Cloud services are increasingly being used as a foundation to drive business, functional and IT transformation.  And while the concept of transformation isn’t new, there are though several factors that make cloud-enabled transformation in the enterprise uniquely challenging:

1. Executive sponsorship and risk - any successful business or IT transformation effort requires executive sponsorship.  What’s different about cloud is the profile and nature of execution risk.  Cloud transformation often requires executives to bet their careers on cloud service providers and their ability to deliver.   In conservative enterprises where cloud is still perceived by many to be risky, insecure and not “enterprise-ready”, it’s a rare breed of executive that will make that bet.
2. Frontline alignment - most enterprise transformation efforts historically have been top-down exercises driven by centralized strategic planning.  Cloud transformation efforts are unique in that they required both executive mandates as well as incentives for frontline employees.  Take for example application development transformation.  In the old world a standardized set of platforms, services and tools could be mandated by corporate IT, and developers would have little choice.  Today if the services incentives aren’t right, developers can still easily go rogue and take their apps to Amazon or Rackspace.  That’s why recent successful app dev transformation efforts like the one at JP Morgan Chase have relied on a combination of top-down mandate and bottom-up adoption.  This example can be extended to broader business and IT transformation efforts.  If incentives aren’t aligned with employees, they’ll often drive their own transformation efforts on their own terms.
3. Time and tempo - cloud-enabled business transformation typically involves using agility and time-to-market acceleration as sources of competitive differentiation.  This requires not just rethinking business processes and platforms, but also core skills and capabilities.  Cloud and big data dramatically compress the time required for enterprises to observe, orient, decide and act in response to the market (or in fighter pilot speak the “OODA loop”).  The wide scale use of time and tempo as competitive advantage is a relatively new one for many enterprises, one they’re not familiar or comfortable with yet.  The concept of being first to market certainly isn’t new, but the intensity and pace it currently takes to be first is.
4. Skills shortages - it’s a mundane topic that no one still really likes to discuss, but the lack of cloud skills is a real issue stopping organizations from doing more with cloud.  This is certainly becoming apparent to service providers, which is why you see things like Rackspace’s Open Cloud Academy and Amazon’s AWS Training and Certification.  This isn’t just an operational and support issue.  Without talent it also becomes difficult to evaluate opportunities and develop a roadmap, let alone determine how to drive a wide-scale transformation effort on cloud services.
5. Pace of innovation - the interplay between cloud and open source is driving a pace of innovation that is difficult for even the earliest of enterprise adopters to keep pace with.  This is certainly true at the IaaS and PaaS layers, and may eventually play out in SaaS as well.  While committing to cloud as a foundation for transformation is one thing, recognizing the ongoing investments in talent and skills required to leverage cloud platforms is another.  Taken together with the skills gap mentioned above, the pace of innovation poses a significant challenging for those deciding whether to drive a wide scale transformation effort.

While it may come as a surprise the some, the critical factors for success in driving cloud transformation have little, if anything to do with technology.  People, skills and incentives are becoming the name of the game in cloud transformation.

Originally posted at CloudAve

The post Five Reasons Why Cloud Transformation is Hard appeared first on Leverhawk.

1.  Bringing Shadow IT into the Light
While many enterprise IT organizations believe they have limited public cloud spend today, Gartner has estimated that by 2014 up to 35% of IT spending will occur outside of the central IT budget on public cloud services. For the average company with $5 billion in revenue, that extra IT spend could be north of $25 million.
To respond to their business users’ need for IT services that are more cloud-like, most large enterprise IT organizations have embarked on some sort of private cloud initiative. But until that initiative is complete, end users will happily continue to use public cloud services – with the business taking on the consequences of higher overall IT costs as well as security and compliance holes and risks.
A cloud services brokerage enables end-users to continue to use public cloud services, but allows the IT organization to offer value-added services for the business such as spend consolidation, alternative sourcing to multiple public clouds, solution architecture guidance to ensure that the proper security services like VPNs are in place and consolidated billing management. Once a private cloud has been completed, it can be added to a brokerage similar to a public cloud services provider and with the added benefit of a public cloud-like experience.

2.  Filling the Gaps in Hybrid Cloud Management
Most private cloud management software has morphed over time to hybrid cloud management solutions. Virtually all of these platforms provide end-user benefit through self-service portal catalogs offering fixed VM/workload configurations as well as automation on the back end to speed up the deployment of the VM/workload on either private or public clouds. However, gaps still exist for an IT organization looking to deploy a true hybrid cloud experience.
Today’s public cloud services landscape is highly fragmented from an offering standpoint. Each provider has different capabilities, packaging and pricing models.  Thus, many public cloud users end up defaulting to a single public cloud provider, setting themselves up for the cardinal sin of long-term lock-in.
A brokerage capability can help the end-user navigate this complexity by allowing collaboration with IT to design the proper application infrastructure solution using either private or public cloud infrastructure, and includes additional services like security or backup. A brokerage can also provide an estimated bill of IT for that application infrastructure solution across different providers, internal and external, that is reflective of the latest pricing. It can enable true chargeback to the business for the actual IT services that have been consumed while automating and consolidating the complex billing process across multiple providers on the backend.

3.  Rationalizing IT Outsourcing
While IT outsourcing contracts specify minimum spend levels, the reality is that the actual spend is higher as additional services are requested of the ITO provider.   Thus, the savings that businesses hope to realize from ITO are diminished. In fact, 38% of customers cite lack of innovation or continuous improvement as the greatest challenge with their ITO vendor.
One way to reduce ITO spend is to leverage public clouds to reduce infrastructure spend. The Everest Group has highlighted a case study of a leading global power generation company that found that usage of public cloud models for only 25% of workloads would drive greater than 30% reduction in overall infrastructure costs.
However, the challenge is to preserve these estimated public cloud savings. As with every new technology, hidden costs of adoption appear after the fact. The Texas Cloud Offering (PTCO) has documented 10 lessons learned from using public clouds to reduce infrastructure costs. Some key sources of cloud cost leakage include the need to re-architecture infrastructure solutions to maximize the benefits of public cloud, the risk of lock-in, billing complexity and cloud VM sprawl. By implementing a cloud brokerage capability to mitigate these cost leakages, the State of Texas enjoyed a 41% savings by moving a web services application to a public cloud.

Given the operational complexity created by multi-cloud environments, over time new use cases will certainly emerge for cloud brokerage.  What do you think about using a cloud brokerage model as a bridge to the cloud?  What other use cases come to mind?   We’d love to hear your perspectives.

Mohammed Farooq is a guest contributor to Leverhawk.

The post The Top Three Practical Use Cases for Cloud Brokerage appeared first on Leverhawk.

• Cloud economics, with the author of Cloudonomics, Joe Weinman, Telx
• Alternative private clouds, with PaaS and cloud guru, Diane Mueller, Red Hat
• A discussion of who should build your private clouds, with the CEOs of Mirantis, Adrian Ionel, and CloudOps, Ian Rae
• When to build your private cloud, with Everest Group Partner and Leverhawk author, Scott Bils
• Should you build your private cloud in your own data center, or somewhere else? A discussion with data center expert, Mark Thiele, Switch, and former CIO, Tim Crawford
• We’ll also have a great sponsor panel including representatives from HP, NetScout, Microsoft, and Juniper

Come see us at the Mandalay Bay conference center in Las Vegas on Tuesday, May 7.

