In depth: Bright ideas in the cloud

It has been a long time since a concept was hyped by the IT industry quite as much as cloud computing.

It has been a long time since a concept was hyped by the IT industry quite as much as cloud computing. Just about every vendor and many a channel partner with a hosted service or appropriate widget is claiming to be a cloud specialist in a bid to get a slice of what they hope will be a lucrative pie.

But life in ‘the cloud’ is not quite as straightforward as the industry would have us believe, not least since this bastardisation of the term ‘cloud computing’ is creating the usual confusion among customers, many of whom are unsure as to what it is all about or what they will get for their money.

According to Gartner, cloud computing is a form of outsourcing, by which vendors supply computing services to lots of customers over the internet. These services range from applications such as customer relationship management (software-as-a-service or SaaS) to the provision of storage or raw compute power (infrastructure-as-a-service or IaaS) or a development environment (platform-as-a-service or PaaS).

Such services are delivered via massively scalable datacentres based on virtualisation technology, which means that thousands of CPUs act as a single compute engine. This approach enables workloads to be distributed across multiple machines that may be located in multiple remote datacentres. It also enables capacity to be allocated or de-allocated to customers as required.

In addition, because applications are multi-tenant in nature (a single instance of the same package runs on a single machine but caters to the needs of multiple customers), system resources can be shared among a large pool of users, which reduces costs.

But the uptake of such services is not quite as high as many would have us believe. While SaaS is well established at this point, particularly in the e‑mail and CRM spaces, the same is not true of IaaS or PaaS, which have not yet moved beyond the early adopter stage.

Barry Matthews, head of IT outsourcing at consultancy Alsbridge, says: “Adoption in any real scale is two to three years away, and it will be five years before we see the SaaS model become the default way of using applications. But if the economy picks up, small-to-medium enterprises (SMEs) will start to try the cloud, particularly because service prices are already coming down and choice is increasing.”

To date, the highest uptake has been among large organisations, rather than the widely predicted SMEs and greenfield sites, because they have the staff and resources to experiment and test out the viability of the new delivery model, while smaller companies generally do not.

Brett Raynes, managing director of Backup Direct, which sells a mixture of hosted and cloud-based back‑up services for SMEs, says: “We don’t see our customer base clamouring for cloud – in fact, I cannot think of a single customer that has asked for it. We are dealing with Mr and Mrs accounting firm and estate agent and they may say that they want a service that can store data online, but I am not sure how much the term ‘cloud’ resonates with them.”

Nigel Woods, technical director at Intercept, which provides virtualisation and unified communications services, agrees. “What people want to know now is how they can cut costs. They are not so focused on concepts and names, which is more an industry thing. Hosted, cloud or virtualised – they don’t mind, as long as it fits their business model,” he says.

Channel shake-up

Although cloud may not pose a threat right now, the growing adoption of such services over the next three to five years is expected to cause something of a channel shake-up.

The issue is that industry players such as IBM believe that as much as 80% of current IT workloads are essentially commodity in nature, with as little as 20% being mission-critical. But it is in this commodity space that cloud computing will play.

As a result, if the channel wishes to be successful into the future, it will have to embrace the new service delivery model whether it likes it or not.

While there is currently a lot of fear that partners will be marginalised if customers turn directly to big cloud vendors for their outsourced services, there will still be a role for them to play in the new world – if a somewhat different one than is currently the case.

The focus on selling services rather than tin or licences will continue to rise as the market for in-house kit constricts. But such services are likely to centre more around integration and configuration than infrastructure or system design, although a requirement for consultancy will still exist.

Backup Direct’s Raynes says: “Depending on industry, channel partners have a huge role to play in bridging the gap between cloud suppliers and customers, who will still rely on them for advice. Partners will need to advise businesses on which services to move to the cloud or not and how to integrate them with their core systems. So it is about maintaining that role of trusted partner.”
Another option is for partners to provide specialist cloud-based services of their own, although the upfront cost of creating their own datacentre infrastructure is likely to be high.

A third, more feasible proposition, is to act as a service aggregator, reselling offerings from a range of different cloud vendors and acting as the first port of call for support and service management and monitoring issues.
But one of the key challenges in moving to the new world, particularly in a SaaS context, is shifting to an annuity rather than a project-based payment model, which requires a change of approach, particularly in relation to compensating sales staff.

One option is to pay commission upfront on 12-month or 24-month contracts. Another is to provide performance bonuses if staff agree to take their commission on a monthly basis over the lifetime of the deal.

But what this means is that, over the next few years, the channel will have to re-evaluate its value proposition and look for ways of migrating to the new world with as little pain as possible.

