The Cloudy IT Landscape

The Cloudy IT Landscape
Ed Sperling, 12.28.09, 06:00 AM EST
The shift to a utility-based computing model has massive implications for everything we've ever known about IT.
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Ed Sperling

Gartner's outlook for the next few years shows a steady migration toward cloud computing, driven at first by cost and then by quality of service. But the bigger issue that emerges from the research house's new report on the effects of cost-cutting and utility-based computing is who's going to be offering what to whom?

The immediate driver for cloud computing on the IT side comes from the economic downturn and the need to cut costs, says Frances Karamouzis, a Gartner research vice president. It's cheaper to outsource some operations to places like India, where labor costs are lower. But over the next couple years, those deals will be renegotiated or revisited as risk-management becomes the big issue.
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This shift is massive, both in physical scale and economic impact, and it's tough to make sweeping generalizations. Some CIOs already have a firm grip on risk-management. Others will never care because of their specific business models. But the push toward utility-based outsourcing, which allows companies to turn on and off servers, storage and software, has profound implications for the companies that have provided IT hardware, software and services for decades.

"The competition gets blurred about who buys what from whom," Karamouzis says. "Everyone's business model gets squeezed."

So where is this new competition coming from? First, it's open-source software. Gartner says about 15% to 25% of all software costs is for product support in the way of patches and updates. That has made open source particularly popular in some markets, and the appeal will only grow as IT departments get a firm grip on how they spend money and where those dollars actually go.

The second area of competition is caused by the convergence of software, hardware and services with the emergence of the cloud model and software-as-a-service. That helps explain why large systems vendors have been buying up service companies. IBM ( IBM - news - people ) bought PricewaterhouseCooper's consulting arm, Hewlett-Packard ( HPQ - news - people ) bought EDS and Dell ( DELL - news - people ) bought Perot Systems ( PER - news - people ). But it also shakes up the image of what each company really provides.

"The value is shifting to a relationship-based model that is inherent in the services world," Karamouzis says. "As a result, you could see a company like Accenture ( ACN - news - people ) competing head-to-head with a software company."

But if the real value comes from utility-like service, then how do these companies differentiate themselves from a software company like Oracle, which will also provide service and hardware, or a services company like Accenture, which can establish partnerships to provide everything it doesn't have? And what's to stop service giants from places like India--TaTa Group and WiPro, for example--from moving into the market where they barely had a toehold?

Big changes are coming and so far it's uncertain who will emerge stronger from these shifts. While CIOs enjoy the short-term benefits of pricing benefits and, in many cases, increased service for every dollar spent, the longer-term effects may not be quite so kind to the smaller utility-based service consumers.

Ed Sperling is the editor of several technology trade publications and has covered technology for more than 20 years. Contact him at esperlin@yahoo.com.

Banks set for more belt-tightening in 2010

By David Ellis, staff writerDecember 28, 2009: 5:53 AM ET

NEW YORK (CNNMoney.com) -- Diminutive expense accounts. Flying coach. The lingering threat of layoffs.

That seems to be the new normal in banking these days. And it's unlikely to change in 2010.

Faced with a flurry of new regulations out of Washington and sluggish loan activity that's hurting revenue, lenders are expected to have little choice but to continue tightening their belts next year.

"I think that focus is already starting," said Blake Howells, director of equity research for Becker Capital Management, an investment firm with about $2 billion in assets.

In some instances, budget cuts could be downright severe.

Southeastern powerhouse SunTrust (STI, Fortune 500), for example, is expected to cut its operating expenses, including staffing and advertising, by $1.15 billion next year, or 17%, based on estimates by research firm SNL Financial.

Banking giant Citigroup (C, Fortune 500), which has already managed to find nearly $20 billion in savings over the past year partly through the sale of some of its businesses, is expected to trim almost another $5 billion from its budget by the end of next year, according to SNL.

Such cutbacks, of course, are hardly a surprise given the turmoil banks have endured over the past year, namely the billions of dollars lost to bad loans.

What's even more troubling however, note experts, is that banks now face a whole new set of fees and rules next year that pose a big threat to their bottom line.

