Cloud Services are Eating the World

January 5, 2016

The Cloud revolution is impacting the technology sector. You can clearly see it in the business results of companies like HP and IBM. For sure, legacy technology providers are embracing the Cloud. They are transforming their businesses from building and running on-premise infrastructures to delivering Cloud-based services. The harsh reality is that this is a destructive transformation. For every dollar that exits legacy environments, only a fraction comes back through Cloud services. This is the great promise of the Cloud – maximizing economies of scale, efficient resource utilization and smart sharing of scarce capabilities.

It is just the latest phase of the destructive force that technology applies to all parts of our economy. Traditionally, technology vendors used “headcount and operational savings” as part of the justification for purchasing new technologies – a politically correct reference to needing less people, offices and the support systems around them. This force has now arrived in full force to the final frontier: the technology vendors themselves. Early indicators were abundant: Salesforce.com has displaced Siebel systems reducing the need for costly and customized implementations, Amazon AWS is increasingly displacing physical servers reducing the need for processors, cabinets, cabling, power and cooling.

Marc Andreseen argued in his 2011 Wall Street Journal article that “software is eating the world”. In my view, this observation is now obsolete. Today, Cloud services are eating the world. Cloud services encapsulate and commoditize the entire technology stack (software, hardware, platforms and professional services). This model is so impactful and irresistible that even capturing only a part of the value is a big win. This is how Cloud services now include Platforms (PaaS) (i.e. Google, Microsoft, Salesforce.com) and Infrastructure (IaaS) (i.e. Amazon AWS, Microsoft Azure and IBM Softlayer).

Why is the Cloud services model so successful and so disruptive?

Customers’ focus is increasingly shifting into simplification of complex business and IT infrastructure, because complexity is both a technical and a business risk. We actually had a simpler world in the past: the vertically integrated IT world of the 80s (where one provider, like IBM, delivered a total solution for all IT needs). Things got a bit out of hand in the 90s, when the IT landscape shifted into a horizontal integration of best-of-breed components. The marketplace, where every component vendor (compute, storage, software, services) competed for business at every customer, spurred innovation, and drove down component prices. Complexity, was the less desirable side effect because customers had to integrate and than run these heterogeneous environments.

We are now seeing the pendulum shift again. Cloud services offer a vertically integrated solution to multiple business problems. Choice is reduced in the sense customers can’t dictate the compute, storage or software the Cloud service will use, but complexity and cost is eliminated en mass. Ultimately, the proof is in the pudding, and if the business value is delivered in a consistent fashion with the right 3rd party validation for quality of service, the details don’t really matter.

The era of the Cloud requires new type of companies that are agile and lean, like the Cloud itself. Very few companies have the courage or the will to cannibalize their legacy businessess and embrace a new reality where there is simply less money and resources available to get things done. When you build a startup company for the Cloud era, you must design it for the Cloud economic model. You invest in R&D to build a great platform, in self-service/low friction service delivery models and in customer success to keep your users happy. You do more with less because your customers are forced to do the same.

Network security has yet to be extensively impacted by the Cloud. Security technology is considered sensitive by large enterprises, limiting the sharing of threat data. Regulations also place constraint around customer data handling in the Cloud. These forces may slow down the adoption of Cloud technologies but will ultimately give way to the immense value they offer to businesses. Security will uniquely benefit from vertical integration with distinct domains, such as networking. Such integration will provide unparalleled visibility into enterprise network activity and will enable deeper insight and early detection of advanced threats.

We envision a world where network security is less of a burden on staff and budgets while the quality of service and the customer experience is dramatically improved. This is not a shot across the bow of network security incumbents. It is a recognition that the transformative power of the Cloud will ultimately reach every business in the world, and IT security vendors, like all other IT vendors, will have to make a choice – embrace it or wither.

Yishay Yovel

Yishay Yovel

Yishay directs Cato Networks’ worldwide marketing. Yishay has over 25 years of experience in marketing, defining and deploying enterprise IT software solutions in the areas of security, storage, business continuity and mobile computing.