AWS Archives - Everest Group

A Delicate Balancing Act: Maximizing Cloud Value from AWS | Blog

November 23, 2023

With cloud spending under scrutiny, generating the most value from AWS investments while still delivering the innovation enterprises demand is crucial. To achieve their goals through AWS, enterprises need to consider strategic alignment, cost optimization, technical implementation, organizational readiness, and continuous improvement. Learn the key questions stakeholders should ask when evaluating their AWS cloud strategy in this blog.

As AWS re:Invent 2023 rapidly nears, cautious optimism has replaced the blissful ignorance that once characterized enterprise cloud spending. Enterprises, for justifiable reasons, are scrutinizing every dollar allocated to the cloud, and cost optimization is leading conversations across the board.

This muted atmosphere has slowed AWS’ revenue growth in recent quarters, reflecting the broader enterprise cloud adoption slowdown. In the third quarter of 2023, AWS reported US$23.1 billion in revenue, up 12% year-on-year, but the growth rate was below the company’s typical historical increases in the mid-20 to low-30% range.

Despite these cloud spending challenges, Everest Group research shows that enterprises still understand the need to innovate and expand their operations through cloud-driven digital transformation. Amidst prevailing economic and geopolitical uncertainties, enterprises are seeking to innovate and grow by carefully evaluating their cloud strategy.

The duality of cautious spending sentiment and continuously evolving customer expectations facing digital businesses has brought AWS to a crucial juncture. As Amazon’s Chief Financial Officer Brian Olsavsky pointed out during the third quarter 2023 earnings call, this has put the division in “a delicate situation.” Let’s explore how AWS is managing this.

AWS helps enterprises differentiate through innovation and partnership

AWS continues to be the leading cloud service provider, with a strong record of innovation, a large and loyal customer base, and a vast and active developer community.

In our research, enterprises have highlighted these key AWS differentiations:

Continued investments in strengthening IaaS offerings: Since its inception, enterprises have chosen AWS IaaS offerings for their comprehensiveness and reliability across foundational infrastructure components such as compute, network, and storage. Its secure, scalable, and global infrastructure services, along with its comprehensive capacity management tools, have made it a strong enterprise choice. Additionally, AWS’ continued innovations in building next-gen silicon chips help it support enterprises with critical Artificial Intelligence/Machine Learning (AI/ML) and high-performance computing (HPC) workloads
End-to-end data on cloud capabilities: With the renewed focus on data to drive AI’s future, enterprises are looking for data integration, governance, and analytics capabilities to address data privacy challenges, improve customer experience, and drive business growth. With offerings such as Amazon Aurora, DynamoDB, and RedShift, AWS dominates enterprise adoption trends for cloud-native data platforms and data analytics. Further, AWS has also become relevant for enterprises seeking to accurately address data regulation and compliance demands
Comprehensive partner ecosystem and AWS Marketplace popularity: The AWS partner ecosystem is a comprehensive and ever-evolving network of system integrators (SIs) and technology vendors. As a result of its strong partnerships with technology vendors and tiered classification of SIs, enterprises find AWS beneficial for identifying and enabling successful integrations across different platforms and tools through a tripartite engagement model. AWS also provides an alternate way to engage with multiple system integrators and independent software vendors (ISV) through its extremely popular AWS Marketplace to enable cost savings and procurement efficiencies, reduce licensing costs, and fulfill enterprise AWS commit

Enterprises need AWS to solve for transparency and empower cloud value

AWS’ revenue growth decline can be attributed to several factors, including the economic slowdown, cloud computing market maturation, and increased cloud provider competition.

Enterprises have highlighted the following challenges in their AWS engagements:

Commitment to consumption gap: Enterprises continue to get caught in the vicious cycle of overcommitment and underutilization. This has led to a significant waste of money and has made it difficult for enterprises to control cloud costs
Complex contracts and commercials: Enterprises have often struggled with inflexible AWS cost structures with complex caveats that lead to potential budget overruns
Cost management and visibility concerns: AWS’ current cost optimization offerings do not completely offer a solution for inefficient resource allocation and underutilization. This creates strong concerns about return on investments (RoI) among enterprises
Standalone professional services: AWS ProServe teams lack cohesiveness with SI teams during collaborative engagements, preventing enterprises from realizing the maximum potential value. This disconnect has led to inefficiencies, delays, and communication breakdowns, ultimately hindering project objectives

In addition to the above challenges, enterprises have underscored common cloud service provider challenges around integrating with legacy systems, talent shortage, vendor lock-in, and offerings complexity.

Deriving the desired value from AWS requires careful enterprise planning

Enterprises must adopt a right-fit approach for cloud engagements and workloads present on AWS. Choosing a strategic cloud service provider by mapping key business and technical requirements with the strengths of various providers is highly likely to prevail as the next differentiating factor for mature enterprises in the future.

