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Call Centers in the Cloud: Offering Savings and New Operating Models | Gaining Altitude in the Cloud

May 17, 2013

Migration to a cloud-based contact center model offers the potential to drive hard total cost of ownership (TCO) reduction and the flexibility to rework existing business models. And both cost savings and business agility are very timely for the contact center space, as more businesses continue to shift from a protectionist, recession-minded framework to actively looking to invest in customer relationships and growth strategies.

Recent Everest Group client work has demonstrated that TCO savings enabled by migration to next generation contact centers can be in the 20-30 percent range for some organizations. These cost savings are realized through several structures. Approaching a contact center as software-as-a-service (SaaS) provides optimal call center capacity in a pay-as-you-drink model wherein there is a dynamic and continuous balance of capacity and utilization. Converting the physical capacity of call centers and server space to a paid service in the cloud allows enterprises to shift expense from capital to operational. The digital nature of cloud contact centers can also reduce telecommunications costs, transforming expensive long-distance routing into the more cost effective Voice over Internet Protocol (VoIP) solution. Additionally, cloud contact centers shift the weight of software maintenance and feature development to the vendor.

Call centers have long taken the spotlight for their cost savings potential. The last decade has seen the popularization of outsourcing call centers to lower-cost geographies that offer savings in wages and capital expenditures. More recently, the technology landscape has sufficiently evolved for the next iteration of call centers – the contact center – to emerge. The contact center is driven by next generation technology that, through data enablement, allows for the retention and improvement of traditional voice service while embracing popular emerging communications such as email, chat, and text. While companies such as Liveops, Echopass, and inContact are on the forefront of the technology change, a wide range of legacy players such as Genesys, AT&T, and Avaya are also offering mixed solutions that embrace the move to cloud.

Data enablement provides a platform for several of the key features that define next generation contact centers. The data-enabled platform offers managers new levels of transparency of their contact centers, from high-level aggregations down to real-time, item-by-item granularity. The enabling tools include recording, quality monitoring, workforce management, talent management, surveys, and analytics. For example, a recent Everest Group provider client used cloud-based tools to more accurately forecast call volume and better manage utilization rates for its customers, and consequently improved its SLAs.

The benefits to the contact center workforce are no less substantial: increased automation, workflow scripting, security, and compliance management all contribute to a reduction in errors, reduction in cost, and, ultimately, an increase in customer satisfaction. No small part of next generation contact centers is the enhanced integration of today’s multi-channel communication environment. The fragmentation of communication through voice, text, chat, emails, etc., are all captured by cloud-based contact centers and refocused into simple, manageable, and transparent modes of communication for the workforce. For example, a buy-side Everest Group client was highly incentivized to move to a next generation IT platform for its call centers because the new technology in a digital environment allowed for future development of several services previously unattainable.

Many of the cost savings associated with next generation contact centers are rooted in virtualization and the ascension to the cloud. Converting physical call centers into virtual enterprises allows for decentralization of the workforce, which in turn provides access to pools of employees previously unavailable. The same phenomenon even allows for workforce sourcing to swing back domestically while maintaining cost savings. A key benefit of the cloud model is scalability; erratic call volumes, seasonal spikes, and disaster recovery can all be handled dynamically without down-time or volume-ceilings, and the pay-per-use element allows costs to reflect actual usage.

There are, however, several caveats that should be taken into account before certain cost savings can be realized. The cost of data-enabling a workforce must be balanced against the cost savings of closing physical locations, as well as against the increased revenue realized only through data enablement. For example, Everest Group recently conducted research for an enterprise in which the cost of maintaining call centers in other countries was less expensive than data-enabling the entire workforce. As a result, the firm recommend a phased approach wherein select call center workers were data-enabled, allowing them full use of the company’s new cloud platform to capture a new revenue source.

So, how can you tell which enterprises should shift to a cloud contact center model? Those that meet the following general criteria may be able to reap substantial savings:

Possess numerous or expensive physical call centers
Seek potential revenue from digital-based services
Have a highly centralized workforce
Desire to convert capital expenses to operational expenses

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

January 23, 2013

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

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

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

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

PaaS, IaaS and SaaS Providers…Moving Up and Down the Cloud Stack | Gaining Altitude in the Cloud

January 2, 2013

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.

