Vision from the Top 2012: Juan Carlos Soto, Informatica

What's the future for hybrid cloud strategies?

There is no doubt that the accelerating rate of Cloud Computing adoption is here to stay. The benefits of Cloud are compelling to small and large enterprises in powerful ways. For small companies, Cloud offerings provide both a much faster and economical way to build out their IT infrastructure and offer a more level playing field by enabling them to have access to computing resources and technology, ‘for rent', previously only available to the very large, capital rich companies.

Cloud has also opened up the way for new and faster innovation. For larger companies, the benefits of Cloud are equally compelling by providing access to innovation more easily, quickly and inexpensively. Cloud allows larger organizations to reduce their costs by providing access to newer systems operating at higher utilization.

There are two potential interpretations of hybrid cloud. The first interpretation is based on employing a mix of public and private cloud technologies. The typical justification is that organizations will be comfortable using public cloud resources (SaaS, PaaS or IaaS) for some IT systems, but not for all. For IT systems that would also benefit from the Cloud model, a private cloud can provide a good alternative to mitigate concerns around security, latency, data governance and control.

One other nuance of this interpretation of hybrid cloud is to enable "cloud bursting," the overflow of private cloud computing activities to a public cloud during peak loads. Some companies embark into private cloud computing by repurposing existing IT resources which for a time, given sunk costs of the equipment, may provide a lower cost than current, rented, public alternatives. This interpretation of hybrid (public + private) cloud will likely continue to have a growing role in IT strategy.

A second interpretation is more common and likely to have a larger, longer term impact.  We call this Hybrid IT. This is the blend of IT between cloud-based systems (inclusive of both public and private Cloud) and traditional, on-premise, typically single tenant IT systems.

One of the reasons why I believe this interpretation will have a longer term impact is that despite the secular trend toward more and more Cloud, all but the smallest, newest companies can afford to be entirely in the Cloud. Most large enterprises will not find it economical, even when considering all the potential hidden costs, to rip and replace all their existing IT systems and infrastructure in order to move to the Cloud. This should come as no surprise as we still have a great deal of mainframe and even mini-computer based IT systems in use in enterprises today. The costs of switching are too high compared to the expected return.

In addition, concerns around security, data governance, latency and control will continue to throttle Cloud adoption. Moreover, regardless of how efficient Cloud systems can be, an IT system whose load is constant or grows at a predictable, steady rate (i.e. not spikey) will cost less in the long run than general purpose Cloud alternatives whose design points are typically based on a utility model optimized to accommodate variable workloads, elastic provisioning and total aggregate consumption. The agility and elasticity provided by Cloud comes at a cost.

Still, there is no doubt that the most progressive enterprises will adopt more and more Cloud-based IT solutions (SaaS, PaaS and IaaS) across the board while continuing to maintain legacy systems and those that are best operated on-premise. We firmly believe that IT is changed forever to a Hybrid IT model. This model necessarily increases data fragmentation and drives the need for integration solutions.

Solution from Informatica, such as the Informatica Cloud are at the forefront of this trend of delivering products, services and solutions for Hybrid IT that bring seamless connectivity across systems in the Cloud as they have historically provided for on-premise systems. In addition, Informatica enables this integration to take place where it makes most sense - on-premise traditional IT, on-premise private Cloud and in the public Cloud.

Are traditional on-premise mega-vendors really committed to Cloud, or is it just a strategy to perpetuate and protect their on-premise legacy?

The mega-vendors are buying up pure-play SaaS companies.  Will they succeed in using those acquisitions to help change their companies to the SaaS culture and business model?

The past few months have seen at least four major acquisitions in the SaaS space by mega-vendors. For several of these mega-vendors, these moves represent a major course reversal as they are dragged into the Cloud. Despite the positive claims in the news, these acquisitions will pose major challenges to integrate and for the foreseeable future will likely remain as separate stand-alone businesses. The acquiring companies will also face difficulty to rationalize their product portfolio and explain to their customers when to buy which solutions.

A good question to ask is why these acquiring companies, with their seemingly unlimited access to leading technology and large pools of talent, failed to build Cloud versions earlier. From Informatica's vantage, many successful companies are saddled with what Clayton Christensen famously calls "The Innovator's Dilemma" - their focus on near-term license revenue targets and fear of cannibalizing their highly profitable product lines ties their hands from being able to make the necessary investments on disruptive, but necessary innovation.

Moreover, it takes more than just technology to become a successful Cloud vendor. Cloud requires different sales, marketing, financial and accounting, and support models than the mega-vendors' existing competencies. In addition, while these mega-vendors generally have large services arms and deep experience hosting applications for their customers, this does not necessarily qualify them to operate multi-tenant cloud services.

The irony is that it is often easier to make an acquisition, at least from a finance perspective, than it is to fund the incremental hiring and upfront investment ahead of revenues needed to become a Cloud vendor. A key advantage from these SaaS acquisitions is that they come with Cloud sales, marketing, support and operations experience, along with established routes to market, to help the mega-vendors start to catch up and if properly integrated, to inject the Cloud mindset into their DNA.

What factors are driving the mega-vendors to buy pure-play SaaS/Cloud vendors?

The mega-vendors have been forced to make these acquisitions in response to customer demand and the lack of progress on their internal attempts to offer Cloud versions of their products. Cloud Computing has tipped and is now widely accepted, mainly driven by its compelling technical and business benefits. Several industry analyst firms estimate a permanent shift of billions of dollars of software revenues from perpetual license to subscription each in the past few years and the consensus across top tier analysts is that the growth rate of spending on Cloud computing is four to six times the overall growth rate of IT spending.

Increasingly, forward looking public and private enterprises are implementing "Cloud First" IT policies where they evaluate Cloud alternatives for new IT services and investments up front and have to go through exception processes to justify non-Cloud based purchases. These are enterprises looking to tap into the latest innovations and maintain the greatest agility going forward.

Informatica has had such a policy in our IT department for several years and the result today is that the majority of IT systems used by the company for operations and by our employees are now from Cloud vendors. This includes HR, CRM, Support, Marketing systems and more, which we integrate into coherent IT processes using data integration solutions. This results in significantly lower total IT costs as a percent of expenses and a significantly improved overall user experience as we benefit from the latest innovations and access these always-on systems via the Cloud.

Although it is early in the evolution of Cloud Computing, there is no doubt it has permanently changed the IT landscape. For today's information age enterprises, including the IT mega-vendors, time is running out to adopt Cloud Computing or be left behind.

This interview was published in SIIA's Vision from the Top, a Software Division publication released at All About the Cloud 2012.