To develop a clear understanding of how AWS can help them achieve their goals, enterprises need to consider strategic alignment, cost optimization, technical implementation, organizational readiness, and continuous improvement.

For instance, enterprise stakeholders considering how AWS can help achieve the desired value from generative AI (Gen AI) should ask:

Strategic alignment:

How do AWS’ Gen AI capabilities align with the overall IT strategy and business goals?
How can AWS’ Gen AI services help achieve desired outcomes such as increased automation, improved decision-making, or enhanced customer experiences?

Cost optimization:

How can the cost of Gen AI workloads on AWS be effectively managed?
What are the different pricing models for AWS services related to AI and Gen AI, such as Amazon Bedrock, Amazon SageMaker, Amazon Rekognition, and Amazon Comprehend?

Technical implementation:

What is the optimal approach to deploy and manage Gen AI models on AWS?
How can the security and compliance of Gen AI applications be ensured on AWS?
How can AI and Gen AI applications be integrated with other AWS services such as Amazon S3, Amazon DynamoDB, and Amazon CloudWatch?

Organizational readiness:

What skills and training are required to develop, deploy, and manage Gen AI applications on AWS?
How can clear governance policies and guidelines for Gen AI usage on AWS be established?

Continuous improvement:

What is the best method to continuously monitor, evaluate, and refine the performance of AWS Gen AI workloads?
How can the ROI in AWS’ Gen AI solutions be maximized?

By addressing these specific questions, enterprises can comprehensively understand how AWS can empower them to achieve their strategic objectives, optimize their cloud investments, and derive the most value from AWS.

To discuss maximizing the value from AWS and cloud spending, contact [email protected] and [email protected].

Learn more about the AWS services market, including trends, demand drivers, and key considerations for enterprises.

Databricks vs Snowflake: A Rivalry to Last or Lunch for Cloud Vendors? | Blog

November 18, 2021

In the latest tech industry rivalry, the competition between Databricks and Snowflake in the cloud data and analytics space is getting a lot of attention. It joins the other famous marquee rivalries over the past 100 years, such as those between IBM and HP, SAP and Oracle, or AWS and Azure. To learn more about the similarities and differences between these two big data service providers and how to make better buying decisions when choosing between the two, read on.

What do Databricks and Snowflake do?

For the uninitiated, Databricks focuses on analyzing data at scale regardless of its location. It can broadly be considered a data and analytics platform that helps enterprises extract value from their data. Snowflake is a cloud-based data warehousing platform that positions itself as being a simple replacement to other complex offerings from traditional vendors such as Oracle and even cloud vendors such as AWS, Microsoft, and Google.

Both the platforms apply AI to data issues for enterprises. Therefore, they are Enterprise AI companies that plan to transform the usage of data in enterprises. It could be using AI to integrate data lakes and warehouses, crunching massive scale data to make decisions, or just being an intelligent analytics platform.

Where are the firms today?

Snowflake went public in 2020, making it the largest software IPO in history at a valuation of US$33 billion. Databricks, on the other hand, continues to be private and recently reached US$38 billion in valuation. While money is less of a problem, mindshare, being first to market, and the threat from cloud hyperscalers are bigger challenges. Both vendors struggle from the significant talent demand-supply mismatch, as we covered in our research earlier.

The management of both companies has a strong respect for each other. Databricks, for example, understands that Snowflake had a head start. On the other hand, Snowflake realizes some features of Databricks need to be built for its platform as well.

What is happening?

The two vendors are well covered in the public arena, and many have written almost with a romantic spin about their roots, success, and management background. Both firms have different management styles, with Snowflake run by a professional and Databricks by the founder. However, clients are least bothered about the internal operating model of vendors. They are more concerned about whether to bet on these firms, given cloud vendors have been reshaping the industry. In addition, these two companies are dependent on cloud vendors for their own platforms.

Both the vendors have taken potshots at each other with competing offerings with similar-sounding names such as Data Ocean from Snowflake and Data Lakehouse from Databricks. They also collaborate and have connectors to each other’s platforms while they keep developing their versions of these offerings. The sales and technical teams of these vendors bring out challenges in each other’s platforms to clients, such as how Databricks focuses on Snowflake’s proprietary model versus their open-source platform. Snowflake emphasizes how its compute scaling is faster and data compression is better.

What will happen?

Developers, operators, and data professionals have strong views on which platform(s) they plan to leverage. Given Snowflake’s view on building platforms from a warehousing perspective, enterprises find it easier to migrate. Coming from a data lakes perspective, Databricks has to fight a tougher battle. Moreover, Snowflake is perceived as simpler to adopt compared to Databricks. The bigger issue for both of these vendors is the threat from cloud providers. Not only do these vendors offer their platforms on cloud hyperscalers, but these hyperscalers have built their own suite of data-related offerings.

