Let's be clear about the potential of cloud computing. It is going to transform the way businesses consume information technology, similar to how electric utilities once transformed manufacturing.
Instead of having to build and maintain their own local power sources, the rise of electric utilities enabled manufacturers to simply plug into the grid and pay for electricity used. Similarly, most enterprises today, with the help of solution providers, "manufacture" their own IT. But centralized, scalable, on-demand cloud computing provides a utility that can be cheaper, faster and more agile than an on-premise infrastructure. And it frees businesses to focus on their core challenges, rather than maintaining an IT infrastructure.
There has been much hype about cloud computing, of course. As Oracle's Larry Ellison famously said, "We've redefined cloud computing to include everything we already do. I can't think of anything that isn't cloud computing ... What is it? It's complete gibberish. It's insane."
Insane or not, experts believe the reality is fast overtaking the hype. Gartner predicts that by 2012, 20 percent of businesses will own no IT assets. Sand Hill Group foresees IT budgets being reallocated from 80 percent maintenance to 80 percent innovation. Microsoft reports that 70 percent of its staff is working on cloud computing. On the revenue side, research firm Global Industry Analysts expects cloud services to generate $222.5 billion over the next five years.
Such potential makes cloud computing an exceptional opportunity for solution providers. Jason Beal, director of services at Ingram Micro, sums up the appeal this way: "I believe the channel can make more money, be more relevant and add more value to end users with cloud computing than with traditional on-premise IT . That's why Ingram Micro will be a major player in the cloud computing market."
The business benefits of cloud computing to solution providers are on a par with the advantages to end users:
- Cloud services, like managed services, help solution providers generate recurring revenue. One cloud solution provider reports it takes just four months to cover his costs on a three-year contract for a virtual server; the next 32 months are pure profit. Another reports routinely making 70 percent margins on cloud services. Yet cloud technology
isn't particularly disruptive to solution providers' current business models.
- The complexity of moving customers to the cloud and the need to maintain hybrid infrastructure create demand for professional services such as business consulting, technical assessments, setup fees, data conversion, application customization and ongoing management.
- Cloud services tend to be "sticky," helping to strengthen the bond between client and trusted solution provider.
- Cloud expertise helps defend against new competitors such as telcos and offshore providers whose brochureware promises the moon.
Cloud-savvy solution providers are already reaping these and other rewards, as we will see from those profiled in this article. We'll also see that there's no single way to profit from cloud computing or a set path to get there. Though their business models differ, these early adopters are finding a kernel of truth in the cloud's promise to transform clients' relationship to IT and their own bottom lines.
Cloud computing makes business sense because:
- It generates recurring revenue
- It takes consulting and professional services
- It's customer "sticky"
- Well, it's inevitable
An Early Adopter
For Garrett Brucker,
president of Solve IT , a
managed services provider
with a healthcare
specialty, entering the
cloud was a business
necessity as well as a strategic
years ago, as the 13-person,
Colorado-based solution provider was expanding its
multiple offices, its servers began acting up due to environmental
issues. A large client with a similar problem asked
Brucker if he would consider hosting its servers, and the rest
"Nobody at that time offered cloud as a service," says Brucker, "so we took out a loan, co-located our infrastructure in a local data center, and created what I consider a private cloud services offering."
By "private cloud," Brucker means Solve IT provides cloud services to clients as a unique offering from its data center for a monthly fee. Services cover any and all of the main aspects of cloud computing, depending on client need: Infrastructureas- a-Service (IaaS), the basic building blocks of processing power, storage and networking; Platform-as-a-Service (PaaS), the virtual servers awaiting a client's applications; and Software- as-a-Service (SaaS), utility access to the customer's data and applications such as Microsoft Small Business Server, as well as any unique production applications.
Getting there from here
- Get up to speed on cloud technology
- Partner with a reliable cloud provider
- Brand yourself as a cloud solution provider
- Initiate the cloud conversation
- Offer customers a choice of on-premise or cloud
"We provide virtualized servers that are transparent to users," says Brucker. "If customers want to control the servers, they can do so, but for most of our clients we do it all -- provision the servers, install the applications, maintain the servers and manage the applications." Brucker notes that the latter can get dicey when managing complex, one-off applications such as medical practice management, but the monthly fee reflects the difficulty. All such services work in concert with Solve IT's managed services for traditional, onpremise customer networks.
