One of the major issues faced by organizations with respect to the adoption of cloud computing is how to change in order to be able to take advantage of all the benefits. This challenge is not insurmountable. In fact, we've overcome such challenges at least twice before, and even more often than that if you're an IT or telecom lifer.
If you're reading this, it's probably because you've purchased something online in the past few years. It wasn't always this easy to buy from Amazon or eBay and there was a time that online transactions were viewed with suspicion. Of course, that has been replaced with a wildly positive approach to e-commerce; some analysts are calling a record volume of transactions for this coming Black Friday.
What we're talking about here is the introduction of game changing business models and technologies: distributed computing; e-commerce; virtualization; security; outsourcing. Each of these has caused major upheaval among the brightest stars in business and on the Internet and organizations that have adopted these models and technologies all undergone a period of adjustment. And yet they all came through on top.
Cloud computing is no different. It's one of those things that scare companies because of the unknowns. Security almost always tops the list of concerns and barriers to adoption in surveys. Of course, security and governance is personal to an organization--there is no one-size-fits-all--which seems to intimidate potential adopters. Early adopters are learning that security is manageable and is improving steadily (rapidly) much as security improved in the early days of the web and e-commerce.
And, regardless of what the top dog in IT is called--CIO, CTO, VP, CEO--management is facing these same challenges today when it comes to adapting the organization to a new way of consuming IT resources. Eventually, if not already, this will become a competitive advantage; the flexibility and agility afforded by cloud computing will make leaner and meaner competitors. As with all competitive advantages, though, organizations that make the move earlier will reap the greatest benefits.
Shane Schick from ITWorldCanada gave an interesting overview of the state of cloud computing in Canada. This is a refreshing take on the Canadian perspective and doesn't show the stereotypical 'security is our biggest concern'; rather, legacy IT is becoming more and more inportant.
Interestingly, Shick said CIOs don't see cloud computing as a way to cut costs but rather see it as being a way to increase their organisation's flexibility. The real challenge is how to redeploy human resources to help increase the value of the organisation.
It seems that our slow pace of adopting cloud computing is related to the perception that Canadians are cautious. This sentiment is pervasive and was even the target of a recent article in Canadian Business. Basically, Canadians don't accept unfettered capitalism and have a lower tolerance to risk; but this translates into more stable and long lasting enterprises.
Today's takeaways from Interop 2011--Carrier Cloud Forum panel on "Building the On-Demand Cloud Infrastructure".
- Private cloud, by definition, is not "infinitely" scalable like Amazon's EC2. The resources required to build such a solution would be prohibitive. In addition, private clouds are commonly being delivered and managed by service providers. Because of these characteristics, there are some that claim that private cloud is not truly cloud computing. Of course, managed services have been around a long time and there are still efficiencies to be had for customers who take advantage of carriers' economies of scale and scope.
- Why service providers, why cloud?
- Billing is crucial: unified billing is a major advantage for carriers who offer end to end services; pipe--DC--cloud in a one-throat-to-choke model. This also allows carriers to provide contractual SLAs on the full service offering.
- Carriers already have a critical mass of customers who can benefit from this bundling as well.
- Cloud computing depends on the network working and carriers own the network.
- Carriers are looking for a partner who can provide a solution that is competitive with the big technology vendors; as robust an offering but with none of the drawbacks of a large organization.
- Cloud computing is pervasive: it is difficult to see where it starts (i.e., define its boundaries) as it encompasses mobile, web, business applications, enterprise 2.0, social media...
- What does "enterprise grade" or "carrier grade" really mean? IaaS is usually referred to as being built on servers that do not have redundancy inherently built into them (e.g., single power source, non-raided drives, etc.). Perhaps its better to drop the "enterprise grade" and simply refer to it as "carrier grade" since carriers have historically been concerned with providing redundant services (such as telephony, internetworking) the logic being that carrier customers want the reassurance that the hardware will be tolerant to failures.
On our pre-panel and panel discussion at Cloud Connect, Krishnan Subramanian of CloudAve brought up an interesting point about cloud adoption in Africa and India and even discusses it in his blog. To these I would also add China. Given their populations, there is a massive business opportunity there that may yet be untapped.
Essentially, the masses in Africa, China, and India are well versed in mobile communication due to its relative affordability and even prefer mobile phones over personal computers and laptops. As Krishnan points out, this platform is well suited to the delivery of cloud based services.
However, it is not the mobile end user that will increase adoption/utilization of cloud based services; it is the startups and innovators that recognize the opportunity to deliver mobile applications, and who will leverage cloud based services themselves in such delivery, who will do so.
That said, there is still a major barrier on the path to widespread use of cloud based services in Africa and India: latency (see Cedexis' analysis of cloud latency presented at Cloud Connect 2011 for details). Internet access to the African continent, Chine, and India is generally slow (in the 400ms+ range) due to the high costs of provisioning bandwidth and delivering telecommunications infrastructure, especially in the interior of Africa. This, in effect, is one of the reasons that mobile devices have proliferated: transmission towers only require power and line of sight to transmit data over long distances.
There were over 850 million mobile phones in China and 771 million mobile phones in India in January, 2011, and another 250 million more in Africa at the end of 2008. This should give some idea as to the size of the opportunity.
I came across an interview I read a while back (August, 2008) in which Harry Debes, CEO of Lawson, claimed that SaaS was a passng fad that would pass like its previous incarnations, "service bureaux" and "application service provider".