The post Join Leverhawk Writers at Interop on May 7 appeared first on Leverhawk.

First off, some background on Pivotal.  The Pivotal Initiative is a spin-off of selected cloud and data analytics assets of VMware and EMC.   Led by former VMware CEO Paul Maritz, Pivotal has approximately 1,400 employees and brings together two major sets of technologies:

• Big data and analytics – EMC’s Greenplum big data platform and VMware’s Cetas predictive analytics solutions
• Platform-as-a-Service (PaaS) – VMware’s Cloud Foundry PaaS platform  and vFabric custom Java application development framework

Basically Pivotal provides the platforms needed for enterprises to leverage big data analytics and custom cloud applications.  Think of it as spin-out of the EMC and VMware assets focused on the cloud application layer.

The stated motivations about why GE decided to invest had a lot to do with their vision of the industrial internet.   The basic idea is that big data and cloud platforms can be used to mine and analyze the immense amount of data being generated by internet connected devices and users.   GE believes that cloud applications analyzing data from everything from jet engines to power grids can be used to drive dramatic improvements in operational efficiencies and service levels.

While the GE vision is interesting, we’ve certainly heard similar stories before around the powerful impact of big data and cloud (see IBM Smarter Planet).  What actually is even more compelling about the announcement is what it reveals about GE’s beliefs about the enterprise cloud market.   While they didn’t explicitly say so, if you’re GE here’s what you would have to believe about the cloud market for the investment to make sense:

• PaaS will not commoditize anytime soon – it would make no sense for a diversified manufacturing and services company to directly invest in technology it believes is going to commoditize.   Why not just buy it from vendors or service providers on the open market?  GE must believe that the combination of PaaS and analytics will require a unique set of differentiated technologies that won’t be commoditized any time soon.  It almost must believe that Pivotal and the associated EMC and VMware platforms are uniquely positioned in the enterprise PaaS market, either due to the combination of assets or technological advantage.
• PaaS will create competitive business advantage - according to the formal announcement, the agreement is “aimed at accelerating GE’s ability to create new analytic services and solutions for its customers.”  GE believes that agility and time-to-market advantages provided by PaaS platforms are significant enough to create competitive advantage in the market.  GE also must believe that this differentiation is sustainable from a technology platform standpoint.   A key part of the announcement is the joint R&D efforts, which certainly implies that GE will have significant influence over Pivotal’s roadmap to ensure that advantage is maintained.
• IT is becoming “part of the product” – as we discussed in an earlier post about Toyota’s IT transformation, IT and data are increasingly becoming key components of the products we buy.  GE certainly could have influenced the Pivotal product roadmap by being a major flagship customer without making a 10% investment.  The investment likely indicates that GE wants an option to potentially acquire Pivotal.  GE is not just saying that cloud and big data are strategically important.  It’s saying that they’re so important that they need to potentially own the platform.   A 10% minority stake could easily just be a prelude or option on the purchase of the whole company, though obviously EMC and VMware would have something to say about that.

So a final question for those who are still wondering if cloud is truly disruptive in the enterprise: can you name the last time GE directly invested nine figures in a technology company?   The assumptions and merits of the bet that GE has made certainly could be debated.  The reasons for why they made the bet cannot.

Interested in reading more about cloud and enterprise transformation?  Read our recent case studies on Toyota, JP Morgan Chase, State Street and Domino Sugar.

Want to learn the basics about PaaS and other cloud models?  Check out our tutorial on cloud computing.

The post Why Did GE Invest $100 Million in a PaaS Company? appeared first on Leverhawk.

Personal-computer shipments plummeted in every region of the world in the first quarter as buyers opted for smartphones and tablet computers and Microsoft Corp. (MSFT)’s newest operating system met with weak demand.

Global PC unit shipments fell 14 percent in the first quarter — the worst such decline on record — to 76.3 million, a bigger drop than the 7.7 percent decline IDC had forecast, the market researcher said in a statement yesterday. The slump was the steepest since IDC began tracking shipments in 1994.

…

The last time worldwide PC shipments experienced a double-digit percentage decline was in the third quarter of 2001, when the market was roiled by the Sept. 11 terrorist attacks and the impact of a decline in technology stocks, Chou said.

…

Microsoft, based in Redmond, Washington, introduced the latest version of Windows and a tablet called Surface in October to appeal to consumers, who are increasingly adopting mobile devices to surf the Internet, access e-mail and store pictures, music, documents and other information.

This has a profound impact on the PC ecosystem as a whole. For instance:

1. Both Intel and Microsoft are obviously going to be hard-hit. Not only does Microsoft lose Windows sales, it has a downstream effect on purchases of Microsoft office.
2. This will impact Microsoft’s ability to fight in the Great Tech War. In a sense, cash cows like Windows and Office might be likened to industrial production capacity during World War II. They are the engine that allow you to fight the battles in other places. If those cash cows are severely impacted, Microsoft will be forced into tough choices over time. Given it’s huge cash position (nearly $70B in January, 2013), however, those choices can be put off for quite a while, but even this tremendous war chest could be consumed quickly if things continue to go south.
3. There will also be a ripple effect to thousands of other companies that play in the Wintel ecosystem. The biggest problem is that the mobile devices being sold instead of PCs are largely closed systems. Apple and Samsung will benefit mightily if mobile devices replace PCs, but there is a lot less room for the rest of the PC ecosystem to play with these devices. Sure, you can find a zillion cases for your iPhone, in every color of the rainbow and zebra print, but that’s a $15 sale, not a $100 peripheral. Yes, there are things like add-on Bluetooth keyboards for iPads, but it falls off quickly after that.
4. ARM sales are going to be increasing. Most of the high-volume mobile devices from Apple, Samsung, and others are based on ARM. We’ve covered some of the ARM vs. Intel debate previously.

Exit quote from the Bloomberg article:

“Windows 8 sold over 60 million licenses in its first few months, a strong start by any measure,” Mark Martin, a spokesman for Microsoft, said. “Along with our partners we continue to bring even more innovation to market across tablets and PCs.”

It would be a strong start for anybody but Microsoft. When you’re the king of the hill, you need more than this. A PC market decline of this magnitude can only be taken as an ominous start to 2013 in the halls of Redmond.

The post PC Market Decline More Than Expected in First Quarter appeared first on Leverhawk.

• Frustrated by a non-responsive IT organization, business users become attracted to the innovation, speed, and  flexibility offered by cloud vendors and solutions
• Fearing loss of control, corporate IT puts the brakes on deployments and projects of which they become aware
• Undaunted, business users “swipe the credit card and go” to the cloud anyway, around and outside of normal IT procurement processes
• CIOs and IT executives are shocked to learn that cloud adoption is going on behind their backs

And while many enterprise IT departments frequently use the terms rogue IT or shadow IT to describe this phenomenon, progressive CIOs are actually encouraging this behavior as a way to gain leverage and scale with a limited IT budget.

