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Financial and Technology Markets are “Cloudy”

September 16th, 2008 by - 4,424 views

Perhaps that subject was not strong enough. The Financial Sector is currently weathering a hurricane, recently suffering the largest drop since 9/11. Merrill Lynch fell into the hands of Bank of America. Lehman Brothers is in bankruptcy and looking for a buyer with Barclays buying some of their assets. The Airline industry is failing. AIG and other financial companies are looking for some sort of an economic bailout. HP is eliminating 24,600 jobs. And this was all over just a few days. If one extends the look a bit further, the perspective is just a grim: gas prices going up, the dollar losing value and housing going down. One simply cannot be surprised by any of this.

Source: e*Trade graph of Dow Jones on 9/16/08

The Tech Sector is getting hammered as well, but this time, it isn’t “our fault.” The Dot Com bust managed to drag down the other sectors last time, but we learned our lesson. Long gone are unproven businesses and their associated models. Venture Capitalists and Angel Investors are taking long looks at business, not just getting in the car for a drive but doing a full check under the hood, looking at the road both ahead and behind and fully vetting the drivers and passengers. To get money as a start-up is truly an accomplishment nowadays. You have to have a proven business model, installed user base, and a clear direction of where your company and your industry will go.

I recently attended TechCrunch 50 which showcases 50 startups and allows them to present their business or service to a panel of experts. I saw about 1/2 of the companies’ presentations and I noticed that the companies where they couldn’t articulate or prove their monetization strategy, these companies got an earful of criticism from the experts. Similarly, at a meetup in San Francisco, the question asked every presenter is “How are you making or going to make money?” It’s a very simple question, but one that must be answered or the company loses credibility.

Perhaps we should apply these same simple questions to the Financial, Housing and Airline Industries? I guess the markets are already doing that.

It will take a long time before all of these markets start to recover, and corporations and businesses are currently challenged to prevent the hemorrhage of money and capital expenditures within their IT infrastructure. I recently read an article in the Wall Street Journal called “Cutting Tech’s Energy Bill” by William M. Bulkeley that discusses how large companies are looking at ways to cut electricity usage within the Enterprise. With energy costs directly and indirectly rising, it’s critical for the embattled IT manager or director to make fiscally sound and environmentally responsible decisions to keep their business moving forward will simultaneously ensuring that their technology progresses.

Bulkeley gives several examples:

  • IBM has launched a “Green Data-Center Services” business line to help customer redesign their datacenters
  • HP purchased a company that specializes in designing datacenters with a focus on energy-efficiency
  • EMC has worked to eliminate unneeded equipment and use their cooling infrastructure more efficiently
  • Hartford Financial Services Group has shut down 6 of 7 datacenters and host within a “green” IBM facility
  • IBM and HP has introduced water-cooled servers and others are hard-selling blade computers that use significantly less power than traditional servers

Outsourcing one’s infrastructure is a core way to tighten your belt of your IT Budget. If you can allow for a managed hosting provider to run your IT infrastructure, you save on capital expenditures as well as human capital running it. Colocation and dedicated hosting were all the rage a few years ago and, while it may be losing its sex appeal nowadays, there are still plenty of IT traditionalists who demand it.

Towards the end of the WSJ article, Bulkeley starts to discuss virtualization as a Green technology that can help cut costs. This is where I pick up the thread and run with it. Virtualization is a key component to helping Corporations reduce their IT expenditures significantly. The ability to consolidate multiple low-end servers onto one or handful of higher-end servers is an obvious and logical cost and energy-savings option. The heavier adoption of virtualization technologies such as Xen or VMware or even Hyper-V is giving corporations or even those self-same outsourced data center and dedicated hosting providers a way to stretch their money and efficiencies even further. To over simplify, reduce the number of servers through virtualization and your datacenter space demands go down, your dependency on IT staff to manage those locations reduces and your CapEx shrinks, giving you efficiencies immediately.

This is where the Technology Sector is starting to get “Cloudy.” I’ve used this metric before to illustrate my point, simply look at the Google (Insights for Search) chart comparing “cloud computing” against “dedicated hosting” keyword searches:

cloud_vs_dedicates_091608

Dedicated hosting will not go away. It’s a viable outsourced technology option that companies depend on. It makes fare more sense (cents?) than doing it yourself within your corporation. There are only a niche of companies that can afford to make the technology and capital investment to support large-scale IT infrastructures, and even those (as exemplified in the WSJ article) are looking to re-architect their infrastructure.

Could “Cloud Computing” be the silver bullet to help corporations survive the financial hurricane? I think so. But there are challenges ahead for both the providers of the Clouds (and even traditional dedicated hosting providers) as well as corporations.

  • For Cloud Providers, education of the “Cloud” concept and overcoming the “this technology is only for early adopters” status will be critical. However this can be achieved through collaboration with other Cloud Providers and Enablers as well as standardization of protocols and APIs, for starters.
  • For the Enterprise to view the Cloud as a viable alternative to traditional or even self-hosted infrastructures and datacenters, the challenge is larger. While Cloud Computing may be obvious to many¬† in terms of “green-ness” and cost savings through zero CapEx, IT managers of the Enterprise tend to not quickly jump on board with the latest technology. Some might say they are a bit gun-shy and would rather someone else test the waters and learn from their mistakes. This wait-and-see attitude will be the end of many. Given the current financial weather and outlook, the Enterprise should be looking at the non-traditional and emerging technologies just as hard as within traditional practices.

While I may be sticking my head in the sand by saying that this financial storm will pass soon, I also¬† have my head in the “clouds” by stating that dedicated/outsourced hosting and Cloud Computing are viable alternatives to “doing it yourself” that all businesses should seriously consider and get on their short term strategic plans. To jump back into the car metaphor, it’s time to dump the old 1970′s gas-guzzler and get the 2008 Hybrid!

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Michael Sheehan

Michael Sheehan, formerly the Technology Evangelist for GoGrid, is a recognized technology, social media, and cloud computing pundit and blogger who writes regularly about technology news and trends.

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