In early 2000 I co-authored a book with Peter Keen called “From .com to .Profit.” We got lucky as delays in the publishing process meant that the book published just days before the dot com crash. As a result of the timing, it received a lot of publicity and some media painted us as visionaries of the impending technology share price wipe out. However, the book was not about price-earnings ratios—everybody knew there would be a huge correction. It was an analysis of the different business value models offered by the dot com leaders and it offered a framework for which models would thrive and which ones would decline based on driving business value. Guess what – the same market correction is happening today, but with infrastructure in the cloud market. Let me explain.

A time traveler from 2000 to today might think it all looks incredibly familiar – a new breed of universe masters has emerged in the form of digital startups that are disrupting the established order. They’re fast, agile, cool organizations that will be immensely profitable one day. But rather than using infrastructure, they all run their businesses in the public cloud. Traditional IT is becoming increasingly irrelevant and digitization is becoming king. Owning assets? How very 2014! Why is this? When placing strategic bets on new ideas or new markets, organizations are better served using capital on innovation versus an IT expense. In essence, IT managers or line of business managers are better off investing in growth instead of costs, especially when they can get it on-demand and pay for it as they grow.

Digitize or Die – Shifting Business Models

Gartner has long documented the phenomenon of the IT hype cycle. The amazing thing is that even though we know digitization is coming, it seems we are genetically incapable of breaking old habits. Gartner has a strong message for the enterprise – organizations that cannot digitize their businesses properly will suffer dire consequences. The Global Center for Digital Business Transformation research suggests that digital disruption will displace 40% of today’s top 10 incumbents by industry over the next five years. In some cases, displacement will occur in as little as three years. It’s time to shift!

Not surprisingly, this rush to digitization is causing issues for traditional organizations – ones that were not “born in the cloud.” Many line of business managers who are empowered to launch new services quickly look to cloud models to help them experiment with digitization. But they aren’t sure how to get started. As a result, they go with what’s simple, easy, and payable on a credit card – public cloud services from companies like Google or Amazon Web Services (AWS). We’ve done some research on business cloud access and cloud consumption and the results of this easy experimentation are frightening.

A year ago non-IT approved public cloud service usage was seven times bigger than what IT approved. Today it is 20 times bigger and the security stats are even scarier – up to 70% of services being used are not policy compliant (e.g. PCI, HIPPA, FedRAMP) and a similar percentage do not encrypt the data. The reality is that public cloud is hugely valuable for organizations that want flexibility, rapid innovation and low cost experimentation. It also is the breeding ground for the new class of hyperscale applications that enable digitization – a key reason why Big Data is one of the key use cases in AWS. But what happens when you move from experimentation and into production, where business and customer critical data now become part of the equation? The customers I have spoken with that have crossed this chasm are turning to hybrid cloud – a cloud model that secures cloud data AND provides them with all the benefits of public cloud (plus full security, policy and compliance) inside their corporate IT controls. At first glance this looks like an oxymoron but there is evidence that shows that this is exactly what is happening.

When to Choose Private Cloud

In a recently released Gartner report “When IT Leaders Should Select Private Over Public Cloud Services” Analyst Donna Scott identifies multiple criteria for when organizations should choose private cloud. Amongst them are when IT managers need: stringent SLA delivery for application performance; greater transparency and auditability for compliance and regulatory requirements; a cost advantage; mode 1 applications with frequent releases. The first two are traditional private cloud strengths – show me a CIO who does not need application SLAs, transparency, and compliance. But the second two have, up until now, clearly been public cloud strengths.

So is this an unachievable vision? Not in the least. There are a few companies that have released a managed private cloud service that sits behind the firewall and gives IT managers a public cloud experience, including Cisco’s Metapod. Think of this as a hybrid cloud solution for rapid experimentation in a controlled and secure environment that costs half of what you’d spend with traditional public cloud vendors. You set the rules, you build the apps, you own the data, and you control the costs. What could be better?

Making Public Cloud a Better Experience

As all of us move into the digital age (Cisco included), it’s incumbent on us to enable IT managers to balance their use of private and public clouds safely – to set security, application policy and compliance rules in a private clouds and have those rules be automatically extensible into the public clouds. We also need to enable a hybrid cloud application experience that leverages the capabilities of the network end-to-end—from the data center, to the public cloud, to the rapidly expanding edge of the network. If we don’t disrupt our business models, we’ll be disrupted.

It’s déjà vu all over again.






Nick Earle

Senior Vice President, Worldwide Services Sales