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Tuesday, 09 October 2012 13:35

Clouds gathering over the channel


The growing enthusiasm of business for outsourcing IT services into the cloud is likely to have a profound effect on the supply chain for IT hardware and software.

At a recent IDC seminar on cloud computing Chris Morris, associate vice president, cloud technologies and services with IDC Asia Pacific, gave IDC's perspective on how the growth of cloud computing would impact the skills mix in the IT departments of enterprises.

The skills mix, he said, would shift from technical experts to manage in-house IT resources to those with a stronger emphasis on management skills to handle relationships with service providers as the trend to shift IT into the domain of cloud based service providers gathers momentum.

"By 2015 the percentage of enterprise systems that will be managed by third party providers will double and the management an organisation does will be contract management, management of SLAs and the management of those vendors overall," he said.

"They will have acquired a whole range of different skills to do that. What might have been 80 percent IT technologies and 20 percent management might be 60 percent and 40 percent."

This shift of IT into the cloud is also likely to have a profound effect on the supply chain: the market for IT hardware and software will shift from the end user organisation to the cloud service provider. An increasing percentage of the dollars will be spent by a few large service providers rather than many thousands of IT departments in end user organisations.

At an informal getting-to-know-you press briefing last week Cisco's recently appointed VP for Australia and New Zealand Richard Kitts said that Cisco was re-aligning its internal organisation to match the changes impacting its partners; namely providing fewer on-premises solutions and instead moving applications into the cloud.

When questioned he was not too keen to explore the ultimate conclusion of this re-alignment: that the vast army of channel partners that sell Cisco gear to an even greater number of end user organisations could shrink to a much smaller number of larger partners selling to a very large providers of cloud services. But this surely is the logic of the move into the cloud for Cisco, its channel partners and those of other IT vendors.

Kitts did concede that the transition was inevitable but was, not surprisingly, reluctant to suggest that it would be rapid or that it might prove traumatic for the IT channel community.


He envisaged Cisco having fewer partners. "I can foresee in maybe ten years that our partners might be doing different things," and suggested that the industry is still in its very early stages and will throw up new market niches as it evolves; niches that will create new opportunities for channel partners.

No doubt he is right on all these points but when he talks of Cisco having maybe 1000 channel partners serving hundreds of thousands of customers today, it's hard to believe that the majority of channel partners of Cisco and many other big IT vendors will survive the large scale shift of IT into the cloud and the shift of spending from end users to cloud service providers.

According to IDC senior market analyst, Raj Mudaliar, IDC expects that the use of externally sourced businesses and IT services from 'the cloud" will form the basis of an 'Outsourcing 3.0 period', and will provide an extensive portfolio of services from which innovative solutions will be constructed.

With Outsourcing 3.0, according to Mudaliar, "the cloud metamorphoses into a universal service catalogue of individual cloud services that will begin to replace both traditional IT outsourcing (ITO) and business process outsourcing (BPO) engagements and on-premises infrastructure." (my emphasis)

The result of this shift in the market will be that a minority will grow significantly, a greater number might be swallowed relatively painlessly in the consolidation, some might, as Kitts suggests morph into different business but it seems likely that for many their will be a painful demise.

The biggest uncertainty is just how fast this will happen. IDC is tipping a fairly rapid transition. " The Australia cloud services market continues to develop rapidly, with many structural changes expected to occur in the next 24 months," says Mudaliar.

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