Enterprise Cloud: Is Corporate IT Finally Getting Serious? | Gaining Altitude in the Cloud

November 14, 2012

One of the better indicators that corporate IT groups are starting to get serious about cloud is their growing interest in solutions that help them aggregate and manage multiple cloud services. Some call these solutions cloud services brokerage and management, and others term them cloud orchestration. While the market hasn’t yet converged on a common set of capabilities or definition, the broad category typically includes the following:

Service catalogs – “App Store”- like models that provide users access to internal IaaS and PaaS services and in some cases third-party SaaS apps and infrastructure services as well
Service provisioning – capabilities that support end-user requests, provisioning, and deployment of cloud services
Service integration – data integration services across multiple cloud services, including “cloud-to-cloud” and “cloud-to-ground” models
Chargeback and billing – consumption-based metering and billing of cloud services to internal users, including private services and aggregation of public cloud services spend
Service management – monitoring and management across multiple cloud services, including performance, capacity planning, workload management, and identity management
Sourcing – contracting and sourcing of cloud services across multiple platforms and providers

These solutions are being offered by a wide variety of players, including not only traditional enterprise systems management vendors – which in some cases are just repackaging SOA offerings – but also global systems integrators (SIs) and focused startups.

What’s important about this phenomenon?

First, corporate IT’s interest in these capabilities is, in a way, an implicit acknowledgement that:

Cloud services will be adopted in scale across enterprises
Multiple large scale services will need to be orchestrated and managed
Orchestrating these services will be hard and will require external third party solutions

This is a far different conversation than corporate IT was having a year ago at this time, which was primarily around what pilot or proof of concept to launch.

Second, interest in cloud orchestration is being “pulled” by corporate IT, rather than “pushed” by the business. A premise we recently heard is that business’ role in driving adoption of cloud is no different than it was in the packaged software era. Packaged software required servers, storage, and networks, all of which required IT management and support. This provided IT with long-term job security and the opportunity to “empire build.” As a result, corporate IT aggressively supported packaged software rollouts and implementations.

The difference in the cloud era is corporate IT’s attitude. To date, it largely perceived the cloud as a threat. But now, IT is discovering it can potentially regain a measure of relevance and control by adopting a service provider mindset, and service catalogs / chargeback models combined with private and public cloud services.

Is corporate IT finally finding a path to building its empire in the cloud? Are you or your IT group considering, or embarking upon, a cloud orchestration initiative? What thoughts and experiences do you have to share with your peers?

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

July 18, 2012

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

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

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

So what gives?

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

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

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

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

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

Enterprise Cloud Adoption Paths

A quick note on the different models:

Innovators

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

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

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

Opportunists

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

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

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

Modernizers

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

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

Transformers

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

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

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

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

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

A Clear Sign of Maturation: A Third of All ADM Headcount Serving U.S. Companies Is Now in Offshore Locations | Sherpas in Blue Shirts

May 18, 2012

Just how mature is the offshore market today? Let’s look at overall headcount worldwide serving the Unites States’ ADM requirements as a gauge.

In 2007, approximately 2.2 million IT staff were delivering ADM services to U.S. companies from offshore locations. In 2008, the sub-prime crisis hit and the economy went into a downward spiral. Discretionary spending on fresh custom application development, consulting services, and large transformational IT projects came to a screeching halt. The mantra was one of survival, yet backed by a readiness to accelerate hard when the economy rebounded. While a full bounce-back is arguably yet to happen, 2010 and 2011 witnessed a partial uptick in corporate fortunes in America, and ADM spending picked up again. However, procurement executives were cautious in their approach, and were mandated to make sure no opportunities for further cost reduction were left untapped. Offshore providers’ margins came under attack, and innovative, client-friendly pricing models replaced old ones that buyers simply would have nothing to do with anymore. Since offshore locations offer lower billing rates courtesy of labor arbitrage, many fence sitters on the topic of offshoring quickly became adopters. Clients already offshoring increased their exposures to lower cost destinations like India. As a result, while the overall IT market had almost negligible growth since 2008, the offshore providers kept growing, albeit at a lower rate compared to pre-crisis days.

