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.
As the market for cloud services expands, the providers at each level of the stack are realizing various opportunities beyond their core solutions. They are also realizing that scale is absolutely critical for the success of cloud services. As a result, they’re starting to enter each others’ domain. Let’s take a look.
Platform-as-a-Service (PaaS) Providers
Large PaaS providers such as Microsoft and Google are moving down the stack to create Infrastructure-as-a-Service (IaaS) offerings. This may indicate not only that standalone PaaS is a difficult business to scale but also that IaaS is required to create a broader cloud footprint and higher degree of acceptance, as evidenced by Amazon’s runaway success with AWS. At the current stage of cloud adoption, PaaS may appear to be too futuristic, and many organizations may be unwilling to bet on it for the long term. Therefore, it makes sense for PaaS providers to offer IaaS solutions to their clients.
Most PaaS providers, and their respective platforms – think CloudBees, dotCloud, Salesforce.com’s Force.com and Heroku, Google Apps Engine, IBM SmartCloud Application Services, Iron Foundry Web Fabric, LongJump, Microsoft Windows Azure, Morphlabs, OutSystems, RedHat OpenShift, and VMware CloudFoundry – have preferred programming languages, e.g., .Net for Microsoft Windows Azure, Java for CloudBees, Python for Google Apps, and Ruby for EngineYards. These preferences bind clients to a specific platform offering, as they believe that a PaaS solution typically works best with its preferred or native language. However, to scale their business and appeal to a broader set of application developers, these providers are beginning to widely support multiple programming technologies.
Infrastructure-as-a-Service (IaaS) Providers
IaaS providers are desperately claiming agnosticism in running any application on their infrastructure. They believe as their offerings are pure infrastructure, developers are free to choose any programming mechanism and build applications. However, they also realize that the developer community finds value in a PaaS solution as it reduces their burden of handling various time consuming, nitty-gritty application development tasks. Therefore, many IaaS providers are moving up the stack and creating PaaS solutions on top of their infrastructure offerings, in partnership with leading cloud platform providers such as Iron Foundry or LongJump.
Indeed, many cloud infrastructure players are also partnering with cloud database companies and calling themselves PaaS providers. They are unable to decide whether they truly want to embrace the cloud or just rehash their existing offerings and cloud-wash them with marketing buzz. Regardless, their attempts are to at least make some noise around IaaS, SaaS, and PaaS and position themselves as “integrated” cloud providers.
Software-as-a-Service (SaaS) Providers
Large SaaS providers, such as Salesforce.com and NetSuite, have created their own versions of PaaS, and Workday partnered with Force.com to offer customers a platform on which to customize its solution. These moves not only allow extension of these companies’ basic offerings and integration with other applications; they are smart strategies to convert clients to their platforms. Therefore, these PaaS solutions end up being the “relationship builder” between a technology provider and the client.
Clearly, IaaS providers are realizing that cloud infrastructure is a low-profit, commoditized business and that they must move up the value chain. PaaS providers understand that they need to scale their offerings and that may require them to enter the IaaS market either organically or through partnerships. And SaaS players are already creating PaaS solutions to provide value added services.
The reality is…not all cloud service providers will be able to endure, and many will get consolidated or go belly up. The survivors, who aspire to be big, will be those that offer services across different cloud layers, either through in-house offerings or partnerships.
In most cases, leveraging cloud delivery models, be it in application, infrastructure, or platforms, implies being served end-to-end by an external vendor unlike the typical “do-it-yourself” products. Therefore, in a way, the cloud is driving the IT consumption towards an “external vendor” model, which is also a type of outsourcing.
Most of the discussions around cloud’s impact on outsourcing services take a monolithic view of the industry. The focus is to take an extreme position, such as “outsourcing is dead”, or perform a very broad analysis based on the evolving role of CIOs, changing demand in enterprise IT, cloud eating into traditional sourcing, etc. This makes for good reading but is not necessarily a thoughtful analysis of the real impact. The need of the hour is to drill down into each type of global sourcing service and analyze the impact of cloud delivery models.
To analyze the impact of cloud delivery models on globally-sourced services, one needs to understand both of these in the right context. For IT outsourcing and the impact of cloud, there is a need to differentiate between the type of services delivered such as application development, application implementation, application maintenance, “keep the lights on” infrastructure services, service-level driven managed services, and transformational services. Cloud delivery models will have a spectrum and not a binary impact on this market. Different services, providers, business models, and investments will see different opportunities and challenges.
One major “non-technology” challenge from cloud models is the shifting of budgets from a typical IT department to businesses. Everest Group and Cloud Connect Enterprise Cloud Adoption Survey indicate an increasing role for business users in deciding IT spending. As outsourcing providers have access generally to IT and procurement departments, they will witness significant challenges to penetrate the business side of a buyer in accessing “business IT” budget. Moreover, enterprise IT shops that have so far not outsourced, may directly leverage a cloud service, reducing the potential role of an outsourcing provider. To pre-empt this, the provider may need to offer integrated cloud and outsourcing services.
