At the 2012 CRN Fast50 awards in Sydney, CRN hosted two live and interactive roundtables before an audience of some 200 vendors, disties and partner hopefuls. The first spawned a fascinating and at times lively discussion about what the cloud will mean for the future of the channel.
Of course we all know 2012 was when cloud computing evolved from one of the most hyped areas of our industry to an accepted and essential approach to buying and deploying business IT.
Yet many in the industry, including in the channel, have been left with a number of questions.
Ranging from the opportunities for virtualisation, the NBN, to how to manage the annuity model and customers’ increased expectations, this roundtable sought to address the growth of the cloud and what resellers and vendors need to do to make the necessary transitions to turn it into a viable business.
ATTENDEES
Michael Costigan, Avnet
Darren Haymes, DPSA
Robert Sherry, IBM
Toby Bowers, Microsoft
Brendan Donohoe, Telstra
David Henderson, Westcon Group
Charles Clarke, Veeam
John Donovan, VMware
CRN Rob, we’ve heard a lot about how the true origins of the cloud are really back in the mainframe days. Obviously working for IBM you have a unique perspective on this, IBM being one of the founder pioneering companies in this area, but of course now being one of the leading lenders in the cloud space. This notion of the cloud not being a new idea, is this something you think is perhaps a tad simplistic?
Rob I think most IBM-ers would recognise the fact that virtualisation has certainly been around on the mainframe since the mid-1960s. They probably recognise that cloud computing itself was a centralised mainframe-like technology with distributed notes, but I think that’s where the similarity would end.
If you have a look at what National Information and Communications Technology Australia (NICTA) would define as cloud computing, they really focus on things like the customer experience, which involves things like self-service, ubiquitous access, and as-you-go consumption models.
I think that’s a far cry from centralised and virtualised computing. So the other thing is if you’re looking back and ever wanted to leverage the technology that the mainframe delivered you, you’d virtually have to own one, and I think one of the key benefits in cloud computing today is that for many businesses, they can access computer power, which was previously prohibitively expensive – and that for many organisations is representative of a paradigm shift.
So to answer your question, I think we can thank the mainframe for some of the early technology that’s enabled us to evolve to where we are today. But I’d agree with you. It’s an over-simplistic notion to say we’ve been there, done that, based on some of the benefits that many organisations are deriving from cloud today.
CRN We all know bandwidth plays a very important role in cloud adoption, and with all of the press around the NBN, we’re perfectly aware of the bandwidth restrictions in Australia.
Michael Costigan from Avnet, I wonder if you might be able to talk us through how important a role you think the NBN will play in driving this sector of the industry.
Michael The promise of NBN is fantastic. It will allow small to medium organisations to adopt the cloud much faster, because they’ll be able to leverage the power of the network itself. It’s not just going to be a tool for people in their homes to download movies faster. It will allow organisations to access data, not only in Australia, but also overseas. The potential and the promise of the NBN will allow that adoption rate to move up considerably. It will also allow the spread of the different cloud models around Australia. We just have to wait and see how it’s going to roll out.
CRN David Henderson from Westcon, in a piece for CRN recently you cited Winston Churchill’s line that the ‘Empires of the future will be the empires of the mind’, partly as a warning to your own industry about the need for distributors to adapt to the disruptive effects of cloud and virtualisation. How do distributors stay relevant in this world?
David I think the cloud presents a number of really interesting challenges for the industry, distribution arms, for the resellers and for the vendors. We’ve got to come and understand as individuals and as groups what IP do we have. What intelligence do we have that adds value into our end-user customers. In other words, make sure you understand what your core competency is, and I think you’ll survive this transition.
But as you do that, clearly there’s going to be issues around a full integrated solution into the customer. Not only is it your core competency, but I think there’s a tremendous opportunity to look at who you’re partnering with.
One of the more challenging conversations with the partners that I engage with is around who should be my telecommunications provider. It’s an environment moving towards partnerships with new challenging vendors or the telecoms people, be it Optus, Telstra or many others. A really interesting dynamic I love about the cloud is the question of ‘who becomes the end-user of the future?’
When an end-user buys a service, the end-user now becomes the reseller. It’s the reseller who’s going to determine the brand and the infrastructure that’s being delivered into the marketplace, not the end-user customer.
No longer does the partner community become the trusted adviser; people that we work with, valuable associates in the sales engagement model, are all of a sudden the dynamic changers, where you the reseller become the decider as to which brand is going to succeed.
