Low Pricing Drives Servers to the Cloud

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As organizations plan to meet future computing needs and the challenges of mobile, big data/analytics, and cloud computing what vendor will provide the IT infrastructure and how much will it cost? Recent reports suggest that traditional enterprise IT service vendors may no longer be the preferred choice. Amazon Web Services (AWS) cloud pricing undercuts everything.

As your organization plans to meet its future computing needs what vendor will provide your IT infrastructure and how much will it cost?  Recent reports suggest that the usual suspects—traditional enterprise IT service vendors—may no longer be the preferred choice.

A recent piece in The Register suggests that Amazon Web Services (AWS) will more likely provide your IT hardware infrastructure than the traditional enterprise IT hardware vendors like HP, IBM, EMC, NetApp or the other big players. The piece, headlined Amazon cloud threatens the entire IT ecosystem, suggests AWS poses a major threat to most of the traditional IT ecosystem vendors and the multitude of organizations that rely on them based on a recently released report by a team of Morgan Stanley analysts. The Morgan Stanley researchers cite Brocade, NetApp, QLogic, EMC and VMware as facing serious challenges from the growth of AWS. The threat takes the form of AWS’s exceeding low cost per virtual machine instance.

In the report Morgan Stanley analysts noted that AWS is able to use its already dominant and still growing cloud scale to savage the traditional enterprise IT vendor strategies and it is no secret why:

No upfront investment

Price Transparency

Faster Time to Market

Near-infinite Scalability and Global Reach

Pay for Only What You Use (with a caveat or two)

And the more AWS grows, the more its prices drop due to the efficiency of cloud scaling.  It is not clear how the enterprise IT vendors will respond.

As CFO what will you and the organization’s other top executives say when you get a whiff of AWS pricing. An extra large, high memory SQL Server database instance lists for $0.74 per hour. (Remember, you need to multiply the number of servers you will need by the number of hours.) Then ask you CIO how much your Oracle database costs per hour running on your on-premise enterprise server.  Cloud pricing never is exactly what it appears but even with all the caveats AWS pricing has dramatically changed the IT infrastructure cost calculation.

Beyond the price threat, the vendors are scrambling to respond to the challenges of cloud, mobile, and big data/analytics. The Wall Street Journal online addressed this when it wrote that PC makers unveiled a range of unconventional devices on the eve of Asia's biggest computer trade show as they seek to revive their flagging industry and stay relevant amid stiff competition.

Driven by the cloud and the explosion of mobile devices in a variety of forms the enterprise IT industry doesn’t know what the next device should even be.  Readers once chastised this blogger for suggesting that their next PC might be a mobile phone. Then came smartphones, quickly followed by tablets.  Don’t surprised if your next computer is a virtual desktop hosted someplace in the cloud and accessed through a device remarkably similar to your TV remote controller or some sort of all-in-one device.

IBM has responded to the changes sweeping the IT industry—cloud, mobile, big data/analytics—by shifting its focus to these areas and even directing its acquisitions there, as witnessed by this week’s SoftLayer acquisition. HP, Oracle, and most of the other vendors are pursuing variations of the same strategy.  Oracle apparently is focusing its upcoming Oracle OpenWorld conference squarely on cloud computing.  Expect tens of thousands of people to attend.

The fact is that the IT industry is on the cusp of dramatic change. As CFO, you need to sit down with your CIO and talk about how the organization is going to get computing capabilities it needs in the future, what the nature of those capabilities should be, and at what price. Then you can begin to figure out how you are going to get there.

 

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