In the Cloud is IT Commoditization a Natural Progression?

By Bill Gerneglia

 


The short answer is yes. The role of the CIO as the chief cost cutter, chief innovation officer, or chief security officer is constantly challenged by the evolving technology landscape. Technology trends and innovations such as open source, BYOD, cloud computing, outsourcing, and social collaboration tools ensure the CIO technology road maps are never idle. They are in a continuous dynamic state caused by budget shifts, new pilot projects, or new technology integration challenges stemming from a recent acquisition. Making sure all of the technology components fit together without exposing corporate data repositories to potential security breaches and emerging cyber threats takes an experienced team of well compensated and loyal IT professionals under the leadership of a (mostly) beloved CIO.

 

What happens when the strategic software applications deployed across an organization begins to mature? How does the commoditization of corporate software applications chip away at the various CIO roles described previously? Or rather, are there new opportunities for the CIO to continue to innovate even with commoditized software applications? I believe there is.

 

In the software application development lifecycle there is natural tendency for these products to become mature and eventually become commodities over time. Relational database management systems are a good example.  As the RDBMS market has matured, software vendors have added new features to match those of their closest competitors.  Eventually software products from various competitors show little differentiation and become commoditized.

 

This natural tendency towards software commoditization over time may allow an organization to swap out one product for another similar product with no real impact on operations. This helps an organization drive down product acquisition and support costs. These types of commoditized software products are not very sticky meaning an organization can make a technology infrastructure change without major disruption to the overall operations.


When Commoditization Does Not Matter

 

There are products that are sticky and carry high switching costs. These products tend to be popular mostly with large corporations.  Large companies are generally more risk-averse and biased towards the status quo than small and medium enterprises. Their integrated software, middleware and hardware engineering efforts makes the application stack sticky.

 

The inherent high switching cost presents a real challenge when there is consideration to switch vendors. Additionally, large companies typically hope to maximize value derived from previous investments in infrastructure while choosing cloud vendors. Integration with existing architecture is often determined as a top deciding factor for the CIO when making a major technology procurement decision.

 

For CIOs that are paying close attention, often commoditization of cloud based IT software and services can bring new opportunities. Within cloud computing environments the rapid ability to provision IT resources that are built using industry standard components that are trending towards commoditization offers the competitive advantages found in rapid deployment of Software-as-a-Service (SaaS), Infrastructure-as-a-Service (IaaS), and Platform-as-a-Service (PaaS).

 

Many of today’s widely used software applications are available through public, private and hybrid clouds. These include applications such as human resources, project management, CRM, manufacturing, production, financial systems and others. These types of applications are increasingly becoming commoditized.  Formerly, they were deployed once the operational technology was in place that delivered the key business service.

 

Today, the software application commoditization trend has created many opportunities for cloud based software to provide the tools that enable the business service supply chain. This is what has created many of the hidden opportunities for CIOs today.Instead of maintaining systems in house, CIOs now manage cloud based business services across a range of public, private and hybrid clouds.  CIOs are able to leverage a dynamic non-sticky IT environment. CIOs and senior IT professionals are able to change infrastructure components continuously to provide the optimum business services to the organization. On demand cloud services enable quick deployments to tackle market opportunities.  Cloud based applications deployment taking less than a week was only a dream of CIOs and IT departments a decade ago.

 

The result of the commoditization of cloud based IT services once again changes the role of the CIO. They evolve from the gatekeepers of relatively static environments to the chief innovators by leveraging extremely dynamic and flexible environments. CIOs in this capacity, enable companies to build and capitalize on a business service supply chain that can leverage the power of cloud computing. Most importantly, they have the freedom to do this when and where they want with the pricing flexibility needed to pay for deployment out of their operating budget rather than their capital budget. This makes the return on investment more tangible and timely for their CFO.

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Bill has been a member of the technology and publishing industries for more than 25 years and brings extensive expertise to the roles of CEO, CIO, and Executive Editor. Most recently, Bill was COO and Co-Founder of CIOZone.com and the parent company PSN Inc. Previously, Bill held the position of CTO of both Wiseads New Media and About.com.

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