Is Google your next data center?

Jonathan Snyder's five-person team at Dreambuilder Investments isn't your typical IT organization. Or is it?

The New York-based company, which buys and sells defaulted residential mortgages, uses Force.com from Salesforce.com as its financial services platform. It backs up data using EMC's hosted MozyPro service. The company's server is hosted by RackForce Networks in Canada and its e-mail is handled by Apptix, a hosted exchange.

Granted, Dreambuilder Investments is a five-year-old company that lacks the kind of IT infrastructure that's been built up over decades by a typical Fortune 1,000 enterprise. But as Chief Technology Officer Jonathan Snyder sees it, his company's core business is mortgages, not server maintenance and disk backups.

"If it's somebody else's core business to handle an Exchange server, let them do that," says Snyder.

It's not just small to midsize businesses that are following Snyder's lead. By 2013, at least one-fifth of enterprise IT workloads will be managed in cloud computing environments, according to Mike West, an analyst at Saugatuck Technology, a boutique consulting firm. He says that big companies are increasingly handing over their IT infrastructure activities to traditional IT services firms like IBM, Hewlett-Packard and even recent market entrants such as Amazon.com and Boomi. The goal is to lower their costs, access enhanced functionality, sidestep skilled labor shortages and reduce their data center footprints.

Moreover, companies are recognizing that building or installing commoditized applications or IT infrastructure services that don't provide them any competitive advantage "has become a diminishing return over the past several years," says John Dutra, CTO at Sun IT, a division of Sun Microsystems, which is preparing to launch a hosted computing platform for developers called network.com.

Companies "are no longer going to buy technology artifacts, like ERP systems," predicts Thornton May, a US-based futurist. Instead, he says, "They'll commit to a service."

Advantages

The benefits of cloud computing -- the ability to store files and data on a remote network using the Internet -- include lowered infrastructure costs and speed to market, and they are making hosted IT infrastructure services a lot more enticing to IT leaders. Studies have shown that it would cost some companies millions of dollars to install and set up their own virtualized server and storage environments, says West.

With hosted IT services, notes West, "you don't have to buy the hardware and software; you just subscribe. There's not a lot of capital outlay. The attraction to that is huge."

Moreover, providers of hosted services such as Google and Amazon are making pricing extremely transparent. For instance, Google Apps (which includes e-mail, word processing, spreadsheets, presentations and calendaring) is priced at US$50 per user per year, says Matthew Glotzbach, Google's director of product management for enterprise.

Amazon's Simple Storage Service is explained simply on its site and priced at 15 cents per gigabyte each month. "We've removed so much of the friction by being transparent about prices and not having to have lengthy contracts and negotiations," says Adam Selipsky, vice president of product management and developer relations at Amazon Web Services.

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Although the bulk of its customers are small companies, Amazon Web Services has also signed up big players such as Nasdaq Stock Market and The New York Times , says Selipsky. In fact, he says that adoption among enterprise customers has "happened a little quicker than we would have imagined."

"The choices we have about what [IT activities] we do in-house and what we can have outsourced continue to improve," says Beach Clark, CIO at the Georgia Aquarium. The aquarium's Web farm, including two Web sites, is hosted elsewhere by a third party that also hosts its Web servers. But like other CIOs, Clark believes that IT activities that are core to the mission of a business will continue to be handled internally.

For instance, Clark's five-person staff handles most of the aquarium's online ticketing support and much of its business intelligence work -- functions he deems critical to the organization -- even though some of the programming itself is outsourced. And he doesn't see that changing anytime soon.

The shift among enterprise IT organizations toward hosted IT infrastructure services is real, says Paul Major, managing director of IT at Aspen Skiing.

But even though he finds the prospect of outsourcing IT infrastructure support to third parties "appealing," Major raises one of the red flags that have continued to prevent widespread adoption among large companies.

"My concern is what happens if [the service provider's] business model flops and someone comes in and buys them," says Major. "How do I go back in and get my data and format it? I'd rather keep it local and keep it under control."

For that reasons and others, Storage Networking Industry Association chairman Vincent Franceschini believes there will be "many shades of gray" when it comes to adopting hosted IT infrastructure services among Fortune 2,000 organizations.

For instance, the chemical and avionics industries have vastly different business processes and data workflows. But at the core of both industries is intellectual property "that they very much want to be controlling," says Franceschini. So even though he envisions companies outsourcing some level of rote IT infrastructure activities to third parties, "it will take some time" for core business applications -- particularly those containing IP -- to move off premise, he says.

