For Some, Computing Clouds Turn Dark

For as long as I can remember, cloud storage and computing have offered only one thing – endless promises and perpetual growth. For a while that was true, but some things have happened in the past couple of years that temper those claims and may portend what may happen in the future for technology providers that become increasingly reliant on the cloud – layoffs.

Cloud computing, or internet-based computing provides shared processing resources and data to computers and other devices on demand. From the beginning it was intended as a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications and services) that can be rapidly provisioned and released with minimal management effort.

Proponents have always claimed that cloud computing allows companies to avoid upfront infrastructure costs, and focus on projects that differentiate their businesses instead of on infrastructure. Proponents have also claimed that cloud computing allows enterprises to get their applications up and running faster, with improved manageability and less maintenance, and enables IT to more rapidly adjust resources to meet fluctuating and unpredictable business demand. Cloud providers typically use a “pay as you go” model. This can lead to unexpectedly high charges if administrators do not adapt to the so-called cloud pricing model.

To a large extent most of these claims have proven true, and I have been a proponent for many aspects of cloud computing, but there is also a downside – generally, you just don’t need as many people to run and maintain a cloud-based organization.

The downside is that you will have limited customization options. Cloud computing is cheaper because of economics of scale, and like any outsourced task, you tend to get what you get. A restaurant with a limited menu is cheaper than a personal chef who can cook anything you want. Fewer options at a much cheaper price: it’s a feature, not a bug and the cloud provider might not meet your legal needs. As a business, you need to weigh the benefits against the risks.

Research Global Equities Research’s Trip Chowdhry recently said that layoffs in the mainstream of tech companies are primed to become worse than expected: He predicts there will be at least 333,000 layoffs in the next twelve months, in part because of developments such as cloud computing.

Chowdhry’s philosophical justification for such a dour view is in large part that the shift to cloud computing eliminates a lot of IT talent that has been classically devoted to IT back-end operations.

He thinks that 70% of the work done in IT is for such back-end things, versus the 30% that is focused on, presumably, more rewarding domain-specific tasks.

Chowdhry thinks now with the cloud, because infrastructure is outsourced to Amazon.com and other Web services, the equation flips, and the talent that’s in demand will be domain-are experts, while traditional back-end IT staff goes away. As he summarizes, “70% of the current work which requires back expertise, products, and services is going to get reduced to 30%, and will result in at least 333,000 layoffs in the tech sector Sadly, the new jobs in functional/customer domain will not be immediately filled, as those skills are scarce and the educational system is behind the curve.”

Chowdhry offers the following estimate of what he thinks layoffs may (and are) look like:

• EMC: Total Employees: 70,000: Between 15% to 20% layoffs = between 10,000 and 14,000
• VMWare: Total Employees:17,000: Between 10% and 15% layoffs = between 1,700 and 2,500
• HP Enterprise: Total Employees 240,000: about 30% layoffs = about 72,000
• HP Inc.: Total Employees 287,000: about 30% layoffs = about 86,000
• IBM: Total Employees 379,000: about 25% layoffs = about 95,000
• Cisco: Total Employees 72,000: about 20% layoffs = about 14,000
• Juniper: Total Employees 8,800: about 15% layoffs = about 1,300
• Oracle: Total Employees 132,000: about 20% layoffs = about 26,000
• Microsoft: Total Employees 118,000: about 15% layoffs = about 18,000 (Microsoft is letting go about 200 to 250 people every week, and none of these are ever announced)
• Symantec: Total Employees: 19,000: about 15% layoffs = about 2,800
• Yahoo: Total Employees 12,500: about 30% layoffs = about 3,500

Unaddressed in Chowdhry’s estimates is what sort of hiring might replace such layoffs, if and when they occur. In some cases, companies have replaced some layoffs with new hires, as they seek to emphasize new skill areas at the expense of others. Alas, others are not so lucky.

Closer to home and the hearts of many MCADCafe readers, there’s Autodesk.

Last month the company said it was laying off 925 employees (or about 10% of its total number of employees) as part of a larger restructuring plan as Autodesk looks to shift to the cloud and a subscription-based service .

Bad news for employees, good news for investors, as the company’s stock shot up ~7% almost immediately after the layoff announcement.

Carl Bass, Autodesk president and CEO, said, “We are restructuring so we can focus resources on areas that will accelerate the move to the cloud and transition to a subscription-based business.”

Autodesk framed this announcement as a “restructuring plan” as the company looks to expedite its transition to the cloud and a “subscription-based business model.”

In a word, layoffs.

As previously noted, Autodesk’s announcement is hardly unique as a number of tech companies have been laying off staff to cut costs in recent months from established companies, as well as smaller startups — moves often explained by saying that they had “overhired.” As for Autodesk, it said that it’s looking to reduce its expenditures and reallocate its resources in order to streamline operations.

“As we progress through our business model transition, we continue to take a comprehensive look at our company to see where we can be more effective and efficient,” explained Carl Bass, Autodesk president and CEO. “To realize maximum value for both our customers and shareholders, and as a follow-on to previously discussed cost reduction actions, we are restructuring so we can focus resources on areas that will accelerate the move to the cloud and transition to a subscription-based business.”

While these layoffs may sound alarms, they don’t necessarily mean things are desperate within the company — it just means that it’s taking pre-emptive actions before things turn worse.

“To be clear, the restructuring announced today is not related to anything we are seeing in the macro-economic environment,” added Bass. “We ended fiscal 2016 on a high note with very strong fourth-quarter billings growth and continued demand for our subscription offerings. Solid revenues, coupled with continued cost-controls, led to better than expected non-GAAP EPS during the quarter. I’m pleased we were able to deliver these results at such a critical moment in Autodesk’s transition.”

Cloud computing is still as much a work in progress as it is a market offering^. The major cloud technology developers continue to invest billions a year in cloud R&D; for example, a few years ago Microsoft committed 90% of its R&D budget to its cloud endeavors. Centaur Partners predicts that SaaS revenue will have grown from $13.5B in 2011 to $32.8B in 2016^. This expansion shows that more industries are turning to cloud technology as an efficient way to improve quality services due to its capabilities to reduce overhead costs, downtime, and automate infrastructure deployment.

So, for some, computing clouds have turned dark. Forecast: darker clouds and more layoffs. However, sunny skies and continued pleasant weather for customers and investors.

Tags: Autodesk, cloud computing, SaaS, software as a service

This entry was posted on Thursday, March 3rd, 2016 at 19:08. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.