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Posts from the ‘Virtualization’ Category

First Steps to Creating a Cloud Computing Strategy for 2013

Cloud computing strategy 2013 will be one of the most pivotal years for cloud computing because trust in these technologies is on the line.

Expectations are high regarding these technologies’ ability to deliver business value while reducing operating costs.  Enterprises’ experiences have at times met these high expectations, yet too often are getting mixed results.  Managing cloud expectations at the C-level is quickly emerging as one of the most valuable skills in 2013. The best CIOs at this are business strategists who regularly review with their line-of-business counterparts what is and isn’t working.  These CIOs who are excelling as strategists also are creating and continually evaluating their cloud computing plans for 2013.  They are focusing on plans that capitalize the best of what cloud computing has to offer, while minimizing risks.

CIOs excelling as strategists are also using cloud computing planning to punch through the hype and make cloud technologies real from a customer, supplier and internal efficiency standpoint.  Lessons learned from these cloud computing planning efforts in enterprises are provided below:

  • Cloud computing needs to mature more to take on all enterprise applications, so plan for a hybrid IT architecture that provides both agility and security.  This is a common concern among CIOs in the manufacturing and financial services industries especially.  As much as the speed of deployment, customization and subscription-based models attract enterprises to the cloud, the difficult problems of security, legacy system integration, and licensing slow its adoption.  There is not enough trust in the cloud yet to move the entire IT infrastructure there in the majority of manufacturing companies I’ve spoken with.
  • Reorganizing IT to deliver greater business agility and support of key business initiatives will be a high priority in 2013.  The gauntlet has been thrown at the feet of many CIOs this year: become more strategic and help the business grow now.  Cloud is part of this, yet not its primary catalyst, the need to increase sales is.  IT organizations will increasingly reflect a more service-driven, not technology-based approach to delivering information and intelligence to the enterprise as a result.
  • Recruiting, training and retaining cloud architects, developers, engineers, support and service professionals will be a challenge even for the largest enterprises.  There isn’t enough talent to go around for all the projects going on and planned right now.  State Farm Insurance has 1,000 software engineers working on their mobility applications for claims processing and quoting for example.  And they are hiring more.  Certifications in cloud technologies are going to be worth at least a 30 to 50% increase in salary in specific positions. This is very good news for engineers who want to differentiate themselves and get ahead in their careers, both financially and from a management standpoint.
  • Measuring the contributions of operating expense (OPEX) reductions is going to become commonplace in 2013.  From the cloud computing plans I’ve seen, OPEX is being tracked with greater accuracy than in any other year and will be a strong focus in the future.  The capital expense (CAPEX) savings are clear, yet OPEX savings in many cases aren’t. Cloud computing’s greatest wins in the enterprise continue to be in non-mission critical areas of the business.  This is changing as cloud-based ERP systems gain adoption within businesses who are constrained by monolithic ERP systems from decades ago.  Plex Systems is a leader in this area and one to watch if you are interested in this area of enterprise software.  SaaS is dominating in the area of lower application costs and high user counts, which is the Public Computing Sweet Spot in the following graphic:

Figure 1 Cloud Computing Planning Guide

Source: 2013 Cloud Computing Planning Guide: Rising Expectations Published: 1 November 2012 Analysts: Drue Reeves, Kyle Hilgendorf

  • Start building a SaaS application review framework including Service Level Agreement (SLA) benchmarks to drive greater transparency by vendors.  Gartner forecasts that the SaaS-based cloud market will grow from $12.1B in 2013 to$21.3B in 2015, with the primary growth factors being ease of customization and speed of deployment. CIOs and their staffs have SaaS frameworks already in place, often with specific levels of performance defined including security and multitenancy audits.  SLAs are going to be a challenge however as many vendors are inflexible and will not negotiate them. At a minimum make sure cloud service providers and cloud management platforms (CMP) have certifications for ISO 27001 and Statements on Standards for Attestation Engagements (SSAE) No. 16, as this shows the provider is making investments in availability, security and performance levels.
  • Create a Cloud Decision Framework to keep technology evaluations and investments aligned with business strategies.  Business and application assessments and the vendor selection process need to take into account application requirements, role of external cloud resources, and how the RFI will be structured. These process areas will vary by type of company – yet concentrating in application requirements goes a long way to reducing confusion and forcing trade-offs in the middle of a review cycle.  The following is an example of a Cloud Decision Framework:

Figure 2 Sample Cloud Decision Framework

Source: 2013 Cloud Computing Planning Guide: Rising Expectations Published: 1 November 2012 Analysts: Drue Reeves, Kyle Hilgendorf

