To Meet Customer Demand and Succeed, Service Providers Need to Build Cloud Services That Are Agile, Secure, and Profitable

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To Meet Customer Demand and Succeed, Service Providers Need to Build Cloud Services That Are Agile, Secure, and Profitable WHITE PAPER Turnkey Clouds, Turnkey Profits | March 2011 turnkey clouds, turnkey profits To meet customer demand and succeed, service providers need to build cloud services that are agile, secure, and profitable. Turnkey Clouds, Turnkey Profits table of contents SECTION 1: Challenge 4 The move to cloud must be profitable SECTION 2: Opportunity 5 Cloud computing opportunity: An inflection point SECTION 3: Benefits 6 Cloud service providers set to fill the “demand gap” SECTION 4: 7 Not just any cloud: a sustainable, manageable and secure cloud service SECTION 5: 8 CA 3Tera Applogic: a cloud services platform to build upon SECTION 6: 9 Partnership in growth SECTION 7: 9 Conclusion 2 Turnkey Clouds, Turnkey Profits executive summary Challenge Cloud computing is changing how service providers and software vendors build and deliver their offerings. Many service providers are already trying to profit from the shift to cloud computing. Others are starting to catch up. The technical challenge for service providers is building a cloud service delivery infrastructure that can provide the agile, reliable, and cost-effective applications and cloud services businesses need. Opportunity The cloud computing market is accelerating. So whether service providers are considering offering IaaS, Saas, PaaS, virtual private clouds or services to enterprises that help other ISVs succeed, there are many profitable green field opportunities to be explored. Benefits Those service providers that position their business, and their technology, to successfully transition from traditional, on-premise IT systems to cloud computing services will succeed in the months and years ahead. They will be able to capitalize on the tremendous opportunities to expand upon existing sources of revenue, and to seize entirely new ones. 3 Turnkey Clouds, Turnkey Profits Section 1: The move to cloud must be profitable In many ways, cloud computing does not seem very disruptive. Certainly, IT departments have been engaged in outsourcing technology services since the 1990s and Web-based application services have seen their use increase for more than a decade. To be sure, there’s nothing entirely new about application hosting. But make no mistake: cloud computing is both a disruptive technology and a disruptive business model for service providers. The service providers that succeed will be those that best understand how cloud computing changes the market, and that build the most versatile, cost-effective, service delivery platform. With cloud computing, one of the most noticeable changes is the speed of delivery of IT services. While it may take weeks (even months) for internal IT teams to deliver new server capacity, applications, and other services, organizations turning to cloud services for new workloads find they’re getting what they need made available in days to hours. That’s why enterprises are turning to their internal IT departments less, and increasingly reaching out to service providers to deliver the IT resources they need. For instance, enterprises are embracing applications delivered as Software-as-a-Service (SaaS), and they are doing so for everything from traditional office productivity applications to Enterprise Resource Planning and everything imaginable in between. Cloud computing disruption isn’t limited to SaaS; it’s also about Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS) offerings. More often, organizations want to outsource parts of their own IT infrastructure—storage, hardware, servers, and networking components—so they can focus on more strategic business endeavors. And organizations that seek to extend the benefits of an agile infrastructure provided by IaaS, and want the abstraction of the operating system and application integration, are turning to PaaS providers. All of this is changing how service providers and Independent Software Vendors (ISVs) deliver their offerings. Many ISVs today need help from service providers to build the infrastructures and platforms to deliver their applications, while other service providers often are acquiring the infrastructure and cloud computing resources and platforms they need rather than building their own. A number of CA Technologies service providers no longer own any of their own hardware or manage their own data centers for their services—it is all outsourced. As you can see, cloud computing creates opportunities for service providers to expand upon existing sources of revenue, and to seize entirely new ones. However, just because an opportunity exists doesn’t mean success or profitability will come easily. Service providers need to do everything they can to simplify the complexities associated with cloud services—storage, vast component catalogues, security, and even customer usage metering and billing—if margins are to be maximized. 4 Turnkey Clouds, Turnkey Profits Section 2: Cloud computing opportunity: an inflection point Though it may sound like a cliché, the cloud computing market is in a sweet spot for service providers. Currently, the cloud computing market is not so mature that all of the opportunity is taken, and it’s not so early in the market cycle that real sales remain years away. So, whether you are considering offering IaaS, SaaS, Paas, virtual private clouds, or services to enterprises and to help other service providers and ISVs succeed, there are plenty of green field opportunities to be explored. From April through July 2010, research firm Gartner surveyed 1,587 respondents in 40 countries to understand general IT spending trends and spending on key initiatives such as cloud computing. “The cloud market is evolving rapidly, with 39 percent of survey respondents worldwide indicating they allocated IT budget to cloud computing as a key initiative for their organization,” said Bob Igou, research director at Gartner. “One-third of the spending on cloud computing is a continuation from the previous budget year, a further third is incremental spending that is new to the budget, and 14 percent is spending that was diverted from a different budget category in the previous year.”1 “Overall, these are healthy investment trends for cloud computing,” said Bob Igou, research director at Gartner, in a statement. “This is yet another trend that indicates a shift in spending from traditional IT assets such as data center assets and a move toward assets that are accessed in the cloud.” That move is happening rapidly. Consider the SaaS market. According to research firm IDC the SaaS market reached $13.1 billion in revenue in 2009, and IDC expects it will grow to $40.5 billion by 2014 at a compound annual growth rate (CAGR) of 25.3%. IDC expects that by 2012, less than 15% of net-new software firms coming to market will ship a packaged product (CD); by 2014, about 34% of all new business software purchases will be consumed via SaaS, and SaaS delivery will constitute about 14.5% of worldwide software spending across all primary markets.2 According to Yankee Group research cited in CRN, 24 percent of large enterprises with cloud computing experience already have begun using IaaS, while another 37 percent say they’ll be adopting IaaS by end of 2012.3 5 Turnkey Clouds, Turnkey Profits Section 3: Cloud service providers set to fill the “demand gap” IT departments always have struggled to keep up with delivering IT resources as quickly as business demands. That’s certainly true today—perhaps even more so—because at the same time budgets have been significantly restrained, the demand for IT services has been rising. The graphic below illustrates the burden this condition places on IT groups. Figure 1 In prior business cycles, IT budget closely followed enterprise IT demand. However, in today’s ‘new normal’ enterprises are being asked to do much more with flat technology budgets. Figure 1: As you can see, there isn’t a sustained reduction in IT demand during tough economic times. In fact, most businesses must leverage technology further. This is because the business needs more agility to meet changing markets. The business needs more productivity to protect thin margins—and the business needs to be ready to capitalize on potential upswings in demand. Navigating the business through a turbulent economy requires fast adjustments in business technology, whether to adapt to changes in customer demand, drive costs out of processes to improve margins, react to competitive threats, comply with new regulatory requirements, or integrate mergers and acquisitions. The business can’t afford to wait days, weeks, or months for new applications or infrastructure resources to be deployed. Unfortunately, with traditional on-premise IT infrastructure, that is exactly the challenge business units face. 6 Turnkey Clouds, Turnkey Profits Filling the gap with agile and rapidly-provisioned technology using cloud computing creates substantial opportunity for service providers. Because of this growing alignment gap between what IT departments are able to provide and what the business needs, service providers cannot just continue aiding their traditional IT customer base; they must reach out within the enterprise and sell directly to individual business units. Because cloud computing is largely a bill-as-you-go operational expenditure, cloud service providers find business units often can self-fund cloud initiatives. However, in order to engage these less technical customers effectively, service providers must carefully consider and invest in ways that ensure that the customer experience is turnkey and automated.
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