Tag: enterprise

ERP and the Cloud: Enterprise Migration Quietly Begins | Gaining Altitude in the Cloud

Given how much of the typical large enterprise IT budget is consumed by ERP, we’re not surprised to find a growing curiosity among many CIOs to understand how cloud delivery models could reduce costs. On the surface, you wouldn’t think that production ERP applications would be at the top of the list for cloud migration. ERP apps are mission critical, complex and highly customized, often with significant data security and compliance requirements.

That’s why we think one of the more interesting, underreported stories in cloud are the examples of large enterprises that have migrated existing ERP environments to  private, hybrid and community cloud models. We’re actually finding quite a number of quite interesting, global scale ERP cloud deployments particularly among SAP customers. Why SAP? While Oracle is obviously the other large enterprise ERP heavyweight, as we’ve discussed here before, Oracle’s licensing policies are creating roadblocks for customers to migrate to even virtualized models, let alone private or public clouds.

The market for SAP cloud services is surprisingly robust with at least 10 major service providers that deliver SAP ERP capabilities via managed or host private or hybrid cloud models, including IBM, T-Systems, Fujitsu, Accenture CSC, CapGemini and others. T-Systems alone already supports 500 customers and 1.9 million SAP users via cloud-based models. Not surprisingly, most of these service providers started by originally providing SAP hosting services and have since extended their offerings. What’s the customer value proposition for SAP in the cloud?

  • Cost variablization – given the significant capex investments associated with SAP deployments and upgrades, cost variability is central to cloud-based SAP offerings. Nearly all providers offer consumption-based pricing models for SAP cloud services.
  • TCO reduction – many service providers are claiming the ability the reduce TCO for customer SAP environments by 30+% through the typical cloud levers. Several providers have customer references that have achieved these efficiencies and more in live production.
  • Flexibility – service providers are touting the ability of cloud-enabled deployments to more rapidly and easily provide new capabilities to users.
  • Standardization – in conjunction with cloud migration, many enterprises desire to consolidate data centers, rationalize SAP instances and standardize global processes to drive efficiency and flexibility.

Unlike other enterprise cloud use cases focused more on business agility and flexibility, in most cases cost appears to be the major driver of SAP cloud migration. Some of the more interesting examples include:

  • British American Tobacco (BAT) – just last month BAT announced a seven-year, US$160 million deal with T-Systems to consolidate its current SAP deployments into a single, cloud-based instance by 2016. The deal will enable BAT to variabilize its SAP costs through a usage-based pricing model.
  • Domino Sugar – leveraging Virtustream’s virtual private cloud platforms, Domino Sugar has been able to reduce SAP costs by over 30%, while actually improving availability and performance for several thousand users. As with BAT, SAP costs are variabilized and based on actual resource consumption.
  • Shell – to drive standardization, increase flexibility and shift to consumption-based pricing, Shell migrated its SAP environment to private cloud models (delivered by T-Systems) in support of 102,000 global employees across 100 countries.

Other notable enterprise examples include Audi, Freeport McMoran, Siemens,  and Suntory.

Why haven’t we heard more about these and other examples?  With the exception of IBM, most leading SAP cloud service providers and many of the early enterprise adopters of SAP in the cloud aren’t U.S.-based and are outside of the cloud hype and “echo chamber.” Also, details on many of these deployments tend to be tightly held both by both service providers and customers.

While many segments of enterprise cloud appear to be stuck in pilots and proofs of concept, ERP is surprisingly providing some early examples of large scale enterprise cloud migration.

Cloud Computing in ITO – Everybody Wins, but Who Gets to Win More? | Gaining Altitude in the Cloud

Less than three years back, there was widespread excitement (and alarm and despondency) in many quarters about the impact of cloud computing on traditional IT outsourcing providers.

Cloud computing was predicted, though not by us, to greatly disadvantage the incumbent players, but as of today, such a prediction is difficult to stand by (just take a look at TCS’s and Accenture’s results since then). Sure, public cloud providers continue to grow rapidly, and the traditional license model is increasingly giving way to the pay-as-you-go paradigm. Yet most leading providers of outsourced IT services seem to be adapting well through a combined strategy of alliances, acquisitions, and in-house cloud solutions. Cloud computing appears to be increasingly well integrated as part of the delivery model for most traditional ITO providers. Consider the following statistics from our recently released report, Enterprise Cloud Adoption: Role of Cloud in Global Services:

  • In the second half of 2011, approximately eight percent of all ITO/BPO deals serviced by traditional outsourcers (excluding SaaS product companies, and public cloud and hosting providers) included cloud delivery models or platforms within their scope. This is up from four percent in the first half of 2011.
  • The average total contract value (TCV) of 2011 global services deals with cloud delivery in scope  was US$168 million, compared to US$95 million for deals without cloud in scope.
  • Cloud deals seem to be more transformational in nature, almost at the cutting edge of ITO capabilities if you will. 53 percent of all ITO deals with cloud delivery in scope involved significant infrastructure transformation of test, development, and production environments. Clearly, traditional ITO providers view cloud computing as an important solution component for large, transformational deals.
  • Cloud computing seems to be helping service providers get access to markets that were previously unprofitable or too complicated to serve. Approximately 38 percent of all global services contracts with cloud in scope were awarded by enterprises with less than US$500 million in revenues. And government and non-profit sectors together account for 20 percent of all global services deals with cloud delivery in scope.