Both Snowflake and Databricks are losing money and running losses. Innovation will be needed to compete with cloud vendors, and innovation is costly. In addition to cloud, one other big challenge these two vendors face is the growing trend of decentralization of data. As data fabric and mesh concepts gain traction, building a lake or warehouse may lose relevance. Therefore, both of these vendors will need to meet data where it is generated or consumed. They need to make connectors to as many platforms as possible. Moreover, as more open-source data platforms see traction, the earlier powerhouse of Oracle, SAP, Microsoft, and IBM may decline, which will impact these two vendors as well unless they scale their offerings to these open-source databases, messaging, and event platforms.

What should enterprises do?

It’s a known fact that a large number of Databricks clients are customers of Snowflake as well. We recommend the following to enterprises:

Segregate the applications: With multi-cloud gaining traction, enterprises are fine investing in multiple data platforms as well. Enterprises need to segregate their workloads from classical Oracle, SAP, Teradata, and similar platforms as well as newer workloads they plan to build or modernize, generally on open-source databases. As the data type supported by applications evolve, enterprises will need help from data vendors
Evaluate partner innovation: In addition to the issues around talent availability, enterprises should evaluate the ecosystem around these two vendors. Innovation that other technology and service companies are building for these data platforms should be important decision criteria
Bet on architecture: Both Snowflake and Databricks have a fundamentally different view of the data market. Though their offerings may converge, one brings a warehouse perspective and the other a lakehouse. However, enterprises should think about their architecture for the future. With architectural complexity on the rise, enterprises should ensure their current data management bets align with their business needs 5-10 years down the road

The market is still divided on cloud’s role in data transformation, given the challenges around cost and latency. However, as these platforms bring down the total cost of ownership by segregating compute and storage, cloud data platforms will witness growing adoption.

The general questions on best sourcing methods will always persist irrespective of technology. Enterprises will need to answer some of these such as lock-in, security, risk management, spend control, and exit strategy in making their purchasing decisions.

What has your experience been in using Snowflake and Databricks? Please reach out to me at [email protected].

Role Transition for Cloud Vendors in OTT Media Streaming | Blog

March 13, 2020

Over-the-top (OTT) streaming – or, simply, delivering media content directly over the internet – has redefined the media content consumption landscape. In 2019, the number of active global monthly OTT video subscribers surpassed 750 million, accounting for more than 30 percent of digital video viewers globally.

Cloud vendors have significantly contributed to this exponential growth by providing core cloud-native delivery infrastructure to OTT players at lower costs, making it much easier for them to reach global audiences and dynamically scale their workloads with just a few clicks. In fact, over the years, the role of cloud vendors has shifted from infrastructure providers to prime drivers of technology for the OTT industry – so much that they now lead media technology altogether.

Initially, cloud vendors’ core offerings comprised storage, processing, transmission, packaging, and transcoding, which enabled OTT players to gain scale, cost, and flexibility benefits. Now, the cloud has become the default infrastructure provider for OTT delivery. In fact, all of the flagship OTT players have migrated to cloud-based OTT workflows. For example, Netflix completed its migration to Amazon Web Services (AWS) in 2017, and Spotify completed its Google Cloud Platform adoption in 2018.

The major cloud vendors, such as Amazon, Google, and Microsoft, lead the global technology landscape, and they are leveraging their expertise in advanced technologies to offer not only their core functional offerings but also compelling value-added services over the cloud. These value-added services include:

Direct content ingestion
Cloud providers like AWS and Azure offer direct content ingestion capabilities to OTT players, enabling them to either ingest content directly from a camera to a cloud-based management system or stream it live to various platforms. They also enable content creators to shoot videos through smartphones and send them via mobile networks to production and content management systems operating in the cloud, bypassing camcorders and live production trucks.
Native language translation
Cloud providers such as Google offer application programming interfaces (APIs) with natural language processing (NLP) capabilities for native language translation, which allows audiovisual content localization and translation, making it convenient for OTT players to expand their reach globally.
AI-powered encoding
Vendors like AWS and IBM have integrated AI with their cloud-based offerings, and cloud-based OTT workflows intensively leverage AI to provide a better viewing experience. AI helps to better monitor network traffic, improves compression techniques, and offers adaptive encoding techniques to stream HD videos over low bandwidth networks.
Video indexing
Video indexing services, such as Azure’s video indexer, automatically extract advanced metadata from audio and video content, including spoken words, written text, faces, brands, and scenes. OTT players can leverage the extracted data to generate insights and increase the discoverability of their content, improve the user experience, and enhance monetization opportunities.
Advanced targeting
Cloud providers like AWS and IBM leverage advanced analytics services such as device ID-based content tagging to provide recommendations for better viewer targeting, which enables advertisers to reach out to specific, targeted, and identified audiences. OTT players can utilize these recommendations for better content monetization.

