Cloud is coming, faster than you might think

IDC has been banging on about its 'third platform' for several years now, but maybe it takes one company's real-world experience to bring home the importance of this shift and the rate at which it is happening.

IDC believes IT is moving rapidly to a paradigm based on cloud computing, mobile, big data and social, and that this shift will be highly disruptive. It recently set out its views in IDC Predictions 2014: Battles for Dominance —and Survival — on the 3rd Platform, which you can buy from IDC for the princely sum of $5, or get for free here, courtesy of SAP.

CIO magazine gave it a rave review. "While understated, its analysis and predictions provide as much drama as any novel, and its denouement is the kind of cliffhanger that makes it, as the saying goes, unputdownable. Simply stated: You must read this report and think about what it means for your company's future. This is true whether you're an IT user a vendor or, for that matter, a company that thinks of itself as in another business altogether."

So, back to that real world experience. Here's how fast one software company - call centre systems vendor Interactive Intelligence - has seen its sales shift from the on-premises version to the cloud version.

In mid 2011 I asked Brendan Maree, the head of Interactive Intelligence for Australia and New Zealand how fast he thought sales would shift from the on-premises version of the company's software to the cloud version. He predicted that up to 50 percent of revenue could come from the cloud version within three years.

He was right, and he was wrong. Last year, globally, 50 percent of sales were for the cloud version, according to founder and CEO, Don Brown, but in ANZ the figure was 87 percent.

Maree says that the shift to cloud has been rapid and almost complete "This is our fourth year into the cloud business in Australia and New Zealand. We introduced a cloud offering in 2009. In the first year five percent of orders were for the cloud version. The next year it was 11 percent of revenue. It moved to 26 percent the following year and then jumped to 87 percent last year. This year we have done only two deals for on-premises system, both quite small."

He added: "There was a time last year when cloud created a lot of work for us. The sales engineers had to do two designs because prospective customers weren't sure about cloud. But all the tenders now, and all the discussions, are about cloud. It's like people have forgotten about premises based systems."

Globally Brown said revenues from cloud had gone from five percent four years ago to 60 percent this year and projections for next year were 70 percent.

There was no suggestion from either Maree or Brown that the company has been aggressively promoting the cloud version at the expense of the on-premises version. Rather, that it has simply responded to market demand.

What this rapid transition illustrates is the need for enterprises to be alert to these paradigm shifts and adapt accordingly. Brown related two stories of discussions with potential customers - one a low margin fashion retailer and the other a large long-established insurance company - that do not appear to have realised what is happening.

The fashion retailer had "run its previous [premises based] contact centre into the ground; amortised it to dust" and was quite happy to do the same with a replacement system. The insurance company "almost threw me out of the room when I mentioned cloud," Brown said. "It was like I was insulting the operational capacity of their data centre."

There may well be good reasons for a company to opt for a premises based solution rather than cloud-based, but it's clearly not a decision that should be taken because that was how it was done in the past, or in ignorance of a transition that is turning the world upside down at great speed.