Cloud 2.0: Surviving the Commoditisation Crunch

We’re researching the current drivers and barriers to the adoption of cloud services in the enterprise market, and are now seeking input from experts and practitioners from telecoms service providers.

Below is an introduction to some of the hypotheses that we are investigating by Bob Brace, Senior Analyst Telco 2.0, who leads our Cloud 2.0 Programme, and who is the lead author on our research report series Cloud 2.0: Telco Strategies in the Cloud.

Enterprises of all sizes have started a journey to cloud, but there is no single path that will suit all organisations. Some will stay with “in-house” solutions; others will look to cloud brokers. We are interested in what the “end game” might look like for enterprise cloud adoption and identifying some of the steps along the way or options that service providers might take to accelerate adoption.

One of our hypotheses is that Cloud Service Providers who are able to best help their enterprise customers to move more activities, more quickly, into cloud services will have a survival advantage when the inevitable commoditisation “Cloud Crunch” takes place as the market matures.

Enterprises moving to cloud are facing a number of issues; there may already be a degree of cloud adoption within their workforce as users adopt seemingly harmless external services such as Evernote, Google Drive, etc. They are also faced with a number of inter-related technology decisions that could have a major impact on how they manage and grow their business in the future. Decisions taken now may impact or influence future service roll out or the ability to offer seamlessly integrated services to their users. But what are the key drivers and barriers?

STL is undertaking research with Cloud Service Providers and Enterprises into the forces and trends that are shaping cloud service adoption. We are seeking answers to a number of key questions such as:

  • What sort of cloud services will enterprises finally adopt (Private Cloud, Virtual Private Cloud, IaaS, PaaS, SaaS… and various hybrid)?
  • And perhaps of more importance, how will they get there and who can help them?

In exploring the “Cloud End Game” we have identified the three following potential scenarios that apply both to individual Enterprises and the wider industry. Each scenario corresponds to a “type” of cloud provider model.

1. Global Platforms. In this scenario, any given enterprise has adopted the cloud services from one or more of the big global providers (Google, Microsoft, Salesforce etc) and has either their own private cloud or a virtual private cloud from a cloud service provider. They are in effect doing their own integration between the external services and their own and are competent to provide their own support and manage multiple billing relationships.

They are also confident that their data is secure and cannot be accessed by other companies who use the big global providers services. Enterprises that buy their horizontal business enablers as SaaS direct from Microsoft (or Google) have a billing relationship with Microsoft and in addition, the standard Microsoft or Google solution stores all their user data (files). The enterprise may also use Microsoft Dynamics or for CRM and this will mean yet another billing and technology relationship.

Vertical applications such as Finance, HR, stock control etc are candidates to be hosted by a Cloud Service Provider. At this point we see the enterprise with at least 3 billing relationships, multiple locations for data storage plus security concerns over data location and access and more than one place to go to get support issues resolved.

2. Bespoke Cloud. In this scenario, System Integrators provide enterprises with Cloud services much as data centres’ services and hosting were the past. Services running on this infrastructure are “built to spec”. Although such a tailored approach has its merits, it does not deliver the full promise of cloud services. However, unless specifically paid for on an exclusive basis, the infrastructure is virtualised and shared with other public users. Generally data is not encrypted and platforms are multi-tenant. Enterprises must be confident that the CSP has adequate controls and systems to protect their data.

3. Service Brokerage. In this scenario, enterprises work with Cloud Service Providers who provide a brokerage service. Cloud service brokers aggregate, integrate and customise multiple cloud services as well as provide (ideally their own) secure data storage and connectivity. Combining multiple best-in-class SaaS services with single sign-on, billing, support, compliance and end-to-end security, we see cloud service brokerage as a potential sweet spot for the Cloud Service Provider (CSP). By offering what is effectively a brokerage solution, the CSP could manage the other providers, provide support and even host and secure the data stores providing encryption and migration tools.

We anticipate that these three scenarios will continue to co-exist for many years along with in-house IT. This hybrid scenario is most likely to persist for some time (physical, virtual, cloud in combination) and managing the data across these boundaries, with consistent security policies/management, will be the biggest challenge.

However, as stated above, we believe that the third scenario offers the best potential for addressing the needs and overcoming potential concerns of most enterprises. Furthermore, this scenario offers the best prospective outcome for many Cloud Service Providers (CSPs) including those originating from telecoms and hosting as it allows them to provide clear differentiation and USP’s.

However, to succeed, these CSPs must convince their customers that they have overcome the key concerns of moving to the cloud:

  • Security
  • Migration
  • Support
  • Billing

Although some CSPs are already doing so, most still need to rethink their approach to security and their associated capabilities to successfully sell and deliver Cloud Brokerage. Rather than limiting security to a functional sign-off step in product development, some of the more advanced CSPs are putting security into the very core of their proposition and building the capabilities to deliver this: encryption, policy enforcement, migration assurance and auditability, for example. After all, as the following vote from the EMEA 2013 Brainstorm showed, many still see ‘security’ as the top customer issue to be overcome.
Which concerns are holding back cloud adoption among enterprise customers in the markets you know best
Like all emerging and new technologies the Cloud is going through a hype cycle and before the end game is reached, we expect many CSPs to either fail or be subsumed by more successful rivals. The survivors will be those that have set out their stall and focused on delivering services that meet their customers’ needs and overcome the biggest barriers to adoption.