These additional services have become core differentiators for cloud vendors versus traditional Independent Software Vendors (ISVs) that offer media streaming solutions. They’re also enabling OTT players to create true differentiation in their offerings. Additionally, the cloud has become a great leveler for players who are entering the OTT market relatively late, as it provides them the latest cutting-edge technology at the click of a button, saving them precious time in getting up and running.

It will be interesting to see how the market shapes up in the next 12-18 months, as more content and production houses start setting up their OTT platforms and make the existing battle of viewer acquisition and retention fiercer.

For more industry-leading insights on the OTT industry, please reach out to Akshat Vaid and Shivank Narula.

The Amazon Web Services Juggernaut: Observations from the AWS Summit India 2019 | Blog

May 24, 2019

Amazon Web Services’ (AWS) Summit in Mumbai last week made it clear that its trifecta juggernaut in customer centricity, long-term thinking, and innovation is giving other public cloud vendors a run for their money.

Here are our key takeaways for AWS clients, partners, and the ecosystem.

Solid growth momentum

Sustaining a growth rate in the mid-teens is a herculean task for most multi billion-dollar businesses. But AWS has an annual run rate of US$31 billion, and clocked-in a 41 percent Y/Y growth rate, underpinned by millions of monthly active customers and tens of thousands of AWS Partner Network (APN) partners around the globe.

Deep focus on the ecosystem

Much of this momentum is due to AWS’ heavy focus on developing a global footprint of partners to help enterprises migrate and transform their workloads. Taking a cautious and guided approach to partner segmentation, it not only broke out its Consulting and Technology partners, but also segmented its Consulting Partners into five principal categories: Global SIs and Influencers, National SIs, Born-in-the-Cloud, Distributors, and Hosters. This is helping AWS establish specific innovation and support agendas for its partners to grow.

This partner ecosystem focus is increasingly enabling enterprises to achieve real business value through the cloud, including top-line/bottom-line growth, additional RoI, lower cost of operations, and higher application developer productivity. And AWS’ dedicated focus on articulating business benefits such as operational agility, operational resilience, and talent productivity, along with the underlying tenets of the cloud economy, has helped it onboard more enterprises.

Cloud convenience will need an accelerated Outposts push

Enterprises are looking for cloud convenience, which often manifests in location-agnostic (on-premise or on cloud) access to AWS cloud services. To bring native AWS services, infrastructure, and operating models to virtually any datacenter, co-location space, or on-premises facility, the company launched AWS Outposts at its 2018 re:Invent conference. Outposts is expected to go live by H2 2019 for Indian customers. Despite this, AWS is trailing in this front, playing catch-up to Microsoft Azure, which launched Azure Stack almost a year ago (and previewed a version in 2015.) At the same time, AWS will have to educate its enterprise clients and ease their apprehensions about vendor lock-in challenges while leveraging integrated hardware and software packages.

Helping clients avoid consumption fatigue

Shifting the focus toward AWS’ innovation agenda, the public cloud vendor launched over 1,800 services and features in 2018. As enterprises grapple with the rising number of tools and technologies at their disposal – which can lead to consumption fatigue – this can manifest in different ways:

Large enterprises will often depend on system integrators to help them unlock value out of latest technologies – AWS’ success in furthering the partner ecosystem will be crucial here
For SMBs, AWS will build on its touchpoints with the segment, something that Microsoft and Google already enjoy because of their respective enterprise productivity suites.

What’s next on AWS’ innovation front

There seemed to be a lack of development on the quantum or high-performance computing front. Client conversations suggested that they are struggling to figure out the right use cases depending on whether they need more compute and/or data – something AWS can help educate them on.

Gazing into the enterprise cloud future

We do not believe enterprises will move their entire estates to the public cloud. Indeed, as they transition to the cloud, we expect the future to be decidedly hybrid, i.e., a mix of on-premise and public, as this approach will allow every organization to choose where each application should reside based on its unique needs.

To deliver on this hybrid need, product vendors are inking partnerships with virtualization software companies. And the services and product line-ups are piquing enterprises’ curiosity. To help stake its claim in this hybrid space, AWS Outposts does have a VMware Cloud option, which is AWS’ hardware with the same configurations but using VMware’s Software Defined Data Center (SDDC) stack running on EC2 bare-metal. But it will need to educate the marketplace to accelerate adoption.

The bottom line is that although AWS is facing some challenges on the competitor front – with Azure and a reinvigorated Google Cloud under Thomas Kurian – it is well positioned on account of a solid growth platform and ecosystem leverage, which it demonstrated at the 2019 India Summit.