We all focus on the technology and how great it is, and we have the private hybrid, yes, got all that – but really you look at the channel dynamic and the most exciting thing from our viewpoint, and I think from our resale partners, is that the power is shifting and it’s a great thing to see, is it not? So I’m very, very in favour of cloud for that one simple reason.
CRN Back to bandwidth and network speeds, Brendan Donohoe from Telstra, we know latency is emerging as a key factor for companies considering the move to the cloud. What can partners do to better harness communication networks and offer real differentiation of their cloud services?
Brendan Hopefully we’re changing our image around one of the difficult vendors to deal with. It’s an interesting question, but to put it in perspective first, I’ll talk in Telstra’s terms about what we refer to as cloud and our cloud services. So we’ve made a significant investment in cloud – $800 million. When we talk about cloud, we are mainly talking about infrastructure-as-a-service, both dedicated utility computing and software as a service. We’re talking about storage; we’re talking about security.
So they’re the four main areas we mean by cloud computing, and we’re seeing lots of momentum. We’re having these discussions hourly with customers. [Latency] is one of the points that came up. So the starting point for latency is ‘what is the customer trying to achieve?’ and ‘how do they look at the moment?’ Are they going to have mobile workers, or are they just using a desk-based service?
There are a number of questions we need to discuss with them, and I agree the telecommunication conversation, or the network conversation with the cloud conversation, is just mandatory, because if you sell cloud on its own and don’t consider the customer’s access, it’s fraught with danger. So it’s a key question – what is the customer trying to achieve? What applications are they running? What’s their set-up for users?
I’d say we probably have one in 50, one in 100 cases where there is a latency issue. There’s certain applications under certain customer contracts where latency does become an issue, and we have solutions there. Things like optimisation are becoming more prevalent and that obviously helps as well. So there’s never a time yet when we couldn’t work around a latency issue.
CRN I’ll ask a question now of Microsoft, obviously for many years one of the most important and lucrative vendors for IT resellers. Toby Bowers, what is Microsoft’s plan to ensure partners continue to be relevant in the era of cloud and software-as-a-service in particular?
Toby We’ve been working for years to enable our channel to take advantage of the opportunities we see in the cloud. It truly is a new era, and you’ve probably seen us talking frequently about our own partner events.I’d say a couple of things – we are 100 percent committed to providing a path to profitability for our partners in the cloud.
We have for 30 years been a channel company and a partner-led business, and we absolutely believe our channel ecosystem is our competitive differentiator in the market. For more than 15 years we’ve also been a cloud services company, going back to the pivotal days of the internet.
So what we’re seeing now is the convergence of consumers demanding live and updated content on a multitude of devices and businesses demanding the efficiencies and scale and competitive advantage that the cloud brings them. We really think that that intersection provides a unique opportunity for Microsoft and our partners for that matter.
There’s some channel dynamics shifting out there in the marketplace and we’re seeing some very interesting things happen. We create our own journey towards becoming more of a services and devices company. I met with an accountant firm called Hanson’s, and they recently rolled out Office 365 to 16 users and they’ve seen some great business benefits with doing that.
The interesting thing that Hanson’s is doing as a tech savvy accountant is extolling the virtues of Office 365 to their small business customers, walking in with one of those devices and using Office 365 as well as some other technology products like Xero. We’re seeing that accountant channel emerge as an important influencer in that small business community.
Another example is more in the big end of town, one of our great ‘born-in-the-cloud’ partners Kloud has just helped us win a deal with Coles. It was 100,000 users of Office 365, and Coles have 16,000 PCs, and we’re rolling out 365 across 100,000 users. It’s an example of how cloud has untapped incremental opportunity for both us and our partners and the customer realises the benefits of cloud technologies, over more shop floor and mobile workers, kiosk workers.
We have another partner called Breeze, one of our worldwide award winners this year. They implemented a solution for Centrebet, the largest bookie in the Southern Hemisphere, all designed around the Spring Racing Carnival, and in particular the Melbourne Cup. With the Melbourne Cup Centrebet sees about 400-times the traffic than on any typical day.
