I’ve spent a lot of time this year with clients including VMWare, Grid Dynamics, SymbioWare and others who are thinking about (and betting on) the future of cloud computing.    To figure out what’s real and what’s hype, we’ve also talked to dozens of VPs of Engineering and IT about their priorities and plans.

Here are a few predictions for the challenges and opportunities that will be floating around in the cloud in 2011.

1. Enterprises are going to continue to combine traditional IT with private and public clouds – picking the best and most appropriate of these models for each application or business process.
2. The different stacks will still need to interoperate, so IT organizations will be looking for tools that were designed to operate and manage these hybrid environments.
3. These mixed environments will spawn a new generation of applications that are deployable anywhere.
4. Though cloud is a hot topic among IT execs, ultimately it’s a means to an end – and that end will decidedly be flexibility in 2011, marking a change from the laser beam focus on cost reduction of past years.
5. Security is the #1 reason companies don’t do more in the cloud. 2011 should be a big year for vendors who can address their concerns.
6. Greater cloud adoption will place more strain on the network, and network infrastructure vendors will be scrambling to support the growing demand for speed and bandwidth.
7. With so many productivity and business tools now available in the cloud, small and medium businesses (SMBs) are able to draw on much more sophisticated and powerful IT resources.  But making sense of the options and how they all work together will be a big challenge. That makes for a big opportunity to help SMBs assemble the right SaaS portfolios.
8. SaaS for mobile will take off in 2011, likely outpacing new SaaS offerings for desktops.  Lots of factors conspire here: HTML5 adoption, IaaS providers catering to mobile – witness Amazon’s recent release of Software Development Kits (SDKs) for Google’s Android and Apple’s iOS),  and the fact that computing power and storage space are more scarce on mobile devices than the desktop.
9. As usual with a hot IT trend, there will be plenty of companies throwing “cloud” into their marketing spiels long before they have made any substantive changes to their product offerings.  Buyers will have to spend some extra due diligence cycles weeding out the pretenders.

When you are promoting something to clients because its been proven to work, its healthy to keep a lookout for exceptions.

Industry-targeted initiatives are a big theme in my work. I tend to promote specialization (of marketing, solutions, sales, etc.) as a path to B2B sales growth, a fact backed up by experience and extensive primary research.   But I’m a contrarian by nature, so I’ve been looking for situations where it just ain’t so.

I found one in the clouds.  Computing clouds.

The core value of cloud computing is that a utility model aggregates demand for computing resources across many users, creating a smoother demand curve than any single user can have alone.  Which in turn allows cloud and managed services vendors to provide the resources more efficiently, with better utilization, and (so the claim goes), greater reliability.   This concept is as old as Edison’s first electrical plant.  Supply electricity to the cable cars with strong usage in the morning, the factories that run during the day, and the homes that need power at night, and you get a uniform demand throughout the day, despite fact that each segment individually creates a peak.

That’s why, if you’re offering resources in the cloud, your value is in having a diverse and balanced customer base.  A service provider with too many retail customers, for example, is going to find themselves in a heap of trouble come November.

So how do cloud providers get a deep understanding of their customers without focusing in on target industries?  A few initial thoughts:

1. Understanding customers’ industries is still important for defining value to customers
2. Providers acting as utilities must pick multiple segments at once – specifically ones they have very different usage profiles
3. If a cloud operator doesn’t have the resources to dive into multiple industries at once, it should keep to horizontal marketing and sales

This is probably the most difficult for those at the top of the cloud stack – the SaaS vendors.  Apps are less generic by definition than infrastructure and platforms.  So I’m very curious to know what strategies SaaS vendors use to keep their demand smoothed out.

At the Churchill Club CIO Agenda event last Thursday, Peter Solvik (formerly CIO at Cisco) led a discussion among a powerhouse of IT leadership:  Matt Carey, CIO of Home Depot (former CTO, eBay and Wal-Mart), Karenann Terrell, CIO of Baxter (formerly CIO at Daimler / Chrysler), and Lars Rabbe, former CIO at Intuit and Yahoo.  Topics included SaaS, Clouds, the good an bad of vendor consolidation, and the uptake of Web 2.0 and collaboration technologies.

Here’s a summary of their views and my takeaways on these top-of-mind IT themes:

Q: What are you focusing on over the next year?

All three CIOs are managing costs more actively, but key strategic projects are still very much under way.  Baxter is doing a massive new ERP deployment, and Home Depot is continuing its supply chain upgrade.  Home Depot’s CFO says that right now, “cash is king,” so the company has stopped construction of multiple new stores (while competitors are continuing to build at a faster rate,  and cut costs in IT and operations.

Takeaways:

There are two ways to sell in this environment. 1. Show concrete cost savings and a short time to realize them.  2. Find out what your prospects’ one big initiative is, and show how you add value to it.

Q: Consolidation – Good or bad? Giving vendors too much power?

Here the CIOs disagreed. Lars felt consolidation helps ease integration, though of course too much consolidation eliminates alternatives. Overall, he felt he’d benefited from consolidation as a CIO. Matt agreed that better integration was a positive, but is concerned that vendors may gain too much power in negotiating contract renewals and maintenance fees.

Karenann, on the other hand, believes that the benefits of integration are limited, that it moves slowly, and that it “has not unraveled the complexity.” Even worse, while everyone is busy with integration, there is a pause in innovation. Karenann also voiced a concern about unjustified support and maintenance costs: “I’m willing to pay an annuity, but only if I get extra value.”

Takeaways:

• Complexity is still a challenge, so both big and small vendors that can help reduce it can do well.
• If your competitors are buy digesting acquisitions, take advantage of innovation as a differentiator