Musings from AWS Summit: Make Infrastructure Irrelevant Again | Sherpas in Blue Shirts

May 25, 2018

I attended the Amazon Web Services (AWS) Summit in Mumbai earlier this month, and two things about the event itself really stood out. First, regardless of the fact that the Summit was held in India, it was organized on a global scale with global flavor, which ensured that attendees heard about AWS’ global aspirations and strategy. Second, although the company’s leadership rightly spoke about their great services portfolio and how and why it is the best, they never ridiculed or demeaned any competitor. This is a mark of a great company that’s in it for the very long haul.

Not surprisingly, the key message I could sense was that enterprises should not own their infrastructure, but instead leave it to cloud vendors – read, AWS – that will make sure it runs smoothly without the need for any second thoughts. In short, make infrastructure irrelevant.

Here are my three key take-aways from the content at the Summit.

I Learned: Partners Used to Sort of Matter…Now, They Really Matter

AWS has always positioned itself as a partner-friendly cloud vendor. At the Summit, its focus on succeeding with partners was very evident through the services it demonstrated and the messages it delivered. However, AWS’ current mindset is about building great services that enterprises would want to consume through pull demand, rather than through extensive leverage of channel partners. Thus, while partners today may not be as important as AWS may want them to think, they will be increasingly vital as AWS further expands to enterprise-class customers. This means it will be in AWS’ best interest to nurture its relationships with its partners.

I Re-learned: On-premise is Here to Stay…Cloud or No Cloud

AWS is a smart company that realizes there will always be a case for certain enterprise workloads to remain on-premise. The Summit sponsor was VMware, the king of on-premise. With its “VMware on AWS” offering becoming available globally, VMWare and AWS need each other. Though AWS largely stayed away from embracing “hybrid is the model of future,” it did reluctantly admit that all enterprise data centers aren’t going anywhere. However, AWS plans to make enterprises’ journey to the cloud simple and seamless. Its strong partnership with VMware is a testimony to that.

I Un-learned: New Services Have Miles to Go…Which They Will

From DynamoDB to serverless to AI/ML services, AWS shined a spotlight on everything new. While most of its new services are witnessing massive double – even up to 5X – growth, they aren’t yet meaningfully contributing to AWS’ US$18 billion top line. Most of its business continues to be the traditional EC2, S3, and similar services. Talking to AWS clients and partners made me believe that most of them have grand plans for adopting these new services. And almost all of them appreciate the hand holding AWS has provided to make their journey less painful.

Though AWS never admitted it, it was apparent that it realizes the vast potential in this market. Out of its 125+ services, very few are consumed at a massive scale. This implies there is a lot of headroom for AWS, despite that it’s already clocking a run rate of US$20 billion. This is very similar to its online business which, despite its size, is only ~4 percent of U.S. retail. Given such potential, it is no surprise that Amazon is investing heavily in AWS. Indeed, most of Amazon’s operating profits in recent quarters have been from AWS.

The cloud market is in flux, and with the first and second generations of DR/back/email migrations now over, the next battlefield is the business process and AI/ML workloads. AWS has strong plans to lead this market as well. It will be interesting to observe how it shapes the cloud world. Can it influence it the way it did online retail? AWS certainly has the vision, capability, and aspirations. Only time will tell.

CSS Corp Cloud Services Making an Impact | Gaining Altitude in the Cloud

March 24, 2014

For several years we’ve predicted that the cloud would disrupt data centers. But it’s not as simple as lift and shift; it requires an understanding of how to deploy in the cloud and also requires some reengineering. Now some innovators are succeeding in deployment solutions and achieving momentum. One that caught our eye: the explosive growth of CSS Corp Cloud Services.

CSS is off and running. Need evidence? Among other clients, they’re currently working with:

12 Fortune 100 companies
12% of the top 50 U.S. companies
16% of the world’s 25 largest banks
5 of the world’s largest Fortune 350 manufacturing companies

The issue around using any public cloud — especially the lowest-cost cloud, AWS — is that it requires re-architecting applications in such a way to get enterprise performance. This has been a significant constraint in the migration of workloads to public clouds.

But we’re now seeing real use cases emerging where companies systematically take production workloads, reengineer them and deploy them into the public cloud in a way that gives them production-quality outcomes — that is, high performance and high resilience.

CSS Corp Cloud Services was an early AWS adopter. The firm invested in toolsets around AWS cloud services and developed a capability for consistently re-architecting and deploying into the AWS public cloud. The company’s public-cloud use cases already span a wide area of processes including Big Data analytics, digital marketing, e-commerce, backup and storage, disaster recovery, application and Web hosting, development and test environments and media/entertainment.

Data centers are not yet an endangered species. But as firms such as CSS master cloud deployment in large corporate enterprises, we believe the rate of disruption will quickly pick up.