  • Mitigating risk and liability through intensive due diligence needs to become any cloud-based companies’ core strength.  Regardless of how the HP-Autonomy litigation is resolved it is a powerful cautionary tale of the need for due diligence.  And let’s face it: there are way too many SaaS companies chasing too few dollars in the niche areas of enterprise software today.  A shakeout is on the way, the market just can’t sustain so many vendors.  To reduce risk and liability, ask to see the financial statements (especially if the vendor is private), get references and visit them, meet with engineering to determine how real the product roadmap is, and require an SLA.  Anyone selling software on SaaS will also have revenue recognition issues too, be sure to thoroughly understand how they are accounting for sales.
  • Design in security management at the cloud platform level, including auditing and access control by role in the organization.  One manufacturing company I’ve been working with has defined security at this level and has been able to quickly evaluate SaaS-based manufacturing, pricing and services systems by their security integration compatibility.  This has saved thousands of dollars in security-based customizations to meet the manufactures’ corporate standards.

Bottom line: 2013 is the make-or-break year for cloud in the enterprise, and getting started on a plan will help your organization quickly cut through the hype and see which providers can deliver value.

How Google is Driving Mobile Video Market Growth

Google’s top advertising customers are pushing for convergence of mobile and video quickly, which is turning into a strong catalyst of growth of the global mobile video market.  With their largest advertising customers wanting greater flexibility in bringing video to mobile devices, Google will make significant strides this year to make that happen.

During their latest earnings call, Google execs said that Android, Chrome and YouTube are the highest priority areas of their business. I’ve been following the last year of earnings calls closely, and it’s clear that Google’s largest advertising customers are pushing the company to bring video to mobile at a level of performance and usability not accomplished yet.  The Q2, 2012 earnings call transcript makes this point clear which can be accessed here Google’s Management Discusses Q2 2012 Results – Earnings Call Transcript.

 Mobile and Video: Transforming Convergence Into Cash

Over the last year, Google executives have mentioned the growth of YouTube and its quick evolution from a content management system to a profitable advertising platform.   During the Q1, 2012 earnings call held on April 12, 2012 the following points were made:

  • Google reported they had over 800 million monthly users uploading over an hour of video per second
  • U.K. mobile operator O2 used YouTube as the foundation of a brand launch that year with support for 100 new original channels completed and launched
  • Global product launch plans from GM, Toyota and Unilever and several other large advertising accounts are also underway

During the Q2, 2012 earnings call, Nikesh Arora, Senior Vice President and Chief Business Officer started his comments regarding the YouTube business with the statement “I think in 2007 it was when newspapers frequently said YouTube is groping for an effective business model. I think we can declare we found our model.” Immediately after making this statement, Mr. Arora mentioned that yearly account signups have doubled year-over-year and users are uploading over 72 hours of video every minute.  He also mentioned that  “thousands of partners are making six figures and we’re proud to work with major record labels in Hollywood studios on this platform.”

The call continued with the points made of Danish advertisers shifting their television advertising dollars to YouTube and other Google branding solutions.  Additional companies mentioned on the call using YouTube-based advertising include Denon, Shire, and Intel.  Clearly these companies have major product introductions coming up and see mobile video as perfect for reaching more potential customers than ever before.

Google’s Challenge: Keep Content Quality and User Experience Constantly Improving

If Google is going to attain the full revenue potential of YouTube as an advertising platform, they’ll need to focus on the following factors:

  • Create Application Programmer Interfaces (APIs) and easy-to-use programming tools for quickly creating mobile-optimized sites.  As Gartner studies have shown, video on telephones is most often used as a time-filler, with a median length of 2 minutes, 46 seconds.
  • YouTube will need to support more optimized mobile-based video browsers that can support contextual search.  This will be a core requirement for the enterprise, specifically in the areas of mobile customer care, mobile commerce and mobile health.
  • More extensive analytics in YouTube than are available today, specifically tying into to major marketing strategies including product introductions.  It is becoming common knowledge that videos improve viewer engagement and prospects attribute a more positive shopping experience when they are used.  Luxury brands are investing heavily in this technology including BMW, Burberry, Channel, Louis Vuitton and many others.
  • A Google/Ipsos OTX MediaCT smartphone users study completed in April, 2011 shows that 77% of smartphone users said that their most visited site was a mobile search engine.

Mobile Video: The Market YouTube Built

The size of the worldwide mobile video market was comprised of 429 million mobile video users in 2011, projected to grow exponentially to 2.4 billion users by 2016.  Smartphones and tablet sales will contribute 440 million new mobile video users during the forecast period.  These market estimates are from the recently published Gartner report, Market Trends: Worldwide, the State of Mobile Video, 2012.