Clearly, there’s a big pot of gold somewhere amidst all these clouds, but what’s interesting to note is that few service providers  have all of what it’s going to take to win all of it:

  • Design and Consulting – Service providers, such as Accenture, with a consulting legacy and orientation are going to have an advantage when it comes to advising clients on how to build their cloud solution from scratch.
  • Host and Implement – Players like IBM and HP with  a deep legacy of asset-based infrastructure transformation will have an advantage in providing these services
  • Management and Professional Services – Offshore players such as TCS, with their global delivery models, have an advantage in offering the “cloud management” role

The problem is that these activities are seldom commissioned in isolation. This is not something where a best-of-breed approach always works, despite buyers being wary of lock-in risks. The opportunities are tightly coupled, and service providers need intelligence on the characteristics of relevant opportunities as they are torn between focusing on what they have, and plugging the gaps through alliances and acquisitions.

The fact of the matter is that there will be winners and losers, and the market today is too dynamic to predict who will play which part. It will be interesting to see if there are ground-breaking disruptions (e.g., a major public cloud provider making a headline acquisition of a giant system integrator, thereby making its move in the private cloud market, potentially disintermediating a lot of other system integrators, and at one stroke making a deep thrust in the enterprise market) as the stakes get higher. Or an asset-light provider marking a strategic u-turn by investing in physical infrastructure to build its own cloud solution, complete with consulting, system integration, and management services delivered through a global platform?

To learn more about the nature of cloud-related opportunities for providers of global services, check out Enterprise Cloud Adoption: Role of Cloud in Global Services.

Where Are the Transformers? Enterprise Cloud Adoption Roadblocks | Gaining Altitude in the Cloud

As discussed here before, a number of different enterprise cloud adoption paths are emerging. These patterns range from “Observers,” who are taking a reactive, wait and see approach to migration to “Transformers,” who are using private and public clouds to drive wide scale IT transformation and modernization programs. Not surprisingly these transformers are the Holy Grail being pursued by many cloud service providers and enterprise IT vendors. The opportunity to drive significant pieces of an enterprise IT environment to cloud environments (private and public) in multi-year transformation efforts creates visions of big services, hardware, and in some cases software dollars.

While many service providers are crafting go-to market strategies around these types of client opportunities, they’re running into an interesting challenge. They’re not finding a lot of Transformers out there yet. Enterprise cloud adoption, particularly for IaaS, is still largely focused on specific use cases or initial pilots. While many CIOs have long-term visions for cloud-centric future state environments, few CIOs are actually doing it today.

So why aren’t we seeing more Transformers in the market? Our experience suggests that in many cases there are a set of tactical (and often mundane) issues preventing CIOs from getting to the cloud more aggressively. While by no means comprehensive, several of the issues we frequently see are:

  • Licensing handcuffs – legacy enterprise software vendors clearly understand the business model disruption that cloud represents. Not surprisingly, most enterprise software houses are in no hurry to get their customers to the new world. For example, nearly all of Oracle database licensing policies are still based on physical server CPUs. One notable exception is with Amazon AWS, for which Oracle does support a “BYOL” (bring-your-own license) model based on virtual cores; at this time, Amazon is the only cloud service provider certified by Oracle.  In addition Oracle software licensing also provides no or limited technical support for major non-Oracle virtualization platforms such as VMware, KVM, Xen and Hyper-V. Needless to say, if you’re a CIO running an Oracle shop (as many Fortune 500 companies are), there are significant constraints to migrating to even private cloud environments. While not every legacy enterprise software vendor has staked out a position as extreme as Oracle, many are still using licensing as leverage to drive clients to preferred models (or keep them there).
  • Shortage of skills – cloud expertise and experience is hard to find. Without cloud architecture and solution skills, enterprises are finding it difficult to drive wide-scale transformation efforts. While retraining would seem to be the obvious answer, CIOs that have tried going down that path are finding it to be a dead end. As discussed at our Organizational Readiness track at Cloud Connect Santa Clara last February, IT leaders are finding that the cloud paradigm shift is a bridge too far, and that most of their current employees are unable to make the shift. The lack of internal talent, combined with the wariness to trust vendors and service providers, is leading to a real constraint to further adoption, particularly in IaaS and private cloud models.
  • Analysis paralysis – private cloud provides an interesting example of the proliferation of options facing enterprise IT. Private clouds can be provided in a variety of flavors, with important choices to be made around delivery model (VPC vs dedicated), location (on-premise or hosted), asset ownership (customer or service provider), platform (proprietary vs open source) and, of course, vendor.  Given the skills shortage mentioned above, even sophisticated enterprise IT shops are challenged with the variety of vendor and service options in the market, particularly given the pace of change. Of course the recent flare-up of IaaS platform wars doesn’t help make these choices clearer for risk-averse CIOs.  The result of too many choices? It’s not uncommon for us to see clients experiencing “vapor lock,” not really knowing what to analyze, let along what methodology to use. Clients are finding the frameworks, methodologies and tools they’ve historically used to make similar decisions in the past aren’t applicable or relevant in the cloud paradigm. As simple as it seems, many of our clients simply don’t know where to get started.

