Why CIOs have problems with cloud computing: Sunk costs in legacy IT

Enterprises fret about security and control in the cloud, but their biggest problems with cloud computing concern sunk costs in legacy IT.

Are customers scared of cloud security breaches? Absolutely. Are they uncomfortable with their lack of control...

over cloud providers' infrastructure? You bet. But do businesses see these two issues as their biggest problems with cloud computing? Not exactly, according to a new TechTarget survey.

If you believe that the cloud is a different way of doing what we already do in the data center, you're doomed to disappointment.

Tom Nolle,
president, CIMI Corp.

More enterprises and small to medium-sized businesses (SMBs) say they are delaying public cloud adoption because they've sunk too much money into legacy IT, according to TechTarget's recent Cloud Pulse survey, which polled 1,497 IT professionals about their use of and attitudes toward cloud services.

If cloud providers want to overcome this problem, they should stop marketing their services as replacements for IT infrastructure.

Of the 569 respondents who reported they were not currently using cloud services, the plurality (38.1%) said they have delayed any adoption of cloud services and applications because they have "too much capital already invested in internal IT infrastructure." Concerns about security took second place (36.4%) while "not enough control over the environment" trailed closely behind in third place (33%).

Those issues and the order they're in roughly match what Bluelock LLC, an Infrastructure as a Service (IaaS) provider based in Indianapolis, hears from enterprises and SMBs, according to Pat O'Day, Bluelock's chief technology officer.

These sunk costs in IT are still depreciating, O'Day said. "This happened in virtualization too because a lot of companies started off when virtualization was really scary; the benefits were reasonably clear, but the risks were seen as high."

Eventually, most enterprises adopted a "virtualization first" policy for new deployments, and O'Day suspects they'll do the same with cloud.

But even when those risks are mitigated or that legacy infrastructure fully depreciates, businesses dedicate no more than a quarter of their IT budgets to public cloud services, according to Tom Nolle, president of CIMI Corp., a consultancy in Voorhees, N.J. That's partly because some cloud services can wind up being 2.5 to 3.5 times more expensive than on-premises deployments, he said.

"Nobody wants to write a story that says, 'Almost every application that is not hosted [in the cloud] today is not going to be hosted [there] in the future for the same reason it's not hosted today,' which is that it's not cost effective to do so," Nolle said. "But that doesn't mean the cloud isn't going to succeed. It's going to succeed differently."

Cloud can't just be 'IT replacement'

One of the biggest problems with cloud computing is how it's marketed today. Providers are touting it as "an IT replacement," Nolle said. This stokes the argument from customers concerned about legacy IT investments. The bigger opportunity for providers is in the "service cloud," meaning new applications and services that happen to run on cloud platforms but aren't necessarily marketed as cloud services, per se, he said.

Top reasons businesses don't use cloud

What factors have delayed your adoption of cloud IT services or applications? (Select all responses that apply.)

Too much capital already invested in internal IT: 38.1%

Not enough security in the environment: 36.4%

Not enough control over the environment: 33%

We are not virtualized enough to implement cloud computing: 31.5%

Does not offer adequate benefits for our organization: 23.7%

A virtualized environment is enough; we do not need cloud: 17.6%

Other: 14.8%

Source: TechTarget, Cloud Pulse survey, August 2012. Sample size: 569.

Examples of cloud-based "service applications" in the consumer market include Verizon and AT&T's residential monitoring services, which run on cloud platforms. However, carriers don't market these services as cloud, Nolle said. On the enterprise side, mobile device security scans could be served to customers via the cloud but not marketed explicitly as a cloud service.

"If you believe that the cloud is a different way of doing what we already do in the data center, you're doomed to disappointment," Nolle said. "The cloud provider who thinks that the failure of their sales process is [due to the fact that] the buyer is dumb and needs to be re-educated is looking in the wrong direction. They're the dumb ones that need to look in the mirror to understand the real value proposition in the cloud."

Enterprises that once came to the cloud for cost savings are increasingly interested in using it to extend existing applications or deploy totally new ones, according to Jonathan King, vice president of cloud solutions at Savvis, a cloud and managed hosting provider based in Town and Country, Mo. "There was a time when the reason people were talking about cloud was capex to opex," he said. "But that fell from grace. It has not stayed in the top list of why people are looking at cloud."

A large rental car company recently told King that it didn't want to move its core reservation application into the cloud because it didn't make technical or financial sense to move it off of the company's legacy, on-premises infrastructure. It was interested in moving pieces of a new mobile application into the cloud, however.

"They're not going to move large chunks of the technical componentry that would enable the mobile application; it's not going to leave their data center," King said. "However, it's a new application, and components of the mobile app -- middleware and other components of the application -- can and should be in the cloud."