Most cloud projects center on helping customers move just part of their IT into the cloud. This entails assessment of the environment followed by on-site conversion of physical servers to virtual servers, saving the data on an external drive, and copying it to Solve IT 's servers in the data center. Most clients put only part of their applications in the cloud, but some go all the way. Instead of a complete refresh of physical servers, a healthcare client recently engaged Solve IT to upgrade the operating system, database and applications, and then reconfigure everything for the cloud. Thus, a system upgrade project led to a recurring services contract.
Providing on-premise IT and cloud services enables Brucker to give customers a choice -- something they appreciate, as not everyone is sold on the cloud. The sales team usually presents both options on a spreadsheet that compares the ownership costs over a number of years. The onpremise figures include the initial hardware, OS and application software and setup services, as well as ongoing management and the need to refresh after four years. This contrasts with the cloud's monthly fee over the same period for all of the above, including software upgrades, in a highly redundant, secure data center.
Which approach wins out? Short-term, on-premise can appear favorable, especially to clients with a single office, but when you include the refresh costs and free software upgrades, the cloud has an economic edge. Then there's the peace of mind that comes from Solve IT 's robust cloud infrastructure, highly attractive to clients with several offices.
"The cloud delivers a cost benefit over time," says Brucker, "but we also explain how we're using VMware's VMotion and everything is fully redundant. To have such redundancy and uptime guaranteed, and knowing they don't have to build and staff that themselves, really resonates with clients who have multiple locations."
Customer demand has Brucker contemplating upgrading his data center by adding another shelf for servers and storage. He's also looking into partnering with a public cloud provider such as Rackspace -- the kind that didn't exist when he entered the business. "Today you don't have to incur any capital expense to offer cloud services," he says. "It's the same argument we preach to our clients. If you're just entering the business, partnering can help bring your services quickly to market."
Cloud Sourcing and Agile Applications
If you decided to offer cloud solutions today without having to worry about existing customers, your company might look very much like Appirio. Based in California but managing itself from the cloud, this 200-employee firm is generating headlines by specializing in "cloud sourcing," helping larger firms such as Genentech source complete business solutions from public cloud platforms. With few service providers conversant on multiple platforms like Force. com, Google App Engine, Amazon EC2 and Microsoft Azure, this is virgin, and lucrative, territory.
"Our work is 100 percent in the cloud," says Balakrishna Narasimhan, senior director of marketing and strategy at Appirio, "and by ‘cloud' we mean true multitenant solutions. We're not likely to help clients run individually hosted solutions in the cloud."
Here Narasimhan refers to a key selling point of SaaS solutions such as Salesforce. com, Google Apps, Microsoft Exchange Online and IB M LotusLive. They are built on a multitenant architecture, where a single instance of the software serves all client organizations, or "tenants." Such applications virtually partition their data and configuration, customizing each organization's instance of the application. Advantages include economies of scale based on high-capacity utilization, and automatic scalability powered by the cloud provider's grid. There's also the speed at which improvements can be made to multitenant SaaS. A single instance of the code means that innovation can be continuous and incremental, and changes are instantly available to all users. What's more, cloud providers manage security and other infrastructure issues as part of their offering.
Such pluses enable Appirio to focus on its clients' business processes and pain points, rather than on undifferentiated infrastructure management. And public cloud providers work tirelessly to improve their platforms, a boon to SaaS packages written for them. As an example, over the past three months Appirio's PSA application received an improved user interface, new reporting capabilities and Facebook-like collaboration, without any R&D on its part.
Cloud customers also benefit from more agile application development. "With cloud platforms, you can build application prototypes really quickly," Narasimhan says. "You don't need to mount a database, provision an application server or create a user interface framework, so you work at a higher level of abstraction. As one of our customers said, ‘We were able to build an application in the time it used to take to get a purchase order for a test server approved.' "
In Appirio's view, this speed and business agility may be the most compelling reasons for taking applications to the public cloud. There will be TCO benefits, to be sure, but more significant is the ability to quickly develop solutions that address the needs of the business. In addition, cloud applications are designed to be web-accessible, whether from a notebook, BlackBerry or iPad. This helps ensure that a large number of users will adopt cloud applications and enjoy using them.
Such benefits help IT managers address their top challenge of aligning IT with the business. "Cloud platforms help clients get out of the business of manufacturing their own IT ," says Narasimhan, "so they can start getting more business-focused." That's bound to be good for the clients and for the solution providers who serve them.
"If you're just entering the business, partnering can help bring your services quickly to market."
An Infrastructure Practice in the Cloud
Troubadour is a 32-employee, Texasbased
infrastructure integration firm
with an emphasis on security, unified
communications and the data center.
