4 Waves of Disruption: The Cloud – what it is, how it got here, and where it is going
by John Hagel and John Seely Brown

A Definition of Cloud Computing: Cloud computing is a model for delivering on-demand, self-service computing resources with ubiquitous network access, location-independent resource pooling, rapid elasticity, and a pay per use business model.

The interest in cloud computing has been spurred by a confluence of changes in the business and information technology landscape. Today, it is generally viewed as a potentially attractive new form of low cost IT outsourcing, and cloud technology providers and users are focused on tackling the many limitations and challenges of cloud computing, especially in serving enterprise scale needs. Looking ahead, though, we see a series of significant disruptions that will be catalyzed by the evolution of cloud computing.

These disruptions will become progressively more widespread and profound, creating opportunities not only to re-shape the technology industry but all institutional architectures and management practices in an expanding array of other industries. Providers of cloud computing that can provide a compelling shaping view to mobilize other participants will have the potential to carve out a leadership position and reap significant rewards by leveraging their own efforts through the initiatives of many others. As a result, all businesses would be well advised to begin to develop experience with cloud computing platforms at an early stage to better prepare themselves for the disruptions that lie ahead.

Rapid experimentation by early cloud providers has created four distinct layers of services:

• Infrastructure as a Service (IaaS)
  provides raw utilities such as compute power and electronic storage resources, as services
  over the network;
• Platform as a Service (PaaS)
  includes tools and environments to build and operate cloud applications and services;
• Software as a Service (SaaS)
  enables on-demand use of software over the internet and private networks; and
• Business as a Service (BaaS)
  includes application functionality coupled with physical and human resources required to
  perform a broader set of business activities – typically a major module of activity in a broader
  business process (e.g., a call center module, as part of the customer service process), or in some
  cases the complete business process itself (e.g., fully cloud-based supply chain management)
  

These models of computing are being driven by the confluence of several changes in the business environment and IT landscape. From the business perspective, the trend towards consumer-driven innovation and the growing use of co-opetition and partnership ecosystems is accelerating software development timeframes. Simultaneously, from the IT perspective, several trends focused on increasing the efficiency of software distribution and hardware utilization have converged to enable a cloud computing model, notably early adoption of Software as a Service, proliferation of Hardware Virtualization, and the advent of Utility Computing.

As growing business pressures create the imperative for ever-increasing efficiency, it is no surprise that
most current discussions tend to view cloud computing simply as a new, lower cost form of IT
outsourcing:

• Lower cost comes from economies of scale including increasing power of virtualization and the
  ability to move to more commoditized hardware platforms;
• Utility computing helps to turn fixed datacenter costs into more scalable utility costs;
• The power of SaaS – especially in terms of life cycle cost – has enabled rapid software
  deployment along with easier and faster upgrades.
  

In combination, these factors have created powerful motivation to drive near-term early adoption in response to growing economic and competitive pressures.

However, while these trends create economics that are very attractive to select companies, they are less
compelling to firms which have already made significant investments in premise-based infrastructure. As such, cloud providers are focused on white spaces not currently served well by premise-based solutions. This will lead to significant new technology innovation that will, over time, lead to the emergence of new IT architectures. These new architectures will enable the cloud to become more enterprise-ready, and will compel core IT to move more of the traditional premise-based infrastructure into the cloud.

The adoption of cloud computing will be shaped by a continual iteration of rapidly evolving cloud computing capabilities in areas where existing premise-based infrastructure is not yet able to serve business needs. We see the evolution of cloud computing generating four levels of expanding disruption, driven by a complex interplay of segments of customers with unmet business needs, evolving cloud computing capabilities and new sets of providers emerging to deliver these capabilities to users.

Sequence of disruptions created by the iterative dynamic between cloud users and providers

The four disruptions catalyzed by cloud include:

1. the growth of new technology delivery models;
2. the evolution of a new IT architecture to address unmet needs of business ecosystems;
3. rapid adoption leading to the restructuring of the IT industry; and
4. the disruption of other industries beyond high technology based on these new capabilities.

We'll discuss these four disruptions in future articles. Stay tuned.

John Hagel is the co-chairman of the Deloitte Center for the Edge. John Seely Brown is the independent co-chairman of the Deloitte Center for the Edge. Learn more about their work at EdgePerspectives. com >>

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