One of the biggest problems is the $45 billion in insurance premiums that banks had to pay to the Federal Deposit Insurance Corp. this year, to help prop up the dwindling fund used to cover bank failures. Banks will have to account for a third of that money in fiscal 2010.

At the same time, banks face a whole new set of new restrictions aimed at protecting the American consumer, including one imposed by the Federal Reserve on overdraft fees. Starting next July, banks will no longer be able to automatically enroll customers in overdraft protection programs, which charge fees when consumers spend more than they have.

Overdraft and non-sufficient fund fees have been a big business for the banking industry. Current projections suggest that lenders will rake in $38.5 billion from those two areas in 2009, according to Moebs Services, an economic research firm.

A big drop in those fees will likely leave most lenders feeling the pinch, note experts.

"I think you are looking at a fairly sizeable blow to revenues," said Seamus McMahon, a long-time industry consultant who runs his own firm McMahon Advisors LLC.

Banks certainly have any number of ways they could save a buck or two, including selling off parts of their business, trimming marketing budgets or telling external consulting firms to take a hike.

But industry experts argue that some lenders may have little choice but to take aim at their biggest source of costs -- employees. On average, salary and benefit expenses tend to make up about half of their operating expenses.

"Over the last year there has been a concerted effort by most financial institutions to bring in expenses through headcount reduction," said Frank Barkocy, director of research at Mendon Capital Advisors, a money manager that invests primarily in bank stocks.

"I think that will be a continued theme as we go forward."

Wall Street firms alone are expected to trim another 32,400 jobs over the next two years, according to estimates published by New York City's Independent Budget Office, a non-partisan agency that reviews the annual city budget.

One problem in all this, note experts, is that lenders have already drastically cut staff levels, and implemented other cost-cutting measures in recent years in an effort to stay ahead of the recession.

Citigroup, for example, has trimmed its worldwide staff by 100,000, or approximately a quarter, over the past two years, partly through the sale of some of its businesses.

The embattled lender also moved to ban off-site meetings late last year, in addition to telling employees to scale back on their use of color copies.

"It's not like these guys have been sitting on their hands for the last couple years," said McMahon.
By cutting too much further, lenders run the risk of going too far and hurting their performance.

And in the face of so many headwinds, don't be surprised if lenders try to cook up a whole new set of fees aimed at revitalizing their business.

"Banks tend to be creative," said Mendon Capital's Barkocy. 

2010 preview: The polyglot web

2010 preview: The polyglot web

2010 preview: The polyglot web

Imagine what browsing the web would be like if you had to type out addresses in characters you don't recognise, from a language you don't speak. It's a nightmare that will end for hundreds of millions of people in 2010, when the first web addresses written entirely in non-Latin characters come online.

Net regulator ICANN - the Internet Corporation for Assigned Names and Numbers - conceded in October that more than half of the 1.6 billion people online use languages with scripts not fully compatible with the Latin alphabet. It is now accepting applications for the first non-Latin top level domains (TLDs) - the part of an address after the final "dot". The first national domains, counterparts of .uk or .au, should go live in early 2010. So far, 12 nations, using six different scripts, have applied and some have proudly revealed their desired TLD and given a preview of what the future web will look like.

The first Arabic domain is likely to be Egypt's and in Russia orders are already being taken for the country's hoped-for new TLD. The address HOBЫЙyЧеНЫЙ.pф - a rough translation of "newscientist" with the Cyrillic domain that stands for Russian Federation - can be registered today.

Though they will be invisible to many of today's users, these changes are a bellwether for the web's future. Today Latin-script languages predominate. But before long Chinese will overtake English as the most used language, and web use in other places with scripts of their own, such as India and Russia, is growing fast. The Middle East is spawning new users faster than any other region.

The image below, portraying links between blogs, represents just one facet of the ever-changing shape of the internet. More corrections like the arrival of non-Latin domain names are sure to come as the network underlying everyday life starts to properly live up to its "worldwide" monicker.

New Scientist by Tom Simonite

1 comments:

Ricard said...

True, the article said: before long Chinese will overtake English as the most used language, and web use in other places with scripts of their own, such as India and Russia, is growing fast. The Middle East is spawning new users faster than any other region.

December 26, 2009 7:29 PM