Why isn’t security and compliance on the list? Because in many cases, we’re finding that security and compliance is a red herring that IT is hiding behind. This is not to say that there are not workloads and use cases where security and compliance issues prevent certain public cloud models; however, these situations in reality are the minority. A variety of examples exist of enterprises leveraging the cloud today while still maintaining compliance with PCI, HIPAA and other mandates (most of which are open to auditor interpretation anyway). Best practices, tools and architectures for addressing common security issues are also becoming more prevalent, as are more mature CSP offerings and security practices for common use cases. Net, net: where there’s a will there’s a way, and in most cases if CIOs are truly interested in getting to the cloud, there are secure, compliant ways of getting there.

Overall, we believe that the wave of transformation is coming in the enterprise. Early movers exist and are achieving the promised payoff. Unfortunately the timing and shape of the wave for the mainstream organization is not as clear as those in the enterprise IT world would like, and the pace is being shaped primarily by a set of factors that are largely non-technical and beyond the IT leader’s control.

Cloud Wars: the Demise of Simplicity and Standardization | Gaining Altitude in the Cloud

In its comparatively short yet highly significant lifetime, the cloud industry has quickly devolved into a confusing morass of technology jingoism, marketing hype, aggression, and even negative allegations. Though the SaaS world is reasonably understood, it’s the infrastructure cloud that is creating an enterprise cloud war. Just think about the flurry of announcements and assertions about the big boys of technology taking sides with various cloud platforms or hypervisors:

  • Rackspace announced that OpenStack will be its cloud platform for public infrastructure service
  • Terremark introduced its private cloud offering built on VMware’s hypervisor
  • Sungard and CSC are using the vBlock architecture (based on VMware) for their cloud offerings
  • Savvis has chosen VMware for its Symphony Dedicated cloud
  • IBM is investing in a KVM-based public cloud offering
  • Amazon Web Services are based on proprietary implementation of open source Xen
  • GoGrid prefers the Xen hypervisor
  • HP proclaimed support for KVM/OpenStack for public cloud services
  • OpenStack announced large technology providers such as IBM, Yahoo, HP, AT&T, Dell, Cisco, and Canonical becoming platinum and gold members of OpenStack Foundation. Citrix, a supporter of OpenStack until a few weeks back, bemoaned that it is “tired” of the speed of evolution of OpenStack, and thus gave its CloudStack platform to the Apache Software Foundation. Though market watchers may say that Citrix made the move because OpenStack was perceived as being inclined towards the open source KVM hypervisor rather than Citrix’s  XenServer (a commercial hypervisor by Citrix based on open source Xen)
  • Amazon partnered with Eucalyptus, another open source cloud platform, for hybrid cloud computing thus giving Eucalyptus a big boost as a cloud platform
  • VMware claims there are over 100 providers across 24 countries that offer cloud services based on its technologies. Large enterprise technology providers have partnered with VMware for various cloud offerings
  • Similar providers (e.g., Dell, Fujitsu, Hitachi, Hewlett-Packard, IBM, and NEC ) earlier also signed the Microsoft Hyper-V Cloud Fast Track Program to offer private cloud

Therefore, as happens in enterprise IT, large providers are partnering with all the known players to offer services across different markets, technologies, and customer type. It is evident that the large enterprise providers are choosing commercial platforms for private cloud and open source for public cloud offerings. Unfortunately, this whole muddle of messages have left buyers in an increasingly dense smoke cloud of confusion regarding vendor lock-in, maturity of technologies, reliable support for platforms, services around cloud, etc.

Granted, the implementation architecture of these cloud platforms/hypervisors are in some respects similar, yet the way they handle files, storage, virtual LANs, etc., have sometimes subtle and other times very evident differences.  Customers need different tools and resources to manage these myriad of platforms, hypervisors, and technologies.

However, the premise of cloud was based on standardization and simplicity, wherein customers were simply supposed to self-provision their infrastructure needs irrespective of the underlying platform, and manage it with minimal effort. But the ecosystem doesn’t seem to be evolving in that manner. Rather, it appears to be becoming more confusing and a personal dual between technologists and supremacy of technology than an attempt to improve enterprise IT delivery. Indeed, with so much variation in cloud middleware, how can we expect simplicity and standardization? Which leads to the all important question, will the cloud end up being another technology silo or will it transform the enterprise IT landscape?

