Why some vendors regret becoming cloud providers

I was not surprised to hear that EMC is shutting down Atmos, its cloud storage service. This was a case where moving to the cloud was good for technology but perhaps bad for business.

As Teri McClure, an analyst with Enterprise Strategy Group, puts it, “EMC chose to shutter its Atmos Online service to avoid competing with its software customers.” Fair enough, but I’m not sure why EMC did not see that issue from the get-go.

The larger issue here is that large enterprise software and hardware companies, like EMC, that move into cloud computing could find themselves cannibalizing their existing market. Thus, they might end up selling cloud services to replace their more lucrative hardware and software solutions or — in the case of EMC — competing with their partners.

I suspect we’ll be seeing more cloud pullbacks, considering the number of large enterprise software companies — including Microsoft, Oracle, and IBM — rushing into the cloud computing space. For instance, if you’re selling cloud storage at 15 cents per gigabyte per month, but your customers end up spending $1 per gigabyte per month for your storage box offering, how do you suspect your customers to react?

Consider this scenario: A customer adds a terabyte of cloud storage from a large software and hardware vendor now offering cloud storage, a few days before the sales rep comes in to pitch a DASD upgrade. But the upgrade does not happen. As a result, those in the traditional hardware and software marketing and sales side of the vendor soon learn that while it’s good to have “cloud computing” in the sales pitch, they did not understand how it would affect the traditional business — and their paychecks.

But there is a Catch-22. While providing a cloud service will indeed conflict with the market and reduce margins in many instances, not providing a cloud service could cause a vendor to lose its market altogether to another provider. Thus, it makes much better sense that vendors focus on providing the most innovative solutions, including the use of lower-cost and lower-margin cloud computing solutions, or end up offering no solutions at all.

For vendors in this situation, my only advice is to embrace the cloud and manage your traditional business the best you can. The market moves where it wants to move.

This article, “Why some vendors regret becoming cloud providers,” originally appeared at InfoWorld.com. Read more of David Linthicum’s Cloud Computing blog and follow the latest developments in cloud computing at InfoWorld.com.