In fact, all broad categories of service providers approached cloud in their own unique way. On one end of the spectrum were new-age service providers like Amazon Web Services, (AWS), which pushed ahead with its public cloud concept. On the other end, some traditional service providers simply brushed aside the hysteria associated with cloud. In that vein, quotes such as the following ensured that cloud got media coverage even outside technology space, inciting (ironically) even wider interest on this topic.
On Wednesday, when Larry Ellison explained that Oracle’s cloud strategy is focused internally on developing cloud solutions (and deviating from its usual acquisition strategy), the debate came full circle, demonstrating that service providers have indeed moved beyond rhetoric on cloud.
Cloud-based strategies (go-to-market, solutions, pricing models, IP, etc.) are in place and buyers are increasingly engaging service providers on cloud. For example, per service provider responses to a recent Everest Group survey, cloud-based services now constitute five to 15 percent of the scope of infrastructure deals being signed.
As a result, the time is now ripe to shift the discussion from cloud providers to cloud services buyers. As enterprises contemplate moving a larger share of their IT spend to the cloud, their efforts invariably focus on the following two considerations:
Evaluating the opportunity cost (total cost of ownership, or TCO) of cloud adoption
Evaluating the cloud capabilities of service providers
While TCO evaluation models are still maturing and are currently situation dependent, provider capabilities and standards have matured enough for buyers to benefit from research data.
Going back to my earlier comment on service providers with disparate legacies…following is how Everest Group’s IT outsourcing team depicts a sampling of the melting pot of cloud service providers:
IT buyers’ incremental approach to cloud adoption has led service providers to reinforce their legacies, and develop and/or acquire cloud solutions around them. Most of the cloud deals we have analyzed were existing service agreements wherein a cloud service component was introduced either as a value-add from the service provider or per a specific request from the buyer. Hence, as the above picture illustrates, all service providers are now in earnest trying to carve out their own niches in the cloud services market – through solutions, partnerships, technology, or asset ownership.
Based on our interactions with a wide range of buyers, it is clear that cloud will increasingly constitute up a major portion of large enterprise deals in the next five years. The following illustration summarizes those discussions:
Everest Group has embarked on an initiative to help buyers answer the above questions in order to assist them in achieving their overall sourcing goals.
Watch this space for more details on this new area of research.
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.
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.
Dave was a speaker in the Hard Choices in Enterprise Cloud Adoption 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.
We wrote in a blog last week about the top messages that emerged from the extensive enterprise cloud adoption survey we conducted earlier this year in partnership with Cloud Connect. To ensure we’ve “got the backs” of our readers who tend to be right-brained and thus more attuned to images and visual thinking, the following shows the key findings we reaped from the responses of the 346 buyers, providers and advisors who participated in the survey.
As you see:
Cloud adoption is expanding beyond “low hanging fruit” like email and custom applications to include disaster recovery, storage and archiving, and business intelligence and analytics to support Big Data initiatives
Buyers’ opinion of the Cloud is extremely positive, with highest satisfaction in ability to create flexible infrastructure, and they have exceptionally high expectations of future benefits
Enterprises are increasingly viewing Cloud as an enabler of top line growth, i.e., to reduce time to market for applications, solutions and products, yet providers continue to sell with a cost reduction value proposition
To gain more insights on these and other key findings, you can download the survey summary report, and/or join me at the Cloud Connect Chicago conference on September 12, when I’ll be discussing the survey results in detail. Use code EVERESTGRP to receive 25% off conference passes or claim a free expo pass. For now, up and away on the Cloud!
The enterprise cloud adoption survey jointly conducted by Everest Group and Cloud Connect in mid 2012 shows very interesting trends. Unlike other surveys, this effort includes all the cloud market participants such as cloud providers, buyers, third-party advisors, consulting firms, and cloud enablers. This ensures a 360o view of the market.
The survey summary report is now available and can be downloaded here.
The top five messages emerging out of this survey effort are:
Buyers are willing to transform their infrastructure and business application landscape leveraging cloud models. The growing need for data intensive applications, quicker time to market, flexible infrastructure, and data management is driving this transformation. The survey indicates that over 85% of enterprise buyers have already deployed or plan to deploy cloud-based infrastructure solutions.
Buyers and providers of cloud services need to find a common ground on understanding challenges in cloud adoption. Though security and integration challenges top the list, the buyers believe that their management is more than willing to deploy cloud solutions whereas providers see lack of management buy-in from the buyers as an important barrier.
