Cloudonomics: The Business Value of Cloud Computing, + Website

Enabling Vendor Strategies

What are the implications for enabling vendors? Excluding macroeconomic cycle anomalies, price elasticity and the Jevons argument suggest more IT. More IT means more systems and more components built into those systems. That’s the good news. However, more product does not necessarily mean more profit: The business is already highly competitive. The challenge in any business that has a continuing trend of technology innovation driving continued cost reduction is to grow or maintain revenue and profitability in the face of endless price-performance improvements. The structure of the industry is thus likely to favor scale on the supply side. On the demand side, for these systems vendors, enabling software vendors, and network service providers, an increasing percentage of their business will shift away from individual enterprises, systems integrators, and perhaps even business process outsourcers and toward cloud service providers and buyer cooperatives. This shift may lead to further margin compression. Continued growth in IT-enabled solutions may lead, however, to relatively stable returns on invested capital, as volume growth compensates for margin declines.

How much IT systems spend will migrate out of the enterprise and into the cloud? This is an important question for software and hardware vendor sales leaders and strategists. If there is a big switch to the cloud, to use Nicholas Carr’s term, many IT vendors would need to dismantle their enterprise ...