Will Public Clouds Drive Insourcing?
The New Reality for Customer Engagement
Organizations that outsource more services will generally have a tougher time adopting public cloud services than companies that outsource fewer services.
By Stanton Jones
Interest in cloud solutions continues to grow rapidly as enterprises explore new strategies to cut costs, reduce deployment time, and integrate new capabilities and innovations that traditional on-premises platforms struggle to accommodate.
When assessing cloud options, buyers often fail to adequately consider their existing deployment model and its implications in terms of future requirements. The fact is, organizations that outsource more services will generally have a tougher time adopting public cloud services than those that outsource fewer services.
The reason for this is fairly simple: When an enterprise outsources a certain function, the third-party service provider typically takes on a high proportion of the “arms and legs” capability needed to execute technology-related activities. These activities can range from patching an operating system to designing a new security architecture. While shifting these capabilities to a third party works well in traditional outsourcing environments, it often breaks down in a cloud deployment model.
The public cloud, in general, requires buyers to do more of the work, and this is a key reason public cloud services tend to have such attractive pricing. A significant portion of the labor component of the service—which is typically one of the most expensive parts of any service—is passed on to the buyer. This pricing discrepancy is generally more pronounced in infrastructure services than software services.
The tables below illustrate this concept. The first shows a fairly typical journey for an IT organization that has not yet embraced outsourcing. It generally starts with everything on-premises, then moves to a co-location deployment model to achieve a more robust data center capability. The next stage is the decision to exit the hardware business altogether and begin migrating services to the cloud.
In this model, responsibility continually shifts from the client to the provider as more workloads move to the public cloud. Responsibility does not move from the provider back to the client.
Contrast this with a typical sourcing customer that has outsourced both infrastructure and Application Development and Maintenance (ADM):
The orange boxes highlight the functions that are insourced or repatriated when moving from an outsourcing model to a public cloud model. The challenge here is that, for many outsourcing customers, the capability to manage an operating system, architect security or configure applications lies with the outsourcing provider, not in-house. Therefore, many outsourcing customers are unable to adopt public cloud to the degree they’d like to, unless they want to make a change to their sourcing model and bring on additional staff.
Given that many customers have outsourced for cost savings in the first place, adding new headcount internally to handle this is often not a viable financial (or political) option.
An alternative approach is to collaborate with outsourcing partners to identify workloads that are appropriate for deployment to a public cloud. Many leading service providers are integrating hybrid-cloud orchestration layers into their services, which makes managing workloads, security, and interfaces between private and public clouds easier.
While this does mean that revenue moves away from the sourcing provider to the cloud provider, many leading providers are (somewhat reluctantly) embracing this reality. They understand that if they don’t work with customers to create hybrid environments today, they’ll not only lose individual workloads, they’ll lose the entire business tomorrow.
Bottom line: For any enterprise evaluating public cloud services, a thorough assessment of the existing deployment model is an essential first step. Public cloud shifts a significant amount of responsibility to the buyer, but can also provide significant benefits for the right workloads.
Stanton Jones is an analyst, Emerging Technologies, at Information Services Group (ISG), a technology insights, market intelligence and advisory services company with more than 500 clients around the world.
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