Big Opportunity Guidebook on Moving Enterprise Services to the Cloud
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How to use this guidebook
This document sets a course for achieving one Click on the right-hand side tabs to navigate through goal: building a successful enterprise cloud solution. the Enterprise Cloud Guidebook’s content in an order You’ll learn in minutes about the opportunities and and at pace that works for you. This guidebook also considerations of adopting Software-as-a-Service contains embedded links to webinars and quick (SaaS), the industry’s dominant business model. videos to help accelerate your learning. Dimension The knowledge you acquire will also jump-start Data and Montclare look forward to your success in conversations about growing profits and maximizing the cloud. the value you provide to your customers.
6 1. Five Minutes to enterprise Cloud
Innovation and Inspiration – Watch It Now!
Montclare Channel on YouTube
The cloud industry continues to soar thanks to the innovative minds behind such software companies as MuleSoft, Zuora, Birst, Gainsight, AppFirst, and many others. Executives from these and other leading cloud companies share their insights on Montclare’s video channel, a repository of more than 300 clips covering everything from customer expectations to product release strategies. Browse the titles and zero in on topics to gain the knowledge you need to successfully sell in this market. Visit the Montclare YouTube channel.
7 Introduction
The cloud continues to take the software industry For enterprises that have some valuable legacy by storm. A major component of the cloud is SaaS software assets, moving to the cloud is something (Software-as-a-Service). New software providers their customers are asking for in terms of more host their products themselves and provide flexible, responsible, and cost-effective solutions. customers access through the Internet. This model These companies are finding that requiring potential challenges the traditional on-premise method by customers to purchase, provision, and manage their which a provider installs and runs their software in own infrastructure is proving much less attractive your own data center. than it was in the past. Issues related to the cloud, such as security and scalability, can now be The convenience of low-cost, cloud-based addressed by using such providers as Dimension infrastructure services has transformed many Data. fundamentals of business, making it possible for IT to deliver some of the same capabilities to their For example, a large healthcare company offers internal and external customers. For IT professionals, a wide range of products, including software to a stream of new cloud capabilities and innovative their customers. Increasingly, they were finding ideas to provide value to various audiences presents that these customers were asking for cloud-based a lucrative opportunity. software products because they didn’t want to manage the required infrastructure. This change in This section of the Enterprise Cloud Services buyer behavior was becoming an obstacle to sales, Guidebook gives you a quick introduction to overall which is where Dimension Data’s managed cloud cloud concepts, the market, and lessons learned by solutions can provide a clear solution. By partnering key players. with a cloud provider, the company can quickly bring a product to market and trust them to manage complexity and industry regulations. What is the enterprise Cloud? This guidebook will share tips and tricks of the Part of the cloud’s primary appeal is easy access SaaS model that IT can use to its advantage when and a pay-as-you-go pricing model that works as developing their own Enterprise Cloud strategies. well inside an enterprise as it does outside in the We also share lessons learned, leading companies general market. This contrasts with the large up- such as LinkedIn, Workday, and others to develop front payments required for traditional software and fast-growing, valuable businesses. These lessons can allow IT to provide more visibility into internal can often be applied to Enterprise Cloud projects to organizational consumption, regulate usage, and avoid mistakes and deliver more value. better control budgets and chargebacks.
By not only deploying basic cloud solutions but also thinking of ways that IT can use the SaaS model to reduce internal costs, improve usability of systems, streamline processes, and truly innovate, real value can be delivered to the enterprise.
8 Financial impact
The cloud model continues to emerge as a Wall These Enterprise Cloud solutions are internally facing Street favorite primarily because cloud companies self-service solutions and can also be apps that can are building stable, recurring revenue streams be deployed to improve customer satisfaction and thanks to developing strong, trusted customer revenues of existing products. It is in these areas relationships. IT can also take a page out of their that looking at market-leading SaaS vendors can playbook by developing user-friendly solutions really provide some relevant experience. that solve real problems and then really streamline delivery costs. This ability to deliver modern, high- value capabilities at a lower cost than traditional software-based solutions will not only allow IT to maintain current chargeback levels for their budgets but will also free up valuable capital dollars to innovate in other areas.
Key market stats: public Cloud spending
Public Cloud spending will grow at a compound .% annual growth rate (CAGR) of .% from to
all IT all IT product % % spending spend
Source:Source IDC
Benefits of the enterprise Cloud
The benefits to cloud vendors and customers continue to power the subscription economy.
9 Key cloud provider benefits
Lower operating costs from leased compute resources. $ $ 1 $
Quick customer access to software and revisions, since there is no software 2 installed at the customer site.
Pricing flexibility, by offering a rage of capabilities in free, tiered and $ 3 enterprise subscription models
Usage monitoring to improve roadmapping and yield client-inspired new 4 offerings
5 Broad acces of software across different types of devices and browsers, for a seamless user experience.
Key cloud customer benefits
1 Fast time to value by using the software quickly, typically in minutes or a few days at most
$ $ $ 2 Low upfront cost due to no upfront license fees or server infrastructure
Lower upfront cost of ownership (TCO) from a subscription-based payment 3 $ $ model
4 Accounting advantages from expensing software as an operating expense (OpEx) instead of an upfront capital expenditure
5 “Try before you buy”, since it is easier for SaaS vendors to let prospective $ customers try the software before committing to a purchase
6 Free software via SaaS provider’s freemium model, which allows users to delay payment for high functionality until there is actual need for it.
7 Effortless upgrades, with SaaS vendors managing the upgrade process on their own platform; no customer effort is required.
8 Mobility Users may access most SaaS services on smartphones and tablets
10 2. Enterprise cloud value proposition
“Enterprise cloud adoption is increasing as buyers Naturally, customer feedback is vital. Cloud realize the cost savings, flexibility and resilience companies strive to learn from their customers’ of the cloud. However, too many enterprises are usage patterns, trouble tickets and direct limiting cloud services to SaaS, infrastructure feedback, and which software features make transformation and application implementation. the most sense to build back into their quarterly In our opinion, buyers are too slow to transform or monthly product releases. In the same way, existing applications to the extent they should, IT needs to listen better to its users about what and enterprises should be leveraging cloud- they like, use, and want as they develop new based delivery to a much larger degree for more cloud offerings. critical business functions.” One product version - Chirajeet Sengupta, Vice President, Everest Group A cloud provider’s customers all use the same software, which means they only have to develop and support a single version of the product. This Providers: Delivering contrasts with traditional software companies or even IT that has to spend a lot of money and software the way resources supporting multiple versions, which might customers want it be decades old in some cases. Cloud providers focus only on their current software version. In turn, their development, professional services, support, and Instant feedback, instant training costs are only a fraction of those of traditional improvements software companies.
Vertical or market-specific cloud solutions are tailored for specific functionality, features, analytics, security, and other capabilities. This holistic product approach enables cloud providers to fulfill their customers’ needs and deliver a superior, more intuitive user experience.