CIOs have a finite set of time and resources to accomplish what is asked of their IT organizations. Many enterprises facing significant cost pressures and budget constraints must focus almost exclusively on supporting, maintaining, and enhancing core, mission critical systems. Think trading platforms for capital markets firms, or claims processing for insurance companies. IT can support only so many new projects requested by the business, and every CIO needs to draw the line somewhere on the project list.

For projects that fall below corporate IT’s project cut line, the cloud is a win-win proposition. Business stakeholders can go ahead and acquire from a third party the capabilities they are seeking. IT ends up with a happier internal customer. And the organization overall can effectively attain greater scale from its IT budget and headcount by pushing the business to cloud providers.

As one CIO recently commented to me, “I actually want our business users to go to the cloud. I want them to ask cloud vendors the right questions, and, of course, I want to make sure they’re not doing anything that touches our mission critical apps. But other than that, I’m happy for them to go out to get what they need.” Of course, one of the keys here is the right questions, such as those focused on critical topics including security, identity management, data ownership, integration, availability, disaster recovery/business continuity, etc.

There’s no doubt that many CIOs are surprised internal developers are using Amazon AWS, or that marketing is building its own custom apps on Salesforce.com. The more unanticipated but understandable fact is that many of them are actually relieved to have this extra weight lifted off their heavily-burdened shoulders.

Interested in reading more about how about enterprises cloud strategy?  Read our recent post about why CIOs need to take an agile approach to developing their cloud strategies.

(This post originally appeared on the Everest Group blog Gaining Altitude in the Cloud)

The post Why Some CIOs Actively Promote Shadow IT appeared first on Leverhawk.

Many enterprises are starting their cloud computing journey with a private cloud. But what is a private cloud? Are they real or just “IT as we always knew it” ?

While much of the industry focus surrounding cloud computing has been on the giants in the public cloud space , companies like Amazon Web Services, Microsoft, and Google, for instance, many enterprises are eschewing these options for production workloads and instead building private clouds. But that raises the question, just what is a private cloud? And what distinguishes a private cloud from both public clouds and traditional IT as we practiced it before cloud computing arrived on the scene? Indeed, as recently as 2009, Werner Vogels, CTO of Amazon Web Services, was claiming that a “private cloud is not the cloud.” Is that true? If not, why not?

What is Privacy?

First, we need to understand privacy a bit more. In what sense is a private cloud private? There are a few ways we might be tempted to answer that question:

1. A cloud might be private in the sense that it exists behind a security perimeter (e.g., firewall) and is only accessible from the public Internet through very carefully controlled means. Here, privacy means, “Not visible to the public Internet.”
2. A cloud might be private if it runs only workloads from a single organization. Whereas a public cloud might place workloads from different companies in such a manner that they would share infrastructure, a private cloud would eliminate this possibility. In this case, privacy means “not shared outside the organization.”
3. A cloud might be private if the organization that owns the infrastructure is also the one that owns the workloads running on top of it. In this sense, privacy means “everything is owned by the same organization.”

Previously, in our “What is cloud computing?” post, we looked at the NIST cloud computing definitions. According to NIST, a private cloud is defined by our definition #2. Specifically, NIST says:

Private cloud. The cloud infrastructure is provisioned for exclusive use by a single organization comprising multiple consumers (e.g., business units). It may be owned, managed, and operated by the organization, a third party, or some combination of them, and it may exist on or off premises.

Many people think private clouds are always operated by the enterprise and must reside in the enterprise data center, but that’s not the case. An enterprise, could, for instance, hire a consulting services company (e.g., CloudOps or Mirantis) to build and run a cloud in a service provider colo facility (e.g., Savvis, Switch, or Terremark), using leased or rented computers and storage. Any and every permutation is fair game, as long as the infrastructure is provisioned for the exclusive use of a single enterprise.

Private Cloud Types

The NIST definition for private clouds doesn’t mention anything about the which types of cloud (IaaS, PaaS, or SaaS) are applicable to private clouds. In fact they are all applicable:

• IaaS — Many enterprises will build an initial public cloud by evolving from a basic server virtualization environment. What’s the difference between these? Fundamentally, it relates to how the cloud is exposed to users. NIST defines five essential characteristics of clouds: on-demand self-service, broad network access, resource pooling, rapid elasticity, and measured service. A virtualization environment will deliver or or two of these (namely resource pooling), but not the others.
• PaaS — Some enterprises will build standard enterprise PaaS environments, providing more than simple operating system instances on demand. We’ve covered JP Morgan Chase’s efforts at rolling out a private PaaS environment before. Sometimes, enterprises will build this themselves, creating a custom environment with a specific set of components, many of which might support legacy applications and interfaces. Other times, enterprises will rely on external vendors like Apprenda or Cloud Foundry.
• SaaS — This is a bit of an odd one. Some people have argued that there’s little difference between private PaaS and enterprise IT running software as we always knew it. But SaaS has a distinct billing aspect to it, and private SaaS will differ from old IT running software precisely in that it provides a more accurate accounting system for performing enterprise-wide charge-back or show-back.
• Others — While all private clouds will fit into one of these three types, there are going to be specializations that might deserve their own names. Some enterprises, for instance, are having great success in running Database-as-a-Service private clouds, often based on clustered, highly available versions of Oracle or other databases.

 Why Build a Private Cloud?

For all of Werner Vogels’ statements against private clouds, almost every large enterprise I have talked to is starting their production cloud journey with a private cloud project instead of public clouds (though, to be clear, many are running PoCs and lab experiments with public clouds). The obvious question is why?

1. Security risk — Whenever anybody polls enterprises and asks them about reasons for not moving to cloud computing, security is inevitably the #1 answer. Enterprises have a responsibility to customers, employees, and shareholders to ensure that confidential information is not compromised. Public clouds are perceived as an increased security risk. While there is evidence that suggests that public clouds are actually more secure, they do represent a major change in the IT landscape, and it’s prudent for companies to move carefully.
2. Project risk — Many companies already have an existing server virtualization environment. Given existing capital equipment and software infrastructure, it makes sense to try to reuse that by evolving the virtualization environment into a full-fledged private cloud, reducing project execution risk by eliminating some variables from the equation.
3. Cost — Early in the cloud era, pundits would claim that public clouds would be cheaper than traditional IT because the large public cloud providers could “buy in volume and operate at scale,” gaining enormous efficiencies over the regular enterprise IT organization. That’s certainly true for small and mid-sized companies that could never afford to build a highly available, tier 4 data center with a state of the art cloud inside. But many larger organizations already have such facilities, buy large quantities of servers and storage already, and have top-notch operations personnel on staff to run everything. Having done the analysis, many large enterprises are saying that they can operate a private cloud for as little or even less than the large public providers like Amazon, particularly for long-running workloads. Leverhawk will be publishing more about private cloud economics in future articles.

Conclusion

Many enterprises are starting their cloud journey with a private cloud, reducing risk and gaining some experience before they use public clouds. Private clouds come in all flavors, IaaS, PaaS, and SaaS. They can be owned and run in your own enterprise data center or located in a 3rd party data center and run by external operations companies. The prime characteristic of a private cloud is that it contains workloads from a single organization.

The post What is a Private Cloud? — A Tutorial appeared first on Leverhawk.

