Last week’s Intellect Annual Regent Conference in London gathered a few hundred top executives from across the IT industry in the UK to predict the future of the industry.  The topic of the conference was “technology takes the lead in rebuilding the economy” and there were good examples of the improving macroeconomic conditions.  However, there was clearly a cloud hanging over the predictions with many senior executive grappling with the changing nature of IT spending and the difficulty to predict future buying trends.

For many years, the companies represented on the podium like Alcatel/Lucent, Logica, and Sage made much money building custom applications and systems or providing software that customers paid for up front.  In many cases, IT companies were able to make large sums of revenue in consulting fees to connect legacy systems to the new tools there were selling.  Once the customers invested large sums to acquire the hardware or software, the IT companies had a lock-in customer relationship that they could exploit and bill for annual licenses and expensive upgrades.  When the customer wanted to make changes, it often required a team of highly paid software engineers to do so.  For IT providers, the sky was blue and the revenue horizon was far in the distance.

Then, along came a big cloud in the form of cloud computing.  It changed everything.  No longer do customers spend huge cash outlays for consulting fees to make hardware and software fit their organisation.  Now, they buy simple-to-use, ready-to-go services available anytime and anywhere from a web browser and Internet connection.  Taking a clue from the consumer web, new business to business companies have emerged in the likes of Salesforce, Netsuite, Huddle, and Amazon Web Services who reduce the time and complexity of using new applications.  The new revenue models are not based on large up front fees, but are now monthly subscriptions where the customers are theoretically free to switch providers if they are not happy or find a better deal.  This trend has increased competition and reduced margins for the more traditional IT providers.  Many of the speakers at the Regent Conference spoke about cloud computing as both a threat and an opportunity.

When there are clouds there is rain.  And, rain has a way of making the environment clean again.  IT companies and service providers are being forced to rethink their models and find new ways to generate revenue.  Indeed, most of the companies presenting at the event described new and innovative services they were bringing to market.  However, the big rainmakers in cloud computing are already cashing in and everyone else is playing catch up.  New customer requirements have already been defined.  Internet enabled devices are proliferating and cloud computing is far more efficient for them.  Traditional providers need to innovate faster with new services if they expect to grow at pace.

As with any industry changes, sometimes it is easier to predict the weather by simply looking out the window.  But that would leave a false prediction for the future.  On the horizon, the gathering clouds predict a coming storm in cloud computing that will only intensify over time.  Much more rain is predicted which is good news for rainmakers.