11 Agile development Expanded reach to new markets
Once a cloud product launches, user feedback is Affordable cloud products mean providers can immediate and ongoing. A cloud provider’s lean, more cost-effectively expand into new industries cross-functional team of product managers, and geographies. architects, developers, and testers deliver a superior user experience and a cost-effective For example, IT organizations at large insurance approach for implementing usability, break/fix, companies have launched apps for their and new features. customers that allow them to make payments on-line or file an accident claim. These types By employing a cloud platform to help automate of solutions not only make it easier for their gathering of usage data, solicitation of feedback customers to interact with the insurance on features, and monitoring consumption company, but these applications can also activity, companies can reduce the need to have streamline costs and improve overall customer large, expensive teams of developers. This more satisfaction. These types of high value solutions automated approach can improve cycle time can often be a major competitive differentiator between releases because updates tend to be when selecting an insurance provider. smaller, incremental, and released more often to create a stable online platform and product. Even though cloud solutions are more intuitive, most providers offer free trials that allow prospective buyers to “try before they buy.” This Annuity revenue streams makes a low-touch, eCommerce sales model better able to expand a company’s global reach Most cloud customers pay a monthly or annual without the need for a large staff of dedicated subscription. It’s an enticing model due to its sales representatives in local regions. consistent revenue stream, providing cloud software providers more transparency into their future revenues. Customers, investors, and the Businesses scale financial markets view subscription revenue as stable and predictable, thereby adding to a cloud Cloud companies can grow rapidly because they company’s valuation. are built on a technology platform that makes it easy to add and manage large numbers of For IT organizations, a subscription model can users. Smart cloud companies also focus on make great sense when thinking in terms of automating end-to-end business processes to monthly chargebacks just as cloud software develop a quality user experience while scaling companies charge for services, users, storage, the infrastructure at a reasonable cost. and other add-on services. IT can also provide an internal price list to their departmental buyers, Once a cloud company reaches critical mass, where they can report on usage and provide revenues can grow quickly while keeping the higher levels of visibility into real costs as well. cost of serving customers low. This dynamic positions cloud companies for significant Another way to think of an annuity-costing model revenue and profit growth that attract additional is around departmental showbacks. Using this investment. same method of reporting and visibility, IT can easily show departmental budget holders what IT organizations can also benefit from these they are getting for their annual contribution. same elastic scalability capablities and expenses only as needed.
12 Customers: The power The cloud model allows small and medium- sized businesses (SMBs) to afford enterprise- of choice and attractive class software solutions, opening up economics new markets no matter their location or where their customers are located.
“Try before you buy” “Buy only what you need” Many cloud providers offer prospects a free trial of their product for up to 30 days. This option Traditional software often requires customers allows potential buyers to: to purchase large product suites or extra, unnecessary features. On the other hand, cloud • Determine if the software fulfills users can choose to turn off features or modules their requirements or cancel a subscription they’re not using. • Investigate important features • Understand the user experience No upgrades required They also offer a version with limited functionality for free. Companies such as Salesforce, Adaptive Insights, Enterprise cloud companies offer a single version Zendesk, and New Relic follow these models. of their software—the most current version. With it comes frequent, seamless updates and patches that ensure stability and security. Larger upgrades and new capabilities are often delivered as part of Faster time to value a global release, usually quarterly.
Cloud applications are often easy to install and The cloud delivery model means customers never quick to use, allowing customers to measure again have to face the costs and risks of large on- their business value more quickly. Quick premise software upgrades. The cloud service adoption means shorter time-to-value, so provider handles all upgrades and maintenance. even sophisticated enterprise cloud services can resemble Facebook or consumer apps.
“Pay as you go”
Cloud pricing allows customers to pay only for the services and features they use and only when they use them. Subscriptions allow buyers to shift their up-front capital expenses (CapEx) to variable operating expenses (OpEx) because there is little or no up-front infrastructure, data center management, or maintenance costs with enterprise cloud services. The subscription fees encompass all of the software’s operational costs.
13 Lower total cost of ownership (TCO)
A main driver of the cloud’s popularity is that over three to five years the total cost of ownership can be much lower than licensing traditional on-premise software. The cloud provider also absorbs the cost of:
• Hardware—servers, firewalls, and routers • Related software • Networking and connectivity • Data center space, power, and cooling • Compliance and security • Operations and support staff
Ease of Change
It’s relatively easy for a cloud service buyer to change from one vendor to another, which means that a cloud provider must deliver a high level of service; otherwise, it is easy to lose business to another company. The opposite is true when a competing provider fails to deliver value to its customers.
Hybrid Models
Enterprise cloud providers often accommodate implementations that keep sensitive data behind the firewall of the corporate network and keeps less confidential data in the cloud.
Cloud providers ensure high levels of security for their software and any associated customer data. They handle customer concerns about security and demonstrate their compliance with industry regulations, such as HIPAA (healthcare), PCI (credit cards), and Sarbanes-Oxley (corporate governance and accountability).
14 3. Today’s cloud market leaders
Who’s hot and why Cloud leader profiles
Montclare Webinar: Learning from Market For IT professionals who are considering building Leaders high-value cloud solutions for their organization, these cloud leader profiles provide a good Some cloud market leaders become household background on the challenges and opportunities names, while others stumble and fail. What these companies faced when building these do those paths look like, and what lessons do types of solutions. IT professionals learn when they are building their enterprise cloud offerings? In the webinar “Learning from Market Leaders,” Montclare CEO Kevin Dobbs analyzes the attributes that propel cloud companies toward success. Hear Kevin’s analysis of cloud leaders, including Dropbox, Workday, Salesforce, and others in this 17-minute webinar. Watch the webinar now.
15 The world’s professional network Why is LinkedIn successful? with a unique business, platform and set of features LinkedIn’s business growth is the result of multiple revenue streams, a seamless eCommerce LinkedIn is the leading business social network experience, and a robust and flexible platform. and a premier B2B cloud firm. With more than Its success is built on: 350 million members, LinkedIn is a highly scalable cloud business that offers recruiting, marketing, • A superior and easy-to-use customer user and sales solutions. experience • Freemium and paid models that work The majority of LinkedIn members use a free seamlessly together version of the product, but a growing percentage • Automated platforms that require minimal buy additional services, including LinkedIn’s human intervention recruiting, marketing, or advertising solutions— • Ability to cost-effectively scale the business key drivers in the company’s dramatic revenue growth over the past five years.
16 Cloud pioneer continues to drive Why is Salesforce successful? innovation Salesforce has an innovative sales model and Salesforce is the original SaaS pioneer. Founded a strong partner ecosystem (AppExchange). in 1999, the company was the first to offer Salesforce was also an early innovator with its cloud-based sales force automation (SFA) and Customers for Life (CFL) program. It recognized customer relationship management (CRM) the importance of ensuring that its customers products. Its product portfolio has grown to adopt its products, renew their subscriptions, include marketing, social media, and customer and remain successful thus helping to sustain service. Salesforce’s rapid growth.
Salesforce’s success in winning business from Salesforce is also a leader in cloud computing on-premise competitors helped prove the value security. It was the first major cloud company of the cloud model. Today, it’s a global company to publish a real-time view of its SLA activity at with more than 100,000 customers. Salesforce trust.salesforce.com. was the first cloud company to reach $1 billion in annual recurring revenues. It’s considered the The company was also one of the first to offer a granddaddy of publicly traded B2B cloud firms. Platform-as-a-Service (PaaS)—Force.com, which Salesforce went public in 2004, and its current attracts a strong complement of third-party annual revenue of $5 billion continues to grow solutions. by 30 percent each year.
17 Extreme ease of use for enterprise Why is Workday successful? applications Workday has succeeded with a philosophy of creating cloud products that make their Workday is the leading provider of cloud-based users’ lives easier and more productive. They enterprise resource planning (ERP) application developed their own object-oriented platform solutions. Its products include human capital to speed development while keeping products management (HCM), payroll, talent management, intuitive and easy to use. The company has expense, and financials. The company serves more achieved 100 percent annual growth over the than 3,600 clients, competing with both Oracle and past five years. SAP. It claims its services provide significant savings when compared with legacy ERP systems.