In 2011, the headcount serving U.S. ADM scope stood at close to 2.6 million. Just under half (~1.25 million) account for in-house employees of U.S. corporations, and 10 percent of these are actually in offshore shared services centers. Approximately 1.3 million FTEs of third party service providers serve U.S. ADM scope. More than half of these are employed in offshore locations such as India and the Philippines. In 2007, about 45 percent of third party ADM resources were in offshore locations. So there has been a nine percentage point increase in offshoring penetration in third party ADM resources serving the U.S. since 2007. Approximately 850,000 of these FTEs supporting U.S. organizations were in offshore locations in 2011, resulting in an overall offshore penetration of ~33 percent of all headcount serving American companies for ADM scope. I expect offshoring penetration to keep increasing, at least for the time being.

With the advent of cloud computing, software-as-a-service (SaaS) has grown exponentially in prominence. Many argue that SaaS is likely to cannibalize custom application development and commercial off the shelf (COTS) software sales, thereby impacting third party providers’ revenues accruing from ADM services. While this may indeed turn out to be true in cases in which clients need very limited customization, for all other situations, custom development is still the only approach. With SaaS necessitating development of multi-tenant applications on emerging cloud platforms, and wrapping pay-per-use pricing and remote access layer around them, it certainly seems like scope for custom application development will increase, this time conducted in-house by software vendors. We may also end up witnessing a host of independent software vendors shipping their internal development work to offshore destinations.

Net-net, SaaS may be a threat to overall application outsourcing, but it is unlikely to erode offshore headcounts, namely programmers who sit and develop, debug and maintain programs in places like India. If anything, developments such as SaaS, cloud infrastructure, big data, analytics, RIMO and the uncertain economy spell opportunities for offshore destinations.

Note: ADM services in the context of this blog include application development, maintenance, the custom development portion of system integration projects, and testing, validation and assurance services.

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

April 13, 2012

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?

Enterprise Cloud Goes Vertical | Gaining Altitude in the Cloud

January 19, 2012

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.

Don’t Fret the Cloud “Name Game” | Gaining Altitude in the Cloud

January 16, 2012

There’s a lot of noise in the industry today about whether or not infrastructure appliances, engineered systems, datacenter-in-a-box, and other similar solutions can be labeled “cloud.”

The basis for this debate is rooted in assertions that the public cloud model, or more aptly Amazon’s, is the only cloud model. There’s no doubt that Amazon is the poster child for the cloud industry, and was around when the cloud buzz was making inroads; and therefore subsequent “definitions” of cloud have become inspired by Amazon’s delivery model. Moreover, the idealistic pursuit of converting IT into a pure utility, as well as addressing overarching pain points of enterprise IT, are also driving some of the arguments. But does doing so restrict the benefits an enterprise can derive from cloud principles?

Private cloud providers make their business case based on security, lower total cost of ownership (TCO), manageability, tight integration, and some other “public cloud-like” benefits. But while they do not always possess the scalability, payment options, and other aspects of public cloud services, is it fair to limit the cloud ecosystem to a particular definition, and term other solutions “cloud washing”? Similarly, various SaaS providers that believe they are the “true cloud application providers” have defined the criteria for a “true SaaS application”, in turn expecting other cloud applications to satisfy their self-anointed criteria to become a SaaS provider. Does this add value to cloud discussions?

Unfortunately, the public cloud provider-driven “definition debates” – that revolve around the pay-per-use aspect of public cloud vis-à-vis a minimum capacity commitment required in a private cloud, the virtually infinite capacity of infrastructure public cloud vis-à-vis requirements to buy “infrastructure boxes” that impact the scalability and flexibility in a private cloud, the minimum capex in public infrastructure cloud vis-à-vis expensive hardware procurement in a private cloud, etc., are doing more harm than good. In retaliation, private cloud providers have also started poking holes into public cloud providers’ security, financial stability, commitment, quality of service delivery, and other seemingly relevant aspects. These assertions are also futile.

The fact is, the name or definition assigned to a given cloud-type solution is moot. The real issue is whether the customer sees value in and gains benefit from a cloud offering. Does it improve IT management? Does it save money? Does it improve IT delivery? Does it help the business become more agile?

