As the Founder and CEO of CloudFX, I’ve been dedicated to truly understanding the state of IT in the APJC theatre at “ground zero” and unlike many analyst reports which would put forward the argument that Cloud is the future, Hybrid Cloud would be the preferred model – CAGR’s look attractive and customer adoption will be pervasive transforming IT forever more. But there are some key influencing factors at play that shape up the IT transformation and Cloud business landscape in this region.
Enterprise Customer Readiness
Let’s start with Enterprise Customer Readiness. By and large, customers are not ready to create truly integrated private or hybrid models of cloud computing and let me caveat that statement by saying, the largest Regional and Domestic APJC corporations. We would argue that for those who can transition through the quagmire that is end to end infrastructure virtualisation (read : Cost, complexity, change management) and in parallel, Operationally transform everything they have done in IT for the past 20 years, they will be poised for technical and service automation which presents its own unique challenges and represent the precursor to implementing a hybrid catalogue of integrated virtual service assets services with optimised workflow architectures, fully integrated API’s, consumption (read : metered, not subscribed) cost models which are planned for, accurate and incorporated into the financial planning cycle of a business unit or corporate entity.
The truth is, this “roadmap” of phases which we term “transition, transform, innovate” is likely to be so expensive and so complex that Enterprises need to find an alternate route to the utopian state that is, IT transformation underpinned by true Hybrid, interconnected Cloud’s which enable business capability, liberate workforces, create demonstrable agility and enable the seamless scale up (and down) of internal and external resources (whichever offers better SLA’s, Performance, Costs) on demand. Furthermore, whilst vendors are telling their customers that this model is achievable, neither any one vendor nor any one SI has the breadth of specialist capabilities to enable this vision end to end.
Service Provider Market
Let’s look at the Service Provider Market. Over the past 18 months, very little has changed in terms of Service Provider readiness, other than the proliferation of companies wanting to participate in the “gold rush”, i.e., the movement of capital expense from physical assets to virtual assets, an increasing realisation that most Service providers do not actually offer Cloud services, they offer Subscription based bare metal or virtualisation compute services with no self-provisioning, automation and integrated managed services, that they are ever likely to make any money from Public Cloud and that a strategic pivot now from CSP (Cloud service provider) to CSB (Cloud service broker) is likely to be the only way they’ll monetize public cloud if and when it reaches the $30BN industry analysts suggest it will become in this region by 2018. Incidentally, the pivot now involves how these SP’s (Service Providers) sell NW and Communication services bundled with Brokered Cloud services to deliver complete solutions where the Telco owns the Billing relationship. In our view, that is a far more practical and sustainable business model.
As an aside, has the industry ever completed a comprehensive analysis on the profitability of the Global IaaS segment? We are 99.9% convinced that there is not a single cloud provider globally who is profitable today on the back of Infrastructure as a Service offerings. In fact, we’d argue that in the last 20 years we have never seen a product or service commoditise as quickly as IaaS leaving billions of dollars’ worth of high cost infrastructure and unused capacity depreciating at roughly 40% a year and that by Year 3, will have a residual value of $0. Yes, some CSP’s will have other sources of revenue that will cross subsidise their IaaS Cloud business but at some point, that business unit will need to “stand on it’s on two feet” and that P&L will not look either attractive or sustainable.
So, What Went Wrong?
Generic IaaS portfolio’s with little creativity. Limited to no service automation capability, a huge skills shortage in the areas of service creation, demand creation and workload integration / technical planning and a gross under estimation of how quickly the demand side of this market would develop because reality is, most of these organisations likely to use Cloud (Read : Demand) are still trying to work out how to virtualise and deal with the costs and complexity of consolidating legacy and physical systems in an intelligent and coordinated way.
Net – Net
We predict end to end Service Provider industry consolidation within the next 4-12 quarters, where of the 380 SP’s in APJC, there will be very few left (40-50) to clean up real and sustainable demand and those few companies will end up doing very well.
Is it All Doom and Gloom ?
The answer is an unequivocal No, but there is a new success equation which we’ve developed at CloudFX founded out of real word specialist experience which centres around 3 core principles. Important to note, this success equation is the same for Enterprise IT as it is for Service Providers.
1) Service Aggregation is the Future. Whether you’re aggregating your own internal services with external 3rd party XaaS services, the point of aggregation is the Service Catalogue. That represents the portfolio of service offerings, the point of consumption and where users understand what they are buying, how much it costs and what service levels they can expect. There is no such thing as a homogenous service provider so in the same way we consume physical IT assets from a multitude of suppliers today, we will source Cloud services from a multitude of suppliers tomorrow.
To simply this model we are seeing the rapid development of Cloud Service Brokers to simply multi-supplier integration although read the fine print, most offer a limited set of IaaS services or a vast range of “click through” SaaS style market places. Neither model is thoughtful, complete or capable of enabling a true IT as a Service model for the Enterprise. 2) Service Automation is the Control Point.The relevance of infrastructure and the virtualization layer is low and becoming increasingly irrelevant. Hypervisors – any of them work. Infrastructure – it’s virtualised so take your pick because all the “buyer / user” is consuming is a Service description at a cost with a commitment to service quality measured as an SLA. Customers don’t ask a SP “which vendor do you use ?”, they ask what IT product will this Cloud Service substitute, how will it benefit my business, how much money can I save, are there any risks, can you guarantee me availability and will it be complex to manage ?
What answers this question both in terms of supply automation and demand integration is the Service Automation layer – which will be the control point going forward.
3) Service Management of Virtual Services is Critical. Let’s simplify this into one strategic statement: IT (SP’s or Enterprises) must bring together the benefits of traditional IT management – operational excellence, automation and service delivery models – merged with the dynamic potential of cloud architectures. For SP’s specifically, in order to differentiate, they must do so by offering additional value-added services based on compliance, configuration, performance monitoring, capacity management, security and availability, full stack provisioning and change management. These are the management capabilities that enable virtual and hosted private cloud services.
The remaining principles are that the foundation for a strong and flexible cloud infrastructure is one that supports IT operations and delivers exceptional service quality by providing the ability to rapidly integrate and manage multi-provider cloud service offerings through one central appliance and portal. The final consideration is that an open, heterogeneous platform and secure multi-tenancy will enable seamless integration with IT operations whilst supporting tight alignment with business needs and IT requirements. This will then harmonize in a model where the Enterprise receive a single source for aggregated cloud services billing.
In summary, many of the pieces are in place but without a coherent strategy which encompasses the above considerations and without a partner who can truly execute end to end, Enterprises end up with the same fragmented version of IT with the exception that’s its virtual and not physical and arguably, far more complex than they’ve ever managed before.
Disclaimer: This article was written by a guest contributor in his/her personal capacity. The opinions expressed in this article are the author’s own and do not necessarily reflect those of CloudWedge.com.
