System Building and the Cloud: It’s Time to Prepare

For system builders who sell custom infrastructure and systems to SMBs, the proliferation of hosted applications and services is likely a troubling trend. After all, the more popular cloud computing gets, the less hardware SMBs will need to buy.

So what can system builders expect in the coming years? How much erosion of sales will there really be as the cloud grows? And are there any opportunities?

Benjamin Pring, vice president of research at Gartner Inc., sees cloud computing as a glacial change that will continue to progress over the coming years. Just as mainframe computing gave way to the PC era, he says, so too will the cloud eventually dominate client servers. That glacial shift, however, will take time. “In absolute terms, cloud computing is still a relatively small portion of the IT market,” says Pring. “The SaaS option, for example, represents about 10 percent of the overall marketplace.”

Nevertheless, system builders should see the writing on the wall. “There is an inevitability that’s picking up the pace,” Pring points out. “Over the next decade, you will see [cloud computing] being more the norm.” Now is the time, Pring adds, for system builders to recalibrate for the times ahead—and not let pessimism get in the way.

“There’s always a temptation to write the Chicken Little story,” Pring warns. “‘They won’t be able to find the next layer of value-add,’” he mocks. “‘There aren’t going to be implementation, service, or integration opportunities.’ But those theories are gloomy and pessimistic. The reality is that the underlying technology will indeed have some impact on what the channel can sell, but people are pretty smart. They will figure out what the new value-add is.”

THE SILVER LINING
Ivan Tsao is a buyer for system builder supplier Atacom Inc., of Fremont, Calif. And figuring out what the next value-add will be is his specialty. “The first thing I think of is on-site service,” Tsao brainstorms. “Small businesses are always talking about how great the cloud is: ‘We’re going to save a lot of money on the software, and we don’t have to hire an IT staff.’ Without an IT staff, you can become their IT person.

“Another real concern, since the vendor will be on the remote side, is: How about security?” Tsao continues. “If the [cloud-based service provider] is not able to provide the top-level security, that’s going to endanger the whole industry.”

Tsao believes security issues—even perceived security issues—will be advantageous for system builders. “Companies might be reluctant to put their designs on the cloud,” he suggests. “They will still want it in-house for secrecy. Many companies have their secrets, right?”

Finally, Tsao asks doomsayers a few questions: “How about companies with special needs? Will so-called cloud computing be able to help those special clients? Will it really satisfy all their needs?”

Gartner’s Pring is largely on the same page with Tsao. In essence, both men suggest that it’s the job of a system builder to provide solutions to unique problems. Differentiating custom solutions from cloud-based solutions will be key. Pring suggests system builders begin now—while there’s time—positioning themselves to co-exist with cloud computing.

“Help customers understand the change. Then, work with them to derive your value,” Pring advises. “The reality is that change and dealing with change is a Business 101 thing, a principle of business. Really, change is a great thing.”