Michael Heric: The Changing Faces of the Cloud

Read the transcript below.

MICHAEL HERIC: Enterprise cloud computing has grown faster than many predicted. Last year, enterprise cloud computing, public and private revenue, was $180 billion, or 16% of the $1.1 trillion spent on enterprise IT.

Profit pools similarly have shifted. Just five years ago, all the money was earned by providers that sold components, hardware, software, and services, to end customers and cloud service providers building public and private clouds. Today, that number is 20%.

What we see is that we are moving into a new wave of cloud computing. And what has made companies successful in the first waves of cloud adoption may not hold in the future.

For the past five years, Bain has been looking at the journey that companies are taking to cloud. By talking to CIOs and IT decision makers, line-of-business buyers, and providers across the technology ecosystem. And what we've seen are different segments or ways in which customers adopt cloud from the earliest adopters to more mainstream customers.

In 2011, transformational customers, the earliest adopters, were only 11% of customers but drove 47% of cloud demand, whereas the more mainstream customers, the slow and steady customers, only had 1% of their applications in the cloud.

Today, this picture has changed dramatically. Transformational customers, while they're still 11% of customers, now drive only 26% of cloud demand, whereas slow and steady customers now have 16% of their applications in the cloud and drive just as much demand as transformational customers.

The earliest adopters now, are being joined and overtaken by more mainstream customers, many of which took more of a wait-and-see approach over the past few years. This has profound implications for technology providers, because mainstream customers have very different needs from these early adopters.

Already, we've seen many technology providers respond to this trend—incumbent providers reorganizing their businesses, signing strategic alliances, making billions of dollars in acquisitions; new entrants that were successful in the first waves of cloud adoptions reorganizing their operating models, building new capabilities.

So what will it take for technology providers to be successful in this new wave of cloud computing? First is to invest to win big in a few focused cloud battlegrounds. Traditional cloud definitions like infrastructure as a service, SAS, platform as a service, are blurring and reconfiguring.

And it's important that technology providers define cloud battlegrounds correctly. We see many technology providers either defining markets too broadly or spreading themselves too thin and competing in too many.

The second is to target those customer segments that best fit with your assets and capabilities. The slow-and-steady customer, as I mentioned before, has very different needs from the earliest adopters, or of these transformational customers. And it's important to pick those customer segments that you can most effectively compete and win for.

And third, it's important to reassess your offers, your go-to-market model, operations, people, processes, incentives, and systems—basically, your enterprise end-to-end.

Now is not the time to be complacent and assume that changes in the past will be sufficient for the future. Technology providers should seek to understand these trends early and adapt their offerings and operating models so that they will emerge as the winners.

Read the Bain Brief: The Changing Faces of the Cloud