As the Cloud Metamorphose into Outsourcing 3.0, CIOs and their IT Departments will face a Major Shift in their Traditional Roles, says IDC

Singapore and Hong Kong, November 25, 2011 – The rapid evolution of cloud services and a greater understanding of its uses and benefits have pushed cloud computing well into the mainstream in 2011. As we move into 2012, International Data Corporation (IDC) predicts that this evolution will continue as users further test the capabilities of the cloud services that are available. However, by 2015, IDC envisions a very different scenario; cloud services will become an everyday sourcing option for the CIO, forcing changes on both the vendors and users of cloud services and technologies. More insights will be revealed in a forthcoming report, “IDC Asia/Pacific (excluding Japan) Cloud 2012 Top 10 Predictions".

“In the next 24 months, ‘the cloud' as a marketing label will cease to exist, as the success of cloud services will mean that it will permeate the sourcing strategies of the CIO and business unit manager alike”, says Chris Morris, Lead Analyst for Cloud Services at IDC Asia/Pacific. He adds, “The use of externally sourced business and IT services from the cloud will form the basis of what we see as the Outsourcing 3.0 period, and will provide an extensive portfolio of services from which innovative solutions can be constructed. With Outsourcing 3.0, the cloud will metamorphose into a universal service catalogue of individual cloud services. This will begin to replace both traditional information technology outsourcing (ITO) and business process outsourcing (BPO) engagements as well as on-premises infrastructure."

In the future Outsourcing 3.0 scenario, the sourcing of business and IT services from multiple external suppliers will result in a major challenge for the CIO. In effect, the CIO will become a service broker and aggregator, involved in sourcing, integrating and managing the services on behalf of their business units. This responsibility will prove to be a major challenge, as IT Service Management (ITSM) processes are not yet fully implemented for existing on-premises applications in most organizations in this region.

"The result for the CIO will be reliance on external brokers and integrators, and on external managers for their applications. For the IT organization, their internal structure and capability profile will shift to address service management rather than technology management. This marks the beginning of a rebirth of the IT function to an organization-wide business support function," continues Morris.

Drawing from the latest research and internal brainstorming sessions amongst IDC's regional and country analysts, the following are five of IDC Asia/Pacific excluding Japan (APEJ) Cloud 2012 Top 10 Predictions. These represent major trends with either the most significant financial impact or long-term market impact across the region.

1. Less than Half of End-Users across APEJ will complete their Private Cloud Projects by 2014

IDC’s end-user surveys in APEJ over the past three years show that of those respondents who have commenced the implementation of on-premises private clouds, less than half of them will complete these projects by 2014. The main reasons cited by the respondents for the delay are the lack of experience available to build these complex systems, followed by higher than expected up-front investment requirements. The result of this private cloud slowdown will be an increased number of enterprises making a detour to public cloud services by selectively using variants of the cloud model for workloads with different requirements.

2. Making 2 + 2 = 1: Cloud Service Orchestration Services Lead the Drive to Outsourcing 3.0

In 2011, IDC estimates that 80% of new enterprise application development will be for the public cloud, and by 2015, 20% of enterprise application spending will be cloud-sourced. As a result, cloud service buyers will now have to manage a much larger number of services and vendors, adding a level of management difficulty to what should have been an easier adoption of new services. To counter this, cloud service providers (CSPs) will provide an integrated management of disparate cloud services – cloud orchestration – in 2012 and beyond. As a result, the market will not be talking so much about cloud services by 2015, but will consider these as a natural evolution of outsourcing, or Outsourcing 3.0.

3. Infrastructure as a Service (IaaS) will become Verticalized by 2013

Basic IaaS have commoditized quickly between 2009-2011. Margins for simple storage and compute services have now declined to near PC levels, except in instances where economies of scale can be derived from very large volumes or where the provider has unique offering differentiated by the market. As a result, IDC postulates that IaaS will verticalize by 2013 to maintain business value and differentiation, as well as address market-specific requirements.