Additional take-aways from this report include the following:

  • Allot Communication’s reports that mobile streaming grew 93% in the first half of 2011; Allot also reports that the usage of YouTube’s mobile channel grew by 152% and YouTube generated 22% of all mobile video traffic in the first half of 2011.  YouTube reports getting 400 million video views a month globally.
  • Gartner reports from a survey completed in the 4th quarter of 2010 that 32% of mobile enterprise users watch short videos from YouTube and other sites optimized for video streaming.
  • The fastest growth for mobile video will be in Latin America as smartphone adoption continues to accelerate, replacing traditional cell phones in these markets.  Asia/Pacific will have the highest number of mobile video users at 541 million by 2016.  Both of these markets will benefit from low-cost smartphones being produced by contract manufacturers who are becoming the dominant production strategy of brand leaders globally. The following graphic shows the Mobile Video User Forecast by Region, Worldwide, 2008 – 2016.

  • By 2016, close to 60% of professionally developed mobile video content will be delivered via mobile-optimized websites that also have enhanced contextual search functionality included in the content management systems.
  • Mobile customer care, mobile commerce and mobile health will be the three primary industry drivers in the near-term of mobile video market, emerging as growth catalysts of this emerging market.
  • Cisco’s Visual Networking Index study reports that last year, mobile video accounted for 56% of all mobile data traffic.
  • 3G/4G connections are emerging as a powerful catalyst of mobile video growth.  Gartner is forecasting that the worldwide share of mobile video connections on 3G/4G will increase from 18% in 2011 to 43% in 2015.  In more established markets incouding North America and Western Europe, the percentage of 3G/4G connections is expected to be as high as 80% and 96% respectively.
  • Gartner projects that 70% of mobile video users will use only Wi-Fi to view mobile video, with the remainder of the market relying on a mix of cellular and Wi-Fi networks to gain access and also upload content.   The following figure shows the Mobile Video User Forecast by Network Type, Worldwide, 2008 – 2016.

Source: Market Trends: Worldwide, the State of Mobile Video, 2012. Gartner Group. Published: 10 February 2012 ID:G00223693 Author: Shalini Verma.   Link: http://www.gartner.com/id=1920315

Gartner Releases Their Hype Cycle for Cloud Computing, 2012

Enterprises are beginning to change their buying behaviors based on the deployment speed, economics and customization that cloud-based technologies provide.  Gartner cautions however that enterprises are far from abandoning their on-premise models and applications entirely for the cloud.

Based on an analysis of the Gartner Hype Cycle for Cloud Computing, 2012, the best results are being attained by enterprises that focus on a very specific strategy and look to cloud-based technologies to accelerate their performance.  Leading with a strategic framework of goals and objectives increases the probability of cloud-based platform success. Those enterprises that look to cloud platforms only for cost reduction miss out on their full potential.

The Hype Cycle for Cloud Computing, 2012 is shown below:

Cloudwashing and Inflated Enterprise Expectations

While the hype surrounding cloud computing may have peaked, cloudwashing continues to cause confusion and inflated expectations with enterprise buyers.  This just slows down sales cycles, when more straightforward selling could lead to more pilots, sales and a potentially larger market. Cloud vendors who have the expertise gained from delivering cloud platforms on time, under budget, with customer references showing results are starting to overtake those that using cloudwashing as part of their selling strategies.

Additional take-aways from the Gartner Hype Cycle for Cloud Computing include the following:

  • Cloud Email is expected to have a 10% adoption rate in enterprises by 2014, down from the 20% Gartner had forecasted in previous Hype Cycles.  This represents modest growth as the adoption rate of this category had been between 5 and 6% in 2011.
  • Big Data will deliver transformational benefits to enterprises within 2 to 5 years, and by 2015 will enable enterprises adopting this technology to outperform competitors by 20% in every available financial metric.  Gartner defines Big Data as including large volumes processed in streams, in addition to batch.  Integral to Big Data is an extensible services framework that can deploy processing to the data or bring data to the process workflow itself. Gartner also includes more than one asset type of data in their definition, including structured and unstructured content.  The Priority Matrix for Cloud Computing, 2012 is shown below:

  • Master Data Management (MDM) Solutions in the Cloud and Hybrid IT are included in this hype cycle for the first time in 2012.  Gartner reports that MDM Solutions in the Cloud is getting additional interest from Enterprise buyers as part of a continual upward trend of interest in MDM overall.  Dominant vendors in this emerging area include Cognizant, Data Scout, IBM, Informatica, Oracle and Orchestra Networks, are among those with MDM-in-the-cloud solutions.
  • PaaS continues to be one of the most misunderstood aspects of cloud platforms.  The widening gap between enterprise expectations and experiences is most prevalent in this market.  Gartner claims this is attributable to the relatively narrow middleware functions delivered and the consolidation fo vendors and service providers in this market.
  • By 2014 the Personal Cloud will have replaced the personal computer as the center of user’s digital lives.
  • Private Cloud Computing is among the highest interest areas across all cloud computing according to Gartner, with 75% of respondents in Gartner polls saying they plan to pursue a strategy in this area by 2014.  Pilot and production deployments are in process across many different enterprises today, with one of the major goals being the evaluation of virtualization-driven value and benefits.
  • SaaS is rapidly gaining adoption in enterprises, leading Gartner to forecast more than 50% of enterprises will have some form of SaaS-based application strategy by 2015.  Factors driving this adoption are the high priority enterprises are putting on customer relationships, gaining greater insights through analytics, overcoming IT- and capital budget-based limitations, and aligning IT more efficiently to strategic goals.
  • More than 50% of all virtualization workloads are based on the x86 architecture. This is expected to increase to 75% by 2015.  Gartner reports this is a disruptive innovation which is changing the relationship between IT and enterprise where service levels and usage can be tracked.