To cut through this complex maze of intertwined offerings, buyers must understand the nuances of different cloud technologies, including their impact, limitations, costs, and use specific to their own ecosystem. Approaching it in this manner, the cloud can be a real game changer. Providers will keep on overselling and hyping up their offerings and the buyers require relevant skills to evaluate these offerings for their requirements.

Of course, this is easier said than done. While it’s a given that the enterprise technology world can never be imagined to have a single technology, system, or innovation, and differences will always prevail, there is a dire need to simplify the entire cloud paradigm in terms of its architecture, standards, implementation, usage, and evolution. Too many complexities may scare buyers, and the industry may miss out on exploiting a once-in-a-generation idea.

Will Platform Wars Freeze the Enterprise IaaS Market? | Gaining Altitude in the Cloud

As we work with our clients to understand the implications of Next Generation IT technologies, it’s clear that large enterprise adoption of public cloud IaaS is progressing more slowly than other types of cloud services (e.g., SaaS, private cloud). When we ask ourselves “why,” we continue to come back to three critical issues:

  • Vision and reality gap – we continue to be impressed with the sophistication that many of our client IT executives have around how private, public and hybrid clouds can be used to fundamentally transform their IT infrastructures. They then talk to vendors and face the disappointing gap between the state of cloud technologies today and their expectations and requirements (legitimate or not).
  • Risk aversion – it’s one thing for a CIO to passively support their VP of Sales as they roll out Salesforce.com.  It’s quite another to own the decision to migrate critical IT workloads out of the data center to public cloud services. While early adopters are clearly out there experimenting with IaaS, don’t expect your typical Fortune 500 CIO to be eager to get on the diving board and jump in until they have to, or they feel it’s safe.
  • Market “noise” – just when CIOs think the drumbeat of vendor provider announcements around public, private and hybrid cloud offerings and standards can’t get any louder, someone dials it up a notch.  The noise (and uncertainty) is now being amplified even further by the emerging battle around enterprise cloud platforms / operating systems like vCloud and Open Stack (more on this later).

Certainly we’re finding that these issues are reflected in enterprise IaaS adoption patterns that are not quite what many in the enterprise CSP vendor community had hoped for at this point. Namely we’re seeing:

  • Enterprises growing cloud usage from the “inside out” – nearly all the activity we see in the enterprise market around cloud and infrastructure today is focused around private cloud pilots or full deployments (hosted or on-prem). Rather than experiment with cloud with public service providers, they’re opting to try the model internally first. Some call it “server-hugging,” others a reactive move to keep IT spend in house, and still others a rational response to the current state of technology and services.
  • Heavy reliance on proprietary enterprise IT vendors – despite their vision, promise and industry support, new open source platforms (and Eucalyptus) have seen limited adoption in enterprise private clouds. While OpenStack has had success with service providers, many CIOs don’t consider it ready for prime-time yet in their data centers. CloudStack has had more success, but enterprise deployments still likely number only in the double digits. Perhaps not surprisingly we see enterprise cloud deployments (private cloud) dominated by VMware and IBM.
  • Selective, incremental migration of targeted use cases – where we do see enterprise IT migrating to public cloud or hybrid infrastructure models is for very targeted or smaller scale, lower risk use cases. Examples include test / dev environments, backup and archival, websites and batch data analytics. IT is dipping their “toe in the water” with public cloud, and not feeling a compelling need to drive widescale transformation – yet.

So where are we headed?

In general, enterprises are obviously not comfortable with the current risk / return profile associated with public IaaS and hybrid cloud models. We believe one of the few levers that would pull both components of this ratio would be a cloud management platform that would enable true workload portability / interoperability and policy enforcement across private, public and hybrid models. Not surprisingly, competing enterprise cloud vendor platforms, standards and ecosystems are emerging around VMware, Open Stack and Amazon (and to a limited extent Microsoft) to address this market gap. Several major announcements over the past several weeks that have served both to partially clarify and muddy this evolving landscape at the same time include:

  • The Amazon / Eucalyptus announcement around extended  API compatibility for hybrid clouds
  • The Citrix announcement that they will be breaking away from Open Stack and open sourcing CloudStack to the Apache Software Foundation
  • HP’s announcement of the Converged Cloud portfolio of public, private and hybrid cloud offerings based on a “hardened” version of OpenStack and KVM.

Most major enterprise IT vendors are still hedging their bets and publicly keeping feet in multiple camps. With the marketing engines in overdrive it’s difficult to understand what commitments vendors are really at the end of the day making to the different platforms. In fact it’s quite instructive to take a look at who’s putting their money where their mouths are when it comes to open source efforts like Open Stack, not just in terms of sponsorship fees but also developer contributions.

Historically IT platform markets end up with a dominant leader and one to two credible challengers that end up with 2/3 to 3/4 of the market, with the remainder shared among niche players. When we take a look at the enterprise cloud operating system or management platform market, we don’t see why it would be any different here, though we’re obviously still a long, long way from the end game.