After more than a decade of targeting
SMBs for on-premise solutions, the company
rolled out its Virtual Data Center
(VDC), cloud services delivered from a
private cage in a nearby hardened data
The investment in Cisco routers, blade
servers, SAN storage and management
software, as well as dedicated personnel to
sell and supervise the cloud practice, has
totaled around $1 million. "We saw an opportunity to benefit from customers' desire to retire from the commodity aspects of IT ," says Tim Barto, vice president of marketing at Troubadour. "And our project revenue combined with the recurring revenue from cloud services safeguards us financially."
Cloud services also raise Troubadour's profile with clients by offering them a choice of on-premise solutions with their heavy capital expense, or cloud services as an operational expense.
Interestingly, the Virtual Data Center offering consists of IaaS -- what Barto calls the "ping, power and pipe of the data center"-- and PaaS virtual servers based on VMware, but not the applications. Customers
are themselves responsible for managing
the OS and applications, only now
they're "across town, rather than down the hall," Barto says.
|When Prospects Question
Security is the top concern of customers considering a move to cloud
computing. But it doesn't have to be a deal-breaker. It can be a selling point.
"The big questions we get are, ‘How is my data secured?' and ‘How do I know my data won't get mingled with other clients you're hosting?' " says Garrett Brucker of Solve IT. He answers by laying out the details of his security, including server redundancy with failover; an enterprise-class, redundant firewall; separate host-level vLANs for each client; real-time scanning for malware; and frequent backups using NetApp's Snapshot feature. Says Brucker: "When I explain all that to them, they usually see that they're getting better security, availability and redundancy than they could do on their own."
Appirio's clients are concerned about the security of public cloud platforms, and it's an issue the company is adept at handling. "Prospects who visit Salesforce.com's data center will find it's more secure than almost any data center they have visited," says Balakrishna Narasimhan of Appirio. "The Salesforce team can explain how they built their application so it's trusted by some of the world's largest companies. Frankly, they do a better job than if we had built it from scratch and better than most large companies could do."
At Troubadour, the sales conversation often starts with security. A former Cisco Global Security Partner of the Year, the company is well known for its security expertise, which it presents as key to its Virtual Data Center offering. A Tier IV hardened data center with N+1 availability, SAS 70 Type II compliance, layered defenses, robust storage, backup and replication, plus 24/7 monitoring provides security that some companies couldn't afford on their own. "We baked security into the offering from the start," says Tim Barto of Troubadour. "That, along with access and scalability, eases most customers' concerns."
Why not offer a fully managed solution? As a seasoned infrastructure provider, Troubadour's managers wanted to start their cloud practice on familiar ground before moving into applications. They also wanted to perfect their technical and business processes for IaaS and PaaS as a way to ensure customer satisfaction. "Our process discipline ensures that everyone knows their roles and executes flawlessly," Barto says. "If you don't nail the infrastructure, you risk losing customer confidence and your status as a trusted advisor."
A typical cloud engagement might include an assessment of the client's environment that pinpoints 10 servers as ripe for VDC sessions, followed by a plan to migrate data and to repurpose legacy hardware. Depending on the needs of the applications, Troubadour sells different levels of virtual servers from a rate sheet. "Let's say you're running an HP DL385 equivalent, and we charge around $250 per month per session for that," Barto explains. "It's very easy to calculate -- you've got seven of those and you need X amount of storage and backup. So instead of capitalizing $50,000 worth of hardware, your cost from us is a fixed $2,000 per month. Additionally, we wanted to make sure we built an enterprise offering, so this price includes high availability on all components of the infrastructure. And, the maintenance and refresh burden falls on us."
The concept is so simple that customers often ask why everyone isn't doing this. The devil is in the details, Barto notes. If the initial assessment is off, the virtual applications might run differently than clients expect. And since clients continue to manage their applications, a clear handover process and division of responsibilities are crucial. To make it easier for clients, Troubadour's service includes the powerful Nimsoft monitoring tool, which provides a dashboard for managing the virtual environment.
The Virtual Data Center is on target to turn a profit in the fourth quarter of this year, just more than a year after going live. One challenge, and a good one to have, is that the service is leading to requests for new classes of services. Customers and prospects are asking about virtualizing desktops and storage, SaaS services, enterprise-class disaster recovery, and having entire blades available for software development.
"We're already offering some of these things and are excited," says Barto. But in return, the VDC frees up customer funds for on-premises projects such as physical security or WAN optimization and Barto is confident that such opportunities will present themselves to every solution provider with expertise in the cloud. "It's coming," he says, "ready or not."