Cloud Continues to Disrupt – VMware Announced Public IaaS Cloud | Gaining Altitude in the Cloud

March 22, 2013

After months of rumor and anticipation, VMware, the hypervisor and virtualization giant, finally made public its intent to later this year launch its vCloud® Hybrid Service, a public infrastructure-as–a-service (IaaS) cloud. To date, discussions around this expected announcement have focused on alleged competition from Amazon Web Services (AWS), the anticipated impact on VMware’s relationship with service providers such as Savvis and Terremark, and the company’s rationale behind this move, e.g., turf and client protection, stagnated growth thrust, declining market valuation, and dissatisfaction with its partner network.

Here, Everest Group is broadening the view, looking at how this move is furthering the disruption in the cloud provider landscape, and highlighting the dynamic nature of this space.

The line of demarcation between types of technology providers is increasingly blurring, and in the cloud arena at a dizzying pace. Amazon, the world’s largest online retailer, historically focused on catering to individuals and small and medium businesses, has become one of the biggest challengers to the enterprise infrastructure stalwarts such as IBM and HP. Oracle, the enterprise software and database giant, launched its acquisitions-enabled IaaS offering earlier this year. Although its primary competitor used to be SAP, its move into the cloud space places it in competition with companies such as Salesforce.com, Workday, and NetSuite. Now VMware, traditionally considered a virtualization software provider, is entering the cloud domain in an effort to protect its market share, despite the risk of antagonizing and competing with its own partners.

This rapidly evolving and “foggy” provider landscape leaves buyers confused as their options are constantly changing. In addition to cloud-related concerns such as security and compliance, existing clients must now also worry about whether they should stick with the current provider or switch to a new one. They have to evaluate their key parameters for selecting a cloud service provider, and assess the benefits and pitfalls of making a provider switch.

For example, consider the options facing current VMware plus cloud services clients:

Shift to VMware’s new cloud offering: In this scenario, the buyer will shift to VMware’s new public cloud offering, leaving its old service provider. This option gives the buyer a compelling value proposition – the entire cloud value chain is managed by one provider, and there’s full compatibility between VMware’s public and private clouds. Yet, although VMware becomes the one-stop-shop for all the buyer’s cloud-based needs, it becomes locked in with one single technology and reliance on one single provider. The buyer must also consider whether VMware will be as innovative as other IaaS providers in terms of pricing, service level agreements, termination clauses, technology advancements, etc.
Continue with the existing VMware partner provider: In this option, the buyers continue to procure cloud services from their existing VMware-based cloud partner provider. However, as different cloud service providers (especially AWS, Rackspace, and Terremark) penetrate enterprises and aggressively market their innovations, these clients are increasingly finding it difficult to defend their strategy of continuing with their existing VMware-based cloud partner, as they are perceived as a mere extension of the traditional datacenter model.
Shift to other providers/cloud technologies: VMware’s presence in client’s datacenter is undeniable. However, many buyers are adopting cloud solutions that are different than VMware, and this is threatening VMware’s broad dominance. We believe this trend will continue, as, despite significant investments in VMware for their datacenters, buyers are more than willing to deploy solutions from other cloud providers.

Everest Group nearly a year ago called out this cloud provider choice conundrum, noting that attempts to help the buyer community is actually creating greater confusion. Buyers of cloud services need to be on their highest guard to ensure that, unlike traditional datacenters, they do not end up in a complex labyrinth of technologies that make their environment even worse than what it is today.

Five Mistakes that Enterprise Cloud Service Providers are Making | Gaining Altitude in the Cloud

January 23, 2013

A wide array of players is aggressively attacking the enterprise cloud infrastructure services market. The competitive landscape includes providers from a variety of backgrounds, including hosting companies such as Rackspace, GoGrid, and Tier3; telcos such as AT&T, Verizon, Telstra, and BT; and legacy enterprise IT service providers such as IBM, HP, CSC, and Dell. They’re all pursuing the same prize – providing CIOs of large enterprises a range of cloud-enabled, next generation infrastructure platforms, from managed or hosted private clouds to public cloud IaaS.

Although the market opportunity is undeniably large and growing, the problem is that many IT services players are not achieving their revenue and growth aspirations for enterprise cloud services. They’re finding it difficult to migrate existing customers to cloud platforms, expand cloud adoption beyond limited use cases, and use cloud services to win new customer logos. Why is growth falling short of expectations? While not exhaustive, following is a set of five issues and mistakes Everest Group commonly sees in the service provider community:

