Defrag: Cloud economics, cultural change, and other exciting stories

Defrag, which runs this week near Denver, is one of the more interesting conferences on the enterprise circuit. Going far beyond bit and bytes, Defrag explores the intersection of technology on business, society, and the enterprise as a whole.

As part of the Enterprise Irregulars track at this year's Defrag, I am honored to moderate a panel discussion on the impact of cloud computing. The panel will explore what the cloud means to various groups: ordinary end-users, the IT department, software vendors (including traditional on-premise vendors), and even large professional services organizations.

Aside from me, the panel includes the following participants:

• Steve Mann, a strategy consultant and formerly an executive with SAP
• John Taschek, an executive with Salesforce.com who reports directly to CEO Marc Benioff
• Sadagopan Singam, an executive with Mahindra Satyam, one of the largest Indian IT outsource firms
• Mitch Lieberman, an analyst / consultant and previously Vice President of Marketing at open source cloud vendor SugarCRM

The panel begins with a simple premise: to typical users, cloud is a meaningless term related to data centers. However, despite this apparent invisibility to ordinary folks, the cloud is driving profound changes in computing, the enterprise, and even the social landscape.

A recently released white paper, The Economics of the Cloud (PDF), from Microsoft's strategy team describes the economic basis for these changes. The cloud offers economies of scale that make possible cultural impacts, such as those associated with Facebook and Twitter. And, when subscription software pricing is combined with the cloud, there is disruption to business models associated with IT vendors, services providers, and even the IT ecosystem as a whole.

The Microsoft paper connects the dots between technology, economics, and disruption:

Economics are a powerful force in shaping industry transformations. Today‘s discussions on the cloud focus a great deal on technical complexities and adoption hurdles. While we acknowledge that such concerns exist and are important, historically, underlying economics have a much stronger impact on the direction and speed of disruptions, as technological challenges are resolved or overcome through the rapid innovation we‘ve grown accustomed to....

The emergence of cloud services is again fundamentally shifting the economics of IT. Cloud technology standardizes and pools IT resources and automates many of the maintenance tasks done manually today. Cloud architectures facilitate elastic consumption, self-service, and pay-as-you-go pricing.

The paper goes on to discuss the broader impact of cloud economics on innovation:

Many IT leaders today are faced with the problem that 80% of the budget is spent on ―keeping the lights on,‖ maintaining existing services and infrastructure. This leaves few resources available for innovation or addressing the never-ending queue of new business and user requests. Cloud computing will free up significant resources that can be redirected to innovation. Demand for general purpose technologies like IT has historically proven to be very price elastic. Thus, many IT projects that previously were cost prohibitive will now become viable thanks to cloud economics.

I spoke with Michael Yamartino, from Microsoft's Corporate Strategy Group and one of the paper's authors, who explained his view that cloud economics suggest a force that is "inevitable." Perhaps needless to say, Michael and I agreed wholeheartedly on this point.

As something of a side note to the core issue of impact, but still highly relevant, fellow ZDNet blogger, Phil Wainewright, explains that economics will eventually diminish private clouds, with a corresponding increase in innovation:

There’s a virtuous cycle here, of course, in that public clouds are already more cost-effective as platforms for innovation, so that there is going to more innovation happening here than on private clouds anyway. That innovation will help to further accelerate the evolution of public clouds, thus amplifying their economic advantage more rapidly and to a greater extent than even Microsoft’s strategy team have envisaged.

What do you think about cloud economics and the impact on computing, the enterprise, and society of a whole?