As IT suppliers ponder opportunity #1 – that is, which of their own current and future offerings they should deliver as cloud services – it is important to understand the relationship between cloud services and the traditional IT product and service offerings from which many cloud offerings are descended.  There is an intriguing interplay between these worlds – with cloud services borrowing the best of both service and product models to open up new opportunity spaces, as well as catalyzing major changes in what the next generation of “non-cloud”/on-premise offerings will look like.  

Cloud Services Are Emerging from Both Traditional Product and Services Markets

Cloud Services are emerging from both traditional Product and Services providers.  Interestingly, with the cloud model, both supplier communities are “borrowing” elements from the other community’s model, with the common goal of providing faster and cheaper consumption of their offerings.

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Product vendors, through the cloud delivery model, are able to “service-ize” their offerings, removing much of the complexity, and many of the costs, of adoption.  They are also able to move (often large) capital costs for the customer into a stream of smaller operating expenses.  

Services providers, through the cloud delivery model, are able to “product-ize” their offerings, lowering their (and customers’) costs through greater standardization and a higher-volume and higher-leverage business model.

It’s important to note that the emergence of the cloud services model does not mean the death of traditional product and service delivery.  Far from it.  But the new model does open up new opportunities, for both services and product suppliers, that have been very difficult – or impossible – to reach through conventional approaches.  

The “Next-Gen” of Traditional IT Products and Services Will Adapt to the Cloud

As cloud services emerge as both a complement to, and an alternative to, traditional products and services, those traditional offerings are not going to stand still.  The emergence of cloud services will stimulate the creation of next-generation products and services that both support the development of cloud services, as well as leverage elements of the cloud model in on-premise systems.  Three examples of how the emergence of the cloud model will drive “next-gen” developments in traditional on-premise systems and software are:

• Cloud-enabled on-premise appliances - on-premise systems designed to offer simplicity and cost benefits of cloud, by leveraging IT management cloud services, application and business services via the cloud, as well as accessing libraries of software appliances downloadable from the Internet for local execution
• “Single-tenant” software on cloud infrastructure - versions of software vendors’ packaged software designed to run on major cloud infrastructure services (like Amazon’s EC2), just as there are versions that run on a variety of IT suppliers’ servers on customers’ premises.
• “Cloud Service Provider”-optimized systems and software -  customers delivering cloud services – both internally and externally – will require IT systems that are designed to support the unique requirements of cloud service delivery (see “Defining ‘Cloud Services’ and ‘Cloud Computing’“).  While some customers will source those IT resources via the cloud, many will buy cloud-optimized on-premise IT to support their cloud service delivery.  

I wouldn’t go so far as to call this cloud-catalyzed wave of new on-premise offerings “the revenge of on-premise” – these new offerings are certainly not going to reverse the rapid growth of cloud services adoption.  But new, cloud-influenced and cloud-connected on-premise/”non-cloud” products are going to make clear that the black-and-white vision of a pure cloud world is overly simplistic: customers are very likely to adopt and maintain a portfolio of deployment options.

Hybridization:  There Will Be Very Few “Pure” Cloud or On-Premise Offerings

Looking at the three next-gen on-premise/non-cloud offerings mentioned above, you’ll notice that the first two examples are, in fact, hybrids of both on-premise and cloud models.  

This hybridization of offerings – for example, on-premise systems that leverage cloud services, as well as cloud services that provide on-premise capabilities (e.g., local caching and synchronization, as seen in Google Gears) – will be the rule, rather than the exception.  We expect very few offerings to be “pure cloud” or “pure on-premise”, as the market develops.