Bottom line: Gartner’s latest Hype Cycle for Cloud Computing  shows that when cloud-based platforms are aligned with well-defined strategic initiatives and line-of-business objectives, they deliver valuable contributions to an enterprise.  It also shows how Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) are the catalysts of long-term market growth.  The following slide from the presentation  High-Tech Tuesday Webinar: Gartner Worldwide IT Spending Forecast, 2Q12 Update: Cloud Is the Silver Lining (free for download) also makes this point.

Forecasting Public Cloud Adoption in the Enterprise

The economics of public cloud computing are accelerating the pace of change occurring in enterprise software today.

Many of the scenarios that Clayton Christensen insightfully describes in The Innovator’s Dilemma are playing out right now in many sectors of this industry, shifting the balance of purchasing power to line-of-business leaders away from IT.  True to the cases shown in the book, new entrants are bringing disruptive innovations that are being successfully used to attack the most price-sensitive areas of the market.  Winning customers at the low-end and making their way up-market, new entrants are changing the customer experience, economics and structure of the industry.  Salesforce.com is a prime example of how the insights shared in The Innovator’s Dilemma are alive and well in the CRM market for example.  This is an excellent book to add to your summer reading list.

Defining The Public Cloud

The National Institute of Standards and Technology (NIST) have defined the public cloud in their latest definition of cloud computing in their September, 2011 brief you can download here (The NIST Definition of Cloud Computing). The NIST defines public cloud as “the cloud infrastructure is provisioned for open use by the general public. It may be owned, managed, and operated by a business, academic, or government organization, or some combination of them. It exists on the premises of the cloud provider.”   In addition the NIST defines three models including Software as a Service (SaaS), Platform as a Service (PaaS), and Infrastructure as a Service (IaaS).  Gartner’s definition of public cloud computing is comparable yet includes Business Process as a Service (BPaaS) and Cloud Management and Security.

A quick check of the term public cloud on Google Insights shows the rapid ascent of interest in this area.  A graphic from Google Insights is shown below:

Public Cloud Adoption in the Enterprise 

In the many conversations I’ve had with CIOs and CEOs of manufacturing companies the role of cloud computing comes up often.  There’s a very clear difference in the thinking of CIOs who see their jobs as selectively applying technologies to strategic needs versus those who are focused on compliance and risk aversion.  The former see their enterprises moving to public and hybrid clouds quickly to better integrate with dealers, distributors and suppliers at a strategic level.

The public cloud’s pervasiveness in the enterprise is growing rapidly.  This market dynamic is reflected in the report, Forecast: Public Cloud Services, Worldwide, 2010-2016, 2Q12 Update (ID:G00234814).  Gartner breaks out forecasts into the areas of Cloud Business Process Services/Business Process as a Service (BPaaS), Application Services/Software as a Service (SaaS), Application Infrastructure Services/Platform as a Service (PaaS), System Infrastructure Services/Infrastructure as a Service (IaaS) and Cloud Management and Security Services.  Highlights from the report are presented in the following five areas:

Cloud Business Process Services/Business Process as a Service (BPaaS)

  • Gartner is predicting that BPaaS will grow from $84.1B in 2012 to $144.7B in 2016, generating a global compound annual growth rate of 15%.
  • Of the eight subsegments Gartner is tracking in their BPaaS forecast, Cloud Payments (17.8%) Cloud Advertising (17.1%) and Industry Operations (15.1%) are expected to have the greatest compound annual growth rates (CAGR) in revenues generated by 2016.
  • In terms of revenue generated, Cloud Advertising is projected to grow from  $43.1B in 2011 to $95B in 2016, generating 17.1% CAGR in revenue growth through 2016.
  • Cloud Payments are forecast to grow from $4.7B in 2011  to $10.6B in 2016, generating a CAGR of 17.8% worldwide.
  • E-Commerce Enablement using BPaaS-based platforms is expected to grow from $4.7B in 2011 to $9B in 2016, generating a 13.6% CAGR in revenue globally.

