The CIO is the Last to Know
A recent Goldman Sachs survey of CIOs indicates that these executives do not plan to spend much money on cloud computing in the coming year. Indeed, most of their stated plans involve reducing the amount of consulting services and hardware that they are buying. I'm certain the predictions are accurate, and this scenario will lead to even more rapid growth in cloud computing. And the CIO will be the last to know.
How does this work? If Goldman has correctly measured the intentions of the CIOs, then they will not be spending money on cloud computing. Instead it will be the business units that they are supposed to serve that will be spending the money because the service level of the IT department will not meet their needs. Recall the reduction in consultants and service personnel? When a fixed income group at an investment banking house needs to stand up 50 servers to run a set of Monte Carlo simulations to test a hypothesis, the over-stressed IT department response is going to be “we'll get to that request after we fill the 25 that are in line ahead of it. It will probably be next quarter.”
The “swoosh” sound you just heard is the developer of the simulation code swiping his credit card to set up his Amazon Web Services account. Three days later, he has 100 systems standing up on Amazon's Elastic Compute Cloud pumping back the information he needs to help his traders make money. The credit card bill is only about $5000 per month – much cheaper than the IT chargeback for similar capability. The head of fixed income hears about the profits due to the extra simulation capacity, and the developer gets a promotion and is encouraged to spin up another 100 to 200 machines to get even more aggressive with the strategy. Relative to the millions in profit, the cost is peanuts and the IT department just can't respond to these type requests anyway. The CIO is the last to know.
It always happens this way with new technology. As the leader of North America sales for Red Hat in 2002, I remember calling on the CIO of a company in the financial services industry that processed millions of transactions daily in support of the equities market. I sat in his office while he explained to me that his operation was mission critical – the markets depend on this operation. He would never consider using Linux and open source. “Why don't we take a tour of the datacenter,” he asked. I was game, so I replied “Sure.”
As we walked the floor, I noticed several machine consoles indicating they were attached to Red Hat Linux 7.1 servers. Here is the conversation that ensued:
Billy: What's this?
CIO: Huh? I don't know. Steve, what's this all about?
Steve the Admin: Yeah, we're running Red Hat Linux for most of our network services.
CIO: What do you mean?
Steve the Admin: You know, Apache, BIND, SendMail, a few transaction servers and log crunchers mixed in here and there.
CIO: How many of these are we running in this datacenter?
Steve the Admin: About 25% of the machines, I would guess. About 800 servers in total.
Billy: Why don't we go back to your office and have another conversation about how much value you are getting out of Linux and open source and how Red Hat can help you.
The CIO is always the last to know about new technology. The head of engineering brought UNIX into the enterprise for CAD/CAM and analysis applications, and the CIO was the last to know. Department managers brought in PCs and Windows for personal productivity and desktop publishing, and the CIO was the last to know. System administrators brought in Linux for network services, and the CIO was the last to know. The sales force brought in salesforce.com and introduced the enterprise to SaaS, and the CIO was the last to know. Developers in the business units will use cloud computing, and the CIO will be the last to know.
The good news is that CIOs know where their bread is buttered, and eventually supporting the business units becomes the top priority. In this case, I would guess that all of that spending that Goldman noted as being earmarked for virtualization will pave the path for a hybrid approach to cloud computing. The enterprise IT function will begin to model the services that they provide after Amazon, with hypervisor virtualization as the basis of the compute capacity. Then, with a single, corporate architecture for cloud computing, applications will be able to scale seamlessly across the internal cloud infrastructure and also out into the external clouds when necessary for extra capacity. In this scenario, everyone gets what they want, and the CIO is a hero for reducing the fixed costs and operating budget associated with data center capacity. Being the last to know isn't necessarily a bad thing.