Failing to take this client-centric view and instead utilizing the prescriptive, self-created definitions of cloud services can significantly inhibit cloud uptake and the potential benefits from its usage. Just because a cloud solution does not satisfy an “industry definition” should not prevent an enterprise buyer from evaluating it, as long as it offers cloud-related benefits and serves the intended purpose.

Our discussions with a wide range of enterprises show a growing propensity to embrace the hybrid cloud model. And our recent research, in which we analyzed the cost of operations under various infrastructure set-ups such as legacy, virtualized, private cloud, and hybrid cloud), found that the hybrid cloud model is definitely more cost effective and flexible as compared to other cloud models.

But, a word of caution: buyers must differentiate between a silo collection of different private and public cloud solutions and a hybrid cloud. A true hybrid implies the coordinated orchestration of private and public cloud to manage workloads.

So, where should buyers begin? Move beyond the futile “name game” and evaluate serious private and public cloud offerings to create a hybrid cloud environment that can transform their IT organization.

Self-Service and the ATM | Sherpas in Blue Shirts

September 20, 2011

Many of today’s shared services organizations like the idea of moving to a self-service environment as it assists them in achieving cost savings and headcount reduction targets. However, when they begin mentioning the term self-service outside the shared services sanctum, the business lines they support often puts up their hands and say, ”Oh, no you don’t! Don’t take away my generalists! We already have enough work to do; why are you pushing your work back on us?” So, how can shared services organizations overcome this resistance?

Consider likening self-service to use of Automated Teller Machines (ATMs). When the ATM was first introduced, the banking die-hards would have none of it. Not go into the bank? Never! Drive or walk up to a machine to get cash? Bah! But when was the last time you drove to your bank, got out of your car, went into the branch, wrote out a check to ”Cash,” and gave it to the bank clerk? Last week? Last month? Last year? A decade ago? Never?

Now think about the convenience of the self-service aspect of an ATM. You can access it whenever and wherever you want to fit your needs. Yes, you have to swipe your card, enter your pin, select the type of transaction you want to perform, etc. But in the end, performing the transaction is simpler, more accurate, and more timely for you.

Self-service in a shared services environment is very similar. Take the HR function. As a manager, think about how much easier it would be to access a system and directly enter in employee performance information, compensation changes, performance ratings, and position changes. Rather than taking the time to type an email, send it to HR, have HR enter it, validate it in the system, and send a note back to HR to fix any errors, you enter the information once. This is much simpler, increases accuracy, and reduces your expended time.

The same goes for employees. How much nicer would it be if you could enter and maintain your personal information directly in the system, rather than manually filling out pages and pages of personal information and submitting it to HR, only to have it entered into the system incorrectly? And, think about the convenience of being able to access your health benefits information after hours if you’re unable to call a service center representative during the day?

So how can you ensure adoption of self-service solutions within your organization? First, consider Gen Y’s expectations, given the changes in workplace demographics. This younger generation of workers, having never lived in a world without the Internet simply expects organizations to be self-service-enabled. Their world of texting and e-mails makes self-service solutions very natural for them. They use social networking more and the phone less. They expect to be able to connect to the tools they need, anywhere and anytime. They expect to have the flexibility to work from home either part-time or full-time. They expect – and in some cases demand – full time 24/7 connectivity and self-service solutions. And in fact, not having this connectivity can actually hurt morale and reduce productivity.

That said, organizations typically have a broad cross-section of age and demographics, making change management critical when implementing these types of solutions. It’s very likely the older generation will need more change management than the younger, although they are becoming more comfortable with self-service solutions as the years wear on (just like the ATM). As an example of effective and innovative change management, one Fortune 500 organization instituted a program wherein younger employees were paired with older ones for training on and assistance with online and self-service solutions. This reduced the demand on HR training resources, decreased training costs, and sped up the change process.

Providing self-service tools and solutions can to create a win-win for an organization. For example, self-service solutions are typically SaaS solutions and can be far cheaper than staffing a call center around the clock, saving precious cash. If the solution is implemented thoughtfully and carefully, the online tools can enable employees to very effectively perform their duties from anywhere and at any time, allowing them to achiever a better work/life balance via increased flexibility, which easily translates into increased morale and productivity. And, if the change management is handled effectively, managers and employees will adopt the tools and never look back, just like we did with the ATM.

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Tag: SaaS

Self-Service and the ATM | Sherpas in Blue Shirts

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