We’ve been doing some extra research lately in preparation for this month’s IMF Forum, taking place on July 13th and 14th in Atlanta. With regards to Cloud Outsourcing, we are noticing some interesting trends in the marketplace. We’ll talk about a number of these in our presentation about Outsourcing in general at the meeting, but I wanted to share one concept with you ahead of time.
At a high level, it appears as though pricing in the cloud (speaking strictly of a third-party provider for this example) is based on utilization. It really remains to be seen how the costs per unit will change over time (in addition to the retained costs necessary to access a third-party cloud safely and effectively), but the fact that the pricing is structured this way will make for some interesting conversations within the IT organization. Essentially, the message may be: “These providers charge only for what we use, and we have all this unused capacity built into our in-house model, so if we can drive a big jump in utilization, we should be competitive.”
I cannot recall a case where we’ve worked with a company on a benchmarking study and a major goal of that organization wasn’t to improve their utilization. So, if anything, this may just make the concept more salient to senior management. It will be interesting to see what impacts this eventually has on delivery strategies. The industry as a whole will take some time to become entirely comfortable with their approaches to either adopting or competing with cloud providers.
One word of caution, however. Remember that as a customer of a cloud IT provider you are charged per utilized unit, but at the end of the day you are paying for excess capacity along with all of the other customers. The cost for the excess (which is necessary to give you on-demand increases, as well as protect everyone from failure) will be passed on in the rates you pay. As a result, longer-term attempts to get your unit costs (based on utilized units) in line with the provider’s rate may be a battle you can’t safely win.
We’ll discuss this concept and several others related to it during the Outsourcing and Project Management Forum on July 13th and 14th. We hope to see you there!
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