"If there's anything that's going to cause a slowdown [in managed services adoption by enterprise customers], it's [concerns about] data protection," says Nick Sharma, senior vice president of infrastructure managed services at Satyam Computer Services.

There are other reasons that many CIOs are still resisting the hosted IT services model. "I think there's going to be a swing back to a more traditional [on-premise IT support] model because IT departments are understanding that users want to interface with a real human being in English," says Carmen Malangone, director of IT at Coty, a maker of fragrance and beauty products. "That's one area where these [managed] services fall short," he says, alluding to the use of offshore service reps whose English language skills may be spotty.

And those aren't the only inhibitors to widespread adoption. "One of the biggest barriers is the IT organization itself," says Sun's Dutra. "There is a cultural history of building things." There's also a bias among some business customers that have become accustomed to having their IT organizations "own and operate" systems, Dutra adds.

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"There are different degrees of progression down this [hosted services] path," says Bryan Doerr, CTO at Savvis, an IT infrastructure services provider. "There's a percentage of companies that don't think a virtualized solution is for them."

Careers in the cloud

IT organizations that do shift a good part of their IT infrastructure activities to hosted services providers over the next decade will likely see profound changes in the makeup and skills of their remaining IT staffers.

"There's a limited number of resources in IT," notes Dutra. "Wouldn't I want to focus them on the most strategic areas possible?"

On the path toward utility computing, IT leaders will need to develop and attract people with transitional skills. For instance, companies that aggressively pursue hosted IT services may wind up creating software-as-a-service task forces to devise new ways of providing support to business users, says West. And as companies cobble together a mix of premise-based and hosted applications, systems integration expertise will come to the fore, whether provided by internal staff or outsourcing providers, West adds.

Once the transition is well under way, Major expects to see an increase in the number of people with vendor relationship management skills. But the people who end up filling those posts might be "super-users" and not traditional IT staffers, he says.

He adds that many IT pros with deep technical skills in areas like data center and network management will probably end up working in giant hosted data centers.

Futurist May agrees. "I think the human capital flow is going to change" over the next decade, he says.

He predicts that many young IT workers will spend the first 10 years of their careers working for managed services providers and then move into middle and senior IT management positions in corporate IT. "You're basically going to get your technology chops inside the belly of the outsourcing beast and some subset of these people will migrate over to their customers," he says.

Nevertheless, large companies will still need to have IT organizations that are "very deep in the business -- people who have vendor relationship management skills, who can help the [service provider] or outsourcer to understand how to facilitate the business," says Robert Keefe, CIO at Mueller Water Products.

To play that role, IT staffers will have to improve their vendor negotiation skills, says Roni Krisavage, CIO at World Wrestling Entertainment.

Even companies that outsource the bulk of their IT infrastructure support will still need in-house technical experts who understand how everything fits together and works, says the Georgia Aquarium's Clark.

And since most hosted services will be accessed using Web browsers such as Internet Explorer, Firefox and Safari, "somebody in the [customer] company will have to deal with that in a technical fashion," says Dutra.

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What stays inside

There are other IT activities that will remain in-house as well. These include data management and business intelligence-related functions, says May.

Moreover, says Keefe, "You're always going to have some things [in IT] that need to be looked after, nuances and pieces of technology that continue to change."

For example, IT organizations are likely to retain project portfolio management, including people who are adept at sourcing and staffing project teams, says Chris Barbin, co-founder and CEO of Appirio, a US-based provider of products and services for hosted environments such as Salesforce.com and Google Enterprise.

"For me, it's my revenue-generating and customer-facing systems" that will remain in-house, says Aspen Ski's Major.

He cites a few reasons for this, including a current dearth of vendors that provide hosted application services for these particular disciplines. Even when players do emerge in those spaces, says Major, "they're going to have to come to me and explain why this is a great idea for me."

The evolving CIO

As a greater proportion of IT activities is handled externally, CIOs will see their roles continue to morph, though exactly how is uncertain.

"I think the technical CIOs are going to migrate over to these hosted companies" while CIOs who are more business-focused will continue to work alongside their business peers within customer companies, says Keefe.

Coty's Malangone foresees considerably more dramatic changes ahead for IT leaders. "What I think you'll see is the CIO role dissolving" while IT directors increasingly work one-on-one with divisional business leaders, he says.

If he's right, that kind of change will likely take years to play out. In the meantime, many enterprises will likely test the hosted services waters first before diving in headlong.

"I don't think the on-premise [software] business is going away overnight and I don't think it's ever going away," says Google's Glotzbach. "If we've learned anything in IT over the past 20 years, it's that nothing ever goes away completely."