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Why service providers should not ignore cloud

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For many service providers, cloud computing seems to be disruptive for their business model. Especially in the outsourcing business, many service providers are reluctant to offer cloud-based services to their clients. There are two main reasons behind this skepticism:

  • Cloud computing gives agility to the client to subscribe or unsubscribe to services quickly. Although this is a big advantage for the client, it brings challenges to the provider. Smaller service providers have difficulty estimating the required capacity correctly and they risk keeping expensive resources underutilized.
  • Larger providers fear losing their clients once the clients have cloud services with more flexible, standardized contracts. In today’s outsourcing world, it is difficult for a client to switch providers. Services and contracts are not standardized and relatively complex relationships exist between the client’s and service providers’ organizations. The cloud business model breaks this all up by standardizing service descriptions and consumption.

But in any case, ignoring the new trends on the horizon cannot be the solution.

The example of Kodak somehow shows what it means to answer a disruptive business change by just ignoring it. Kodak, inventor of modern photography and one of the market leaders in the early 1990s, decided not to move towards digital photography because this was considered disruptive for their photo development labs all over the world. When they finally accepted the industry trend, they had already lost ground against their competition and you can read in the news what happened to them in 2012.

The point is, if you are not offering your clients what they want, someone else will.

So, there are good reasons not to ignore cloud to keep your current clients with you, but there are even better reason to think about cloud to win clients you have not thought about before.

Cloud computing enables small and medium businesses (SMB) to leverage services that were only affordable for large enterprises before. Just consider a professional CRM application before Salesforce.com, such solutions where out of reach for small and medium business (SMB) clients. The same is true for professional platforms like an Oracle database server, which has initial license costs that do not fit in to the business plans of many startup companies. Receiving database services from the cloud, together with others from a shared system, makes this a positive business case. But, to be able to share the infrastructure and costs with others, service providers are required.

Summary:

The new business and delivery model of cloud computing brings risks to service providers. Clients are less forced to loyalty and might change providers more frequently. But it also means chances for new business that should not be under estimated!

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