Application Services/Software as a Service (SaaS)

  • SaaS-based applications are expected to grow from $11.8B in 2012 to $26.5B in 2016, generating a CAGR of 17.4% globally.  Gartner tracks ten different categories of SaaS applications in this latest forecast with CRM, ERP, and Web Conferencing, Teaming Platforms, and Social Software Suites being the three largest in terms of global revenue growth.
  • The three fastest-growing SaaS areas include Office Suites (40.7%), Digital Content Creation (32.2%) and Business Intelligence applications (27.1%) having the highest CAGRs from 2011 through 2016.
  • SaaS-based CRM will see the largest global revenue growth of all categories, increasing from $3.9B in 2011 to $7.9B in 2016, achieving a 15.1% CAGR worldwide.
  • Web Conferencing, Teaming Platforms, and Social Software Suites will grow from $2B in 2011 to $3.4B in 2016, generating an 11.2% CAGR.  Gartner is including Enterprise 2.0 applications in this category.
  • SaaS-based ERP is forecasted to grow from $1.9B in 2011 to $4.3B in 2016, achieving a 17.3% CAGR.
  • Supply Chain Management (SCM) is an area that Forrester, Gartner, IDC and others have predicted significant growth in.  Gartner’s latest forecast for SaaS-based SCM is $1.2B spent in 2011 growing to $3.3B in 2016, representing a 21.1% CAGR.

Application Infrastructure Services/Platform as a Service (PaaS)

  • Gartner forecasts the worldwide enterprise market for PaaS platforms will grow from $900M spent in 2011 to $2.9B in 2016, representing a 26.6% CAGR.
  • Growth rates by PaaS subsegment include the following: Application Development (22%), Database Management Systems (48.5%), Business Intelligence Platform (38.9%) and Application Infrastructure and Middleware (26.5%).
  • Application Infrastructure and Middleware is expected to be the largest revenue source in PaaS for the next four years.  Gartner reports this subsegment  generated $649M in 2011, projected to grow to $2.1B in 2016, generating $1.5B in revenue and a 26.5% CAGR.

System Infrastructure Services/Infrastructure as a Service (IaaS)

  • With a projected CAGR of 41.7%, this segment is the fastest growing of the five Gartner included in their public cloud forecast.  From $4.2B in revenue generated in 2011 to $24.4B in 2016, IaaS is expected to grow by just over $20B in the forecast period globally.
  • CAGR by IaaS segment from 2001 to 2016 include Compute (43.2%), Storage (36.6%) and Print (16%).
  • The Compute subsegment is expected to see the greatest revenue growth globally, growing from $3.3B in 2011 to $20.2B in 2016, generating a 43.2% CAGR.

Cloud Management and Security Services

  • Comprised of Security, IT Operations Management and Storage Management, Cloud Management and Security Services generated $2.3B in 2011 with a forecast of $7.9B in 2016, generating a 27.2% CAGR.
  • IT Operations Management (38.2%), Storage Management (30.6%) and Security (23.7%) each have relatively high CAGRs through 2016.

Bottom line:  Of the five areas Gartner includes in their forecast, BPaaS  and its subsegments show trending towards greater support for enterprise-wide transaction and e-commerce management. With 76% of the entire 2012 public cloud forecast being in the BPaaS segment, it is clear Gartner is seeing strong interest on the part of enterprise clients to spend in this area.

Gartner Releases Their Hype Cycle for Cloud Computing, 2011

Calling the hype around cloud computing “deafening”, Gartner released their annual hype cycle for the 34 different technologies in a 75 page analysis today.  You can find the Hype Cycle at the end of this post and I’ve provided several of the take-aways below:

  • The industry is just beyond the Peak of Inflated Expectations, and headed for the Trough of Disillusionment. The further up the Technology Trigger and Peak of Inflated Expectations curve, the greater the chaotic nature of how technologies are being positioned with widespread confusion throughout markets. The team of analysts who wrote this at Gartner share that conclusion across the many segments of the Hype Cycle.
  • Gartner states that nearly every vendor who briefs them has a cloud computing strategy yet few have shown how their strategies are cloud-centric. Cloudwashing on the part of vendors across all 34 technology areas is accelerating the entire industry into the trough of disillusionment. The report cites the Amazon Web Services outage in April, 2011 as a turning point on the hype cycle for example.
  • Gartner predicts that the most transformational technologies included in the Hype Cycle will be the following: virtualization within two years; Big Data, Cloud Advertising, Cloud Computing, Platform-as-a-Service (PaaS), and Public Cloud computing between two and five years; and Community Cloud, DevOps, Hybrid Cloud Computing and Real-time Infrastructure in five to ten years.
  • There continues to be much confusion with clients relative to hybrid computing.  Gartner’s definition is as follows ”Hybrid cloud computing refers to the combination of external public cloud computing services and internal resources (either a private cloud or traditional infrastructure, operations and applications) in a coordinated fashion to assemble a particular solution”. They provide examples of joint security and management, workload/service placement and runtime optimization, and others to further illustrate the complex nature of hybrid computing.
  • Big Data is also an area of heavy client inquiry activity that Gartner interprets as massive hype in the market. They are predicting that Big Data will reach the apex of the Peak of Inflated Expectations by 2012.  Due to the massive amount of hype surrounding this technology, they predict it will be in the Trough of Disillusionment eventually, as enterprises struggle to get the results they expect.
  • By 2015, those companies who have adopted Big Data and extreme information management (their term for this area) will begin to outperform their unprepared competitors by 20% in every available financial metric. Early use cases of Big Data are delivering measurable results and strong ROI.  The Hype Cycle did not provide any ROI figures however, which would have been interesting to see.
  • PaaS is one of the most highly hyped terms Gartner encounters on client calls, one of the most misunderstood as well, leading to a chaotic market. Gartner does not expect comprehensive PaaS offerings to be part of the mainstream market until 2015.  The point is made that there is much confusion in the market over just what PaaS is and its role in the infrastructure stack.
  • SaaS performs best for relatively simple tasks in IT-constrained organizations. Gartner warns that the initial two years may be low cost for any SaaS-based application, yet could over time be even more expensive than on-premise software.
  • Gartner estimates there are at least 3M Sales Force Automation SaaS users globally today.