Workday founder Dave Duffield and others came from PeopleSoft with a vision of building a company that offers a superior user experience. Workday started out building HR and financial applications and now offers a broad suite of easy-to-use products for employees, managers, and executives. Workday’s products adhere to the mobile-first development philosophy, meaning that all of the products behave the same way no matter if they are accessed by mobile, tablet, or traditional desktop devices. Workday’s solutions are simple and easy to use, a unique benefit in the enterprise software market.
18 Cloud storage leader has Why is Dropbox successful? revolutionized collaboration Dropbox has a highly simplified, automated, Two MIT students started Dropbox in 2007 over and scalable cloud collaboration platform. Few their frustration of USB drives and the appeal of cloud companies over the last 10 years have storing files in the cloud. Dropbox is an amazing experienced this level of growth. Its scalable cloud growth story. It has more than 300 million platform and lean operations mean Dropbox customers, including numerous Fortune 500 doesn’t have a traditional sales force and relies companies. largely on converting free members to paid members, similar to LinkedIn. Dropbox has a freemium cloud storage business that scales, is secure, and easy to use. For Dropbox’s current focus is individual consumers, example, Dropbox grew from $40 million in small office/home office, and SMB customers. revenues to more than $250 million and from As the company continues to raise additional four million customers to 44 million from 2010 capital, it’s likely to push into the global enterprise to 2011. That same year saw only a 10 percent market. increase in Dropbox’s staff. Its platform and ability to scale are unique in the cloud business and a factor in Dropbox’s high valuation.
19 4. Cloud market overview
Cloud market growth - A global tour
Montclare webinar: cloud market overview
Global demand for cloud software continues to grow—and fast. This webinar, which is presented by Montclare CEO Kevin Dobbs, takes viewers on a 17-minute tour of leading cloud markets around the world. Kevin highlights growth drivers, the Montclare 250 ranking of leading cloud companies, and key players. Watch the webinar now.
20 In 2014, nearly all metrics of the cloud industry In 2015, many on-premise ISVs have initiated were positive: revenues, solution adoption rates, or accelerated their transition to the cloud. equity investment, M&A activity, the quantity and Their strategy has been either a hybrid or a success of initial public offerings (IPOs), the stock pure cloud implementation to take advantage prices of public cloud companies, and the number of the shift to cloud-based solutions. of on-premise software companies initiating or accelerating their transition to the cloud. In 2015, these measures remain strong accompanied by Market preferences drive growth predictions of accelerated growth. The global cloud market will nearly triple from Subscription revenues are a hallmark of cloud 2012 to 2017, reaching $76 billion. This represents providers, which attract investors to all manner of a robust growth rate of 22.1 percent. Cloud will cloud companies to invest, take public, or purchase. outpace traditional software product delivery, M&A activity is robust, as some traditional software growing nearly five times faster than the market firms decide it’s more effective to purchase existing as a whole. cloud providers than to develop their own cloud offerings.
A glimpse at market growth
21 Revenues
Global services firm PwC states in its 2014 list The Software Equity Group’s Q3 Software Industry of 100 Global Software Leaders, “Each time PwC Financial Report states: “On-premise software ranks the Global 100, we see more signs of the vendors lost market share to cloud providers.” changes shaking up the software industry. First, The report also notes that 30 percent of publicly cloud companies appeared on the list. Then, traded SaaS companies saw trailing 12 months their revenues started to increase. Now they are (TTM) revenue increases of 40 percent or more, steadily climbing their way up the list.” and that median gross profit margins for cloud providers came in at 70 percent.
North America Europe
197.1 USA Germany Switzerland 45.3 886.7 Sweden 38.2 Canada UK 24.5 8.6 Italy 23.6 Ireland 16.9 France 9.3 Netherlands 8.9 Finland 6.2 Belgium 4.3 Other 5.2
Lata
Finland 2.7 Belgium 1.2 APAC Other 0.1 Japan 447.7 India 11.3 China 5.0 Vietnam 1.2 Australia 0.9 New Zealand 0.7 Korea 0.6 Taiwan 0.5
22 Cloud adoption
Corporate IT organizations now enable fast, easy access to the technology and data that departmental users need to do their jobs better. Both internal and external customers look for systems that are easier to use, faster to deploy, and no longer require upgrades. According to Accenture, public cloud spending will grow at a compound annual growth rate (CAGR) of 26.4 percent over the next five years. It will comprise 17 percent of all IT product spend by the end of the forecast period. Cloud platforms and applications will account for 46 percent of all IT spending by 20161.
For years, on-premise software vendors have questioned cloud solutions, citing shortcomings in areas such as data access control and security. But emerging technologies that continue to address such issues means many on- premise vendors have chosen to deploy cloud implementations of their own software.
A surge of cloud software development tools and an increase of expert developers contribute to a proliferation of cloud and hybrid offerings. More providers are offering leased virtualized server space available in the cloud. The result? Price competition that lowers costs for cloud providers. These converging trends present an attractive value proposition to both software vendors and their customers.
(1) “A Cloud Computing Forecast Summary for 2013–2017 from IDC, Gartner and KPMG,” PR Web, November 18, 2013.
23 5. Architecting your enterprise’s cloud solution cloud infrastructure design. These may take the form of informal goals. Or, they may exist in Systems architecture establishes a formal customer service level agreements (SLA). They description and specification of the may also vary by application module and target application. This is a critical first step in market. planning for enterprise’s cloud solution. It’s vital for IT to establish clear cloud solution How architecture affects service capabilities to distinguish themselves from delivery similar external cloud providers. This helps attract users to your solution. In terms of service A myriad of architectural details can impact delivery, key capabilities may include application your cloud service delivery operations. Factors uptime, performance, ability to quickly scale both include load variability, data location and flows, up and down, and quality of experience. Security encryption at rest and in transit, and application requirements and conforming to established performance requirements. Moreover, service corporate standards will also influence service delivery requirements have a major impact on architecture.
Global User SLAs Requirements
Standards Market Conformance Architectural Requirements Requirements Drivers
Regulatory Competitive Requirements Positioning
24 Operational planning Data Management Planning
Successful cloud delivery depends on close Where to locate data is perhaps the most cooperation between application development challenging architectural decision. Distributing and service operations teams. The growth of data close to end users leads to better the DevOps role illustrates the importance of application performance. It also complies with this partnership. It’s not sufficient for application data sovereignty requirements, but it can add developers to create a specification and simply complexity and lead to reporting and data “throw it over the wall” to the service delivery protection challenges. team. Application design must include support for monitoring, management, and maintenance. Distributed data platforms, such as NoSQL Collaboration between design and delivery platforms, like MongoDB, Apache Cassandra, teams reduces operational costs and makes and others, help to mitigate some of these application development, release, and delivery concerns, but they lack some of the consistency more efficient and reliable. features of traditional relational database management systems. Eventual consistency may be sufficient for social networks, but it Resource isolation and multitenancy won’t work in most transactional environments. Recent developments of New SQL databases, Multitenancy is a crucial architecture feature based on Google’s Spanner model, can help of efficient cloud operations unless prohibited bridge this gap. by performance or security constraints. This allows for more efficient utilization of resources Regardless of the chosen data management and personnel, thereby reducing costs. With platform, cloud delivery must deal with multitenancy, customers can potentially share: performance and data protection concerns. Discuss data backup, replication, and recovery • Physical hardware early in the design process. Also establish • Virtual machines (VMs) application recovery time objectives (RTOs) and • Networks recovery point objectives (RPOs) and incorporate • Monitoring tools them into your SLAs. • Databases
While multitenancy has benefits, it introduces security and complexity challenges. Cloud architecture must address these challenges to ensure customer data isolation, high application availability, and avoid any impact to performance due to “noisy neighbors.”