Underestimating Amazon: Enterprise providers almost universally discount Amazon AWS as not being “enterprise ready.” This is despite the fact that AWS is now forecasted to generate nearly US$4 billion in 2013 revenue and that enterprise customers will be driving a significant part of this revenue. While AWS enterprise use cases today are focused primarily on dev / test environments, web apps, and websites, AWS has recently rolled out a variety of enterprise offerings. These include everything from Redshift and data pipeline services targeting business intelligence (BI) and data warehousing, to vertical specific clouds including GovCloud and FinQloud. In fact, this iterative, incremental approach is part of its strategy for attacking the enterprise, with many competitors running the risk of becoming the proverbial “boiled frog.” The reality is, many service providers need to think hard about whether they are going to be able to compete in the enterprise public cloud IaaS space. Using AWS instead of continuing to invest in a native public cloud IaaS offering may be a better strategy for many of them over time.
Neglecting change management: While providers expect customers to make the cloud paradigm shift, many haven’t done so internally. Instead, a “build it and they will come” mentality tends to be pervasive. The expectation is that once the offers hit the market, customers will be clamoring to get on board. Unfortunately, experience is showing that’s not the case. Customers need help understanding the benefits, risks, and costs of cloud models, and where they make sense. Although helping customers understand the implications of cloud models is critical, many providers have dramatically underinvested in vital areas such as sales training. Too often, sales and marketing groups position and message cloud services in a legacy paradigm, which isn’t connecting with customers. While many providers are frustrated that sales teams aren’t making cloud quotas, they need to take a step back to make sure their go-to market teams are positioned and trained for success. To achieve sales effectiveness, they need to structurally change their incentive mechanism, account strategy, and planning exercises.
Selling sole-source: many providers are selling next generation infrastructure platforms – the ability to provide customers anything from dedicated or managed hosting to public cloud services. The problem is that’s not how enterprise customers are buying cloud today. They’re seeking to use the flexibility of the model to deploy specific use cases, and different use cases may require different platforms. Too many providers are trying to sell the “big bang,” sole source IT transformation story and telling CIOs they can provide all of their next generation platform needs. While there are CIOs driving cloud-enabled IT transformation, there aren’t enough of these opportunities yet to support the number of providers chasing them. In fact, many providers would likely be better off selling incremental or even transformational stories to business buyers.
Omitting SaaS and PaaS: Cloud infrastructure service providers have little incentive to migrate customers to public cloud SaaS offerings such as Salesforce.com or Workday. For many customers, migrating legacy apps to SaaS models will be the right answer. Many enterprise cloud service providers conveniently omit this lever from their transformation story and lose customer credibility as a result. The fact is these providers need a better answer for SaaS migration and integration. Moreover, very few cloud IaaS providers are investing in creating an effective PaaS strategy. Enterprise buyers require flexible platforms hosted in an agile infrastructure environment to develop applications for the future. Service provider transformation stories need to closely integrate application development platforms with a cohesive IaaS offering.
Failing to differentiate: Many vendors position themselves as providing managed services that make cloud models ”enterprise ready.” The problem is that every other vendor is saying the exact same thing. Enterprise cloud service providers need to think harder about what their distinctive customer value proposition really is. Too many providers are trying to sell horizontal cloud technology platforms with little thought given to customers’ unique business drivers and how cloud can be used to drive business transformation. But there are plenty of potential opportunities to differentiate by vertical, use case, geography, target community, and other dimensions.

While all of these issues are fixable, they also are non-trivial. The good news for the provider community is that no one has truly yet cracked the code on enterprise and cloud infrastructure services.

Is Budget Leakage Sinking Corporate IT’s Boat? Enterprise Cloud Adoption Update | Gaining Altitude in the Cloud

July 18, 2012

A lot has changed in the short six months since our initial blog on on the emerging enterprise cloud adoption paths. Recent discussions with cloud infrastructure service providers clearly show that CIOs and corporate IT seem to be interested in talking about cloud, and RFP flow is definitely increasing, but we’re not seeing conversion to contracts and revenue. One statement by a leading cloud service provider was particularly interesting:

“The cloud RFPs we’re seeing from enterprise IT are really strange, and poorly thought out. It’s like they’re just going through the process to get someone off their back…”

At the same time, there does appear to be an acceleration of enteprise spend on cloud, including SaaS, PaaS, and IaaS.

So what gives?

While there are a number of factors in play, we’re finding the biggest one is the role of the business user, and how cloud is eroding the monopoly corporate IT has traditonally had over information technology, services, and even infrastructure. People tend to forget that developer teams are frequently embedded in business units and deparments. They have budget approval limits, but typically high enough that they can spin up dev / test environments on Amazon AWS, for example, with no flags being raised. They no longer have to go to corporate IT to get a server provisioned, or a test environment setup. This is IT budget now flowing through the business, though through technical and not business resources.

As a result, IT is under significant pressure as it sees its budget dollars being threatened. It hasn’t fully figured out the implications of cloud for its IT organization, but can’t appear to be a roadblock to the business. What we see, although not in every enterprise IT organization, is a pretty substantial increase in tire-kicking, pilots and “RFPs” to give the illusion of progress.