Bottom line: The greater the hype, the more the analyst inquiries, and the faster a given technology ascends to the Peak of Inflated Expectations. After reading this analysis it becomes clear that vendors who strive to be accurate, precise, real and relevant are winning deals right now and transcending the hype cycle to close sales.  They may not being getting a lot of attention, but they are selling more because enterprises clearly understand their value.

Source: Gartner, Hype Cycle for Cloud Computing, 2011 David Mitchell Smith Publication Date: 27 July 2011 ID Number: G00214915 © 2011

Rethinking Cloud ROI from a Customer’s Perspective

Seeing the proliferation of cloud ROI, TCO and cost calculators brings to mind my economics professors who strove with a passion to reduce complex consumer decisions into simple, very powerful formulas.  Like these calculators pervading the market, my economics professors showed a passion for accuracy, precision and measured perfection.

The only trouble is that people, companies and markets defy and will deliberately not conform to an equation, cause-and-effect strategy or series of artificial incentives to get them to change.  If there is one single, loudly reverberating fact in this economy, it is that marketing and selling strategies based on economic theory alone are failing.  The business benefits of cloud computing need to be more integrated into these ROI and TCO calculators to make them relevant.  They need to reflect more of the customers’ needs to be useful.

It’s Time To Bring The Customer and Their Strategies Into The Equation

Of the many white papers, e-books and websites all claiming to translate cloud computing server usage and capacity planning metrics into business benefits, the Open Groups’ white paper published in 2010 delivers useful insights.  The research and analysis was produced by Cloud Business Artifacts (CBA) project of The Open Group Cloud Computing Work Group.  You can find the entire document here.

The following table is from the section on building ROI for Cloud Computing using Key Performance Indicators (KPIs) and Metrics.  While this table is a start, what’s  missing  are more metrics related to the Web customer experience.  There needs to be more measures of whether customer experiences were successful or not by application, and if and how SaaS-based applications contributed to customers’ expectations being exceeded or not.

One of the biggest benefits all ROI and TCO calculators attempt to quantify is speed of cost reduction and time reduction, but what about speed of strategy execution? For many of these online tools, prospects using them would have no idea how their investment will accelerate their goals.  All they see are costs related to the technology.  Not much if any analysis is provided how the technology relates to their strategies being attained more quickly, completely and profitably.

And what about enabling channels to sell more effectively?  Launching products on time, synchronized across online and offline channels and having consistency of messaging, pricing, services – in short the entire user experience– is rarely if ever mentioned.  Ironically the greater the focus on ROI and TCO calculators, the greater the lack of focus on creating a truly exceptional customer experience while attaining complex selling strategies.

It’s time for the industry’s vendors to wake up and realize that they are selling for the most part to nonconformists not robots.  ROI and TCO calculators that don’t reflect what customers really want to accomplish and stay centered on technology alone are missing huge opportunities to sell on value.

Bottom line: The comfort that comes from attempting to take the chaos of a market and crystalize it into an equation is an illusion – the real test of a vendor’s value is being able to navigate customers to their goals using technology when necessary, not as a crutch.