The critical question in our mind is: Is a cloud platform market shakeout required for enterprise adoption of IaaS to accelerate and hit the tipping point? If so, we could be waiting a long time.

What are your thoughts?

Using Cloud Flexibility to Drive Enterprise-Class Cost Efficiencies – A Tale from the Frontlines | Gaining Altitude in the Cloud

Myth

One of the current mantras that many enterprise cloud enthusiasts are chanting is that “it’s not about cost.” Cloud is all about business agility and flexibility with cost being an interesting side benefit, but not necessarily compelling on its own. Focusing on cost efficiency and TCO is indicative of a stodgy, legacy IT mindset that doesn’t understand the true paradigm shift of cloud.

Nothing could be further from the truth. In fact, we’re finding that some of the more interesting cloud enterprise use cases these days involve leveraging cloud agility to aggressively reduce infrastructure and IT costs.

Take a recent client of ours, a Fortune 500 global energy company seeking to reduce corporate IT infrastructure costs. Its focus was on reducing costs across two primary datacenters that delivered HR, finance, accounting, operations and other applications to business operations across 30 countries. Understanding cloud options for migrating its SAP deployment was a central focus of their effort.

Facing an imminent and significant hardware upgrade cycle, it was more interested in exploring opportunities to reduce costs through traditional IT outsourcing (ITO) vehicles, as well as next generation, cloud-enabled delivery models. Critical objectives included:

  • Reducing asset ownership
  • “Variabilizing” its IT cost structure
  • Outsourcing commodity IT skills

Based on these requirements, our client evaluated potential solution options from nearly 20 service providers, including traditional enterprise IT service providers, cloud service providers (CSPs), offshore ITO vendors and telcos/carriers.

Our client narrowed the field to three potential solution providers, each with different recommendations on where to migrate existing applications and workloads (which were largely in dedicated and virtualized models). Recommended solutions varied not just across cloud delivery model (public vs. private), but also across asset ownership (on-prem private vs. hosted and virtual private):

Cloud Providers Solution Overview

And what did the client find? As shown below, leveraging a mix of virtual private and public cloud models offered the opportunity to reduce its annual infrastructure costs by over 30 percent!  “Provider A,” which suggested migrating approximately 30 percent of the clients’ workloads to public cloud environments ended up with the most compelling business case. While they recommended migrating 80 percent of the workload portfolio to cloud-enabled models, they did recommend keeping the client SAP instances in a traditional, dedicated model.

IT Infrastructure Annual Cost

Some additional observations:

  • Costs reflect all required migration and replatforming investments
  • Public cloud costs were indicative of current market pricing generally at the same unit price levels across the period. As shown by the recent AWS price drop of up to 37 percent on reserved instances, this is a very conservative assumption
  • Efficiencies do not reflect additional potential opportunities from active workload management

So where did the savings come from? Our client found that the savings were driven by four primary levers:

  • Consolidation and rationalization of underutilized servers
  • Migration of unpredictable and “spiky” workloads to public cloud models with consumption-based billing
  • Reduced IT operations and management costs
  • Defacto outsourcing of maintenance and support to CSPs

We’re seeing similar results across our other clients, who are finding that cloud-enabled delivery models, leveraged correctly, can drive substantial and lasting reduction in IT infrastructure costs.

Maybe cloud and cost efficiency aren’t so boring after all…

Is your Company on the “Observer,” “Opportunist,” “Solutioner” – or another – Cloud Adoption Path? | Gaining Altitude in the Cloud

Wondering where, how, and why CIOs and enterprises are adopting cloud, and what they’re doing to make cloud services a practical reality in their organizations? If so, you’re not alone. The reality is that significant confusion exists among both CIOs and cloud service providers (CSPs) around what’s really happening in the enterprise market. And this is understandable, as the variables in and dynamics of the cloud market are truly unprecedented.

But our recent discussions with over 50 CIOs and IT executives at Global 2000 organizations have demonstrated that a set of enterprise cloud adoption paths are beginning to emerge, each of which is driven by variations on a number of dimensions.

Here’s how we characterize the companies following each of these new paths to the cloud:

Observers

These enterprises are taking a “we’ll get there when we’re ready” stance on cloud adoption. While IT executives in these organizations recognize the agility, flexibility, and cost benefits of cloud models, they do not feel a compelling business or IT need exists to begin migration today. Indeed, instead of proactive exploration, they are more comfortable waiting for an adoption trigger.

Opportunists

In these organizations, cloud is primarily opportunistic business unit (BU) or functional adoption of SaaS applications and collaboration tools. The IT groups in these organizations largely believe that although valuable, cloud services are evolutionary, and just another tool in the toolkit, and there is little, if any, centralized management or governance.

