Cloud computing economics: the payoff when consumers become providers

As I mentioned the other week, I was to deliver a talk, via Skype, to the folks at the SOA & Cloud Symposium in Berlin. While everyone waited, technicians attempted to work through audio problems, but to no avail. Again, my apologies to those who attended but were not able to hear my presentation.

And, here is a summary of some points I was going to make about the "Economics of Cloud and SOA."

The recent economic recession and ongoing economic tightening may mean another period of significant change for business technology, just as earlier recessions fueled the PC and Web revolutions.  Here's what is on the horizon:

• Public, hybrid, private cloud models have different economic implications
• All companies will be both producers and consumers of cloud-based services. The opportunities are ultimately not just cost-savings, but revenue generation and value creation for existing and new markets.
• Cloud computing requires service oriented architecture methodologies to succeed.

SOA and cloud computing will help bring service consumers and publishers together; this could have enormous ramifications for the way we build systems and manage our organizations.

If you don’t use Amazon Web services, Salesforce.com modules, or rent server capacity from IBM’s facilities, you’re obviously not doing “cloud” computing, right? Not so fast. Actually, you may already be doing some form of cloud computing, but it’s just not being called that. Cloud computing is defined as the acquisition of services from online providers. As the promise of the cloud unfolds, it’s likely that a typical cloud provider will not be a technology company, but an industry partner that is capable of sharing applications and data.

Many, many companies assuming the role of cloud providers.  Only they don't call themselves that. And they would even deny it if you asked them. But they are doing just that. But don't dare call it "cloud" -- it's customer service!

Cloud computing is defined as the acquisition of services from online providers. As the promise of the cloud unfolds, it’s likely that a typical cloud provider will not be a technology company, but an industry partner that is capable of sharing applications and data. Consider these examples of companies I have spoken to:

• A bank that not only provides services to its own customers, but also to about 20 other institutions -- everything from check imaging, check processing, to outsourced customer service to a "bank in a box."
• A reinsurance company that provides a portal with analytics so insurance company customers can do analytics on risk.
• A transportation company that rolled out external services to customers so they can track and manage shipments.
• Then there's the United States government itself, which runs an app store to supply services and software to its agencies. Apps.gov, administered by the General Services Administration (GSA), categorizes available services by function –such as CRM, Data Management, Communications – to make it easier for federal government agencies to identify and compare products.

And, best of all, many enterprises already have experience and knowledge on handling the finer points of cloud, especially if they have been working with service-oriented architecture in recent years. In fact, many proponents see cloud computing as an extension of service-oriented architecture best practices — invoking trusted, reusable services from third-parties that may or may not be outside the firewall.

My colleague Dave Linthicum, author of the book, Cloud Computing and SOA Convergence in Your Enterprise: A Step-by-Step Guide, is one such SOA-to-cloud proponent. Dave says SOA and cloud are part of the same package. The key to success, he says, is to stay focused on enterprise architecture to manage both types of environments. In fact, without SOA, there would be no cloud computing, Dave says.  I agree.

The bottom line is that if your organization has been doing a good job of delivering services via SOA, then moving to cloud-based services will be a fairly natural transition.

What about the economics, then?  The ROI metrics and key performance indicators are great, and should be there to measure the performance of your SOA and cloud services.

But....

All the discussions and proclamations about the "revolutionary" aspects of cloud computing may be actually missing the most revolutionary part of the whole story. Sure, it's great that companies and their end-users can quickly tap into applications and systems from a third party and pay by the sip.  And virtualizing systems through an accessible service layer as part of private cloud is something that is sorely needed.

But the big story with cloud is the opportunities for businesses and IT departments to craft entire new lines of technology-focused business services that they can provide to their partners or customers. Again, organizations are not only becoming cloud service consumers, but cloud service providers. SOA/cloud services are part of your business growth story.  They're going to bring you new customers, and bring you into new markets. Just as Amazon is doing, on a much greater scale.

Of course, as any cloud provider currently in business knows, you can't provide cloud services willy-nilly to partners.  Again, it takes a solid service oriented architecture underneath to ensure that services are properly designed, tested, secure, reliable, documented, and ready for outside consumption.

The provisioning of external services not only means extraordinary customer service, but also a potential revenue stream in the long run – not part of current cloudonomics computations. This is a future consideration that may play into the cloud phenomenon. The lines between producers and consumers of services are blurting – many companies will be both. Thus, the economics extend to the cost of consuming cloud services, but there may also be potential revenue and growth opportunities.  This is something to consider.