I am struggling to understand the definition of cloud computing – in the context of IT budget allocation. How is industry going to classify something as falling under cloud computing budget? In many companies I work with there is no Chief Cloud Officer operating with allocated budget.

With data center, we know there is an infrastructure cost component and staffing (along with well defined roles) which goes with it. Similarly on the application side, we have line of businesses and strategic initiatives.

Question is who is going to the primary driver for generating need (and subsequently budget) for conducting cloud computing projects. Cloud computing is in many ways a deployment strategy. Big server vendors (IBM, HP, Sun among others) have historically used their services arm to up sell their hardware solutions. With hardware going to cloud, can smaller IT service firms confidently compete with big service providers? Appirio is one startup which thinks they can disrupt this emerging market.

Appirio seems to have successfully combined many innovative cloud elements in their business model. By working closely with Salesforce and Google, they have established their leadership in pushing customer facing processes on cloud platforms.

To their credit they have secured Series C round of money from marquee venture firms. They definitely deserve big applaud for this. Especially in these recessionary times!

Though their claim to disrupt #1 trillion of IT spending smells of mild propaganda to me. From blog post (my emphasis):

Our market: Far more important than anything about Appirio’s business is the market opportunity that we’ve targeted. Cloud computing will disrupt $1 trillion of IT spending– great things happen when you’re able to accelerate an industry transition of this magnitude.

Our model: New markets call for innovative business models. Traditional wisdom says you have to choose whether to be a services company or a product company. We believe that the availability of web platforms makes a truly hybrid business model not only possible, but advantageous. Consider our new product offerings in 2009, Services Management and Facebook Referral Management– neither would have been possible without the opportunity to directly serve and learn from leading customers in these markets. Our model of delivering high end professional services, innovative software products and compelling cloudsourcing solutions is what we like to call a ‘next generation IBM without the baggage of hardware’. Customers need alternatives to the Global SI’s and traditional enterprise software – our hybrid model directly addresses that need and has delivered repeatable results for our customers.

Cloud computing has usual variable costing advantage, similar to SaaS model. Experience shows we will converge around some hybrid cloud model. Enterprises will not just throw away all servers and start logging into AppEngine or EC2 farms. To begin with enterprises will push edge level applications to cloud computing. Processes, like social media connectors, residing on the enterprise fringes will find easy case for migration to clouds.

I think we are still long way from claiming that cloud computing model will completely disrupt how IT service gets delivered and gets procured. Appirio, with strong validation by venture funding, is definitely leading the show here.

On IT budget and trends related to that, I would strongly recommend reading Goldman Sachs report for IT spending in 2009. This survey points to a severe reduction in discretionary projects. Which is in-line with the current economic climate.

Can cloud computing steal the budget from other critical initiatives? We will find out this year.

Goldman Sachs – IT Spending Survey