Microsoft last week announced the general availability of Azure Infrastructure Services.  This marks a notable course correction for Microsoft, which initially provided Azure solely through a Platform-as-a-Service (PaaS) model.  While many market observers assume that public cloud IaaS in the enterprise is now a three horse race between Amazon AWS, Rackspace and Google, they may be selling Microsoft short. Why might they be underestimating Azure Infrastructure Services?

• Enterprises like Microsoft (compared to other legacy vendors) – Microsoft overall seems to have more traction and credibility with enterprise buyers of cloud services.  One of the focus areas of the recent joint survey by Everest Group and Cloud Connect on enterprise cloud adoption was around buyer perceptions of public cloud PaaS / IaaS vendors.  Compared to other “legacy” enterprise IT vendors Microsoft actually has quite an advantage.  Azure has 3x the number of public cloud PaaS / IaaS customers than other legacy enterprise IT services vendors, including IBM, HP, CSC and others.  The number of enterprises that would consider Azure is also higher than for any of the other major legacy enterprise vendors.  While Azure Infrastructure obviously faces significant competitive headwinds from Amazon AWS, Rackspace, Google and others, it will likely have an advantage among enterprises who may decide to stick with established vendors.  These more “risk-averse” enterprises may end up at the end of the day representing a substantial percentage of the overall enterprise cloud market.  
• They’re matching Amazon AWS pricing – for enterprises eyeing Amazon AWS, Microsoft took several steps to ensure market competitiveness with Azure Infrastructure Services.  Microsoft is price matching Amazon AWS on core compute, bandwidth and storage services.  New VM pricing matches AWS for both Windows and Linux VMs, and represents a 21-33% price reduction for Azure.  Beyond pricing parity, Microsoft is also offering an enterprise SLA with 99.95 percent uptime for Azure Infrastructure Services.  While parity on some pricing and service dimensions won’t make Azure Infrastructure a slam dunk for public cloud IaaS, it makes the decision a bit tougher. 
• Microsoft still has a big .Net developer base – as many cloud providers have already discovered, winning the hearts and minds of developers is critical in PaaS and IaaS services. With the number of .Net developers worldwide numbers in the millions, everyone has always assumed that Microsoft had an inherent advantage with Azure.  We really haven’t seen that advantage materialize yet, with estimated Azure revenue still only roughly half that of Amazon AWS.  The ability of Azure to now provide a common platform for running applications either on Azure or private clouds built on Windows Server and Systems Center may help Microsoft now start to build momentum.

At the end of the day Azure Infrastructure Services will likely be most attractive for enterprises looking to migrate existing .Net applications running on Hyper-V to public cloud services, effectively extending their existing data centers.  An interesting dynamic to watch will be whether enterprise .Net developers will go the Azure public cloud PaaS route for new application development, or the private PaaS route for .Net apps as recently seen at JP Morgan Chase.

Originally posted at CloudAve

The post Don’t Underestimate Microsoft in the Enterprise Cloud Race appeared first on Leverhawk.

• Failing to focus on transformation – most cloud strategy development efforts begin with an assessment of the current application or workload portfolio that has some vague similarities to an application rationalization exercise.  The goal is to determine the “best fit” cloud delivery model based on business, technical and operational criteria.  While a perfunctory nod is typically made to “business objectives”, the bulk of the effort focuses on technical workload analysis.  This pretty much assures that any resulting strategy will largely result in identifying easy “low-hanging fruit” and incremental improvement opportunities.  Instead the starting point should actually focus on exploring how cloud models can drive business or functional transformation.   Mapping workloads is important, but failing to first explore the inherent business transformation opportunities associated with agility, flexibility and accelerated time-to market misses the point.
• Maintaining IT ownership and control – in most cases corporate IT is driving the cloud strategy effort.  This raises a couple of major questions.  While in most cases business stakeholders are certainly involved in the effort, why aren’t they driving it?  And given that business stakeholders in many cases can migrate to SaaS, PaaS or even IaaS on their own, why is a single integrated enterprise-wide strategy even required?  While IT will need to play a role in overall integration, security, and service management, that is an enabling support function that doesn’t necessarily need to drive an overall strategy.
• Taking a “waterfall” mindset– the typical enterprise cloud strategy development effort we’ve seen is a centralized, top-down multi-month analytical effort that results in a multi-year migration plan to a target end-state environment.  To borrow from the software development world, this is essentially a “waterfall” approach to strategy development.   The problem is that the constant innovation and change we’re seeing in the cloud market creates uncertainty and unknowns that makes multi-year planning horizons almost laughable.  An agile like approach that uses a set of guiding principles, goals and “backlog” to drive ongoing migration activities that change and evolve in reaction to business priorities and cloud market innovation might be a more fruitful approach.
• Viewing strategy development as a one-time event– given the immaturity and pace of innovation in the market cloud strategy development should not be a project with a beginning and an end, but rather a continuous, evergreen process.  As the pace of innovation is only likely to increase with cloud, open source, big data and mobility, expecting an annual or even semi-annual strategy planning process to keep pace just isn’t realistic.  For many enterprises cloud strategy should instead be a continuous, ongoing effort.
• Ignoring broader organizational impacts – cloud migration has significant implications for functions like procurement, vendor management and finance.  For example shifting IT from capital-focused budgeting models to operating expense can create financial issues for IT intensive companies.  These issues are often neglected, or not even addressed in many cloud strategies.  There also is many times a lack of realism around the cloud skills gap that exists in many organizations, and naiveté around how much change the IT organization itself will need to go through to support the strategy.

The rapid pace of innovation, relative market immaturity and disruptive nature of cloud models suggests that a new approach to IT strategy may be required.  Unfortunately many enterprises are building strategies on assumptions, models and processes that may be familiar but not terribly applicable or relevant.

Interested in learning about how cloud can drive business agility?  Check out our recent post on OODA loops and how cloud and big data can shorten decision-making cycles.

The post Do Enterprises Need an Agile Approach to Cloud Strategy? appeared first on Leverhawk.