Based on an additional set of conversations, analyses, and insights from recent client work, we’ve updated our enterprise cloud adoption framework to more strongly reflect the business buying dynamic. This new framework is defined by two major dimensions:

Change Agent – is the primary driver of cloud adoption led by business or IT?
Adoption Approach – is the organization looking at how cloud and next generation platforms could fundamentally transform its business or IT environment? Or is it looking at more tactical, incremental opportunities being presented by cloud applications, platforms, or infrastructure?

Based on these factors, here’s our new framework and overview of the different ways we’re seeing enterprises migrating to the cloud:

Enterprise Cloud Adoption Paths

A quick note on the different models:

Innovators

By far the most common enterprise adoption model we’re seeing is driven predominantly by business users implementing cloud solutions for new business capabilities, improved agility, flexibility, or reach. This adoption is coming in several flavors:

SaaS – in the majority of cases, business users are directly deploying SaaS business or collaboration apps at the individual, departmental, or business unit level.
PaaS / IaaS – for deploying new custom apps, or in some cases replatforming existing apps, developers with reporting lines into the business are deploying cloud with limited involvement from corporate IT.

Adoption is largely driven by individuals, departments, or functions around and outside of IT (even in the case of IaaS and PaaS). Business users want to innovate, recognize they can do it themselves, and feel empowered to do so.

Opportunists

The next most common model is corporate IT driving cloud adoption, albeit for specific, focused use cases. The goal is not broad transformation for “how IT does business,” but targeted adoption to prove the model, or to demonstrate improvements in efficiency and cost. Some of the most frequent use cases include:

Test / dev environments (under IT control)
Corporate and marketing websites
Backup and archival
Email and collaboration
Virtual desktop infrastructure (VDI)

The private cloud is still the preferred model for corporate enterprise IT, with most CIOs looking to play it safe with known enterprise vendors like IBM, VMware, or VCE. Note that the 20 percent in the Cloud Adoption Paths graphic above does not refer to the percentage of enterprise IT organizations that are pursuing cloud, but rather the number of companies in which cloud adoption is being driven predominantly by an “IT opportunist” model.

Modernizers

While they are the exception, a few enterprises’ CIOs are using next generation IT platforms to drive wide-scale modernization and transformation of their environments. These CIOs are viewing private, public, and hybrid cloud models as vehicles for fundamentally changing their infrastructure strategy, and are actively seeking to get their organizations out of the data center business. Although rare, two of the more interesting examples we’ve recently seen include:

State Street – Chris Perretta, CIO at State Street, is seeking to drive $600 million in cost reduction by 2014 by leveraging private clouds to streamline application development. State Street historically has relied heavily on internally developed, custom software, with app dev representing 20-25 percent of the total IT budget. Through standardizing on common, private cloud developments platforms (based on x86-based public cloud models) and encouraging code sharing and reuse, State Street believes it can reduce test times by 30 percent, and the overall amount of code written by 30-40 percent. As with other examples we’re starting to see, standardization and simplification is being leveraged to drive significant improvements in process and cost efficiencies.
CP Rail – finding itself unable to keep pace with user demands, CP Rail launched a broad, multi-year infrastructure transformation initiative to dramatically reduce cycle times and costs, while still supporting increasing volumes. It has already developed a global hybrid cloud dev/test network across operations in Canada, India, and Singapore, which relies heavily on AWS. Interestingly, CP Rail places as much emphasis on process (agile development) and organizational transformation as it does on technology. For those interested in more of the details, a great presentation describing the initiative is available here.

Transformers

These are enterprises using cloud and other next generation IT platforms to create new disruptive business models, transformational improvement in growth and profitability, and strategic advantage. The starting point for their discussion is not around cloud technology, but how to use the agility, flexibility, reach, and cost effectiveness of cloud to enable new business strategies. Business executives are typically the emerging change agents. The best example in the public domain is:

Netflix – the classic example of a transformer is Netflix, which cannibalized its highly profitable DVD-by-mail model with an online subscription-based streaming model. After concluding it couldn’t build data centers and infrastructure quickly enough to meet user demand, the company famously leveraged AWS to scale its streaming and back-end operations. Netflix has not added data center capacity since 2008, and currently runs all streaming apps, infrastructure and back-end applications in the cloud. Those interested in learning more should check out a great recent presentation from Adrian Cockcroft, Netflix’s Cloud Architect.

While Transformers is the rarest adoption path today, we do believe it will become far more frequent as the market matures, and as cloud changes the competitive dynamic in some industries.

Note that there are still a small (and shrinking) number of enterprises that are still purely in “Observer” mode, and not actively deploying SaaS, Paas, IaaS, or private clouds anywhere across their organizations. We haven’t reflected them in our framework, and struggle to see any enteprises where at minimum there isn’t at least an individual or department using a cloud-based collaboration or productivity app.

Stay tuned, as we’ll soon be posting more here about implications for both enterprises and the cloud service provider community.

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Tag: AWS