25 Software Operating Integration System
Data Computing Integration Platform Software Dictates Data Management Services
Server
Availability Planning Expect failures. A component may crash or be Another critical consideration for application stopped at any time. Dependent components architects is service resiliency. Assess the might fail or be stopped at any time. Network impact of each component on the overall failures will occur. Disks will run out of space. system. A guiding principle is to avoid any single Handle all failures gracefully. point of failure (SPOF). While this is simple in theory, implementing it can be challenging. Keep things simple. Complexity breeds One approach is to use highly specialized problems. Simple things are easier to get fault-tolerant hardware. Such systems can right. Avoid unnecessary dependencies. be very expensive and don’t scale. For cloud Installation should be simple. Failures on environments, it’s best to provide horizontal scale one server should not impact the rest of using commodity components. The application the data center. architect should assume that every component could fail. They should design the system so that Automate everything. People make mistakes. no single component failure results in application People need sleep. People forget things. downtime. This is best described in a paper by Automated processes are testable, fixable, Amazon Distinguished Engineer James Hamilton:1 and therefore ultimately much more reliable. Automate wherever possible.
26 Capacity Planning Considerations for delivery partnerships Cloud service delivery infrastructure may need to adapt to rapid shifts in demand. It should A trusted provider offers valuable expertise scale up and down in near real-time. The scaling and the architecture, security, and configuration requirements are highly dependent upon the guidance for constructing your service delivery type of cloud product. For example, customer environment. Cloud infrastructure has many e-commerce applications may have large spikes, parts. It’s not always possible or practical especially during holiday seasons. Other systems for a cloud provider to manage everything may have more predictable demands and may themselves. Selective use of delivery partners, not require as much scalability. such as Dimension Data, can greatly simplify your operations. Architectural choices related Cloud architects should analyze anticipated to security and compliance will influence your and historical load patterns to identify highly choice of service delivery partners. variable versus relatively stable workloads. This may enable the implementation of an “own The application technology platform will have a the base, rent the spike” approach to capacity major impact on operations. The choice of server management. With this model, stable and operating system, storage type, application predictable workloads are run on cost-effective, server, database platform, and coding language owned systems. Highly variable workloads can don’t just affect developers. They impact be shifted to a managed service provider or a operations too. Similarly, the use of cloud public cloud and consumed on demand. technologies, such as OpenStack, CloudStack, Microsoft Azure, Google Cloud Platform and System hardware benchmarking is another Amazon Web Services (AWS), can greatly impact important aspect of delivery architecture. cloud operations. Designers need to know the performance capabilities of each system component. Most public cloud providers offer proprietary Incorporating groups of systems into capacity services, features, and application programming “pods” is a popular way of providing incremental interfaces (APIs) to improve usability. While scale to meet growth and provide redundancy. these can simplify development, they can also Additionally, newer storage technologies, such lead to cloud vendor lock-in. Service delivery as solid-state disks (SSD), can profoundly impact providers differ by their geographic reach and the cloud architecture to help deliver higher availability, so it’s often better to use services performance. that are similar across multiple platforms. This allows cloud providers to select the best service Finally, application architects need to pay delivery provider in each geographic area. particular attention to the design of their wide area network (WAN), which is the glue that holds all other infrastructure together. If it’s undersized or unreliable, performance of the overall system will suffer. Public Internet may not provide the security or quality of service (QoS) needed for robust service delivery. Consider high-capacity, secure, point-to-point backbone links between major locations to carry the bulk of back-end traffic.
27 Managed Services Next-Generation Platform. Deploying a solid managed services offering on top of a Enteprises that are looking to build new cloud- robust cloud infrastructure platform provided based solutions often view a managed services by a partner like Dimension Data can satisify approach as their first step to the cloud. the near-term requirements of the market and customers. This managed services Leveraging Existing Assets. For most new platform can also become the company’s cloud projects, enterprise IT may often want to cloud infrastructure to build a generation of host an existing on-premise, or single tenant solutions. solution. The advantage for the enterprise is that this product already exists, a set of Transition Strategy. A managed services customers already use the product, and it is offering is often a key strategy in transitioning often viewed as a positive roadmap step to the business to the cloud and used to buy the cloud. time. The effective use of a managed service enables the enterprise to build the longer Industry Expertise. Another way that term, multitenant, native cloud solution the enterprise can add value to their new they need for the future business. With this managed services offerings is the company’s extra time, enterprises can do the necessary industry expertise. A firm that specializes in planning around the proper levels of security, healthcare or financial services can wrap their compliance, scalability, and costs. We have hosted offering with a layer of value-added found that this strategic and operational services. planning can ensure that the longer term enterprise cloud offerings have a much greater Operations. Most IT organizations are quite chance for success. familiar with running internal processes around email and systems but need help to run a 24x7x365 SLA-based operation. This is where a managed services partner can provide the security, compliance, and DevOps expertise to help ensure smooth operations, minimal risk, and lower costs over time.
28 6. Cloud security
Securing cloud services is a critical and ongoing based systems lead to increased security endeavor. Legacy client/server systems often challenges due to their wider security perimeter. restrict access to the software behind the As with systems architecture, securing cloud corporate firewall or through Virtual Private operations requires a collaborative effort Networks (VPNs). In contrast, modern systems between development and operations teams as offer worldwide access, providing many more well as with service delivery partners. points of attack. Therefore, SaaS and cloud-
Prevent Breaches
Harden Systems
Detect Breaches
Protect Data
Remediate Breaches
29 Security design involves preventing breaches as principle of least privilege,4 and separation of much as possible and responding to breaches if, duties.5 Using intrusion detection systems and and when, they occur. Guiding design principles intrusion prevention systems (IDS/IPS) at both include secure by design,2 defense in depth,3 network and application layers is also important.
Software Attacks SaaS Software Deficiencies System Software Vulnerabilities
Physical Access Exploits USB Malware USB Data Theft
Personnel Exploits Social Ingeneering Malicious Employees /Sys Amins
Trust Exploits Attacks via APIs Untrustworthy Trusted Access
Advanced Persistant Threats Spyware / Malware “Laying in Wait” Trojan Horses
Site Attacks Distributed Denial of Service Defacing / Taking Control of Site
Steal Data
Financial & Credit Steal Card Data Control Username Financial & Passwords Transactions
Gain Deface Access Site Take Bring Data Alter Control Down Site of Site Site Data
(2). http://en.wikipedia.org/wiki/Secure_by_design (3). http://en.wikipedia.org/wiki/Defense_in_depth_(computing) (4). http://en.wikipedia.org/wiki/Principle_of_least_privilege (5). http://en.wikipedia.org/wiki/Separation_of_duties
30 7. Cloud compliance
Compliance with regulatory standards is or private. Compliance for external facing an important and often challenging part of applications with relevant standards is not enterprise cloud service delivery. The task is optional and must be taken seriously since being compounded since regulations vary by location, unable to meet compliance requirements can industry, and whether or not a firm is public threaten the viability of a cloud provider.
