The Comparative Insecurity of Cloud Computing, Together with Limited Reliability, Contributes to a Lower Value Proposition for Enterprise IT

When highly publicized security vulnerabilities are factored together with a sober new conclusion, post Hurricane Sandy, that the Internet is not a reliable data communications option, the effect on the value proposition for cloud computing for Fortune 1000 businesses here in the United States and comparably sized organizations in the public and non profit sectors is very negative. Claims like those of Marc Benioff, founder of Salesforce dot com, that cloud computing has created a computing environment where “Windows is irrelevant” (quote reprinted from the International Business Times web site, in an article authored by Yannick Lejacq, “Salesforce CEO Mark Benioff: Windows 8 Release Is ‘The End Of Windows'” and posted on October 19, 2012) have been rendered, appropriately, ridiculous and completely untenable. After all, how can an organization rely on a computing method like the cloud, that quickly vanished, in entirety as an option for millions of users over scantly more than 60 minutes on Tuesday afternoon, October 30, 2012, as Hurricane Sandy slammed into the very densely populated Northeast/Mid Atlantic area of the United States.

But what about these highly publicized security vulnerabilities? We think that most of the public has failed to understand the real impact of the emergence of subversive, malicious use of the Internet by nation states. The public has managed to maintain a position far removed from the Internet security issue. In fact, financial institutions have taken the brunt of these problems. But what if the public can no longer be safely insulated from these aberrations? What if financial institutions can no longer entirely assume the losses resulting from successful intrusion by malicious parties into presumably secure web sites? We think most anyone will be able to recognize the near instantaneous public outcry that will, inevitably, arise should private parties have to assume the burden of these losses.

As the magnitude of losses arising from compromised web sites mount, we think it is inevitable that financial institutions will have to pass through losses to end customers. No one has the financial strength to absorb high magnitude losses, least of all banks that are very hard pressed to maintain reserves in the face of ever increasing regulatory requirements.

Certainly the US Department of Defense (USDOD) has recently stated, publicly, that they plan on protecting the public from subversive attempts, ostensibly initiated by state backed operatives, to undermine web sites. Nevertheless, we need to question the amount of time it will take the USDOD to roll out a reliable, production version of its strategy. There may, in fact, be room for further successful attacks to transpire before this system is operational.

In sum, for larger organizations, the effects of a natural disaster like Hurricane Sandy, together with lots of publicized security issues, results in a comparatively low value proposition for cloud computing for enterprise IT customers. If our assumptions are correct, then there is a substantial gap between the intention of Enterprise IT ISVs to push more adoption of cloud computing and market place sentiment. We think that this gap will, inevitably, translate into poorer earnings for publicly traded Enterprise IT ISVs.

© IMB Enterprises, Inc. & Ira Michael Blonder, 2012 All Rights Reserved

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