Services In The Cloud
Carriers who have invested in managed services should look to cloud computing for their next move, Tim Phillips finds. But they need to start thinking differently.
“The core ideas at the heart of cloud computing – such as pay for use, multi-tenancy and external services – appear to be resonating more strongly,” says Ben Pring, research vice president at Gartner, predicting that enterprises will spend $68 billion on cloud services in 2010. For a technology that’s often dismissed as pure hype, that’s a lot of clouds.
Pring’s core ideas may seem familiar to many carriers who have been investing in managed services over the last 10 years, but when we list the biggest names in cloud computing, there are currently no carriers among them. That is surprising when we consider the overlap between managed services and the cloud. It is more surprising still when we consider that the market leader is a company that, when carriers were investing heavily in managed services, was investing heavily in selling books: Amazon.
Not too late
However large the current business, it’s certainly not too late for carriers to become successful – especially because the enterprises with whom they have a relationship are still undecided about whether to start a cloud project now, or to wait until their doubts are resolved. Security, compliance and auditing, contracts and service level agreements (SLAs) stop 70% of companies with more than 1,000 employees from starting a cloud computing initiative, according to Gartner.
Joshua Beil, a former analyst and now director of market strategy and research at virtualisation and automation software specialist Parallels, thinks that this means 2011 will be a turning point for carriers, who will start to pick up cloud services contracts. “Turn up the air conditioning in 2011, as the competition is about to heat up,” he wrote in a recent note. “Competition will come from communications service providers (CSPs), which include telcos, cable companies and wireless operators. Virtually all CSPs are formulating a cloud strategy as I type this and plan on executing it in 2011.”
Orange Business Services, for example, has taken up the challenge with the Flexible 4 Business cloud computing alliance, launched in September 2010 – bringing together Orange, Cisco, EMC and VMWare. The rationale is that the IT infrastructure (Cisco), virtualisation infrastructure (VMWare) and information storage (EMC) are outside Orange’s core competence, but that it can still work as the global service provider for the pay-per-use cloud services that result.
AT&T, Verizon and BT all have cloud offerings. Asian carriers are investing in cloud services, and European telcos too. Yet the two providers which have the most brand recognition are still Amazon and Rackspace.
Peter Hall, a principal analyst at Ovum, points out that while data governance and privacy, security and the use of the public infrastructure are the three biggest blockers for enterprises who want to use cloud computing, the absence of SLAs from over-the-top providers is rising in importance. He points out that telcos have a strong heritage in delivering SLAs, that they have global coverage and the key networking skills.
Adopt a different mindset
Tony Lock, service director at analyst Freeform Dynamics and a former buyer of IT services when he ran IT departments for enterprises, warns that to provide cloud services such as Infrastructure as a Service (IaaS), it takes more than an existing relationship and experience.
“Cloud providers have to adopt the mindset of an IT supplier,” Lock says. “Many understand the need to provide value-added services, but their biggest challenge is that they are unsure which services they will be providing. Can they provide the service 24/7? Absolutely. These guys almost invented microbilling. But they’ve never had to sell anything like this before. They are more accustomed to the customer explaining what they need than the other way round. Many carriers think that this is an internet service; but for the customer it is IT, and IT purchases are done in different ways.”
Lock believes that the cloud hype has given carriers a breathing space, potentially slowing down adoption as customers carefully test services from unfamiliar suppliers before committing. But carriers need to find ways to package their services effectively. As he says, this might mean selling the services through both direct and wholesale channels.
“Even smaller service providers are often still selling in their comfort zones. They don’t have a channel in the way that the software providers do. They have sales people for their big customers, but need a business model that a channel will want to sell. The wisest thing in the short term is to try to do as many things as they can. Everyone is trying to work out how to sell these services, and the carriers are big enough that they don’t need to move first, as long as they get it right. But they can’t just put their services up there and assume the business will come their way.
“They should be thinking how to white-label their part of the service for others. It’s in their nature, and there will be a range of suppliers. If they can find a way to sell the services they have already created to suppliers, that’s a good start.”
Become a cloud broker
Another possibility is that carriers become what Gartner is calling “cloud brokers” – which the analyst firm believes will be the fastest-growing sector until it accounts for 20% of the market by 2015. Brokers would have access to a number of different cloud providers, allowing enterprises to easily compare prices across the market when they need services. A Gartner survey showed that more than 63% of respondents would trust a systems integrator as a broker, with telecoms carriers second as a trusted partner.
Richard Reiner, CEO at Enomaly, embraces these models and believes that carriers will eventually achieve the trusted position of provider. In 2010, Enomaly launched Spotcloud, the first step towards this type of service – though it is a long way from being a true spot market, not least because customers want to feel secure about who they are doing business with. Analyst Stacey Higginbotham at Giga Om says, “It solves a problem, especially for smaller cloud providers that want to sell capacity, but it showcases how far the industry needs to come to truly offer elastic computing and interoperability.”
Veterans of the market for bandwidth trading may feel a sense of deja vu, but IaaS is already embedded in the strategies of thousands of enterprises. Smaller customers also see it as a way to outsource their availability and reliability woes. Just as many have found that virtualising their data centres improves availability, so Software as a Service (SaaS) providers like Salesforce.com complement the robustness of their service, offering the reliability of an old-fashioned telecoms company.