1 2 3 4 5
Identify Ensure SaaS Implement & Monitor & Audit Compliance Software Document Operational Report on Compliance Requirements Compliance Compliance Procedures Compliance
Common compliance focus areas include:
• Monitoring and mitigation of security threats • Recordkeeping and retention requirements • Securing employee endpoint devices • Data protection, including backup and/or • Ensuring data privacy and sovereignty replication • Safeguarding personally identifiable information • Disaster recovery and business continuity • Definition and documentation of financial key planning controls • Periodic third-party auditing
31 Compliance authorities
Many different authorities have compliance requirements. In some areas, these may overlap:
Compliance Authority Compliance Area Customers SLAs Security Governmental Compliance Privacy Industry Specific Compliance Data Governance Standards Bodies Compliance Procedures Availability Disclosures
Internal and external SLAs For example, public companies based in the United States must comply with the Sarbanes- Effective cloud applications must meet their Oxley Act, which consists of a series of customers’ functional requirements and offer regulations with detailed focus on processing quality assurances as specified in their SLA. information, roles of people involved in key The SLA should clearly define the customer processes, particularly in segregation of duties, experience and the overall service quality from and reporting requirements. Penalties for the enterprise cloud provider. SLA terms may noncompliance can be severe.6 include internal and external usage guarantees for uptime, performance levels, response times, Besides lawsuits and negative publicity, a disaster recovery assurances, privacy, security, corporate officer who does not comply or and in some cases, specific business results. submits an inaccurate certification is subject Monitoring adherence to these benchmarks is a to a fine of up to $1 million and 10 years in fundamental part of the cloud service delivery prison, even if done mistakenly. If a wrong process. Many external cloud providers provide certification was submitted purposely, the a real-time system status, e.g., Salesforce’s fine can be up to $5 million and 20 years in website, trust.salesforce.com. prison.
Governmental compliance Enterprise cloud providers can face far greater challenges compared with traditional software Compliance with governmental regulations companies since they often have operations in can be complex for a cloud provider delivering multiple countries and regions. Regulations can solutions that are used outside of the enterprise. vary by region and administrative jurisdiction. Lack of compliance can cause an enterprise For example, the European Union (EU) has strict significant financial damage or expose its regulations regarding the location of data used executives to prosecution and imprisonment. in its countries and the protection of its citizens’ privacy.
(6) http://www.sarbanes-oxley-101.com/sarbanes-oxley-faq.htm
32 Data sovereignty and government Industry-specific compliance control Beyond the regulations already outlined, many Controlling where data resides is an important industries and jurisdictions impose additional consideration for cloud delivery. Many requirements. Examples include: governments have strict regulations related to the transit and storage of their citizens’ Personally • Payment Card Industry Data Security Standard Identifiable Information (PII). Countries such (PCI DSS) for safeguarding credit card information as Germany, France, Australia, Saudi Arabia, • The United States Health Insurance Portability and and China make it difficult to use data center Accountability Act of 1996 (HIPAA) for healthcare resources outside their borders. They may also • The Financial Industry Regulatory Authority require data to be encrypted while at rest and/ (FINRA) for securities transactions sanctioned or in transit. Enterprise cloud providers wishing by the U.S. Securities and Exchange Commission to attract users in these countries must often operate in multiple international data centers. Failure to comply with these regulations can result in fines, civil actions, and More importantly, some governments may possible loss of authority to operate. subpoena information held by the cloud provider or monitor customer information without notice. For example, the USA PATRIOT Act greatly Standards bodies compliance extended the government’s authority to access and monitor online data. This has led many Several standards bodies have created enterprise cloud operators to encrypt most compliance regulations and frameworks, which Internet traffic and restrict the transfer of data industry and governmental organizations and computing resources outside this country’s endorse. For example, the International borders. Many large cloud providers, such Standards Organization (ISO) has defined as Apple, Microsoft, Google, and Yahoo!, are numerous standards, including ISO 27001, which hardening their data security through encryption specifies security requirements for IT systems and limiting their own ability to access and that operate globally. Similarly, the Statement on decrypt their customers’ data. Key management Standards for Attestation Engagements (SSAE) is must guarantee that only the end user, not a regulation from the American Standards Board the cloud provider, can decrypt data wherever (ASB) that includes multiple Service Organization possible. Encryption keys for high-security Control (SOC) standards. SSAE-16 SOC 2 defines applications should be securely destroyed multiple Trust Service Principles covering security, when access is no longer required. End users availability, processing integrity, confidentiality, may also require cloud providers to delete and privacy. These standards bodies become de user data within a specified period of time. facto creators of regulations to which enterprise cloud providers who deliver customer-facing solutions must comply.
33 Overlapping compliance areas Besides Europe, most countries have regulations for the control of PII. Disclosure of this information Each country’s compliance authority focuses on can heighten the risk of fraud or the disclosure specific regulatory viewpoints when evaluating of private information that many jurisdictions enterprise cloud solutions. This results in potential prohibit by law. regulatory conflict between different countries over compliance rules. For example, the U.S. Cloud companies should also consider participating tries to balance free speech against national in TRUSTe. Companies self-certify that they security. The EU is concerned with personal follow TRUSTe standards to safely collect and use privacy. China requires control over information. customer data. The TRUSTe certificate indicates that the cloud company complies with its own privacy statement and the TRUSTe’s program Privacy policies requirements. This helps provide a framework for basic privacy assurance. Cloud providers Historically, software providers have dictated hold extensive customer data, which allows privacy rights of individuals in their “Terms them to better understand and benchmark how of Service” (TOS) unless covered by a specific their customers use their systems. It’s essential regulation generally related to medical or that enterprise cloud service vendors obtain financial data. Conversely, compliance authorities their customers’ permission to use this data to such as HIPAA have extensive regulation in such institute procedures specifying how to ensure areas as patient privacy. HIPAA compliance the anonymity of the data to prevent disclosure requires rigorous encryption of patient data, of confidential customer information. restriction of access, and implementation of security processes in cloud software. Disclosure of data breaches Privacy regulations are expanding rapidly beyond just medical and financial data. The EU An increasing requirement of both government has codified its regulations in the Data Protection regulations and customer demands is for greater Directive 95/46/EC. Companies must give notice operational transparency. Regulators demand when their data is being collected and why. Data the disclosure of security breaches so that other collection requires a user’s consent, the access of companies can harden their defenses. Cloud the data is restricted, and means must be in place customers also want to know about any security to correct inaccurate data. The International Safe breaches that could impact their data. Harbor Principals provide a streamlined process for U.S. companies to comply with the EU Data Protection Directive. U.S. cloud companies should take advantage of this simplified, less- risky framework for compliance.
34 8. Enterprise cloud operations
Enterprise cloud delivery excellence requires Goals and functions of cloud coordination across all aspects of the provider’s operations business. To be successful, DevOps teams must align the architect and secure and comply Besides the security and compliance goals phases of systems development with the defined in previous sections, enterprise cloud required resources, processes, and technologies. operations are responsible for delivery of Operations are continuous and ongoing and key objectives, including availability, capacity, require a relentless focus on quality and and efficiency. Both availability and capacity improvement. planning were covered earlier in the Architecture section of this guidebook. Including them again While operations teams vary among companies, here illustrates how architecture and operations common process and focus areas are present in form a self-reinforcing feedback loop. Enterprise most service delivery organizations. Frameworks service delivery planners create the initial such as ITIL, ITSM, and CMMI provide service systems design. Once implemented, systems delivery guidance. administrators measure its actual performance against estimates and then tune the model for A vital step in service delivery planning is aligning future designs. the goals of development and operations; otherwise, they’ll function at cross-purposes. Availability Management For example, IT or the development team might focus on the rapid introduction of features and Internal customers expect the services they fund expansion to new markets, while the operations to be available, but this comes at a cost. Increased team should be focused on maximizing availability requires increased investment in availability and minimizing cost. Establishment systems, tools, and personnel. Most companies of a DevOps team as a bridge between software provide a standard 99.5 percent availability development and operations can help prevent guarantee to allow for planned systems misalignment and ensure effective service maintenance. If customers require continuous design.
