed the 31-32% increases in new products/services in Latin America)
- An average 14-17% reduction in cycle time to enter new markets with new products/services in the U.S., Europe and Asia-Pacific (bested again by Latin American companies, which claimed an average 35% cycle time reduction)
- Average revenue increases of 13-17% from launching new, cloud-based products and services in existing markets (vs. an average 32% revenue increase reported by Latin American companies)
At AOL, a Private Cloud is Helping the Shift to a Web Advertising Model
Three decades ago AOL Inc. was a trailblazer in opening the online world to the American public. Today, despite competition from Facebook, Google, Yahoo and many other sites, AOL remains the sixth most heavily visited U.S. Website, with 106 million unique visitors in November 2011. The $2.4 billion company will be 30 years old next year, an unusual lifespan in an industry that buried AltaVista, Boo.com, Pets.com and many other online companies long ago.
AOL outlasted them all because of its ability to shift strategies quickly and capably as the Web created new capabilities and competitors. The company has reincarnated itself several times – from proprietary online service in the early 1990s (supported by subscription fees) to Internet access provider in the late 1990s and 2000s (dial-up access fees) to online media content provider today (funded by advertising). In just the last five years, the company’s revenue mix has changed from about 43% advertising/54% subscription to 60% advertising/40% subscription and other.1
But because of its long history of providing online services such as email, instant messaging and Web media and entertainment content, AOL had accumulated a vast amount of computers, storage, other computing devices and software over that time, says Michael Manos, senior vice president of technologies at AOL. He has a playful name for this technology tangle: “cruft.” These legacy systems can weigh down companies that must continually adopt new web technologies while keeping IT infrastructure costs low. This is especially the case at AOL, whose strategy today requires focusing investments on online content and the people who produce it.
“Cruft adds tremendous complexity to a company’s technology operations and makes it difficult for it to be agile,” Manos explains.
To reduce its IT costs, AOL has embraced a private cloud infrastructure over the last year. It has dramatically lowered the technology expenses of sales, marketing and customer service. Manos estimated that 20% of the company’s business applications have moved to cloud in the last six months, and that another 15% will shift by mid-year.
That’s crucial in a company whose subscriber revenue has been falling sharply over the years. A decade ago, AOL had about 30 million subscribers. Today, the number is around 4 million. In 2011, the company reduced total expenses more than $500 million to make up for the decline in subscription revenue.1
Adopting a Private Cloud at Light Speed
Manos joined AOL in January 2011 after 17 years of managing data centers for such media and technology icons as Walt Disney Co., Microsoft, and Nokia. He had earned a solid track record in making data centers more effective and efficient.
In just 90 days, Manos and his team implemented AOL’s first-ever private cloud in a new data center the company calls ATC. (AOL operates three other data centers in the U.S. – two in Virginia and one in Silicon Valley.1) Since going live last Oct. 1, ATC and the private cloud have enabled AOL to shut down about 10,000 computer servers at its other computer facilities. Furthermore, AOL’s private cloud can more quickly increase the firm’s computing capacity on demand, without the need for additional manpower. Such “dynamic scalability” is essential in a business like AOL, where breaking news such as election results generates huge spikes in viewers clicking on its websites.
Because of its private cloud, AOL can now get a new server up and running in just minutes, compared to 6-12 weeks a decade ago.1 In fact, on the ATC data center’s first day of operation, it took only an hour to have nearly 100 virtual servers running. Manos says provisioning a new server now takes only about 5 minutes via the cloud, compared to the 8-12 hours it previously took. “We now can spin up capacity extremely quickly,” he says. “More importantly, we can spin down capacity very quickly. So it’s given us a substantial amount of agility within our business that we’ve never had before.” The cloud has also reduced energy costs. The more efficient servers at ATC (about 800 in all) have replaced 3,000 old servers, paring AOL’s electricity bill by about $700,000 a year.
Biggest Barrier to Embracing the Cloud: IT People
Manos says the biggest barrier to adopting cloud technology at AOL is that IT employees worry that cloud technology will replace them. However, companies like AOL have no choice but to reduce costs in technology and other realms. ATC is a 100% “lights-out” facility, meaning it doesn’t need anyone operating the machines on its premises. Manos’ team of five people can now manage 12,000-15,000 servers that are spread across the company’s data centers. Still, the main objective is not to eliminate IT staff but rather to deploy them in jobs where they can play a more important role.
Manos has gained support for cloud computing throughout AOL, from the CEO down. Through regular emails, newsletters and meetings, CEO Tim Armstrong has gone to great lengths to make the transition transparent. Armstrong has become a big proponent of the firm’s private cloud because of the cost savings and ability to launch new Web content more quickly.
“If you would have told me nine months ago that the CEO would be talking about the technology side of the business, I would have said you were crazy,” Manos says. “But he is now saying that AOL is a technology company as well as a media company.”
Major Telco: Cloud as Game-Changer and Data Center Consolidator
This company sees cloud as a major external and internal opportunity — to sell new services to customers and induce large reductions in its technology costs as well as standardized business processes and applications software.
Top management at the telco believes that if the company wishes to get numerous customers to adopt cloud services, it must demonstrate how it has benefited from using the cloud internally. With that mandate, the company in the last two years has moved financial systems such as general ledger, payables and fixed assets to its private cloud. It is also moving human resource applications to the cloud (including the corporate email system, and employee savings and financial plans). Customer records ordering and processing will move to cloud as well. All in all, the company has moved 30% of its applications to its private clouds (data centers that it owns and operates), a number it hopes will reach 80% by year-end.
The company is moving to organize its IT architecture completely around its private clouds, with the intention of eventually putting all applications in the cloud and providing cloud services for each company business unit. Today, its business units have their own financial, HR, customer management and other systems. That, of course, results in large duplications of software, hardware and data center space that could be consolidated if business units could standardize on many fewer applications and let them run on hardware at fewer but centrally managed data centers.
If the firm can achieve this, it believes it will reduce the need for dozens of data centers (reducing the number by as much as 80%), which would achieve cost savings in the range of $100 million to $200 million.
What must the company do to reach such ambitious goals? The two biggest obstacles that we heard were “fear of the unknown” and “fear of losing control” – both coming especially from the IT functions within the company’s business units.
That said, the company believes the issue is no longer whether the company will broadly adopt cloud computing but rather how quickly it will do so. “We believe cloud is something that is going to be gaming-changing,” says one executive. “It’s going to become a way of life. I think we’re at the very beginning of this, and that many companies have a ‘toe in the water’ approach because of the security concerns.” The gating factor, he believes, is whether cloud vendors can provide a highly secure service with nearly 100% uptime.