If companies using cloud computing only dabble, providers may suffer

Companies using cloud computing today have wildly unpredictable usage patterns, making it difficult for providers to anticipate demand and revenue.

Editor's note: Companies using cloud computing today aren't going to dump everything into the cloud, but there's a bigger issue at stake for cloud providers. Usage patterns are wildly unpredictable, making it difficult for providers to anticipate demand and revenue. In the first part of this two-part article, cloud expert Lynda Stadtmueller explains the challenges providers face from "cloud dabblers."

From the earliest days of the cloud, providers have sought to attract users by touting the lack of commitment. No term contracts, no volume commitments. Easy in and easy out. Use as much as you want, whenever you want, and at a moment's notice. Pay only for what you use. Like a 1960s hippie commune, the cloud is painted as a celebration of freedom.

So, cloud providers shouldn't be surprised that companies using cloud computing are taking advantage of that freedom to play the field, flirting with multiple providers and teasing them all with just a few noncritical applications. Rather than committing to a provider, a service, a deployment model or even a cloud strategy, the majority of cloud users are simply dabbling. Even as the number of users and providers continues to rise, the evidence shows most enterprises just don't take the cloud seriously.

Like a 1960s hippie commune, the cloud is painted as a celebration of freedom, so providers shouldn't be surprised that customers are using that freedom to play the field.

When enterprises adopt Infrastructure as a Service (IaaS), they exhibit buying behavior that differs from the processes they use for other IT purchases. Rather than develop a plan, today's IaaS users make their cloud decisions on a workload-by-workload basis. The result is that the average IaaS-using enterprise concurrently subscribes to services from two providers, according to Frost & Sullivan's 2012 Cloud User Survey. These companies using cloud computing today also expect to add yet another provider to the mix as they increase their volumes of cloud workloads in the next two years.

Furthermore, enterprises are limiting the number and types of workloads they entrust to the cloud. The average customer that has adopted IaaS has deployed just five applications in the cloud, and the industry has yet to see businesses making an effort to migrate their legacy workloads. Meanwhile, the applications they are moving are not considered mission-critical: The top IaaS applications are website hosting, email and backup storage.

Dabbling is a problem for providers and the enterprises they serve. For providers, dabblers make it difficult to take the pulse of the emerging market, to understand the customer preferences that can help them shape their cloud services, and to identify the behavior patterns that will help them profitably deliver their services.

In fact, dabblers force providers to reconsider the way they define a customer. With most services in a service provider's portfolio, a contract assures revenue for a specific time or project. In contrast, the transactional nature of basic IaaS means no such assurance exists. Buying computing capacity by the hour is like buying a bottle of shampoo in a grocery store -- customers may immediately move on to a competitor's product without looking back. And without a critical mass of dabblers, providers are challenged to predict the value of an "average" customer, making it difficult to develop an accurate business plan.

Continue reading: Check out the second part of this two-part story, "Churn risks rise when customers don't reap full benefits of the cloud."

About the author: Lynda Stadtmueller is program director for Cloud Computing Services Research at Stratecast, a division of Frost & Sullivan.

This was first published in November 2012
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