Solutioners

These enterprises are more systematically approaching cloud adoption by identifying, prioritizing, and deploying cloud for use cases particularly well-suited for public or private cloud delivery models. In these organizations, both IT and BUs (sometimes collaboratively) are pursuing a programmatic approach to migration. The focus is not on developing a comprehensive strategy across the entire application or workload portfolio, but rather on identifying “low hanging fruit” for use cases that can deliver immediate, demonstrable impact.

Transformers

Enterprises following this path are leveraging cloud technologies to drive wide-scale IT transformation or modernization programs across their complete application and workload portfolio. CIOs in these enterprises are seen as change agents seeking to transform the responsiveness and delivery capabilities of their IT organizations, are working to understand and assess the governance, management, and integration implications of cloud migration, and actively designing solutions to support their next generation IT organization.

Providers

These enterprising enterprises are seeking to leverage private cloud platforms and technologies to create internal cloud service marketplaces, essentially building their own internal-use equivalents of Amazon Web Services. They are looking to transform not only their IT infrastructure but also their IT business models. In conjunction with private cloud deployments, they are also implementing (or expanding) their use of cloud service catalogs and chargeback models. While on the surface it may appear that this is just implementation of traditional IT service management (ITSM) models, the difference is that IT is now facing real competition from external CSPs for the budget dollars of their BU customers.

On which path is your enterprise? Was it your intention to be on that path, or were you driven there by unintentional factors?  To learn more about the characteristics of these cloud adoption paths, and the implications CIOs must consider to drive desired levels of adoption and ensure success, please read our recently-released Executive Point of View Paper, “Emerging Enterprise Cloud Adoption Paths: The Journey is the Destination.”

Enterprise Cloud Goes Vertical | Gaining Altitude in the Cloud

Most enterprise cloud offering conversations to date have focused on the horizontal benefits…flexibility, scalability, auto scaling, cost savings, reliability, security, self provisioning, etc.

Advantageous as these are, CIOs are increasingly interested in learning more about cloud benefits that are specific to the industry in which their organizations operate. For example, latency requirements, failover mechanism and data encryption are important to a CIO in the financial industry. A healthcare industry IT executive will be interested in hearing more about mobility and data archiving. How the cloud can improve supply chain or logistics is important for a CIO in manufacturing industry. And a media industry IT executive, quite aware of the various platforms being used to access content, will want to hear more about Content Delivery Networks (CDN) supported by the cloud.

A growing number of enterprise cloud providers are beginning to understand this interest in vertical cloud benefits. While their focus has been on “SaaS-i-fying” their offerings to meet unique, industry-specific application requirements, the trend will continue towards “PaaS-i-fying” and even “IaaS-i-fying” their offerings.

Let’s take a quick look at some of today’s verticalized enterprise cloud offerings.

IBM’s Federal Community Cloud is dynamic and scalable to meet government organizations’ consolidation policies as mandated by the Obama administration’s CIO. It is in the process of obtaining FedRAMP certification to meet Federal Information Security Management Act (FISMA) compliance standards, a requirement for government IT contractors, and will be operated and maintained in accordance with federal security guidelines.

Savvis provides customized IaaS solutions that cater to the financial industry. Growth in this vertical has been led by providing infrastructure services – such as proximity hosting and low latency networks – which support electronic trading. Savvis has added six new trading venues and an international market data provider. Its customers can now cross-connect, or have network access, to over 59 exchanges, Electronic Communication Networks (ECNs), and market data providers. For example, it hosts Barclays Capital’s dark liquidity crossing network, LX, which aggregates its global client bases’ market structure investments.

Infosys took advantage of Microsoft Azure PaaS platform and its SQL Data Services (SDS) to provide automotive dealers with cloud-based solutions to go from a point-to-point dealer connection for inventory management to a hub-based approach. In this solution, an inventory database for all dealers is hosted at a dedicated instance of SDSin the cloud. It provides middle tier code and business logic to integrate data between participating parties and a web-based interface for dealer employees wanting to check inventory at other dealerships.

Amazon Web Services (AWS) has cloud solutions that cater to the media industry’s needs for transcoding, analytics, rendering, and digital asset management. It developed a CDN, based on CloudFront™, which provides the streaming from edge nodes strategically located throughout the United States for a robust streaming experience.

AWS’ Gov Cloud™ provides a cloud computing platform that meets the federal security compliances FISMA, PCI, DCC and ISO 27001. The Department of State and its prime contractor, MetroStar Systems, built an online video contest platform to encourage discussion and participation around cultural topics, and to promote membership in its ExchangesConnect network. The contest drew participants from more than 160 countries and took advantage of AWS for scalability. AWS hosts websites for many federal agencies such as the Recovery Accountability and Transparency Board (recovery.gov) and the U.S. Department of Treasury (treasury.gov). AWS provides multiple failover locations within the United States, a provision which meets the security requirement that only people physically located within the United States have access the data.

Game hosting companies are running their games in the cloud for faster delivery and scalability. And AWS’ S3 platform provides the storage capacities for gaming companies such as Zynga and Playfish.

