There’s Money in the Cloud, But Is It Enough?

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    5 Hidden Costs of Cloud Backup

    The cloud is all about speed, agility, flexibility and increased competitiveness. But at the end of the day, all of these attributes boil down to one thing: money.

    The cloud would be a non-starter if it cost more and produced less. The fact that it does the opposite on both the cost and profit sides of the financial equation, and by a significant amount, is the only reason it is in a position to remake the world of IT infrastructure to such a high degree.

    But in any transition, there are bound to be winners and losers, and in this case it is not hard to see how it will disrupt the lucrative businesses that IT platform providers have built up over the years. To their credit, all of the top players are rapidly shifting their business models over to the cloud, but the degree of success they will have is still very much up in the air. The idea, of course, is that cloud revenues will supplant those of integrated hardware/software platforms, but will it be enough to justify current stock valuations? In an era in which enterprises of all stripes will be paying less for their IT infrastructure, then logically somebody somewhere in the channel must feel the pain.

    A good example of this dynamic is IBM. According to analyst firm Trefis, Wall Street shaved nearly a quarter of its value in the last half of 2015 due to falling revenues. That can largely be attributed to its shedding of key hardware platforms like its server line in favor of cloud computing and data analytics. So is this a company in decline, or one that has wisely shed the old way of doing things in favor of the new? (Disclosure: I am a regular contributor to IBM’s Beyond Point B blog site.) The company has spent billions of dollars on acquisitions like Gravitant, Blue Box and Strongloop, so the question is, will the volume of lower-cost cloud services be enough to offset the loss of high-margin platform sales?

    Hewlett-Packard Enterprise (HPE), meanwhile, is still steeped in hardware, but is making a concerted effort to keep it relevant in private and hybrid cloud architectures. The company has shuttered the public side of its Helion cloud, choosing Microsoft Azure as a preferred provider instead, and is in fact seeing increased revenues from server and networking hardware, although not in storage. At the same time, its application and services portfolio has struggled recently. All of this could be chalked up to growing pains following last year’s split of the enterprise and printer groups, but it points up the fact that money is still being made in hardware at the moment, particularly in platforms that stress low-power, scalable and modular designs.

    Another top player is Cisco, which is dealing not only with the changes wrought by cloud computing but software-defined networking (SDN) as well. According to Zacks, Cisco is in good shape going forward despite the rise of various smaller, more nimble entrants in the abstract networking space. The company stresses software-defined architectures atop specialized hardware that it says provides greater performance and agility over full-commodity architectures. It also recently augmented its cloud portfolio with OpenDNS, a cloud security platform that provides enhanced visibility and threat protection. At the same time, Cisco has teamed up with industry leaders like Apple and Ericsson to extend its footprint into wireless infrastructure, which is becoming the preferred way in which to access the cloud.

    Then there is Dell, which has positioned itself for the future by acquiring storage leader EMC. This picture is a bit more muddled than most because the merger is still ongoing and it is still unclear what role VMware will have in relation to its new parent company. But since the cloud is built on virtualization, and nearly every enterprise on the planet incorporates some form of VMware, it stands to reason that Dell will benefit in some way. Dell has also given up dreams of being a public cloud provider, but it could pursue a hybrid platform with the vCloud Air and Virtustream platforms, although it would most likely leave the hosting to others.

    Nobody is expecting any of these powerhouse vendors to disappear any time soon. But Wall Street is an unforgiving place, and even if a particular strategy shows promise in the cloud, the hammer will fall if the revenue projections do not add up. And if history is any guide, stock revaluations can go one of two ways: gradual and controlled for companies that embrace change and position themselves accordingly, or sudden and catastrophic for companies that try to hold onto the past as long as possible.

    Arthur Cole writes about infrastructure for IT Business Edge. Cole has been covering the high-tech media and computing industries for more than 20 years, having served as editor of TV Technology, Video Technology News, Internet News and Multimedia Weekly. His contributions have appeared in Communications Today and Enterprise Networking Planet and as web content for numerous high-tech clients like TwinStrata and Carpathia. Follow Art on Twitter @acole602.

    Arthur Cole
    Arthur Cole
    With more than 20 years of experience in technology journalism, Arthur has written on the rise of everything from the first digital video editing platforms to virtualization, advanced cloud architectures and the Internet of Things. He is a regular contributor to IT Business Edge and Enterprise Networking Planet and provides blog posts and other web content to numerous company web sites in the high-tech and data communications industries.

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