Cloud Services Are Silver Lining In Recession Impact on Telecom

Joe Crawford, executive director of IT solutions at Verizon Business.

Joe Crawford, executive director of IT solutions at Verizon Business.

June 16, 2010 – Amid the tech drawdown that hit telecom during the recession the push for cost savings among enterprises produced a countervailing trend that bodes well for continued growth.

In 2009, enterprise and government spending on IT dropped 9 percent year-over-year, Forrester Research says. Yet spending on cloud computing and other managed services increased.

“In the economic downturn last year, people needed to be much more sensitive to cost,” said Ellen Daley, vice president at Forrester Research, during a June 10 Cisco Webcast that included Verizon Business. “As a result, we saw a 13 percent uptake in managed service activity. Managed and cloud services are growing faster than any technology category.”

Here’s why, according to Forrester:
* CIOs and IT managers increasingly feel as if their staff can’t keep up with the pace and complexity of technology changes, and they can’t afford to add in-house expertise. In some verticals, regulations such as HIPAA (Health Insurance Portability and Accountability Act) and SARBOX (Sarbanes-Oxley) are an additional burden.
* IT departments are working more closely with individual business units to add value in order to shed the perception that they’re just cost centers.
* IT and telecom trends and advances such as virtualization enable more efficient use of computing resources, to the point that service providers can offer them at prices that are affordable to more enterprises.
* Enterprises are increasingly aware of their outsourcing options and the advantages they offer.

Forrester predicts that 2010 spending on managed and cloud services will grow about 17.9 percent, more than double the amount for other IT spending.

“It doesn’t end in 2010,” Daley said. “We expect a sustained six-year compound annual growth rate (CAGR) of 15 percent through 2014 – a very hot market.”

That outlook assumes that enterprises believe cloud provides a solid ROI.

“Now that the economy is on the upswing, it’s not as if all the IT departments are going back to the old do-it-yourself way,” Will Scott, Cisco’s senior director of global managed solutions told ScreenPlays after the Webcast. “Their minds have been changed for good.”

Awareness of cloud computing no longer is limited to CIOs, CTOs and IT managers. Instead, Forrester and Verizon say that interest increasingly is coming from business unit heads, such as an enterprise’s supply chain manager, who are looking for ways to accommodate or prepare for growth.

But for Verizon, the sales strategy remains the same: The IT department is the main point of contact, instead of trying to go directly to each business unit head to identify sales opportunities.

“We don’t want to alienate the CIO,” said Joe Crawford, executive director of IT solutions at Verizon Business.

Cisco, Forrester and Verizon all say that cloud adoption often is triggered by a major event, such as a merger that the IT department has to accommodate quickly by ramping up capacity.

Enterprises and other organizations with bursty workloads are among the biggest early adopters of cloud, Forrester and Verizon say. Examples include retailers that need to ramp up during the holiday shopping season, and software companies when they’re rolling out new products.

To accommodate those usage patterns, Verizon offers bandwidth on demand, rather than requiring customers to buy a month’s worth of the peak amount that they might need for only a few days.

“We structure our pricing on a daily model,” Crawford said. “We charge what customers consume on a daily basis.”