Well, here we are, two years later, and SaaS has picked up steam. The main strength of SaaS is the huge savings on CAPEX that Debes neglects to mention in his interview. It's true that, on the surface, SaaS appears to be a form of software license financing; a monthly charge per user that includes licensing and support/maintenance instead of an upfront license fee and annual maintenance fees.
That said, there are benefits for both the customer and vendor. The customer, obviously, benefits from the reduced investment in infrastructure required to run software on premises. The vendor, however, can leverage the same environment for multiple customers which increases the utilization rate of the infrastructure but lowers the monthly cost to its customers (or pockets the extra margin).
Organizations use SFDC because it works and it's relatively cheaper than installing servers and DBs to run a CRM application on premises. If it were not available in a SaaS format, would it be as popular? Possibly. But if it didn't work that well, would it be as successful as either a SaaS or on premise offering? Probably not. The market has a way of weeding out bad software.
Theoretically, all software that is offered on premises and as a service has a tipping point at which the decision to build or buy is made. This is why, regardless of what Harry Debes or Larry Elllison say, organizations need to evaluate the costs of each option, the total cost of ownership, and make an informed decision based on that information and not the hype.
@benkepes tweeted about Aria Cloud Revenue Adapter for VMware vCloud Director which led me to his article on GIGAOM on the topic.
I agree with much that Ben says in his article (including the fact that the industry is perceived as commoditized, the erosion of revenue by third party services layered over top, and how utility based billing is an emergent market segment) and think that he's right on the market's movement.
What I can not agree with his assessment that billing is a "non-core function". This really shouldn't be the case; billing is core to every business' operations. Why, then, should cloud service providers have to rely on third parties to provide them with a solution?
The way I see it, there are three options:
1) License a complete solution that you will leverage to provide your services,
2) License a billing solution and develop the cloud offering (or vice versa),
3) Build your own solutions.
Of course, this is a classic 'build-or-buy' scenario. It is true that buying is sometimes cheaper. However, relying on a third party's services is not without risk and costs. By some accounts and from personal experience, vendor/partner/contract management often accounts for perhaps 25% additional costs that are often not captured correctly or understood completely. Not to mention switching costs when a cheaper alternative comes along.
In the end, the decision is a financial one that considers the costs involved in the development of such a tool, and I understand that. The bottom line for me is that the billing tools should be built alongside the product offering. Many organizations could be eligible for R&D and/or HR tax credits to offset the additional expense. For those organizations that have been around a while (like VMware) it probably makes more financial sense to buy than to build. Those organizations who are new to the market should consider building while their operating costs are relatively low. (No, billing spreadsheets are NOT the answer.)
To paraphrase and echo Ben, using tools from a third party is fine if you have high margins, but these costs, however low they may be, will cut into profits faster for a lower margin product. Develop your own solution then sell it to those who can't or don't want to. See? There's a new revenue stream!
"Enterprise IT is under pressure to transform from bottleneck to business enabler. The rise of public cloud services such as Amazon EC2 have provided a clear example of what enterprise IT is expected to become: A simple, self-service on-demand infrastructure provider. IT organizations that fail to make this transformation will watch in vain as rogue workloads follow the path of least resistance to the public cloud."
How's that for using fear as a marketing tool? That was the introductory paragraph for an invitation to join a webinar on transforming the IT organization into the purveyor of on-demand services.
Of course, they're right at a certain level. Anyone with a credit card can spin up an instance and have your data crunched, client information or sensitive documents stored off your secure network, or generally in an environment that has not been vetted according to your organization's security practice.
So, how then, does one go about transforming the IT organization into a 'business enabler'? It seems to me that this same question was posed a decade ago when IT budgets were running rampant and accounted for a significant chunk of an organizations expenses.
This particular situation has arisen not because IT is not a business enabler, but because of a perceived lack of flexibility, long delivery times for IT service requests, and expense policies that, while originally robust, now have loopholes that allow anyone with a credit card to acquire off net compute power.
Any potential solution should include the following:
- Revise IT processes to increase flexibility in meeting user requests.
- Review IT service metrics to determine delivery times and work to reduce them.
- Refresh expense policies to take into account this new reality and educate employees about the new policies and how they will help reduce risk for the organization.
In general, this requires an update of the organization's governance structure to ensure that its processes are adequate to manage this new technology, whether it is a planned introduction or not.
Another way that IT can help resolve this problem is to partner with a cloud services provider or identify an approved vendor for future demand of cloud based services. Of course, this requires that the organization have a more mature level of understanding of what cloud based services can offer as well as the will to adopt these services before such a relationship can be created.
Employees under pressure to perform and meet goals will follow the path of least resistance to achieve them. Perhaps management should consider clarifying employees' roles in this context as well and in parallel to all other efforts.
Well, here it is. My platform. To sum up, I’ve been following cloud computing for a long time now and have decided to start posting my thoughts on this revolutionary technology. Yes, I used the word ‘revolutionary’. I could have also called it a ‘paradigm shift’ or ‘game changing technology’ because this is exactly what it is and will be.
In this blog I will concentrate on the business issues surrounding cloud computing leaving the technical and standards issues to other, more qualified, individuals; afterall, it’s been a long time since I’ve done anything technical… I hope to make this blog informative and critical and will try to post at least once a week. If you feel that I’ve strayed from these goals, please feel free to drop me a line.