Public Cloud Procurement: Think Software, not Services

When you use public cloud services, is it outsourcing? As with most answers, it depends.

As has been well documented, outsourcing today is primarily focused on shifting responsibility for existing processes to a provider at a lower cost and improving quality. There are, of course, transformational transactions happening, but by in large, outsourcing is focused on transitioning to a lower-cost delivery model.

Contrast this with multitenant public cloud SaaS or IaaS services. These are product purchases (or rentals) whereby traditional processes are transformed and automated using software. In some ways, the antithesis of traditional outsourcing.

However, public cloud services can be the foundation for outsourcing when ITIL-based processes are layered on top of the cloud service. Here are some examples:

• A customer buys public cloud infrastructure services from Amazon Web Services (AWS) and hires a managed services provider to add incident, problem and change management services so that it can integrate with the buyer’s existing ITIL-based IT operations and tools. The platform — in this case AWS — is an automated entity (cloud) that is managed by a provider performing the same services the customer has today, likely at a lower cost (outsourcing).
• A customer buys public cloud software services from Microsoft and hires a managed services provider to perform Exchange and SharePoint administrative tasks such as user provisioning and site collection management. The platform — in this case 365 — is an automated platform (cloud) that has humans performing the same tasks as before, likely at a lower cost (again, outsourcing).

Why is this important? Because many buyers are attempting to buy public cloud like they buy outsourcing services. When buyers evaluate public cloud services this way, they generally come away disappointed and disillusioned because they expect the customization and cost savings of outsourcing, but instead find standardization and sometimes, a higher total cost of ownership. Buyers should instead look at how they buy traditional software as a reference point.

As you can see in the table that follows, buying public cloud is much closer to buying software than buying services. I’ve purposely identified the areas that are similar, and there are of course areas that different significantly between public cloud and software, but as a reference point, I recommend that buyers think about software, not services, when evaluating public cloud:

In general, when buyers procure software, they are buying a product, based on a set of features, and don’t expect to significantly change the commercial aspects of how the supplier sells the software (revenue, employee, module, etc.), or the terms under which they buy it. Additionally, responsibility for the “results” of the software — did it meet requirements, has the business adopted it, is it creating increased productivity or lowering cost — are the responsibility of the buyer. Conversely, when buyers buy outsourcing services, the provider may take on significant responsibility for meeting many of these requirements.

When evaluated against this lens, public cloud looks very much like the former and very little like the latter.

As an interesting side note, the degree to which the human-based ITIL processes mentioned above are very rapidly disappearing due to the explosive growth of intelligent automation technology is startling. Take a look at what’s happening in the broader economy — productivity is increasing, but employment is not — many leading thinkers believe this is due to exponential advances in technology. Providers are (for the most part) aware of this and are running as fast as possible to automate these ITIL processes, beginning with incident management and quickly moving up the ITIL maturity stack — the key areas that clients are today hiring systems integrators to perform. Given the degree to which Moore’s Law is changing our industry, it’s only a matter of time before these services become part of the “cloud stack”.

About the author

Stanton helps enterprise IT and sourcing leaders rationalize and capitalize on emerging technology opportunities in the context of the global sourcing industry. He brings extensive knowledge of today’s cloud and automation ecosystems, as well as other disruptive trends that are helping to shape and disrupt the business computing landscape. Stanton has been with ISG for more over a decade. During his tenure he has helped clients develop, negotiate and implement cloud infrastructure sourcing strategies, evaluate and select software-as-a-service platforms, identify and implement best-in-class service brokerage models, and assess how the emerging cloud master architecture can be leveraged for competitive advantage. Stanton has also guided a number of leading service providers in the development of next-generation cloud strategies. Stanton is a recognized industry expert, and has been quoted in CIO, Forbes and The Times of London. You can follow Stanton on Twitter: @stantonmjones.