GNAX’s healthcare cloud specifically caters to the healthcare industry and understands the nuances of HIPPA. It provides a private cloud solution to healthcare companies that scales up and down depending on patient volume.

Of course, there are both pros and cons to adopting vertical-specific cloud offerings.

Pros:

  • Customized solutions based on industry regulations
  • Immediate creation of competitive advantage

Cons:

  • Vendor lock-in
  • Proprietary workloads may not be migrated

These issues can be mitigated through a careful sourcing methodology, now being provided through cloud agents who negotiate the contracts with multiple vendors as per the needs of the client organization.

As illustrated above, there are significant benefits to be gained from industry-specific cloud solutions, and I predict we’ll see an increasing number of them emerging in the near-term.

Enterprise CIOs Get no Cloud Satisfaction from Incumbent Vendors | Gaining Altitude in the Cloud

Enterprises are frustrated when it comes to cloud migration, and it appears they have good reason to be.

During the past three months, we have had conversations with IT and executive leadership in upwards of 50 Global 2000 firms that rely on distributed, global IT operations. These companies operate dozens of data centers running hundreds of workloads that support tens – or hundreds – of thousands of employees around the world.

Our discussions covered three basic topics related to their migration path from dedicated and virtual infrastructures to cloud. Their answers revealed disappointment and a growing sense of frustration with the incumbent vendors that built their global network of data centers. And their comments suggest a major misalignment of technology and marketing, as well as a potentially huge opportunity for disruption by new competitors in enterprise cloud.

1.     “Tell us about the conversations you’re having with your incumbent equipment and software vendors about next generation IT migration.”

IT leadership stated that vendors are “stuck in technology speak,” focusing on their latest version of private cloud rather than demonstrating reference installations that support a business case. They also reported frustration at how each vendor defines cloud terminology differently, making rational comparisons impossible. Market noise has become deafening, creating distractions for their IT staffs that are trying to cut through the cloudwashing and map out a cloud migration strategy.

Perhaps most troubling is that these enterprises reported that their incumbent vendors are focusing on technology, with little to no focus on business value.

2.     “Are you impressed with what they’re telling you?”

Despite the answer to the first question, the CIOs told us they are impressed in select cases, primarily with vendors that have developed vertical-specific solutions to address data privacy, security and compliance issues.

For the most part, however, the IT professionals we spoke with reported seeing lots of impressive slide decks with long-term cloud visions, but receiving unsatisfactory answers about the ability to execute in the short-term.

They also cited transparency of security and controls as a major issue. Those we spoke with require a level of visibility into solution performance that their incumbent vendors are simply unable to deliver.

3.     “What action plan have you developed with your legacy vendor?”

Here’s where it became apparent that incumbent vendors are missing the mark.

While it seems obvious that vendors would recommend their own solutions, enterprise buyers want objectivity when it comes to the cloud. “Vendors guide us to their own solutions,” and “their incentives to do so are apparent,” were consistent themes. Consequently, enterprise buyers are not relying on one vendor when it comes to cloud migration action plans, even if their incumbent is a Tier 1 ITO vendor.

This seems to be a direct result of enterprise buyers’ frustration with the lack of direct answers regarding what is available for deployment today, and what is merely a toolkit or development environment.

There’s not much improvement when talking about native cloud providers. Several people noted that while these vendors are able to bring ready-to-wear solutions to the table, their experience bases are either with the developer community or with service providers, but not enterprises. This experience gap raises questions among enterprise IT leadership regarding these providers’ ability to provide a seamless implementation and ongoing support.

We drew several important conclusions from these conversations:

  1. Vendor “over-marketing” in the race to grab cloud share is confusing the market, and may actually be slowing adoption by introducing risk and doubt among enterprise buyers. This became apparent when several CIOs told us they have essentially black listed some of their incumbent vendors from further conversations about their cloud migration strategies.
  2. We’re seeing a surprising volume of Global 2000 enterprises – most prominently in the U.S. and Europe – issuing RFPs for complete outsourcing of their data centers to IaaS providers. Of course, this does not mean they’re going to do it, but the aggressiveness with which they’re exploring the option points to a fundamental dissatisfaction with the ability of their trusted partners to deliver them to the cloud.
  3. The next issue to contend with is organizational and cultural readiness within the enterprise IT function. CIOs are aware of this, they’re concerned about it, and they don’t see any reliable best practices to guide them.

It’s clear to us that incumbent vendors have stumbled, leaving the door to the enterprise CIO’s office open. Opportunity awaits providers that can bring ready-to-deploy cloud solutions to the enterprise, backed by vertical market experience and an ability to assist with cultural transformation.

Enterprise Cloud Migration: What if We’re All Wrong? | Gaining Altitude in the Cloud

This blog originally appeared on Sandhill.com. Read the original post.


