Economics 101: How The Cloud Is Changing More Than Just Technology

While everyone seems to be talking about the cloud and its effects on technology, there isn't much being said about the macroeconomic effect on the economy as a whole, said John Parkinson, affiliate partner, Waterstone Management Group, and former CTO at many major technology and consulting companies.

The cloud is rapidly not only changing the conversation, but also the entire landscape of the industry, Parkinson said.

First, the amount of technology in companies is dwindling, Parkinson said. For every server in the cloud that provides application compute on a Software-as-a-Service basis, companies can eliminate approximately four servers. Between two and 10 terabytes of storage can be taken out of an SMB installation for every terabyte of storage in the cloud that is intelligently organized. And for every high-capacity switch port in the cloud, two to five can be taken out of an on-premise organization.

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Those statistics are significant to the technology marketplace, especially for hardware sales, Parkinson said.

"That was kind of the super-bad news," Parkinson said.

"You have by en masse moving to the cloud reduced the size of the technology equipment market globally between half and three-quarters," he continued. ’You have to throw some growth in to counterbalance that." However, that's also an opportunity for those able to help out with the organization of all of that data, Parkinson said.

Following the drop in amount of physical technology, Parkinson said that the cloud also has made it easier for tech companies to get by with a lower head count. The amount of people that it takes to support the given state of technology and users is less as cloud-based systems and services make the model more effective.

In fact, Parkinson estimated that cloud would ultimately "collapse" the IT head count by approximately 60 percent. It would be inefficient on a company-by-company basis to have employees sitting around, waiting for a problem, he said. By using shared services organizations, such as solution providers, companies can maximize their efficiency and focus on adding more sales or services staff.

"You could see a significant restructuring of the industry around these macroeconomic shifts if they get it," Parkinson said.

In particular, Parkinson said that the role of the CIO is in danger of being eliminated with the move to the cloud. The technology decision power within organizations will shift away from the CIO to the CMO or CFO. Those positions always had some level of control, Parkinson said, but now they will have more as there is mounting evidence that the cloud is cheaper and just as good a method. CIOs themselves are having a hard time adjusting to the change, Parkinson said, because it affects their jobs, and that makes them reluctant to adopt the cloud.

To address the macroeconomic shift, solution providers need to take a good, hard look at how the client business makes money, and how they can grow that through technology. Parkinson said that technology can support growth, reduce operating costs and provide all sorts of benefits to the end users.

"I see this as being a very interesting time in that regard. It's one of those big shifts that's going on around everybody, and a lot of the people are pretending it isn't happening," Parkinson said.

PUBLISHED MARCH 25, 2014