35 availability, the planned downtime can come than $1 million in lost business. Enterprise cloud at a price. For example, if an hour of downtime providers should analyze these economic trade- results in $25,000 of lost revenue, the difference offs and establish uptime goals that maximize between 99.5 percent and 99.999 percent profitability. availability over one year translates to more
Calculated Daily Calculated Monthly Calculated Monthly Calculated Annually Calculated Annually SLA% Outage in Minutes Outage in Minutes Outage in Hours Outage in Hours Outage in Days
99.999% 0.0144 0.432 0.0072 0.0864 0.0036 99.99% 0.144 4.32 0.072 0.864 0.036 99.95% 0.72 21.6 0.36 4.32 0.18 99.90% 1.44 43.2 0.72 8.64 0.36
99.50% 7.2 216 3.6 43.2 1.8
Therefore, minimize unplanned downtime Capacity Management since it’s an even greater threat to internal customer satisfaction. Continuously monitor Capacity management is a balancing act. Unused enterprise cloud applications for any anomalies capacity is wasteful and costly, while insufficient or disruptions, and establish Dedicated Network capacity can result in application crashes or Operations Centers (NOCs) and/or Service poor application performance. To gauge system Operations Centers (SOCs) to monitor application capacity, cloud providers should instrument performance in real-time. And create incident and monitor each operational component, response teams with clear procedures based including servers, storage, networks, databases, on incident type and severity. The primary web servers, application servers, and related goal is to minimize the Mean Time To Restore systems. The DevOps team should also configure (MTTR) service. To this end, the establishment and run system load and stress testing. These and use of service operations knowledge bases tests should generate different traffic loads and systems “runbooks” is vital. Instrument and and provide measures of user experience from monitor components, interfaces, and code to all locations that serve a significant number of reduce time for troubleshooting and diagnosis. users.
Enterprise providers can take this a step further by simulating failures. Netflix created their Chaos Monkey service7 to randomly cause component failures. This helps their operations team to better understand system failure modes and improve the robustness of their application architecture. For even moderately complex systems, this is a great way to understand and mitigate against large-scale outages.
(7) https://github.com/Netflix/SimianArmy/wiki/Chaos-Monkey
36 Trend monitoring and forecasting is another key Similarly, operations can take advantage of aspect of capacity management. Operations economies of scale by sharing expensive or analysts can understand how the various specialized resources, which includes networking application components behave and interact by devices, such as core switches, load balancers instrumenting and collecting consumption data and firewalls, and enterprise storage arrays and on system resources. For example, operations blade servers. analysts can use temporal utilization data to develop metrics to indicate how storage Finally, service delivery teams should often increases with transaction volume. This, in turn, assess build-versus-buy and partnership allows them to provision additional capacity options. It could make sense to shift a portion in advance of anticipated load spikes from of the operation to a managed service provider season peaks or special events and promotions. that offers storage capacity at a better price and an equivalent or better service level. In addition, backing up your data to a large public cloud Operational efficiency such as Dimension Data could be less expensive than on-premises data backups. This is similar To maximize profitability, enterprise cloud to the IT outsourcing trend that enterprises companies must investigate ways to lower their have been following for more than 25 years. operational costs. Common approaches include What’s important is to assess all dependencies eliminating duplication and waste, designing for and implications. A few side effects to consider multitenancy, exploiting economies of scale, and include the impact of contracted services on your assessing build-versus-buy trade-offs. own SLAs, liability for service nonconformance, and what would happen if the provider went out As discussed in the Architect section, automate of business. system operations as much as possible. The advantages include lower operating costs, greater scalability, higher reliability, and self- documented process flows due to fewer human errors.
Multitenancy is a must and enables more efficient resource utilization. Virtualization technologies have proven this for more than a decade. As Moore’s Law predicted, performance continues to increase exponentially. Multitenancy means service providers take advantage of these performance increases by sharing resources across more than one user and workload.
37 A roadmap for operational excellence
As networking pioneer Bob Metcalf was purportedly fond of saying, “Reliability is never having to say you’re sorry.”1 This serves as a guiding principle for service providers. Operations teams should establish and follow a delivery framework. All administrative, support, and development staff should participate in its development and implementation. And you should review, assess, and optimize continuously.
Build • Build SaaS Software • Select Partners • Build the SaaS Environment • Test the System under Load
Establish Processes • Create, Test and Document Operational Processes • Leverage Industry Best Practices • Partner For Security and Platform
Automate • Automate Everything • Scale Up & Down Automatically • Question Every Manual Process
Operate • Onboarding • Scaling/Bursting • Resilience • Governance/Compliance
Measure • Monitor • Analyze • Benchmark • Audit
Optimize • Identify Problem Areas • Use Analytics for Optimization • Optimize Technology Being Used • Leverage Declining Costs
38 9. Successful enterprise Cloud business practices
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39 For enterprise cloud providers, building a high- The impact of mega-trends value cloud business requires a new kind of operating model focused on growth, efficiency, A combination of macroeconomic and technological and delivering software to their users as a true changes has spawned today’s new software value-added service. You can accomplish this business model, one of the most important factors with a model that is both user centric and data in changing buyer behavior after the last recession. It driven. forced buyers to reevaluate how their software was delivered and how they purchased it. Buyers wanted Customers embrace cloud software because the to incur software as an operating expense (OpEx) business model offers many benefits. It’s crucial through subscription pricing. They wanted to avoid for enterprise cloud providers to understand that the significant up-front capital expenditure (CapEx) what’s good for their customer is good for them. required when buying traditional software licenses, servers, services, and other resources required for Best-in-class cloud companies understand that deployment. making their customers successful is critical to turning a profit. But the most successful A lower total cost of ownership (TCO) has companies are equally focused on improving their emerged as a second megatrend. Customers end-to-end service delivery process and always expect this with cloud solutions since they enhancing the overall customer experience. don’t need to install or manage the software.
Cultural change is required As easy as “Like”
Moving to the cloud model involves a shift to Another major change in the market is the a fast-paced environment and data-driven consumerization of enterprise software. initiatives and outcomes. The industry considers Business and consumer software buyers expect cloud companies as more scientific in their any product to resemble the ease and use of business approach than traditional software Facebook. Enterprise cloud providers must companies. focus on delivering an outstanding customer experience and rapid time-to-value. At the heart of every cloud business is a focus on gathering and interpreting vast amounts of information to improve service delivery A new business model emerges and business efficiencies. These insights and achievements impact all operational areas, Usher in the SaaS model. Providers deliver maintain high customer satisfaction levels, and software as a service—a complete, packaged, deliver product and process innovation to drive and hosted solution that includes the software growth. Ultimately, these results can lead to a and training, support, services, infrastructure, high-value cloud service. and best practices. These cloud offerings are sold as a subscription and billed every month, This section explains the key drivers of success quarter, or year. This also means the customer in operating a cloud service: meeting customer can easily switch to a competitor, forcing cloud expectations, development approaches, providers to deliver an excellent user experience financial metrics and decision-making to maintain loyalty and minimize churn. styles, and their collective impact on value.
