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A warning to IT vendors: Beware the cloud

Ross O. Storey | April 27, 2010
Major bank pulls no punches in guarded threats to traditional software providers

A story last week from our sister magazine, MIS Australia, caught my eye because it seems to highlight a likely clash between traditional software vendors and those that provide cloud computing solutions.

The story, written by Julian Bajkowski, was headlined: Australian Bank Warns IT Vendors but I think its content relates just as importantly to the Asia context.

Here is the text. The paragraphs in italics are my comments on what I believe could be written between the lines.

The chief information officer of the Commonwealth Bank of Australia (CBA), Michael Harte, has hit out at the high cost of proprietary technology solutions, warning that institutional buyers will not baulk at moving to cheaper utility-style solutions.

Reading between the lines: You traditional software vendors better change your practices and business models because cloud computing means a whole new world for the end-user and vendor relationship. Yes, we will jump ship if you dont change with the times. We have been empowered by cloud computing and it means a whole new way of purchasing software assets.

In a speech to the Committee for Economic Development in Australia on Wednesday, Harte said market conditions had now changed to the degree that businesses no longer needed to bind themselves to "lock-in" standards dictated by IT suppliers that were costly to maintain and difficult to move away from.

"We are not dependent on large software providers and therefore we don't have to pay those terrible fees that... deliver no particular value" he said.

"We are going to rely much less on packaged software and we are going to be able to buy services in a much more commoditised and contestable manner."

Beware traditional vendors: The good times are over the world has changed. You should no longer be relying on locking in end-users to lengthy and costly maintenance contracts, because we now have cloud computing as an alternative.

The tough talk from CBA is the strongest indication to date that the bank is fast growing impatient with big technology suppliers' failure to change their business models and offer utility-style services similar to those offered by Amazon for computing storage and Google for e-mail services.

Harte said CBA was now actively looking for business-grade pay-as-you-go software and infrastructure, including so-called cloud computing and software-as-a-service offerings.

He warned big US technology suppliers, particularly those selling into Australia, that once businesses were satisfied, utility technology services fulfilled their needs, it would be buyers driving the market, rather than suppliers.

"The transition is being driven by the buy side, not the sell side," he said. "You'd think that IBM, Hewlett-Packard, Oracle, Microsoftthe big household nameswould be driving this change, but they are still dependent on accounting standards and annuity income and they haven't made the transition fast enough."


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