M.R. Rangaswami is a recognized software business expert. Prior to co-founding Sand Hill Group (known for its conferences and work in advising and uniting the software and services market) and founding the Corporate Eco-Forum, he held global VP marketing positions at Oracle Corporation, Baan Company, and Avalon Software. In 1997, he was named as one of the Top 25 Most Influential Technology Executives.

In this interview, M.R. shares his insights and opinions on the cloud’s upcoming impact on application development services.

What is driving adoption of cloud-based services?

M.R. Regardless of the hype, confusion, and complexity that seem to surround the use of the C-word, it’s important to understand what the cloud really represents in the broader business context. One of the primary business drivers for organizations today is agility, i.e., the need for an organization to respond to its customers with speed, accuracy, flexibility, lower costs, and to move in new and exciting ways that open up new markets.

Service orientation is an effective means to agility in which a company focuses on what it does best and on how it can differentiate itself from its competition. This in turn means outsourcing many non-core support functions to third parties that can provide these services more cost-effectively and at higher levels of quality through their own focused competencies. The “Everything-as-a-Service” model embodied in the cloud paradigm is a perfect example of the service orientation trend in the IT world.

What will be the pace of cloud adoption?

M.R. We at Sand Hill believe that the cloud computing reality will eventually catch up with the hype, particularly in the enterprise market. A majority of enterprise customers have been kicking the tires for the past year with several pilots and proof-of-concept implementations. Early results of an in-depth research study that we are currently conducting on cloud computing indicate that a significant number of these projects will morph into real implementations and will enter into production and begin to provide real value to these businesses. This trend will continue and accelerate well into 2011 and 2012.

We believe that cloud computing will enter the “mainstream” in the coming decade. We define “mainstream” adoption of cloud computing to mean at least 50 percent of enterprise IT applications/hardware budgets are being spent for the cloud (whether it is private, public, or hybrid).

How will the cloud impact outsourced application development services?

M.R. Moving a legacy application and its data to the cloud (which in itself is a big challenge) may potentially save hardware maintenance dollars – lower Total Cost of Ownership (TCO) – but it doesn’t necessarily mean that all the application/data updates, maintenance, and support will magically disappear. This has been the traditional strength of outsourced application developers and will continue to be the case at least for the next three to five years.

In fact, we believe there is an emerging market for “cloud integrators,” who make it their business to help their customers move legacy applications to the cloud, develop new applications for the cloud, and help integrate the many diverse and incompatible cloud applications and cloud providers that are springing up on a daily basis. There is also a paucity of developers today with skills needed to develop applications for the cloud. The outsourced service providers can position themselves to tap into this emerging market.

If applications will be easily accessible in the cloud, what will be the impact to the service providers in India since a large portion of their business is currently application development?

M.R. In the next three to five years, the dominance of the Indian service providers will be under threat if these companies don’t start making investments into cloud computing and developing near-, and long-term cloud strategies, if they haven’t already done so.

We think that the Indian providers’ price advantage has been eroding for a while now due to increased local costs and improved value-chain pressures. While the “treadmill” support services that are the bread and butter of these companies won’t disappear anytime soon, the cloud will put new competitive pressures on them, as it will get relatively easier for newer companies to enter the market with attractive lower prices.

Do you have any advice for these service providers?

M.R. The Indian service providers can and should take advantage of the cloud to optimize their own market offerings, reduce the cost of their services, and get a leg up on their competition. This could also be a great opportunity for these companies to get into the new cloud computing market by acquiring the cloud-specific application development skills that will soon be hard to find in the market. More importantly, with the right cloud strategy, the Indian service providers can position themselves to move up the value chain towards higher-end advisory and implementation services.

The implications and impact of the cloud on outsourced application development services will be significant, and these companies should position themselves with the right cloud strategy to profitably ride on top of the next big wave of the computing industry.

What is your advice for buyer organizations that are considering moving to cloud-based services in the next few years?

M.R. The cloud is all about service orientation, and this is readily apparent if one carefully examines the cloud characteristics that everyone seems to agree on: anywhere/anytime access, on-demand elasticity of resources, self-service options, etc. A problem that organizations face today is that many of their current applications and software are not organized in a service-oriented way.

Before rushing blindly into the cloud, companies need to step back and ask themselves how they can develop a service-oriented approach to their business objectives and ask if outsourcing some of these services is the best use of their strengths.

Then they need to figure out whether cloud computing is the appropriate technology solution for delivering those services. In this context, the cloud can be viewed as a potent deployment option that companies need to seriously consider as part of their overall Service-Oriented Architecture (SOA).

M.R. Rangaswami is a software business expert who participated in the rapid expansion of the Silicon Valley software industry during his tenure at large and small software companies. In 1997, he co-founded Sand Hill Group, one of the earliest “angel” investment firms. He is also the founder of the Corporate Eco Forum, aimed at improving the ROI of Global 500 companies’ eco-strategies. He was profiled on the front page of the Wall Street Journal and was named in the Forbes Midas 100 list of the most influential investors in technology. He holds an MBA from Kent State University and a bachelor’s degree from the University of Madras.

Since 1998, freelance writer Kathleen Goolsby has studied outsourcing relationships’ successes, failures, trends, and best practices. She has interviewed more than 860 executives at buyer and service provider companies and is the author of “Critical Requirements for Building and Sustaining a Successful Outsourcing Relationship,” a chapter in Global Outsourcing Strategies: An International Reference on Effective Outsourcing Relationships (December 2006, Gower Publishing). As a freelancer, she also currently serves as the Senior Writer for Outsourcing Center (whose parent company is sourcing advisory firm, Alsbridge) and has authored dozens of articles as well as white papers. In a past role, she was editor of Outsourcing Venture (a former print publication). You can contact Kathleen at ksgoolsby@gmail.com.

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