Cloud ROI and TCO Calculators

Amazon Web Services Economics Center  http://aws.amazon.com/economics/

Amazon Web Services Simple Monthly Calculator http://calculator.s3.amazonaws.com/calc5.html

Astadia Cloud Computing ROI Calculator http://www.astadia.com/products-and-services/IT-cloud-transformation/roi/

Azure ROI Calculator (written in Silverlight)  http://azureroi.cloudapp.net/

Commentary: http://social.msdn.microsoft.com/Forums/en/windowsazure/thread/c4155f48-d51f-4c14-b79c-3f8248ac9646

Azure TCO calculator http://www.microsoft.com/windowsazure/offers/

Cloud Business Review – Cloud Migration ROI Calculatohttp://www.cloudbusinessreview.com/cloud-migration-roi-calculator.html

EMC ROI Analyst (requires opt-inhttps://roianalyst.alinean.com/emc/Welcome.do

GetApp Cloud Computing Calculator http://www.getapp.com/cloud-computing-roi-calculator

Google Cloud Calculator http://www.gonegoogle.com/#/company-name

Rackspace Load Balancer Calculator http://www.rackspace.com/cloud/cloud_hosting_products/loadbalancers/pricing/

Salesforce.com Force.com Business Case Calculator (ROI) http://www.salesforce.com/platform/tco/calculator.jsp?d=70130000000EfON&internal=true

Stelligent ROI Calculator http://stelligent-roi.appspot.com/

VMWare ThinApp Calculator http://roitco.vmware.com/ThinApp/

Sources:

Open Group Publishes Guidelines on Cloud Computing ROI http://cloudcomputing.sys-con.com/node/1376952

Private cloud discredited, part 1 http://www.zdnet.com/blog/saas/private-cloud-discredited-part-1/1204?tag=mantle_skin;content

Roundup of Cloud Computing and Software-as-a-Service (SaaS) Forecasts, June 2011

The gap is beginning to close between the value SaaS-based applications have the potential to deliver and what customers are achieving.

While SaaS-based software vendors are making major strides in integration, reliability, system performance and usability, it is the enterprise buyer’s skepticism and high standards forcing the market to move forward.  The latest series of market forecasts and surveys reflect greater use of actual customer results and a quickening pace of progress.

Performance-Driven Cultures and SaaS Adoption

Measuring business outcomes using industry standard and company-specific metrics typifies companies getting the best results.  A lack of clarity or confusion around strategy based goals leads to low adoption and eventual abandonment of SaaS initiates.  Sales and sales operations VPs are winning the debates against home-grown or internal system development based on speed of deployment, usability and integrated analytics of SaaS applications.  Based on the surveys and research completed this year, the best SaaS implementations are designed on a firm foundation of measurable results including quantifying risk.

Performance-driven cultures have a higher success rate with SaaS pilots, are more thorough in defining their own infrastructure (IaaS) and platforms (PaaS), and also know what success looks like from a metrics-driven standpoint.   The graphic, Performance-Driven Culture: The Metrics Continuum, shown to the left, was originally published in Gartner’s Predicts 2011: Enterprise Architecture Shifting Focus to Business Value Outcomes Report, November, 11, 2010 Philip Allega, et.al supports this point.  Please click on the graphic to expand it for easier reading.

Hype is Prolonging the Peak of Inflated Expectations

The bottom line is all really matters is measurable, repeatable performance when enterprises evaluate their SaaS strategies.  Many marketing, sales, sales operations and service VPs must defend their choice of SaaS over legacy system upgrades or internal system development.  Resistance to change and complacency in IT is slowly killing many companies who must step up and keep pace with their customers to survive. People are betting their jobs on this technology.  Many in marketing, sales and service want to know how to improve and measure business strategy performance.  That’s one of the main inflexion points in SaaS marketing today.

 The reality for enterprise users is that nothing gets purchased, no matter how wonderful the claims, unless there are strong metrics that link them back to business performance.  That’s what is deflating hype in this market faster than any other factor.  You can download the Gartner Hype Cycle for Cloud Computing 2010 from the link (no opt-in).  Please click on the graphic to download the Gartner Hype Cycle for Cloud Computing 2010.

Here are short summaries of the latest cloud computing and SaaS forecasts published recently:

  • Gartner is forecasting enterprise-based spending for Software-as-a-Service (SaaS) applications  will grow at a 16.3% compound annual growth rate through 2015. SaaS will grow at nearly double the pace of licensed enterprise applications during the forecast period.  Licensed applications will grow at a n 8.5% CAGR during the same period. The following  table, Total Software Revenue Forecast for SaaS Delivery Within the Enterprise Application Software Markets, 2007-2015 (Millions of U.S. Dollars) compares enterprise software spending by application category for the forecast period. Source: http://my.gartner.com/portal/server.pt?open=512&objID=260&mode=2&PageID=3460702&id=1728009&ref=

     Total Software Revenue Forecast for SaaS Delivery Within the Enterprise Application Software Markets, 2007-2015  (Millions of U.S. Dollars) 

     