40 New development paradigms and Relentless pursuit of innovation their far-reaching impact and efficiency
Enterprise cloud services have moved Traditional software companies deliver innovative beyond meeting the needs of just small and products. Cloud companies must innovate across medium-sized companies. They now handle their entire business model—how solutions are the businesses of large and complex global developed, priced, packaged, operations, and organizations, displacing established incumbents. used by customers. This, in turn, impacts the This feature parity is a result of cloud firms efficiencies of their internal operations, support, using rapid development methodologies, such and even billing. IT organizations can learn many as agile versus the traditional waterfall-based lessons from cloud firms as they develop their development processes. Many cloud providers enterprise solutions. do monthly builds and offer releases every quarter to quickly fix defects and release new product capabilities over shorter intervals. A metrics-driven culture
The cloud business model means nearly What’s different about running everything can and should be measured. It a cloud operation? is no longer enough to simply develop a new technology and then hire salespeople to push it The traditional software business model requires into the market. Cloud companies continuously expertise in building products and service iterate on their sales and marketing processes delivery. This approach to operational excellence to find the most successful ways to achieve has produced some of the largest software revenue. companies in history. They review customer usage data to see which The subscription model puts substantial pressure features are being adopted and how much they on cloud providers to deliver better, faster, and cost to develop. In contrast, traditional software less expensive solutions. In turn, this fosters companies spend their time and resources a culture of extreme efficiency and utmost testing their products against every operating devotion to customers. The cloud business system, platform, and hardware variation. model won’t work if customers don’t renew their service contracts, so user satisfaction is Beyond Monthly Recurring Revenue (MRR), critical for success. these metrics drive cloud business valuation:
The result? Many enterprise cloud service • Customer Maintenance Cost providers have deployed a level of professional • Customer Lifetime Value services, support, and operations dedicated to • New Customer Numbers delivering a superior customer experience. • Customer Churn • Growth Rates • Cost of Goods Sold
41 Drilling down on metrics for Customer renewal rates for enterprise-class customer acquisition and applications, which usually have higher contract maintenance values, are typically above 90 percent. Best- in-class firms that achieve renewal rates What are some of the most important metrics? over 95 percent can maximize the value. Customer Acquisition Costs (CAC)—the sales and Enterprise customers are also harder to win, marketing costs to acquire a customer. Customer which means they are also harder to lose. Maintenance Costs (CMC)—the end-to-end costs to maintain each customer, starting with product hosting all the way through to customer support. Data-driven decision-making These key performance indicators (KPIs) are a fundamental component of every successful Cloud companies start tracking their metrics cloud organization’s approach to doing business. for growth and profitability from day one. The entire enterprise cloud team must be aware of Another important measure of success compares these metrics and agree on their definitions. For the total expense of both CAC and CMC example: against the cumulative value of the company’s recurring revenues, typically over five years. • What is our definition of a subscriber agreement? The calculation indicates whether or not a cloud • How do we recognize chargebacks or business can make any profit. showbacks? • What does a successful user adoption look like? • What is churn, and how do we track it? Getting burned by churn • How do we measure customer satisfaction?
Another critical cloud metric is the percentage Cloud companies that continually review their of customers that discontinue their service internal metrics derive the insight they need to contracts, known as churn. Cloud companies drive success and avoid failure. track two variations of churn—the number of subscribers that renew and the dollar value of their renewal.
Churn rates must remain low, typically less than 10 percent, for a cloud business to be successful. That said, churn rates for cloud applications in the small and medium business (SMB) or consumer markets can reach 20 percent to 30 percent or soar as high as 40 percent. These higher churn rates are usually a result of:
• Lower switching costs • Inexpensive pricing • Poor customer satisfaction
42 10. Enterprise Cloud service growth strategies
The enterprise cloud service should be Many prospects voice concern about their designed to encourage growth and adoption service levels—the percentage of time that the of the software. It’s a complete overhaul of the infrastructure will be up, running, and available. traditional way of doing business. Cloud providers Enterprise cloud providers must have clear experience common challenges moving from terms of the service level agreement (SLA) their the traditional to the subscription-based model. company offers, which may reflect the SLA of The best practices and information below are their cloud infrastructure provider. intended to help enterprises launch and operate successful cloud services and understand the Relationship building many short- and long-term opportunities. Most of these differences also provide unique user Growing a cloud service depends on solid benefits of the cloud. customer and user relationships. The barriers to switching from one provider to another can be low, so account teams must know their Common objections customers’ common questions, concerns, and requirements. Many cloud firms recognize that The most common doubts providers encounter communities are a popular and effective way to about the cloud are data access and security. stay close with users. These communities can Sales reps must convey to prospects that also generate product ideas, best practices, and Security Assertion Markup Language (SAML) provide user support. Customer communities has allayed many such concerns. Data escrow build strong relationships and improve renewal is another technique. It maintains a copy of rates, which are important to the success of critical data with an independent third party. cloud companies. Sales reps must learn these selling points and effectively convey them to prospects that have data concerns, which can arise in both hybrid and pure cloud implementations.
43 Building for the enterprise cloud: FAQs
The path to Cloud: How companies forge their way
Defining the destination
Is our only delivery model choice pure Q SaaS? Are there other alternatives?
A Companies can move to pure SaaS or Many software providers, however, remain dedicated to their on-premise recognize the value of transitioning all products and provide a SaaS solution. of their solutions to the SaaS model Sometimes user requirements often drive but continue to operate an on-premise the hybrid model where cloud providers business but adding no new customers. must also offer an on-premise option Crossovers, as they are called, are moving because customers want sensitive data to a subscription-only approach. Adobe is behind their firewall but are comfortable a good example of a crossover company. with less sensitive information in the cloud. Security conscious industries such as financial services, pharmaceutical, and government and their customers often prefer an on-premise option.
44 Business Model
Traditional Hybrid Cross Over SaaS
Strategic Intent On-premise focus LT both on- LT move to SaaS Exclusively SaaS premise & SaaS
Divers: Large on- Divers: Existing Divers: Divers: Newer premise costumer customer base, Competition, new business base, market or new & existing markets, products competition, solution type. markets or or company value. products or solution type. markets.
Customer Enterprise Enterprise & SMB SMB > Enterprise SMB > Selection Enterprise
Value Capture • Perpetual License • License & • Subscription • Subscription • Services Subscription Services
Deployment Time • Months or years • Weeks or • Days to months • Minutes > months Weeks
Customizability • Complex • Customizations & • Configurable • Highly customizations Configurations Configurable
Integration • Difficult to integrate • Moderately • Packaged • Packaged Difficulty complex to Integration Integration integrate
Understanding the implementation Q Most companies ask, “Can we manage this type of new model with our current Q How do businesses prepare to resources?” make a product transition from a traditional model to a cloud model? A A move to the cloud is as much about people as it is about technology. This often A Develop a comprehensive new product requires injecting fresh team members plan and budget. The plan should cover with solid cloud experience into the mix. every aspect of the service, including Engaging experienced consultants and product management, engineering, technology partners, such as Dimension professional services, and operations. IT Data, is another way to build your management must monitor cloud service resources. plans, progress against milestones and metrics, and ensure that they can course Companies should use as much cloud correct if needed. technology to run their business as possible. For example, many SaaS firms use Salesforce for their CRM needs, Marketo for marketing, a product like NetSuite for financials, and many other function-specific cloud solutions to create virtual front and back offices. 45 Financial implications
How much will an enterprise cloud model What are the other major financial Q Q cost to implement? differences?
A While it’s impossible to give an exact A The Cost of Goods Sold (COGS) or Cost of figure, a new cloud start-up takes about Service (COS) for a traditional software five years to hit breakeven. On average, model is typically 10 percent to 15 percent building a new cloud business takes at of total revenues, resulting in impressive least a $25 million investment over five gross margins of 85 percent to 90 percent. years to reach breakeven. An enterprise A cloud company will have COGS at cloud business will likely take much less 25 percent to 40 percent of their total time and investment than developing a revenues because they supply the hosting stand-alone start-up organization. infrastructure and the operational and support staff. This is why cloud operations must operate very efficiently to generate positive margins.