1. The power shift from IT to business is real – one of the key findings from the adoption survey was that outside of dev test environments, disaster recovery (DR) and email / collaboration, business stakeholders are the primary drivers of enterprise cloud adoption. Anecdotal conversations with practitioners and vendors alike reinforced this idea that the cloud is permanently changing buying behaviors in the enterprise.  This is bad news for many of the legacy enterprise IT players, who struggle with transitioning from a CIO-centric sales model to one focused on emerging business buyers.
2. OpenStack is on a roll – one of the common themes in both the sessions and side conversations is that OpenStack appears to be gaining steam not just with the Foundation members but with enterprises as well.  In fact one leading financial services player we met there has the target of moving half of their production workloads to OpenStack by the end of the year.  We heard countless more examples of deployments that were in fact more than just pilots, and indications that OpenStack is starting to gain serious momentum.
3. Cloudwashing is contagious – many legacy enterprise IT vendors have a lot to lose as their customer base migrates to the cloud.  It’s probably not surprising that many of them are happy to have their customers mistakenly believe that virtualized environments = private clouds.  As a result we have the unfortunate phenomena of organizations claiming and believing that they’re migrating to private cloud models, when in fact they’re really not.
4. Cloud infrastructure can create competitive advantage – while applications, analytics and data are commonly seen as the source of IT-enabled competitive differentiation, we heard about how some enterprises are actually seeking cloud infrastructure as potential sources of business advantage.  We heard from one other major financial services firm that the speed and agility benefits being provided by the combination of cloud and open source was in fact creating competitive business advantage in the marketplace.
5. Shadow IT doesn’t always mean happy customers – a growing trend that we heard a bit about was the “lose / lose” dynamic that was being created in some organizations by shadow IT.  The scenario goes like this: business buyer asks corporate IT for on-demand infrastructure services, with requirements that are perhaps a bit unrealistic.  Unhappy with the response they hear, business buyer instead goes to a public cloud IaaS provider, but quickly realize requirements aren’t met there either, but for different reasons.  The result is one unhappy customer and two unhappy service providers.   While this is the exception not the norm today with shadow IT, it is a trend worth watching.  Note to business buyers:  with freedom comes responsibility, certainly at least to understand your real requirements.
6. Compliance isn’t stopping adoption – conventional wisdom suggests that highly regulated verticals will be adoption laggards due to security and compliance concerns.  A series of sessions with IT executives at Novartis, American Express and Fidelity proves that’s not the case.  While in the most case they’re focus is on private cloud models, the motivation is still around business drivers – providing faster, cheaper and more effective applications and capabilities.  The initiatives they’re driving are global in nature, and far from the ubiquitous proof-of-concepts that everyone seemed to be discussing last year.
7. The tipping point is near – if it’s not here already, we’re close to the point where cloud becomes accepted as the primary IT delivery model going forward.   The conference survey showed that the majority of enterprises now expect migration to some type of cloud model (public, private hybrid or other) across all major workload types.  This isn’t to say that everything will migrate tomorrow, or that it will make sense to migrate everything to cloud models (it won’t), but it does say that market conversation around whether cloud makes sense for the enterprise may be close to over.

Interested in reading more about how cloud is driving enterprise transformation?  Check out our recent post on how JP Morgan Chase is using PaaS to transform internal application development.  Also read our guide on understanding the Great Tech War being fought across cloud, mobile, digital content and big data.

The post Seven Things We Learned at Cloud Connect appeared first on Leverhawk.

Today, a Great Tech War is breaking out in the world of technology. The leading powers of our modern technological age, Amazon, Apple, Google, and Microsoft, are positioning to do battle across multiple fronts. The winners will decide the direction of technology for a generation.

Whereas the combatants of World War II split into two primary alliances, the Allies and the Axis, the combatants in the Great Tech War have thus far seen fit to mostly go it alone, battle royale style.

The Major Powers

The Great Tech War is going to be fought by four Major Powers:

• Amazon — Over the past two decades, Amazon has grown from a small online bookseller to one of the largest retailers in the world, rivaling WalMart in terms of its scope and scale. As it has grown, the company has branched out into (not obviously) adjacent markets such as eBook readers and tablets (Kindle) and cloud computing (Amazon Web Services).
• Apple — After being left for dead in the 1990s, Apple brought back Steve Jobs and then proceeded to run the table. The company went consumer, innovating with electronic song downloads (iPod and iTunes), then created the words most iconic smartphone (iPhone), and finally dominated the mobile computing market with iPad. Like a rock star, it dressed up its image and went with a one-word name: just “Apple” now, not “Apple Computer.”
• Google — It’s not just a search engine with some advertising thrown in. The company is delivering a top-notch mobile strategy with Android partners and branching out into downloadable apps, videos, books, and magazines in the Google Play store. Google also has a high quality cloud computing service (Compute Engine and App Engine).
• Microsoft — Over the last decade, as Windows and Office revenue have slowed, the company has looked to expand into other areas. The old joke with Microsoft is that you should ignore its products until version 3, at which point it might deliver something good. The company’s first efforts at mobile (Win CE) and cloud computing (Azure) both fizzled, but Microsoft is fighting back with renewed vigor, and the latest versions of its cloud and mobile products are looking good.

The Minor Powers

The Major Powers in World War II were surrounded by a bunch of minor powers. In the same way, there are other minor powers fighting in the Great Tech War as well. Look to these power to build alliances with the great powers to as they work to build their position on one front or another.

Note that some of these companies are huge, so calling them a “minor power” might seem odd at first. That’s a reflection of their position in this new war, not of their financial strength or former glories.

• VMware — VMware is the new kid on the enterprise software block. When VMware grows up, it wants to be the Microsoft of the 21st Century. In order to do that, it wants to fight in the cloud computing campaign.
• Cisco — Cisco won the networking war of the 1990s, but it’s struggled to find new markets beyond that. Cisco is a hardware company in an increasingly software-oriented world and it’s hungry for the “next big thing.”
• IBM — IBM, is well, IBM. ‘Nuff said. Never count them out of any fight that involves technology. If they can teach elephants to dance, they’ll remain a factor in this war for a long time.
• HP — HP, in spite of its problems, has been dancing around some of these markets for a while. It bought Palm to help bolster its position in mobile, then couldn’t figure out what to do with it. It has expanded into cloud and has an extensive software business.
• Oracle — Ever since Larry Ellison’s famous rant about cloud computing back in 2009 at the Churchill Club, Oracle has been trying to figure it out. As Ellison said, there is still a lot of hardware and operating systems and databases that get sold to power clouds, but the question is whether Oracle wants to play in all the other stuff. Following the acquisition of Sun, the company has a lot of pieces with which to construct a story.
• Facebook — Facebook is a bit of an odd duck here. It isn’t a hardware company. It doesn’t build clouds itself. It doesn’t make software for others. It’s really a single, huge, highly successful social application, delivered in SaaS format. Beyond merely connecting more than a billion people and allowing them to upload pictures of their children and cats in funny situations, however, the company sits on a strong strategic position with respect to cloud-based identity.

The Theaters of War

In World War II, fighting between the Axis and Allied powers erupted on numerous fronts, grouped into large “theaters,” from the deserts of North Africa to the jungles of Pacific islands.

The Great Tech War has thus far been fought in the following theaters:

• Mobile — Recent analyst reports have from IDC and Gartner have reinforced the importance of mobile computing as a primary source of growth in IT markets. All of the Major Powers are playing in the mobile markets in some way, and often more than one.
• Digital Content (Apps, Music, Video, Books, Magazines) — It would be easy to lump digital content in with mobile, but it’s really a separate theater in this conflict, even if it’s frequently delivered through mobile devices. If a mobile device is the razor, digital content is the razor blade.
• Cloud Computing and Big Data — Where mobile devices represents the client-side or user-side theater of conflict, cloud computing and big-data are the equivalent on the server-side. All of the the Major Powers have strong cloud computing initiatives, many with big-data services riding on top.
• Identity Management — As the computing landscape continues to shift to a cloud-centric model, with users working from a number of different devices throughout a typical day, identity management because an important part of delivering a consistent experience across those devices. You can see all the Major Powers positioning here, allowing you to sign into various we properties with standard credentials.

Conclusion

This article has given you an introduction to the players and the major fields of battle. We’ll continue to cover the Great Tech War in future articles here at Leverhawk. Stay tuned for more in depth analysis. Be sure to to engage with us on Twitter, Google+, and LinkedIn. Give us your thoughts in the comments section, below.

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Gartner’s predictions reinforce similar predictions for mobile growth from IDC, delivered late last year.