4. By the end of 2012, 90% of Telecom Service Providers (SPs) in the APEJ region will have brought a broad portfolio of Cloud Services to market; but, by end of 2013, their Portfolios will become Specialized as they redefine their preferred role in the Cloud Ecosystem and target specific markets

As Cloud is a once-in-a-generation technology opportunity for telco SPs, many are investing aggressively through both organic investments and by building alliances and partnerships with upstream and downstream partners. However, only 25% of these telco SPs will ultimately choose to provide full-stack cloud services by the end of 2013.

The primary obstacle to the deployment of a full stack cloud portfolio for the telcos is the requirement for extended service management for the cloud layers above the infrastructure. Current guarantees of five nines availability can be applied to managed network services but not to application delivery at the Analytics as a Service (AaaS) or Business Process as a Service (BPaaS) levels.

Taking a pragmatic view, telcos will assess their markets and tailor their portfolios to suit their capabilities as well as their partners' capabilities. Whatever the scope of the cloud service portfolio, like any CSP, the telcos must demonstrate excellent service management ability. Rather than organically developing this capability, the SPs will seek ITSM expertise by way of alliance in order to demonstrate IT credibility in front of skeptical enterprise IT managers. Verizon Business and Telstra have already adopted this approach. Both these companies are partnering with Accenture.

5. Cloud SP (CSPs) strategies based on Aggregation and Resale of IT and business services will Fail to meet Profitability Goals by 2013 unless they can efficiently and effectively Manage, Support and Bill Services from Multiple Service Providers

Initial focus in the cloud services market has been at opposite ends of the cloud stack – AaaS to a predominantly SMB market, and simple IaaS to a broad range of medium and large enterprises. However, the market has evolved rapidly since 2009 and the AaaS market now requires enterprise-class applications that permit integration with other cloud applications or on-premises systems. In addition, the IaaS market has commoditized even more rapidly than many expected.

The result has been declining margins in IaaS and increased complexity of delivery for AaaS. The reaction by many CSPs has been to begin to offer higher value and higher margin services from higher up the cloud “stack” – i.e., from the Virtual Private Cloud (vPC), Platform as a service (PaaS) and BPaaS layers. But this comes with some heavy responsibilities for the CSP as they face the realities of a hybrid cloud environment and customers with immature ITSM processes.

Few CSPs will be capable of developing, marketing and delivering high value cloud services, so the most likely scenario is that CSPs will offer cloud-sourced solutions based on an aggregation of component cloud solutions sourced from individual and/or niche CSPs. This approach offers the customer enormous potential for rapidly obtaining innovative business services (if the CSP is capable of managing the aggregated service to the desired service level).

For more information about the above predictions as well as IDC’s other five Cloud 2012 predictions, please refer to the report “IDC Asia/Pacific (excluding Japan) Cloud 2012 Top 10 Predictions" (forthcoming). To purchase this report, please contact Sheryl Fuertez at +65-6829-7758 or sfuertez @idc.com. To set up an interview with Chris Morris, please contact Lay Fang Tan at +65-6829-7731 or lftan@idc.com.

About IDC’s Predictions

IDC’s annual Predictions in APEJ draws upon the latest IDC research and a worldwide brainstorming exercise among IDC’s 1000+ analysts. This was followed by an extensive regional review to weigh in on key industry events, user trends, vendor strategies and economic measures that promises to uniquely define the technology trends that would impact and drive the market in APEJ for 2012. Across the globe, following the release of IDC’s global top ten predictions, IDC’s geographic, technology and industry teams will be releasing their own specific predictions in the coming months.

About IDC

International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. IDC helps IT professionals, business executives, and the investment community to make fact-based decisions on technology purchases and business strategy. More than 1,000 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries worldwide. For more than 47 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. You can learn more about IDC by visiting www.idc.com.