The Transformation Knothole

Squeezing through is painful, but brings powerful lessons

Andreessen Horowitz partners Martin Casado and Sarah Wang set the Cloud Twittersphere ablaze recently with an impact analysis of public cloud spend on the market valuations of multi-billion-dollar SaaS companies. The debate that ensued collapsed into a typical zero-sum, all-or-nothing, public-versus-owned/operated infrastructure argument. The prevailing view was that cloud is a fantastic value proposition, granting immediate infrastructure and the ability to scale as required.

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While this is generally true in the early stages of cloud adoption, public cloud growth is not always smarter than on-premises private cloud deployments – and the power of owning and operating the technology that drives your IT strategy. This false dichotomy of public cloud juggernauts and enterprises is a gross oversimplification of the broader dynamic that has played out over the last decade and will continue into the next.

It’s not uncommon to hear people say that cloud operators/hyper-scalers are better at running IT services; and so enterprises will eventually relinquish their IT operations to them. The familiar “private versus public cloud” debate holds that public cloud is cheaper than owning and operating IT infrastructure. That’s not entirely wrong, as public cloud plainly delivers on its promise early in a company’s cloud journey. But, as the company scales, and growth starts to slow, the pressure that public cloud puts on margins can start to outweigh the benefits. It starts to chip away at the “cloud is great” mantra that exists across most industries.

Public cloud never was – and never will be – the most economical approach to IT. Its utility, and popularity, lies elsewhere: speed (immediate infrastructure) and scale.

Many industry experts have locked themselves into a zero-sum notion of on-prem versus public cloud. It’s a false dichotomy that goes something like this: Enterprises, with their legacy systems and more traditional organizational structure, are ill equipped to manage and host their own IT (or private cloud). They will eventually cede to the newer, cooler companies to handle this. Sound familiar?

This ignores the fact that virtually every industry on earth is going through digital transformation – though they may be at different stages of maturity. This is what I call the transformation knothole. Being “pulled through the knothole” often has a spiritual locus, describing a traumatic or painful life experience that leaves you fundamentally changed on the other side. You face something so intense or overwhelming, that what you trusted in or held close beforehand simply falls away.

Today, entire industries are being pulled through this knothole. Transforming an entire sector’s business dynamics to keep up with the pace of digital transformation is really hard work and can be downright exhausting. You need compute and analytics everywhere data exists — scale, speed, agility, security – to maintain momentum. To survive. Ouch, right?

But when you squeeze through and come out the other side, you realize that relying solely on public cloud isn’t – and never was – the answer. That’s the fundamental change wrought by the knothole. Companies realize they need to own and manage not only their IT strategy, but many of the services and solutions that drive it, because IT becomes a differentiator and a driver of innovation. By giving it all away, enterprises lose their edge to be agile and more competitive.

All companies do not survive the digital transformation knothole. They get stuck. They get overtaken by new, more nimble entrants. But those that do make it through emerge with room to accelerate and OPTIMIZE their digital business. Once transformed, they see that the services they relied on for speed and agility are now consuming a huge portion of their operating expenses.

As a digitally enlightened company, they have the time and motivation to optimize their means of production. They look at their service provider margins and say, “wait a second, I can do this better and cheaper.” They realize that an enormous amount of market value is being lost due to the impact of public cloud costs on their margins. When they look to optimize infrastructure, they see huge potential savings from shifting workloads from public cloud to in-house or co-location, leased facilities. They realize that the initial appeal of speed and scale has given way to runaway costs that easily eclipse what would be spent on running their own data centers. They know they need to optimize and find balance.

The false dichotomy that many consistently present, assumes that there will always be non-digital dullards and technology wizards. The dullards will need the wizards to survive. I don’t buy it. When companies have digitally transformed – made it through the knothole – the differences between cloud and enterprise organizations become pretty hazy.

If digital business runs on information technology, IT becomes a major cost AND a strategic point of differentiation. It becomes target #1 for innovation and optimization.

Just because public cloud is more flexible and faster early on, doesn’t mean it won’t become more costly later. And it’s important to plan for that. Why rely entirely on someone else to provide such a critical part of your business? If cost savings were a reason to initially jump onto public cloud, the irony of that draining your market value a few years later will be stark. It may seem crazy to not jump into the public cloud early on, but it’s foolish to stay on it forever. (Hyperscale providers have very high profits margins – partly because they run their own infrastructure and can smartly reinvest in new products and great talent.)

Some of our largest customers — SaaS companies, consumer web tech, e-commerce, you name it – are most often hybrid AND multi-cloud. They don’t always own data centers, but they do own and operate substantial IT estates, commonly in co-location facilities.

Will some industries remain forever non-digital? Sure, but they will be the exception to the rule. Most industries are going to get pulled through the painful and difficult knothole. Can it be traumatic? Yep. Will it leave some scratches and even scars? Probably. But when companies realize that they need the strength, reliability and been-there-done-that of an enterprise like Dell Technologies, we’re there to catch them on the other side.

Source: delltechnologies.com