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Call center environments are comprised of a variety of systems including interactive voice response (IVRs), automatic call distributors (ACDs), outbound dialers and other components that have traditionally been provided by large technology vendors like Avaya, Cisco, Genesys and others.  Traditional call center infrastructure tends to possess all the classic financial characteristics of legacy enterprise IT, e.g., significant upfront commitments, expensive customization and support, inflexibility etc.

As with nearly every enterprise IT category, a new set of vendors have emerged that deliver core contact center functionality via SaaS delivery models.  Some of these vendors include LiveOps, InContact, EchoPass, Five9 and others. Some of these platforms are in fact being resold by the legacy players mentioned above (see Siemens and InContact).  Subscriptions are typically based on the number of call center agents, and offer the classic cloud value proposition of usage-based pricing, flexibility and capex avoidance.

The cost value proposition for cloud contact centers ends up typically being a no-brainer for both small and large enterprises alike. Reduction in capex, maintenance and support costs all are major contributors to TCO reduction.  In addition to pure IT cost efficiencies in some cases cloud service providers are also able to offer enterprises more attractive telco rates than they can get on their own.  For those comfortable with performance and reliability, migration from voice to VOIP models can unlock yet another level of value for enterprises.  Taken together, cloud contact centers can reduce TCO for many enterprise call center environments by 30-50%.

While compelling, cost isn’t actually the most interesting part of the story.

What’s intriguing from a transformation perspective is actually the operational flexibility that cloud contact centers provide.  Now that agent desktop functionality can be provided via browser, it becomes far easier and cost effective to move agents from brick and mortar call centers to work-at-home environments or microcenters.  Moving to data-enabled, work-at-home models has dramatic impact not just on infrastructure costs, but also on people-related costs like training and retention.  The flexibility of many cloud platforms also makes it easier to modify and configure business rules and skill profiles, providing valuable additional flexibility.

Enterprises have been used to two options when it comes to call center operations.  They could either operate the call centers themselves, or outsource call center operations to a third party service provider.  The cloud offers an interesting third option in which an outsourced recruitment and management model, combined with a new cloud-based platform, creates a unique combination of flexibility, control and comparatively low variable costs.   Think of a seasonal spike in call volume for a call center.  Rather than hire an employee and provide them an agent desktop and supporting infrastructure, enterprises can now hire anyone anywhere who has access to a browser and reasonable data connection.

So if the story is so great, why aren’t more enterprise doing it?  Three big reasons:

• Adoption has been slower due to the longer upgrade and refresh cycles associated with call center infrastructure.  Product cycles for call center hardware can in some cases be 10 years or more.  Many enterprises will choose to defer migration until they face an on-prem upgrade decision point.  As discussed in another recent post here, this dynamic has in some enterprises been seen to slow the migration to IaaS models.
• No major cloud contact center provider yet provides a truly end-to-end solution required to manage a contact center.  While the cloud vendors mentioned above all provide core IVR, ACD and call handling capabilities, areas like workforce management and scheduling still need to be provided by other third party cloud provider partners.  While integrating multiple cloud services may not deter early adopters, many enterprises will likely prefer a more turnkey solution.
• Cloud contact centers face the same data security and compliance questions that other cloud services do.   In some cases these concerns are heightened by the fact that agents are operating in work-at-home environments where managers have less control.  While in most cases cloud vendors can address customer compliance issues, the perceptions still exist.

Too often the topic of cloud and enterprise transformation gets stuck in the realm of the esoteric and theoretical. Cloud call center platforms are refreshing because they provide a clear, tangible path to real transformation.

Interested in reading more about cloud and enterprise transformation?  Check out our recent post on how JP Morgan Chase is using PaaS to transform internal application development.

Originally posted on the Everest Group blog Gaining Altitude in the Cloud

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On Tuesday, April 2, at Cloud Connect Santa Clara, I’m going to be presenting a session that will help clarify your thinking about these topics. Titled Dogfighting, Communism, and Coal: Understanding Business Agility and IT Spending, the session will be a 1-hour romp through the eclectic works of great thinkers, examining their take on the world and applying them to cloud computing. In particular, we’ll spend some time with:

• John Boyd – Boyd was an instructor at the USAF Fighter Weapons school. He had some of the best natural instincts of any fighter pilot anywhere, and found that he was extremely effective in the air. He spent the rest of his life trying to understand the general principles that underpinned that effectiveness, and in the process he developed revolutionary frameworks to reason about adversarial contests, whether war or business competition. I have covered some of Boyd’s thinking about business agility before at Leverhawk.
• Ludwig von Mises and Friedrich Hayek — Mises and Hayek were economists from the Austrian school of economics. Hayek, Mises’s student, is probably most famous for his book, The Road to Serfdom (a must-read when you get the chance). Both worked on something called the “Economic Calculation Problem.” In brief, the Economic Calculation Problem is one of the fundamental reasons that socialism (and communism) fail — economies are too complex to plan centrally. I’ll be writing more about Mises and Hayek in future Leverhawk articles.
• William Stanley Jevons — Jevons was an economist working in Britain in the mid-1800s. He noticed an odd relationship between the efficiency of coal burning machines and the aggregate coal usage across the British Empire. As individual machines got more efficient, aggregate coal usage increased. This phenomenon has been named the Jevons Paradox. I wrote an article about the Jevons Paradox a while ago at GigaOm.

So, how does all this related to cloud computing? I’ve given you some of the pointers already. You’ll have to come to Cloud Connect to find it all tied up with a bow.

And, if you would like to connect at Cloud Connect (and why wouldn’t you?), please introduce yourself after my session or shoot an email to dave@leverhawk.com and we can set something up at a different time around the conference.

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This is the revelation that’s rapidly taking hold in the enterprise CIO’s office. Until very recently, most enterprise IT leaders would tell you that their primary goal in moving to cloud computing was related to cost reduction, primarily through server consolidation. Occasionally, you might find an adventurous CIO talking about infrastructure automation and end-user provisioning.

Now, these CIOs are beginning to realize what SaaS providers figured out several years ago: the real benefit of cloud computing lies in business transformation, not cost compression.

This dawning realization is what’s led us to build two sessions about the practical implications of cloud disruption at Cloud Connect Silicon Valley. The event is April 2-5 at the Santa Clara Convention Center.

In the first of the two sessions, we will look at the tools and techniques driving the cloud disruption in the enterprise. A panel of enterprise IT leaders and cloud thought leaders will survey the tools and techniques enterprises are embracing to accelerate their time to value in cloud deployments while improving the ability of user communities to drive new streams of competitive differentiation by developing, testing, deploying and iterating applications faster than ever before.

Rather than looking at edge cases and exciting but unproven technologies, the panel will focus on cloud technologies and tools that are available, proven in production environments and ready to deploy. Randy Bias of Cloudscaling will talk about the disruption of open source projects, while Keith Shinn from Fidelity will give an example of his organization’s transformation through implementation of OpenStack. Niall Dalton from Calxeda, will talk about disruptive hardware innovations such as ARM processors.

Our goal in this first part is to give participants a high-level understanding of which tools are solid choices for their enterprise cloud deployments.