Current conventional wisdom suggests that enterprise adoption of cloud services will accelerate as service providers and offerings become more “mature” and “enterprise friendly.” Adoption will grow and extend beyond initial test/dev website, and backup use cases as enterprises become more comfortable with cloud services. The common belief is that, over time, cloud will in fact become a strategic component of most IT environments but that it will be a decade-long (if not longer) transition. Most also believe that data security, privacy, and audit issues significantly constrain some verticals such as healthcare and financial services from effectively migrating in the near term, particularly to cloud platform and infrastructure services.

But as we discover far too frequently, conventional wisdom often turns out to be quite wrong. While adoption rates for new technologies tend to be overestimated in the short term and underestimated in the long term, it’s an interesting exercise to think about the factors and unexpected developments that could dramatically accelerate enterprise migration to the public cloud.

Let’s consider some of the basic assumptions many in the market make around enterprise and the cloud.

What if enterprises architect around SLAs?

The terms of many current cloud service provider SLAs are effectively meaningless. The burden of proof often falls on the user to fully document service interruptions and outages. Even if proven, compensation for violations often equates to a slap on the wrist at best. But what if enterprises come to the conclusion that SLAs are the wrong way to think about ensuring availability?

The highly visible Amazon outage in its Northern Virginia data center in April resulted in significant interruption and service degradation for users of Quora and FourSquare, while other websites and companies appeared to suffer no impact. The reason? Availability through redundancy. Rather than relying on SLAs, many unaffected companies simply architected redundancy through failover approaches that rolled to other Amazon data centers or service providers. What if enterprises decide that pushing cloud service providers on SLAs is akin to beating a dead horse and, instead, simply decide to take the SLAs as a given and architect around them?

What if enterprises standardize to conform to cloud service provider offerings?

Enterprises historically have been addicted to IT customization – both in what they buy, and how they buy it. Service providers that weren’t willing to modify offerings, pricing, or contract terms for large enterprise buyers were quickly shown the door. Many believe that enterprises will never migrate to cloud services that are essentially “take it or leave it” propositions to the customer.

Yet in many cases, enterprises have driven customization in processes, applications, and services that in fact add little or no business value. Cloud is opening many enterprises’ eyes to the fact that there may in fact be significant value in using cloud services as a lever to drive standardization across the organization, particularly for non-strategic applications and processes.

What if enterprises learn to live with standardization and limited configuration, and dramatically streamline support for non-strategic applications and assets?

What if data security and privacy issues are mitigated?

Data residency, security, and privacy issues are providing significant cloud migration constraints for some global enterprises, particularly those in compliance-sensitive verticals like healthcare and financial services. But what if these barriers were significantly reduced or fully eliminated?

Salesforce.com recently gave a glimpse into one way this may happen through the recent announcement of its Data Residency Option (DRO), which gives customers the ability to keep data on-premise behind their firewall while providing encrypted access to the Salesforce.com cloud application. Some cloud infrastructure service providers, like Savvis and Rackspace, offer dedicated hosting and private/public cloud services in the same data center, enabling hybrid models that support data “ownership” and the benefits of dynamic bursting into public cloud models.

While enterprise customers are seeking more transparency, Amazon has in fact achieved compliance with FISMA, HIPAA and PCI DSS and other standards. Some in the audit community are also discussing the need to reexamine common policies and controls in light of cloud services and architectures. The net net? Data security, privacy, and residency issues may end up being addressed faster than expected. What would happen to adoption if these concerns were taken off the table?

What if pricing for common IaaS services drops by 50 percent?

To date, cloud service providers have very effectively used private cloud economics as a pricing umbrella for their public cloud services. The result? Highly attractive margins for current cloud providers and an onrush of new providers. If microeconomics holds here (and I don’t know why it wouldn’t), pricing for public cloud infrastructure services will begin to drop, and potentially dramatically. Amazon has already established a pattern of driving consistent reductions in pricing for its core cloud services. What will happen when new entrants get aggressive in trying to grab share? The enterprise business case ROI for cloud service migration could be much more compelling in the very near future.

What if mission-critical applications migrate first?

The assumption is that adoption of cloud applications starts at the edge with line-of-business and functional applications and then, over time, migrates to more strategic and mission-critical applications. But what if CIOs determine to go in the opposite direction?

Examples exist of large global enterprises that have migrated to cloud service providers that offer hosted private cloud SAP ERP services in conjunction with community cloud spiking environments. While the common belief is that mission-critical apps will be the final frontier for enterprise cloud migration, what if it turns out to be the first?

All of these scenarios are unlikely to play out as described, but we can be sure that the conventional wisdom will be wrong in a market that is evolving as rapidly as enterprise cloud. Current expectations for the rate and pace of adoption are based largely on past trends in enterprise technology, which is probably a bad assumption in itself. It is increasingly clear that adoption curves for new enterprise technologies are actually accelerating.

I bet my money that the pace of enterprise cloud adoption will surprise many … it will be interesting to see what unexpected scenarios might open up the floodgates.

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