There is a disconnect between what the buyers hold valuable and what the providers believe is important in cloud adoption. Adopters believe that cloud model enables them to improve top line by increasing productivity and reducing the time to market. Moreover, reduction of total cost of ownership does not drive their cloud adoption whereas providers see it as the most important factor.
Cloud delivery models are significantly impacting the traditional IT buying centers. The survey shows that a considerable portion of IT budget is increasingly getting allocated to the businesses. Moreover, individual business leaders (including C-level executives) have more say in cloud decisions over IT, procurement, or the finance team.
Overall, the sentiments of buyers of cloud services remain very positive. Most of them met their objective, especially from cloud infrastructure solutions. The survey reveals that ~65% of buyers met their objectives from cloud deployment and ~90% decision makers believe that their cloud adoption will increase in the future.
The survey shows that though currently a large part of cloud adoption is driven by industry-agnostic offering, there is a considerable demand for industry specific solutions. We believe that industry flavors will become prominent once a critical mass of cloud adoption is achieved.
Though the survey showed disconnect between the perspective of buyers and providers in cloud adoption, it also revealed common ground on various aspects. For example, in key decision criteria for cloud evaluation, both the buyers and providers believe that security, contract terms and SLAs, fair pricing, and tenure of the provider are important parameter. We believe these common grounds are good for the industry and development of the cloud market as it aligns the expectations of various market participants and should help in creating relevant cloud services.
Overall the enterprise cloud adoption survey shows that despite all the challenges, confusion, barriers, and other issues, market participants are upbeat about cloud adoption. The buyers are quite satisfied with the outcome of cloud adoption within their enterprise IT set-up. Not only is this positive for the industry, but it also establishes the fact that, unlike other hyped-up trends, cloud delivery models are here to stay.
I will be speaking more about the survey results at Cloud Connect Chicago on September 12. We also have an excellent speaker lineup for the Organizational Readiness track, including thoughts leaders from Cisco, InterContinental Hotels Group, salesforce.com, Morningstar, Fidelity, Neovise and Cloudscaling. Read my blog from earlier this month for a sneak preview of the track sessions. Use code EVERESTGRP to receive 25% off conference passes or claim a free expo pass. I look forward to seeing you at Cloud Connect!
This blog originally appeared on Cloud Connect Blog. Read the original post.
GE’s Jack Welch once stated, “Change before you have to.” While it’s certainly sage advice, with virtually everything in the cloud computing world evolving so rapidly – the offerings, the providers, the implementation strategies, and the buyers, who these days are most typically business users rather than IT – it’s dauntingly difficult to decide what, how, when and with whom to change.
Yet, following in the footsteps of the highly successful, inaugural Organizational Readiness track at the Cloud Connect conference in February 2012, the sessions at the September 11-12 event in Chicago are all designed to cut through the clutter, and provide deep insights on the organizational issues that are threatening to thwart cloud-oriented next generation IT success.
In “New World Order: Your Dev Team Just Became the CIO” session, industry analyst Vanessa Alvarez and Cisco’s Laura Cooney will discuss the emergence of developers as decision makers, what organizations are doing to adjust to this revolution, the technologies to look at, and pitfalls to avoid.
With budgets increasingly migrating to “shadow” IT driven by business users, it is more critical than ever for CIOs to understand how to serve and enable this new buyer group in a next generation IT environment. During the “Tough Questions You Need to Ask” session, business users who have driven major cloud initiatives will provide answers to questions CIOs may be afraid to ask.
The panel session “Hard Choices in Enterprise Cloud Adoption” will feature three 15-minute drill-down presentations that provide insight into the major choices and decisions organizations face around:
Open versus Closed Cloud Infrastructures, and the pros and cons of each
Forklift versus Greenfield, and how to determine if you should first focus on moving existing applications to a virtualized environment, or deploy a new infrastructure for greenfield applications
Now versus Later, to help CIOs evaluate whether they should accelerate or put a hold on their enterprises’ move to the cloud
“Current Thinking in Addressing Persistent Cloud Challenges” will examine Security and Compliance, Performance, Vendor Management and Lock-In issues, and provide practical, real-world examples of how panelists’ and other organizations are creatively addressing them.
