Information technology

Information technology
Published: June 8 2008 19:07 | Last updated: June 8 2008 19:07

Who has not, when confronted by the daily exasperation of office technology, questioned the parenthood and purpose of information technology departments? Advocates of computing in “the cloud” hope to make them largely superfluous.

Instead of going to the effort of installing and maintaining computing locally, all those tricksy applications, not to mention storage and data processing, can be provided centrally from shared infrastructure. Merrill Lynch estimates that more efficient management of resources – such as servers – could provide services at a cost five to 10 times cheaper than that provided by a more traditional in-house approach.

The revolution has been a long time coming. Computing on tap as a concept was floated as far back as the 1960s. Sun Microsystems has been actively pushing grid, or utility, computing for almost a decade. What has changed is the rise of viable business models such as software-as-a-service. Salesforce.com is the most high-profile of these companies, but Oracle, Microsoft and SAP are all investing in subscription-based services aimed at small businesses – typically those with fewer than 1,500 employees.

So there are some valuable niches to exploit. On current growth rates, Saas sales should double between 2006 and 2011. And if subscription services can show real economies of scale in distribution and sales – not something that Salesforce.com has yet demonstrated – sky-high valuations for Saas companies might be justified.

But the segment’s sales of about $3bn remain a small fraction of a global $270bn software market. The impact of inertia should not be discounted either. Chief executives tend to dislike replacing equipment that still works. Mainframes were superseded by servers decades ago but IBM still makes and maintains them. Important security and regulatory questions have to be answered before large companies will consider the cost of moving any form of critical data into the cloud. To hope for more than slow, if steady, progress over several years is to build castles in the air.
Copyright The Financial Times Limited 2008