  • The Asia-Pacific (APAC) Software as a Service (SaaS) market is expected to grow from $390M in 2008 to $4.3B in 2015, at an estimated CAGR of 41.0% from 2008 to 2015. The appeal and reach of software as a service (SaaS) continue to grow rapidly among enterprises in Asia Pacific. Australia & New Zealand (ANZ) is the largest regional SaaS market in Asia Pacific. SAAS is gaining momentum in ANZ because of the markets resemblance to the North American market with better broadband penetration, availability of applications getting delivered in SaaS mode and overall greater adoption of IT in general. Source: http://professional.wsj.com/article/TPMTPW000020110214e72e002k2.html
  • Cloud middleware systems markets at $1.5B in 2010 are forecast to reach $4.3B, worldwide by 2017.  Cloud computing middleware represents the base for development of all cloud computing infrastructure as it supports systems integration and systems self-provisioning.  Market leaders are predicted to be Akamai, IBM, Google, Microsoft, and Oracle. Source: http://wintergreenresearch.com/
  • Infonetics Research forecasts the overall managed security services market, including CPE, SaaS, and cloud services, to reach just under $17B by 2015.  SaaS and cloud-based security services are expected to make up close to half of the overall managed security services market opportunity by 2015 Worldwide SaaS revenue is forecast to grow dramatically over the next few years, with a compound annual growth rate (CAGR) of 23% from 2010 to 2015.  Source: WSJ Journal 
  • Cloud service adoption is up 61% from 2010 and 45% of multinational corporations (MNCs) already use cloud sourcing for at least some elements of key IT services.  Cable & Wireless and Ovum partnered to create this white paper, full of excellent insights and research data: http://www.cw.com/assets/content/pdfs/resource/ovum-cloud-wp.pdf
  • 60 percent of companies worldwide said cloud computing is a top IT priority for the next year, the sentiment is even higher in the C-suite with three in four (75 percent) C-level executives reporting cloud computing as top of mind.  According to an Avanade Research and Insights’ Global Survey: Has Cloud Computing Matured? Third Annual Report, June 2011, there is also significant purchasing of cloud services without the IT department’s knowledge, with nearly 20% of all purchases never reviewed with the CIO. Source: Avanade Research Report  
  • By 2014, cloud computing services will grow to a $45B industry a year (IDC) and SaaS to grow at 21% CAGR to touch $17.6B.  Microsoft recently published the following presentation, Grow Your Business with Cloud – Are You Ready?  You can download a copy of the presentation by clicking on the presentation to the right.
  • The global cloud computing market is expected to grow from $37.8B in 2010 to $121.1 B in 2015 at a  CAGR of 26.2% from 2010 to 2015 according to Yankee Group. SaaS is the largest segment of the cloud computing services market, accounting  as it did for 73% of the market’s revenues in 2010. The IaaS and PaaS markets are still at a nascent stage and  currently hold a small share of the Cloud computing services market. However, these are expected to witness  moderate growth due to their flexibility and cost effectiveness.Source: CSS Corp. Analysis.
  • Project and Portfolio Management (PPM) software emerged in 2009 as a fast-growing market for SaaS, with a compound annual growth rate (CAGR) of more than 40% projected for the next five years according to Gartner. PPM software consumption environments are changing radically, with hosted and SaaS options — as a result, most traditional on-premises vendors are forced to provide SaaS alternatives to counter new entrants and SaaS-only PPM vendors.  Source:  Competitive Landscape: SaaS Project and Portfolio Management Software, Worldwide, 2011 published 6 April 2011.

Inside Windows Azure, the Cloud Operating System with Mark Russinovich

Mark Russinovich, Technical Fellow on the Windows Azure team, explains how Azure continues to be developed as an OS for the data center including support for shared compute, disk and network resources and distributed application services.  He also covers SQL Server integration and process management, support for queuing, structured storage and SQL storage.

The following video was recorded May 19th at the Microsoft Tech-Ed held in Atlanta, GA and runs just over an hour.  It’s a great briefing on how Windows Azure is evolving to support configurable Platform-as-a-Service (PaaS) architectures.  You can also download the slides from this session here Inside Windows Azure, the Cloud Operating System with no opt in from the Microsoft Channel 9 website.

Cloud City and VMware: May the Virtualization Force Be With You

VMware’s CTO and Senior Vice President of R&D Steve Herrod hosts a series of video interviews with the talented members of his company’s development and engineering teams, in addition to creating videos to explain complex virtualization and systems management concepts.  The series is titled Office of the CTO and is worth subscribing to on YouTube.

This week’s video features a fictional account of Cloud City, a well-known location in the Star Wars movies, as a new VMware customer. The Chief Private Cloud Architect, Chewbacca shares how VMware freed up Cloud City IT from a static and rigid infrastructure, too many trouble tickets, and lots of wasted storage.  It also has a walking tour of the VMware campus, which looks like a great place to work too.

Bottom line: It’s great to see a company so rich with technology expertise take an unpretentious approach to explaining how they deliver value to their customers, making us laugh at the same time.

Image attribution: http://starwars.wikia.com/wiki/Cloud_City
Note: VMware isn’t a client and didn’t pay for this to be written.

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