E-Commerce

In the cloud, power shifts from providers to consumers

Thoran Rodrigues explains how the shift to cloud services gives power back to consumers by eliminating a lot of the disadvantages of vendor lock-in.
For a long time, the power in the IT industry has been in the hands of the providers. This is due to three industry characteristics that, while still present, are beginning to change. The first is the pricing and investment model. In a traditional hardware/software model, the deployment of any IT system has potentially large initial investment costs: the cost of purchasing necessary hardware and software licenses, project development costs, and so on. This large initial investment contributes to vendor lock-in, since customers are usually unwilling to make these expenses a second time in order to change providers. The lack of interoperability between systems is the second. The harder it is to move your stuff from one system to another, the less likely it is that you will even be willing to try the new system. Even worse, this resistance to change tends to increase over time, since people will have more and more data stored, and will be used to the way the current systems work. This does not mean that new systems are necessarily better, but if users are unwilling to try them out, they'll never know. Finally, the lack of transparency regarding pricing models and structure is the third source of power. It allowed providers to come up with complex pricing structures that make any sort of price comparison nearly impossible. In order to compare prices, customers are forced to get in touch with salespeople and request proposals, going through a lengthy process. And the high initial investment makes any "try it out first" movement much harder.

A consumer-friendly cloud

Fortunately for IT consumers, the shift to services, and especially cloud-based services, has been steadily shifting this power back into the hands of consumers. First, cloud computing has a great potential to democratize IT solutions by eliminating the entry barriers into this market. It can eliminate entry barriers for consumers by removing the need for upfront investment. It is much easier for a small start-up to have dozens or even hundreds of server instances running at a given time, without the need to buy these servers, build a data center, or anything else.

The cloud also reduces barriers for providers. Being on the web allows any new provider to easily reach a much broader audience without the need for large marketing investments. It also simplifies distribution, since cloud-based software usually runs on the browser, with no need for installation procedures. This, in turn, simplifies support, since the problem of variability in client machine configuration is reduced.

Having more providers means having more competition, and this also means more power to consumers. The more competition there is, the more pressure is made towards lower prices, improved and diversified offerings, and better service. We are already seeing benefits of competition in the cloud space: the only reason Rackspace dropped its inbound data-transfer fees was because all its competitors were doing it - and advertising that Rackspace didn't. This is another important point in cloud-based services. Providers of all sorts, from infrastructure to software, are adopting simpler pricing models to better engage customers. Unlike what we saw before, providers are fully advertising their prices, making it easier for consumers to compare different offerings. This price and feature transparency is second nature to cloud companies, because it is part of what we have come to expect from the web. I should be able to compare prices of cloud services in the same way that I can compare the price of physical products across several web retailers. Finally, we are seeing much improved interoperability between services. This is especially true for cloud-based software offerings. While lack of interoperability was interesting for in-house software vendors because it created vendor lock-in, users already come to the cloud with the expectation of being able to easily export the data. The very nature of the way that software is sold in the cloud, on a pay-as-you-go model, strengthens the idea that if the user may cancel his contract at any time, he should be able to export his data from my service at any given time. Yes, there are still limitations and format inconsistencies, but many competing cloud-based software providers already offer automated import/export of data from their competitors.

The same thing, to a certain extent, happens with infrastructure providers. In theory, if my application is properly designed to run on cloud instances, it should make no great difference to me if it is running on an Amazon, Rackspace, or anyone else's cloud server. In fact, I should be able to run on whichever instance is the cheapest one at that time.

The cloud model, then, is much more consumer-friendly than any in-house model, either for software or for servers. The logic is similar to what happens in any other service: if I need to go to a dentist when I'm a child, I don't have to purchase a dentist's chair and instruments, and my dental records are not kept in a format that only that dentist will understand. If I want to change dentists in the future, all I have to do is take my records with me and visit another one. The same goes for the cloud: there is no upfront investment, and the information is more accessible, so any future migration is much easier.

About

After working for a database company for 8 years, Thoran Rodrigues took the opportunity to open a cloud services company. For two years his company has been providing services for several of the largest e-commerce companies in Brazil, and over this t...

2 comments
chdchan
chdchan

I would see cloud can lessen vendor lock-in but at the same time cuts freedom of choices.

Marc Jellinek
Marc Jellinek

Try moving from Hotmail to Gmail or Google Apps. You can move your email and your contacts fairly easily for a single user. Now do it for an enterprise. Regardless of how easy it is to move the contents of your account, how hard is it to move your email address. Unlike cell phones, I don't believe you can move your email address from one provider to another. How about moving from SalesForce.com to QuickBase CRM or Really Simple Systems CRM. Again, you can move over a single person company fairly easily. Not so with an enterprise. How about moving from an Azure-based system to an Amazon AWS-based system? Hmmm.... not so easy. I seriously doubt that a cloud-based system gives you any less vendor lock in than an on-premise system. I'd argue that cloud based system are even harder to migrate away from because you often have no access to the underlying data store. I can move from PeopleSoft to SAP (ok, not easily, but I can do it) because I have direct access to the data and the APIs in an on-premise installation. Using hosted alternatives there is generally no access to the underlying data and customers are completely dependent on whatever APIs (usually web services or REST services) the vendor chooses to make available.

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