In the second of our two disruption-focused sessions, we’ll present new business models and case studies from enterprises who have used cloud to accomplish goals that were impossible with traditional IT organizations. We’ll take a closer look at specific examples of organizations that have embraced cloud technology AND new IT organizational protocols to unleash the creative potential of their internal users to build, launch and iterate new apps faster than ever before.

Enterprise executives who have done this will share their stories, and participants will hear how these leaders helped their organizations first understand and then embrace the agility, flexibility and dramatic time-to-market compression that cloud enables. We’ve asked Anand Palanisamy of PayPal to talk about the increased agility and development cycle compression that have helped make his company more responsive to customer needs and competitive threats.

Building sustainable competitive advantage through a transformation in business model assumptions is the real benefit goal of cloud migration. That’s why we built two sessions dedicated to the topic. Come, and hear about it for yourself, or watch for a mid-April summary of what the speakers shared about using cloud technology to align the IT service delivery process and help their organizations launch flexible new business models that have helped drive new revenues and profitability.

Originally posted at CloudAve

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After digesting the news and commentary, here are five key things we took away from the announcement:

1. Enterprise PaaS is for real – while many have believed that PaaS models were potentially more interesting from a long-term perspective to enterprises that IaaS, major enterprise deployments have been sparse.  PaaS to date has largely lagged SaaS and IaaS both in enterprise mindshare and adoption.   Rather than private PaaS, most attention has been on public cloud PaaS platforms like Force.com, Cloud Foundry and Azure where enterprise use cases have been growing, but limited.   Given this set of adoption dynamics, it was a bit shocking to see a deployment of this size and scope.  While one data point does not a trend make, the fact that JPMC has made this big a commitment to PaaS will likely cause other enterprise CIOs to take a serious look.
2. There’s big dollars in app dev transformation – as we explored in a recent case study on State Street, standardizing application development on private cloud platforms can drive stunning improvements in cost efficiency and effectiveness.   This appears again to be the case with JPMC, which is using their PaaS environment to drive use of standard application services, architectures and patterns for both .NET and Java applications, which represent about 80% of their portfolio.   The estimated impact so far?  700% improvement in developer productivity and 50 day reduction in time-to-market for new applications.
3. Private PaaS can drive infrastructure efficiencies – private IaaS and PaaS models aren’t typically seen as big drivers of infrastructure cost reduction.  With no multi-tenant utilization efficiencies, the value of private clouds is typically perceived to be around user self-service and reduction in provisioning times.  That’s why it was a bit surprising to hear JPMC’s private PaaS model has increased infrastructure utilization from 40% to 70%, resulting in 45% reduction in infrastructure costs.  If true, for large enterprises with JPMC’s scale the business case for private vs public cloud may be close if those utilization levels can be achieved and maintained.
4. Wall Street still isn’t ready for public cloud – none of the JPMC applications migrated will apparently be running in public PaaS environments.  In fact no mention is really made of the fact that Apprenda’s hybrid capabilities can extend private PaaS environment into public PaaS like Microsoft Azure.  There’s no doubt that JPMC’s compliance and performance issues require many, or even most of the applications to remain in a private PaaS environment.  But the fact that apparently none of the 2,000 apps will be run in a hybrid environment raises the question whether private cloud will end up being the end of the journey, instead of a stepping stone to public cloud.  While many large financial services firms seem to be actively engaged in private cloud deployments or pilots, public cloud models still unfortunately seem to be a bridge too far at this point.
5. It’s all about the developers – instead of a top-down mandate, Apprenda was apparently adopted incrementally on a bottom-up basis over the course of two years.   During this time developer adoption expanded as internal proof points emerged around how PaaS could streamline the application development lifecycle.   It’s interesting to note that usage of the platform has not been mandated by corporate IT, but instead is voluntary.  As a result the internal PaaS platform needs to continue to “compete” against alternative models and approaches.   As successful cloud service providers have discovered, in many cases the key to driving broad adoption is to win the hearts and minds of developers.

Want to learn more about how other large enterprises are using private and public cloud models to drive transformation?  Check out our recent post on how Rio Tinto, CommBank and Ricoh are using cloud to drive enterprise-class value through standardization and simplification.

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Increasingly, it’s looking like the smart phone wars are coming down to a two-horse race between Android’s open platform and iOS’s closed platform. While iOS is holding its own here in the USA, remember that these numbers don’t take into account emerging market forced. I’d expect mobile growth in emerging markets to heavily favor Android on low-priced Asian hardware.

See also our previous musings of how this market might unfold for Apple.

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Toyota’s vision for next generation customer service is built on the idea of creating a private social network for car owners, dealers and Toyota service agents.  This private network is actually based on three different cloud platforms:

Telematics platform – the first component is a cloud-based telematics platform based on Microsoft’s Azure PaaS environment.  The platform combines data from GPS systems, energy management and other monitoring applications that provide raw data on vehicle location and performance.   The concept is being introduced in with Prius and other Toyota electric vehicles (EVs) and hybrids.  The reason for the initial focus on EVs?  To make it clear to the car owner how much battery time is left, and how far it is to the next charging station.  As shown by the recent dustup between Tesla and the New York Times, this is a non-trivial issue for EVs.

Toyota “Friend” network – the second big component is the Toyota Friend network developed using Chatter.   With Friend car owners can create profiles and join a community of broader Toyota car owners, experts and dealers, which has particular value for EV owners.  Profile pages can also capture car ownership and service histories, and also track current information about cars through integration with the Azure telematics platform.  Car owners will be able to track and selectively share streaming information including:

• Vehicle location
• Fuel level or battery charge (for EVs)
• Vehicle status, indicators and warnings

With the Friend network, Toyota also offers a Chatter-base iPhone app that provides car owners the ability to access online video self-help manuals, replacing the 300 page book that everyone always gets with a new car but never uses.  The iPhone app also lets owners access all the information above around location, service history and vehicle status.

Service agent environment – the final component is based on Salesforce.com’s Service Cloud, which integrates the Service Agent into the Toyota Friend network.  Vehicle information from the telematics platform and data from the car owner’s Toyota Friend profile can be integrated into Salesforce’s sales agent app, which creates some really interesting synergies.  Imagine when a vehicle develops a wheel alignment issue.  The vehicle, as it’s part of the Toyota Friend network, can itself “tweet” or indicate to the owner that an issue has come up.  In addition to notifying the car owner, the notification can create an incident in a Service Agent’s queue, either at Toyota or for the local dealer.   The service agent can proactively reach out to schedule a service appointment, or for simpler issues forward the car owner a link to a video or guide explaining how to fix the issue.

The network is still being deployed in Japan, so there aren’t any real results to point to yet.  But presuming car owners can get comfortable with some of the data privacy implications (e.g., sharing of geolocation data), it’s clear to see how this platform can transform not just service, but Toyota’s broader customer engagement model.  We haven’t touched on sales, marketing and product management, but it doesn’t take that much of a leap to see how Toyota could further leverage the data and insights from this next-generation service model.  It’s been quite awhile since anything close to transformation has hit the automotive industry, particularly around sales and support.  It’ll be interesting to see if Toyota can make it happen with the cloud.

Interested in other enterprise cloud transformation case studies?  Check out our recent posts on how State Street and Domino Sugar are using cloud models to drive wide scale IT transformation.