If you haven’t yet registered for Cloud Connect, I hope you’ll visit the conference registration page and sign up today. Use code EVERESTGRPto receive 25% off conference passes or claim a free expo pass. You’ll unquestionably gain strategic, tactical and actionable insights on how to shine much needed light into all things cloud. As Chair of the Organizational Readiness track, I look forward to seeing you in Chicago in September!
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:
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.
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.
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.
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.
Earlier this year, Everest Group conducted its annual study of high-value Application Outsourcing (AO) deals to gain insight into how a range of parameters correlate with deal activity in the AO market. The study, which is part of our Application Outsourcing Market Update 2012 report, analyzed 320 AO deals across a combination of 17 multinational corporations (MNCs), Tier-1 offshore and Tier-2 offshore providers.
Application outsourcing 2012: key findings
Buyers: Buyers across geographies appeared to be expanding their AO portfolios. Smaller buyers signed a larger number of new deals, and larger buyers leveraged their maturity of engagement with AO service providers to sign a greater number of renewals. While North America continued to hold sway in AO adoption with the largest number of deals, Europe appeared to be a strong engine of growth for service providers, on a year-to-year basis
Service providers: As the AO market grows in size, there appears to be growing similarity between the sales strategies of MNCs and offshore providers. The offshore providers, over the years, have gained strong traction in AO. MNCs appeared to be tweaking their strategies to expand in this market, which has been the mainstay for offshore providers
Cloud computing: Cloud computing continues to be increasingly adopted in AO deals. The major components of the cloud service engagements we analyzed were transformation and implementation of business application portfolios
The new drivers of AO
Overall, the AO market appears to grow from strength to strength. When analyzed on key parameters such as geography, type of buyers, and deal type, the study results deliver interesting insights. From adoption of next generation concepts of outsourcing like cloud computing to the increased flexibility that service providers are showing in designing deals, a number of new AO trends are clearly emerging.
As large IT services buyers increasingly embrace cloud-based delivery, offshore IT services providers are being forced to innovate beyond their traditional strengths of labor arbitrage, process excellence, and delivery maturity. Indeed, as these providers witness their application services reaching wallet share saturation in the large buyer market, there is growing perception in the industry that if they do not offer “next generation” services they risk losing even their traditional business.
Granted, these providers are not sitting idle. They have created “cloud advisory” teams and executed multiple application migration/porting engagements as part of their global services contracts. But the crux of cloud opportunity lies in the transformational nature of these engagements, which invariably involves owning IT infrastructure.
Our discussions with enterprise IT services buyers point to three types of roles for offshore providers, which extend beyond typical SaaS implementation and integration. These roles will also require services related to consulting, architecture, application migration, etc.
Offshore providers possess varying degrees of competence for these roles, but to remain relevant, they must continue to invest in newer capabilities. Today, a select few are investing in areas such as cloud management platforms, consulting services, readiness assessments, and migration services to move beyond simplistic cloud engagements. However, most lack a comprehensive datacenter-driven cloud infrastructure service, which is needed to drive transformational engagements.
One of the key findings in Everest Group’s recently released Cloud Vista research study was that more than 50 percent of large cloud-related engagements – and even most application transformation deals – contain a significant amount of infrastructure transformation, but offshore providers have scant presence in these engagements.
It is becoming abundantly clear that offshore providers need to swiftly tackle the area of cloud infrastructure services. One of the biggest challenges they must overcome is their lack of willingness to invest in owning datacenters, instead opting to relegate core datacenter operations to the partners. Many buyers convey their disappointment with this type of partnership model, believing it can at best support running IT operations, but that it is not appropriate for enterprise class cloud infrastructure services that can assist them to variabilize their costs and access self-service, consumption-linked infrastructure.
Given their general reluctance to own large scale datacenters, offshore providers may at least evaluate “white labeling” hosting providers’ datacenters so that they can offer cloud infrastructure services which will allow them to calibrate their investments while simultaneously serving their buyers. Given that white labeling of datacenters is an accepted practice and even large scale datacenter service providers white label datacenters from other core datacenter operators (e.g., Equinix), this model will find acceptance with the buyers.
Offshore providers need to understand that for a game changing paradigm such as cloud, there always will be a risk associated with investments. The days of cherry picking attractive contracts are over, and they can no longer walk away from complex deals that do not meet their sweet spot. Therefore, they must inculcate a culture of risk taking, and invest in areas outside their comfort zone, especially in cloud infrastructure services. The cloud is changing buyers’ sourcing strategies, and offshore providers that fail to change accordingly risk losing their relevance and even their traditional business.