Enomaly’s heritage – it launched the Elastic Computing Platform in 2005 – is in creating an IaaS product that complements existing carrier services so they can offer public cloud to their customers. “Two years ago many carriers saw this as interesting, but they have since decided they need to enter this space, not least because their existing investment in managed services is being eroded,” Reiner says. “The question is, how to get into it – not whether they should get into it.”
Finding the right market
He sorts the carriers into three groups. The first have tried to build a public cloud infrastructure themselves. “Building it yourself can be eliminated pretty quickly in most cases, because that’s not the sort of organisation these companies are. Some have made an attempt and found it pretty painful; we have seen them reach out to us afterwards,” he says.
Others are thinking about white-labelling an external provider’s service and delivering it as their own. While it allows them to provide service quickly, he says, it also throws away their most precious asset: the SLA, because the service is not hosted by them. It also splits the revenues two ways. In a market where pricing is transparent, this could become a very low-margin business to sell.
“There is real value in choosing a cloud that is one network hop away from your data centre. Other carriers are thinking that they have strong operational competence and they want to protect the capital investment they have made. They can offer a better class of service if they develop something on their own network,” Reiner explains.
He categorises the third group as those carriers using Enomaly’s specific services, turning that capability into a product that can be placed alongside Amazon and other providers, sometimes bettering them by offering features such as high-availability protection and automatic failover. Enomaly sees a market for services that carriers have looked to provide as managed services, but delivered via the cloud.
“We want customers to make better use of the cloud, for example, for disaster recovery. That’s a few years out but today you need a hot spare, which is double the hardware cost. What if you had the equivalent level of hardware assurance and it cost 20 times less than the hardware itself? A telco could offer disaster recovery for 5% of the price that it costs today,” Reiner says.
A market seeking sophistication
Just as carriers are developing their offerings, the market is looking for the sort of sophistication that carriers can provide. The era of “cheap and cheerful” IaaS is coming to an end, and the future will be dominated by price competitive services which will also be evaluated on service levels and security. One of the best examples of this is the approval for Enomaly-backed services to provide cloud services to the US government. Using its full-stack integrity verification process, users can verify that there have been no security violations in the public cloud for their data. “You constantly have to ask: how are we securing the environment?” says Reiner. “When you are using compute-on-demand services, you are running on a software-derived illusion of a CPU. How do we stop management layers being compromised by a hacker?”
The contrast between the desires of customers and the ability of IT-industry providers to give the necessary levels of assurance opens an opportunity for experienced carriers. Reiner recalls a meeting of the IT procurement chiefs for the government and the senior management of many cloud providers which prompted the drive to achieve US government certification. Together, the US government representatives spent $72 billion every year, which they were looking to save on by using cloud services. Yet they had a problem: how could they guarantee security levels in the public cloud? “By and large, the answer around the table was: you just got to trust us,” Reiner remembers.
Mark Lewis, senior director of marketing and alliances for EMEA at network optimisation specialist Riverbed, has been tasked with helping cloud providers optimise their service levels. He is optimistic about the chances of carriers to improve market share. Riverbed’s latest technology is a hardware device that customers install in their own data centres. Most cloud providers have them installed in their facilities to optimise network performance, even if the traffic is not on-net. This narrows the natural advantage of a carrier-based cloud service.
Time to transition
“The model by which they sell the bandwidth is going away. They have been good at introducing managed services, but now they have to transition,” Lewis says. “When we used to draw clouds on the whiteboard it meant the network. When carriers become service providers, it still means the network. The skills they have are still paramount. Microsoft and Amazon for example haven’t run a network, but they are very quick to adapt and adjust to the new opportunity.”
He agrees with Gartner’s interpretation that aggregators can provide a range of cloud services, as long as they guarantee a level of service. “In our simplistic approach we draw a cloud, and we draw a line from the cloud to the end users. But there’s no reason not to have a cloud within a cloud within a cloud.”
While no one has the full range of expertise, he says, the carriers could create a powerful position by speaking the language of customers and reflecting their priorities. But there’s no room for complacency, as the rise of Amazon has demonstrated.
“This is as radical for the telecoms industry as it was for banking 20 years ago, when someone thought that supermarkets could run banks. I didn’t believe it could happen at the time, but now we don’t even think about it,” Lewis says. “The truth is: we don’t know what this will look like in five years.”
What’s in the cloud?
There are, broadly speaking, three different types of cloud service: Software as a Service (SaaS)
Infrastructure as a Service (IaaS)
Note also that the “cloud” encompasses two models: the private cloud, in which the enterprise’s own data centre is optimised to deliver cloud-like service to internal users; and the public cloud, where the resources are external. Enterprises can exploit the similarity in architectures to develop a hybrid cloud, where some services are kept local for security or compatibility reasons, and some are delivered from the public cloud supplier. Gartner estimates that the total cloud market will grow from $68 billion in 2010 to $148.8 billion in 2014, but until 2012 most spending will be done on the private cloud.