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As it’s still early days in enterprise cloud, many questions remain around the shape and trajectory of enterprise cloud adoption from both a private and public cloud perspective.  One of the fascinating things about Rackspace is the unique position they occupy in the cloud market given OpenStack and the vested interested they now have both in public cloud and on-prem private cloud models.  While potentially a tremendous strategic asset, OpenStack also creates go-to market complexity that few others in the market face.   Rackspace may very well end up being a big winner in the battle for enterprise cloud, but it may be a bit bumpier and longer ride than Wall Street expected.

Despite this week’s announcement, there are a number of trends and potential enterprise cloud end-game scenarios that suggest that this week’s market reaction was a bit overdone:

• Open platforms – there’s no doubt that as CIOs take a look at their cloud strategies and future architectures, many are seeking ways to avoid the “VMware tax”.  It’s also true that some aren’t comfortable with AWS, due to perceived performance issues, availability, cost or actual experience.  The Rackspace mantra of an “Open” that prevents lock-in to either vendor or cloud delivery model could hit a sweet spot.  OpenStack could end up becoming the de facto infrastructure platform winner in enterprise cloud as a result of the vision, value proposition, and momentum from the OpenStack community.
• Corporate IT and private clouds – ignoring cloud and hoping it goes away is rapidly becoming a career-limiting move for CIOs.  Given they need to so something, many enterprise IT shops are rapidly coming to the conclusion that private clouds are their best way of maintaining relevance and control in a next generation world.  If enterprises end up trending towards wide-scale deployment private clouds instead of taking the lead into public cloud IaaS, Rackspace and OpenStack will be very well positioned to ride the wave.    
• The role of support – enterprises who are deploying private clouds are still largely innovators and early adopters, to borrow from the Crossing the Chasm framework.  These customers tend to enjoy getting the basic “box of parts” that they assemble how they see fit, versus working with a finished solution.  In many cases, they also have the luxury of time and resources to experiment that others don’t.  At some point the market will move to less technically sophisticated customers will need more complete solutions, services and support, particularly around deployment and management of OpenStack private clouds.  For these customers, Rackspace’s focus on “Fanatical Support” could end up being a significant differentiator, if required services are effectively translated for the enterprise.

That being said, Rackspace also faces some headwinds as it looks to crack the code on enterprise cloud.  Some of these challenges include:

• The enterprise IT pivot – Rackspace was one of the early pioneers of the enterprise IT “end-run”.   Rackspace sold hosting and cloud services directly to business users in the enterprise, the majority of whom were using Rackspace for website and web applications.  Now with a focus on OpenStack, Rackspace needs to completely pivot to CIOs and enterprise IT.  Rackspace needs to sell CIOs on its end-to-end vision for open, next generation infrastructure, whether it be on-prem or hosted OpenStack based private cloud or Rackspace’s OpenStack public cloud.  Not only does Rackspace need enterprise IT to buy into the vision, it also needs to effectively sell it to them.   This means building a big enterprise sales, delivery and support capability in relatively short order. While certainly not impossible, the degree of difficulty is non-trivial.          
• Extending beyond infrastructure – much of the transformational adoption of cloud models is being driven by business stakeholders and change agents.  In many cases even PaaS and IaaS decisions are being made by line-of-business application developers to support business-driven use cases and applications.  Without a stronger story around the application layer and PaaS Rackspace runs the risk being relegated to the world of commodity IaaS infrastructure, which likely won’t be a very attractive place to play in the enterprise cloud end-game. 
• Crowded competitive landscape – Rackspace isn’t the only player selling OpenStack clouds, whether they be private or public.  Rackspace will be facing competition from HP, AT&T, Red Hat, IBM and other competitors who in some cases are also are major OpenStack contributors.  Many of these players have enterprise relationships and go-to market machines that Rackspace doesn’t possess today.  The competitive challenges that Rackspace may face while attempting to break the “trusted relationships” that enterprise CIOs have with current enterprise IT vendors may pose a significant challenge.

It’s way too early to have a strong perspective on how these issues will play out over time, but it’ll certainly be fascinating to watch.

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• Efficiency – standardizing workflows and processes frequently improves efficiency, as the “return on customization” is often less than many organizations expect.   While every organization likes to believe they’re special and unique, for the majority of business processes they’re not.   And efficient processes require fewer resources, whether that be time or money.  
• Performance improvement – standard processes also enable common metrics and performance measurement, providing management the visibility needed to drive process improvement.  This works in two ways – it’s easier to immediately identify broken processes that aren’t working (the “exceptions”) and also easier to identify best practices that should be leveraged more broadly.
• Management and support – by definition, standardization eliminates the need for specialized skills, resources and investments, whether it be for applications, infrastructure or any other IT resource.  Standardization can increase resource utilization, and eliminate costs associated with duplicative support functions across multiple processes or platforms. 

At first glance it wouldn’t appear that these levers would be that powerful, but the opposite is actually the case.   While not sexy, these levers can drive stunning cost reduction and efficiency improvements in large, global enterprises.  Three common patterns have seemed to emerge for how enterprises are doing this:

• Global business process standardization – the first pattern is global enterprises using the reach of SaaS applications to drive global process and workflow standardization.  SaaS models can be particularly helpful for firms that want to standardize processes across a globally distributed workforce that may in some cases only have access apps through mobile devices.  One particularly interesting example is Rio Tinto, a $50 billion global metals and mining company.  Seeking to standardize procurement workflows and improve visibility across the $14 billion it spends annually on external vendors, the company deployed Quadrem (owned by Ariba) across 700 procurement employees and 49 locations.  Though the rollout took over a year, and required 50 trainers, the company claims $475 million in total savings from the procurement transformation effort.   This value wasn’t created by the TCO efficiencies of SaaS, but rather the procurement savings through more effective processes and improved visibility.
• Infrastructure rationalization – another increasingly common pattern is enterprises using private cloud models to drive infrastructure rationalization and standardization.   Ricoh recently cut infrastructure costs by 30% by using private clouds to drive global infrastructure rationalization.  Through its transformation effort, Ricoh consolidated nine data centers into two, and eliminated over 1,000 servers.   The private cloud which spans the two remaining data centers is now used by 35 operating units, and provides 50% of internal customer infrastructure needs in addition to corporate IT workloads.  Another great example is  Commonwealth Bank of Australia(CBA), who dramatically consolidated and streamlined the infrastructure services offered to business units.  Standard infrastructure offerings and reference architectures were dramatically reduced and offered through a standard services catalog, cutting IT infrastructure costs by an estimated $100 million.
• IT simplification – a final pattern is the use of standard cloud platforms and components to simplify IT processes.   A great example of this is State Street (recently discussed in another post) which is leveraging private clouds to drive standardization of core application development processes, platforms, tools and approaches.   With the standardization effort, State Street is seeking to increase leverage from approved open source components, increase code reuse and normalize change control processes.  The estimated impact?  $600 million in cost savings within 3 years of migration, and reduction of total written code by 30-40%.

It could be argued that benefits from process standardization and simplification could be achieved without cloud, or any other technology for that matter.  After all process reengineering has been with us for quite awhile now.   But it’s also true that cloud platforms can make is easier and cost efficient to drive standardization, particularly with global enterprises.

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