Profit margins of Cloud versus traditional software companies
Traditional Revenues SaaS Companies Revenues Software Companies - % COGS -% COGS
Gross margins Gross margins -% - %
46 QQ What about software development and Defining product capabilities personnel costs? Q Can enterprise cloud service offerings AA Cloud computing and Platform-as-a- Q deliver the same functionality of on- Service makes it possible to launch an premise software? enterprise cloud offering with just a few developers to build a market-ready product A Cloud providers can often deliver in months, not years. These development functionality on par with on-premise start-up costs are a fraction of traditional software. Some cloud products even on-premise products. exceed on-premise capabilities. These feature-rich cloud products when Q What is the most popular subscription combined with their configuration pricing model? flexibility and infrastructure management offer a very attractive product alternative. A There is no single subscription revenue model, which customers perceive as a Can enterprise cloud solutions be customized Q major advantage. They choose how they similar to on-premise software? want to pay. A Customers can configure cloud products Several popular models are shown below: to a set of predefined options. Basic configuration options include a unique Freemium: Customers receive relatively look and feel, such as displaying a low product functionality for free, with corporate logo or, in some instances, even enhanced features available for an a unique page layout. Cloud providers additional subscription fee. LinkedIn uses may also offer more advanced options— this pricing model. Electronic medical functionality that customers can switch on records company PracticeFusion is another or off for different users. freemium success story. It adopted this revenue model after struggling to attract Most mature enterprise cloud providers customers to its existing subscription Q offer an extension architecture that allows service. systems integrators, service providers, and even customers to build custom Subscription based on number of users: A capabilities around the core engine. The Q Dropbox. core is never made available to customers or integrators, but with an extension Consumptive: Based on the amount of architecture, external parties can do service a customer uses. Dropbox charges enough personalization to meet the needs A based on the amount of storage required, of individual large enterprises and specific and Amazon Web Services sells charges vertical industry functions. for how much computing power each customer uses.
47 Impact on the customer
Q Has enterprise cloud changed customer expectations?
A Cloud innovation has pushed more choices into the marketplace, intensifying the competition. Customers’ affinity for mobile access means they want access to best-in- class services anytime, anywhere. They’ve also committed little or no investment, so switching to a competitor is simple. And once customers sign up, they expect access in days, hours, or even immediately.
Q What is the typical schedule for new releases?
A Most SaaS and cloud firms roll out new releases monthly or quarterly. They use the agile development process instead of the waterfall approach that traditional software companies use for new releases to support this more frequent release of product.
Q How do I assure customers they will always have access?
A Most cloud companies provide a Service Level Agreement (SLA) that guarantees a product’s availability, uptime, security levels of the data center, and how they will respond to a catastrophic outage.
48 Conclusion
Consider several key strategies when deploying an enterprise cloud solution, including:
• Build a cloud culture – Find experienced leaders and staff to help your organization succeed at enterprise cloud.
• Develop subscription-based products – Avoid re-creating your traditional on-premise products. Think in terms of delivering a whole product solution that’s easy to use and built on top of a multitenant foundation.
• Deliver rapid time-to-value services – Make sure your product includes “Do-It-Yourself” features that configure and are available quickly.
• Enterprise cloud is a different service delivery model – It requires different financials metrics, business processes, and metrics that all need careful monitoring.
49 Enterprise cloud readiness checklist
Determine if you’re ready to build your enterprise cloud solution. A “no” answer to any of these questions indicates an area requiring further consideration and development.
YES NO
STRATEGY
Have you developed a cloud service delivery plan?
Have you defined clear cloud service criteria or metrics?
Have you developed a finance plan?
Have you appointed a designated leader of the enterprise cloud business/product?
Can your organization explain how it calculates its Cost of Goods Sold (COGS)?
PRODUCTS
Is the enterprise cloud product built using a multitenant architecture?
Is the software solution delivered as a service?
Have you developed the product using an agile methodology?
Have you developed with a mobile-first approach?
50 YES NO
SERVICE DELIVERY
Is your company using a third-party service provider, such as Dimension Data, for your enterprise cloud solution?
Have you established an industry-standard Service Level Agreement (SLA)?
Have you implemented a disaster recovery plan?
Does your company have industry-standard certifications, such as SSAE16, HIPAA, PCI, or PII?
Are DevOps-experienced professionals managing your operations?
51 Glossary of Cloud Terms
ACV Annual Contract Value of a subscription software agreement
API Application Programming Interface
ARR Annual Recurring Revenue
ASP Application Service Provider Often associated with a hosted, single-tenant software solution.
CAC Customer Acquisition Costs A measure of sales effectiveness based on how long it takes to pay back sales and marketing investments with customer revenues.
Churn Measure of percentage of cloud customers who do not renew their annual or monthly subscription agreement.
Cloud Utility computing method that shares many types of computer Computing resources through virtualization and delivers an elastic computing environment over the Internet.
CLTV Customer Lifetime Value A cloud metric of customer value, usually over a three - to five- year period.
CMRR Contracted Monthly Recurring Revenue Monthly subscription revenues from new and existing customers, less revenues, from customers that do not renew their subscriptions.
CoLo Co-location facility Common term for leasing a physical data center, which the customer will equip with their own computing and communications infrastructure. The service provider, in turn, provides data center facilities, power, internet connectivity and security for a monthly fee.
Cross-sell The sale of software functionality or products added to an existing subscription agreement.
Down-sell When customers remove functionality, users or capability that, in turn, lowers CMRR.
52 Freemium When a software provider offers basic features to users at no cost and charges a premium for supplemental or advanced features.
Hosted Single-tenant software delivered over the Internet from either the software software vendor’s own data center or via the data center of a third- party hosting company.
Infrastructure- A combination of hosting, hardware, provisioning and basic services as-a-Service needed to run a cloud application delivered on a subscription basis. (IaaS)
ISV Independent Software Vendor A software company that can either sell its products via the traditional, on-premise model, the cloud model or a combination of both.
MRR Monthly Recurring Revenues
Multi- Software architecture in which a single instance of the software runs tenancy on a single server, serving multiple client organizations (tenants) and all managed centrally. Multi-tenancy is different than a multi-instance architecture, in which separate software instances, or hardware systems, are set up for different clients.
On-demand A term often used interchangeably with Cloud. On-premise A traditional method of installing and customizing software on the customer’s computers, which reside inside their data center.
Platform- A development platform where the development tool is hosted in the cloud as-a-Service and accessed through a browser. With PaaS, developers can build web (PaaS) applications without installing any tools and then deploy their applications and services - reporting, integration, security - without any specialized systems administration skills.
Private Cloud Employs cloud-computing principles within a customer’s own internal networks. The term implies the use of the same virtualization and highly flexible and scalable methods used in commercial or enterprise data centers.
Renewal When a customer agrees to extend an existing software subscription agreement beyond the initial term.
SLA Service Level Agreement The contractual obligation of the service provider to guarantee a minimum level of system uptime and availability. SLAs also detail response times for service interruptions and penalties for associated outages.
53 SaaS Software-as-a-Service Refers to multi-tenant software delivered over the Internet. Customers consume the product as a service delivered on a subscription basis.
Subscription Cloud licensing method in which customers rent their software from the provider on a monthly basis, usually over a one to three year term.
Up-sell Additional software functionality, users or capacity sold onto an existing subscription agreement.
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