Two organisations that are already starting to make the move are CDG’s Cloud Group and start-up cloudfortyseven. Their differing business models may provide a few clues for possible strategies for change.

Case study: Cloud Group

European distributor CDG has set up a separate company called the Cloud Group to create a desktop-as-a-service market based around Desktone’s virtual desktop offering, Virtual-D.

The organisation, which was established in August, is currently staffed by seven people and is recruiting a handful of service providers to package up the product for use by enterprises and SMEs.

Takers so far in the UK include IBM, which will sell the service directly to its customer base, IT infrastructure service provider SCC, and consultancy the Molten Group, which will provide change management expertise to large companies.

Morton Moland, Cloud Group’s managing director, says: “We have set up a separate company to give us the necessary focus, partly because the technology and business model is a bit different. Rather than work with a lot of resellers, we are trying to get a limited number of service providers that will enable their datacentres to provide desktop-as-a-service and drive the market.”

He believes that the sector could be worth as much as $1bn by 2011, but it will take some time to really take off. As a result, while customers will “start to dip their toe in the water” during early 2010, it will not be until the end of that year that they begin “to get serious”, in part because adoption is likely to be predicated on desktop refresh cycles. Nonetheless, Moland expects to more than double personnel numbers within a year to between 15 and 20 to cope with demand.

Key target customer groups include heavy online users and mobile workers such as consultants, which routinely employ Wi‑Fi and 3G-enabled devices. But the role of service providers will be to package up Desktone’s offering to cater to the differing needs of enterprises and SMEs.

“The proposition is slightly different, which means the packaging of services needs to be too, so it will look similar to the ‘Intel Inside’ branding. For SMEs, it would be useful if they could go to a portal and pick application A, B or C, while large enterprises generally need to comply with corporate policy,” Moland explains.

Service providers will also have a role in integrating the offering with in-house directory services systems such as Microsoft’s Active Directory and in setting security policies.

“The channel has looked at cloud as a huge threat to its business, but I would say that it is about value-add – whether they are installing a physical desktop or providing it as a service,” Molton says. “The big challenge is going from a licence-based to a pay-as-you go annuity model, but five years down the line, all customers are going to be using online services to a greater or lesser degree so resellers are going to have to change.”

Case study: Cloudfortyseven

“The skills required in the cloud are much lighter – you don’t have to be a systems architect because it is about the functionality of the application or service, so it is more to do with integration and configuration,” says Mike Fleming, managing director of start-up cloudfortyseven.

But he says such an approach plays havoc with the traditional financial model of many channel partners, which is based on charging relatively high fees for more in-depth services over a more prolonged length of time.

“Cloud skills are not so deep so they are cheaper and the job can often be completed in half a day. So if traditional partners do not shape their organisations correctly, they are likely to find themselves with cost overheads that will become a burden rather than a profit centre,” Fleming adds.

As a result, the secret lies in developing mutually beneficial partnerships with organisations displaying complementary skills rather than building a large and costly internal structure.

Fleming believes the whole cloud computing ecosystem will “play to partnerships”.

Cloudfortyseven was set up in the spring to provide SaaS-related skills to small and mid-sized companies. The organisation currently employs three staff – Fleming, a sales executive and a technical expert – and is currently focusing on the e‑mail and customer relationship management (CRM) sectors, in particular services.

It has established several partnerships, mainly in the CRM space, and charges them for referrals according to the amount of work they undertake. For a simple referral where a given partner undertakes the scoping and development work, a basic fee is charged. If more “handholding and facilitation” is required, the fee is increased according to a “structured format”.

The company’s two biggest projects to date centre on e‑mail rather than CRM implementations, however, as “many SMEs are still running on spreadsheets, which means it is more of an inhibitor to move to both CRM and SaaS”, Fleming explains.

But the firm has also experienced higher levels of interest among enterprises than expected. “We built our business plan on an SME business, but currently a couple of projects are pulling us into the enterprise space so we will go with the money. This market is fast and fluid, so you have to shape the organisation to be very dynamic,” he says.

One of the inhibitors to cloud adoption for smaller companies is their desire to amortise hardware purchases before going down this route, whereas enterprises will simply reuse such resources elsewhere. Fleming says it is therefore developing its pipeline based on refresh cycles.

But he warns that cloud-focused partners need to be more proactive in maintaining their customer relationships than has traditionally been the case, precisely because “in its simplest form, it is ‘walk in, walk out’ and there is nothing to maintain”. The fact that such partners can easily be replaced with rivals means it becomes crucial to keep in touch.

“It is about maintaining a dialogue and making a phone call once every month or every three months to see what is happening, even if they just tell you things are great. But there is always something happening so as customers change, you need to move with them,” Fleming says.

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