Savvis and other cloud providers believe hybrid cloud models will enable this approach.

Hybrid cloud: Solving biggest problems with cloud computing?

Cloud providers say they have accepted that customers aren't going to throw away legacy IT investments and move every application into the public cloud. But that's not necessarily bad news for cloud providers, King said. "That's where we see hybrid solutions to be relevant," he said.

Microsoft is drawing on its years of experience running consumer Web-based applications -- such as MSN, Bing and Hotmail -- with its heritage in on-premises software to support hybrid cloud for Windows Azure customers, according to Helene Love Snell, director of Microsoft's server and tools business.

"We understand that each of our customers is unique in regards to their needs and priorities," Love Snell said in an email interview. "We believe that many of our customers will live in a hybrid cloud world -- a mix of on-premises and off-premises solutions -- and we're making it easy for them to employ cloud technologies in their own way, at their own pace, in order to help them minimize loss on previous IT investments."

Let us know what you think about the story; email: Jessica Scarpati, Site Editor.

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What do you think is the biggest barrier to cloud adoption?
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Marketing "cloudwashing"
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Security is by far the biggest concern.
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Security issues are the biggest barrier in my opinion. Not all companies are willing to risk to store sensitive company information in a public cloud
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high risk prop
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Internal staff not trained in skills needed to run internal cloud so leave it as status quo and continue to spend money
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Big Firms typically want to have their infrastructure managed internally. It is not the question of money but security, tradesecrets etc. Cloud can be good solution for SMBs,other organizations and can help generate new businesses and bring IT to businesses that can not afford Big IT. In my opinion,Both IBM and Microsoft have good offerings on Cloud along with Salesforce.
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If Cloud company is not dependable and timely in their support then you end up paying conversion costs all over again and leads to down time. Also, security will always be an issue.
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I believe the real reason around the "fear factor" syndrome of Security is not IT security but job security. Loss of control is a huge factor which individuals are downplaying. Most companies will not consider allowing their core transactional systems and applications to reside off site. Also a detailed transition plan that allows migration in phases is a must for any cloud business case which is sorely lacking and in most cases excludes a vital issue and that is a mutual sharing of risk and benefits.
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Empire's built - similar to the sunk IT investment, can often be a big barrier. A CIO who clings to the concept of "building his empire" doesn't want to lose that piece of his crown to an outsourced provider. If an IT Manager sees installing infrastructure as his key strength and can't adapt to the new services model, keeping the status quo is a safe play. It takes a CIO or other C level managers to reconsider what an IT department provides and whether it is best placed to provide it. I think an IT department can be equated with the public service - where it is run lean, it adds value, but as a bloated empire it just acts as a roadblock for innovation.
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In my point of view, solution providers still do not have a coherent GTM, and, in most cases, they fail to provide a real business value proposition.
The adoption of the model is restricted to IT service islands. In most cases, the focus remains on mere cost reduction rather than the possibility of having access to computing resources and preconfigured applications that add performance to companies into a new level of information processing and management, that only the mega corporations have today, through direct investment in IT assets, applications and IT and systems specialists .
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Reduction in headcount means a reduction on responsibility rendering the existing IT managers as vendor managers. Secondly there are a lot of claims and counter claims being made by competing vendors that do little to settle the doubts that IT management have with various cloud models particularly IaaS and PaaS.
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While I appreciate the need to stay current on Technology and stay current with everything else, for the most part I see it as an issue of availability. You have to have some form of internet access to be using the cloud. If you lose this, then you are done. If you can afford the time that something may be down because you do not have internet access, then go for it. This is a disaster recovery standpoint too. I was working at a business that had severe storm come through the area, and we had no power to it for internet access for a week. If everything was cloud based, then the company would have been in deep trouble, since we had generators and could get the mission critical computer systems back up and running we were fine, but with out internet access.
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Security is the biggest problem on cloud computing. Vendors will go over-board trying to sell - users need to THINK. Dont jump in because everyone is doing it.
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Cost of cloud services will be more expensive once a usage base reaches a critical point. IAAS will be a better choice for some applications. The blend of private cloud (virtualization) and Hosted application would make more sense. A new application, or service would likely be a cloud service until it reaches its critical usage base when it would be more cost effective brought in house. The size of the usage base of the application makes it the decision point. Similar to taking a bus to work, shared infrastructure but when you transport enough personnel from point a to b often enough the cost of providing the service eventually is less than if everyone took the bus.
Cloud services is excellent for SME who can not afford the IT overhead themselves.

So it boils down to the volume of usage and the critical point where it gets cheaper to do it in house.
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