The relevance of cloud models should also be seen from newer or existing investments the buyers make in enterprise IT. For transforming the existing investments (e.g., ERP, CRM, other business applications, and infrastructure) to the cloud, it is difficult to believe that typical global sourcing buyers will prefer any other vendor over the enterprise-class providers. For example, if they have to transform ERP platforms to a cloud infrastructure, they would generally prefer a renowned enterprise class ERP and cloud service provider over a pure-play cloud hosting provider.
Even though email, smart phones and iPads are great virtual communications devices, nothing beats the value you can gain from face-to-face time with your peers and other industry thought leaders. If you weren’t fortunate enough to attend the Cloud Connect conference in Chicago earlier this month, we’ve captured some of the highlights of and insights from the discussions during the Organizational Readiness track (which we were privileged to lead) for you:
Change management comes to the fore – executive sponsorship and early successes are keys success factors for driving cloud-enabled transformation. While “top-down” CIO-driven programs are helpful in shifting culture and mindset, “bottom-up” adoption and innovation is also required to demonstrate the value of cloud models to skeptics. In many cases, new cloud initiatives need to be incubated and protected from the enterprise to provide freedom for experimentation. This kernel of wisdom was a result of our very interactive session with Matt O’Keefe (Morningstar), Keith Shinn (Fidelity) and Dave Roberts (ServiceMesh) about the hard choices in enterprise cloud adoption. Watch Dave in this video for tips on ensuring a successful cloud deployment in.
“Shadow IT” isn’t a dirty phrase – corporate IT needs to focus its limited resources and time on the objectives and initiatives that are deemed to be highest priority. In many organizations this means focusing only on applications and infrastructure considered to be “mission-critical.” As an unfortunate result, many projects requested by the business fail to make the cut. Thus, it’s understandable if the business decides to “end-run” IT and go to the cloud. The cloud can give enterprises additional scale with limited IT budget and go deeper in the project stack. In fact, in many cases CIOs actually encourage their business counterparts to go to external cloud service providers. The key to success, however, according to Bates Turpen (formerly InterContinental Hotels Group) and David Falck (salesforce.com), is that IT leaders , help internal customers self-provision without losing control and help business users ask the “right” questions of potential cloud vendors.
Culture changes within IT – not only is cloud reshaping the relationship between business and IT, it’s also starting to restructure the IT organization itself. The dev ops revolution is shifting IT from a CIO-driven model to a developer-driven decision-making model around infrastructure. Developers are making their own frontline choices around platforms and service providers that are then being aggregated up by managers, a distinct break from legacy models where platforms and infrastructure are mandated by the CIO. Also, as user experience becomes an integral part of a product, CIOs need to encourage their developers to think like a user and empower them to build a product from beginning to end. Watch Lauren Cooney (Cisco) talk more about the dev ops movement.
Different clouds for different folks – common enterprise concerns around cloud continue to center around security, compliance, performance and vendor lock-in. We asked the experts on our “Current Thinking in Addressing Persistent Cloud Challenges” panel, Paul Burns (Neovise) and Troy Angrignon (Cloudscaling), how to best address these questions. Their answer was : “It depends” (which is a much better answer than the vendor community could deliver just a few years ago). Options across public and private, and enterprise virtualization and elastic infrastructure clouds, provide new answers to these issues for both legacy and new applications, but also must be carefully evaluated.
Adoption is about innovation – in conjunction with the Chicago conference, we conducted a joint survey with Cloud Connect on enterprise cloud adoption patterns. While most service providers think enterprises are migrating to the cloud for total cost of ownership (TCO) reasons, agility, innovation and flexibility are actually the drivers. Thus, there’s a glaringly apparent disconnect between vendors that are focused on selling next generation infrastructure to IT, and businesses that want cloud platforms to drive top line revenue. Download the complimentary survey results.
If you attended Cloud Connect, our readers would enjoy hearing what you took away from the conference sessions, as well as your concerns, issues and successes on cloud adoption within your enterprise, so feel free to share away!
Lauren Cooney, Senior Director, Software Market & Developer Strategy at Cisco, explains the new cloud computing world order. The consumerization of IT is changing the CIO’s perspectives, and user experience is ascending as a top priority. Lauren talks about empowering the developers and create a better product and better user experience.
Follow Lauren on Twitter @lcooney.
Lauren was a speaker in the New World Order: Your Dev Team Just Became the CIO session — part of the Organizational Readiness track at Cloud Connect Chicago, which Everest Group’s Scott Bils chaired. For more Organizational Readiness resources, visit www.everestgrp.com/ccevent.