Breeze went in as an emerging cloud-based system integration partner, recommended a solution that they developed in four months and it actually included an on-premises solution that ran on our site with Sequel Server and Biztalk, and drove the core betting application for Centrebet, but then had an elastic web-hosting solution into our Azure platform. In that first hour of going live, Centrebet saw 1.2 million transactions come in, and that system handled it without blinking an eye. And that’s the race that stops the nation. That was a timely example of that hybrid cloud scenario.
CRN John Donovan from VMware, virtualisation has certainly resulted in reduced demand for server and storage hardware, something that’s been quite disruptive for the channel. What advice can you give to resellers about transitioning their businesses to substitute returns on metal with returns on virtualisation?
John We’re living in amazingly interesting times. The transformation is with people demanding a more agile relationship with their IT infrastructure, and they want significantly better return on their investments. This really changes the relationship that the traditional resellers have as well.
What we’re doing in terms of the shift to cloud has been proven as being a much more agile and cost-effective approach to managing infrastructure. What hasn’t been clearly defined is the role of the integrators and the role of the resellers. Traditionally they’ve been the suppliers of that infrastructure and as that changes, and as we move to much more of a services based model, and a much more agile BYOD or bring-your-own computer-based model, it changes the relationship these partners have with their customers.
As vendors we need to help resellers actually understand the role they play in this transformation. That’s probably what’s not so clear as you move away from supplying physical hardware and move into much more of a transformational agent model. That’s a very difficult transition for many people.
But it’s really central to what they’re doing. The view that the relationship the reseller has with their customers as a trusted adviser or thought leader are words and phrases that are thrown around a lot, but I really think they’re very accurate in terms of the relationship those resellers have.
What we’re trying to do is build the competencies and the relationships those resellers have, so they can help guide the end-user customers through this journey through the cloud. As they create a much more agile infrastructure, as they modernise applications and as they move through to a much more agile end-user based relationship that the consumers have with the infrastructure, it becomes more dependent on us to help guide the partners through that.
This is absolutely turning the industry on its head. One of our key national partners, Thomas Duryea, has been doing some amazing stuff as they’ve re-architectured themselves from being a traditional systems integrator to much more of a cloud supplier, and we’ve helped them as they’ve built their competencies and accreditations so they can remain in that trusted adviser status. That’s proving to be a successful relationship and really illustrative of the responsibility we all have as vendors.
CRN Charles Clarke of Veeam, the growth of cloud computing has contributed massively to increased volumes of data clearly, data which is now distributed in new and more complex ways. How big an opportunity is there for the Australian channel to generate returns from cloud back-up services?
Charles The opportunity for a cloud backup is something Veeam has been helping our channel partners with really since the inception of back-up-as-a-service or hosting for back-up. Really for us there are two key opportunities for our channel partners to assess their customers in terms of cloud back-up.
The first that we see is around hosting of back-up services itself. We’re finding this is for a variety of reasons. We’re looking at customers who need some long-term archiving or back-up, long-term archiving of that sensitive data but are struggling with the cost of tape, or manageability of tape.
I was at the launch of AWS (Amazon Web Services) in Australia recently and that’s created a lot of ripples in the cloud market, and among our channel partners. So I think there’s a great opportunity for our channel partners to effectively be the glue between the customers and those cloud services in terms of providing that hosted backup.
That’s the first area. The second, to echo John’s point, really is about the channel partners being trusted advisers in terms of that journey to the cloud. The Forrester VMware Cloud Index published recently raised a couple of interesting points for us. First, systems integration was now second and the key concerns around cloud computing and barriers to cloud computing, and availability had come up to fourth.
For the channel partners to engage with their customers, to engage with vendors like Veeam and Microsoft and VMware and services like AWS to provide that hosted backup, to provide advice, to provide the pathway, the sort of grease to the wheels if you like, for the journey to the cloud, provides a massive opportunity for the channel here in Australia.
CRN Clearly one of the biggest engine rooms for the cloud is the actual datacentre environment itself. Darren Haymes of DPSA, the cloud has certainly helped drive demand for datacentres, but rising energy prices have increased the pressure on operators. How can resellers help their customers build more sustainability into the datacentre environment?
Darren There’s some great opportunities in the marketplace as we speak right now. So most datacentres in Australia are close to eight years old, or even older. A lot of the technology that was around back in those days has changed quite significantly.
There’s a number of key factors that are impacting on the datacentre. We’ve got rising energy prices, and so their IT managers are now working towards a focus on energy efficiency, particularly within the data centre space. You’ve got the carbon tax and rising energy prices because of major infrastructure upgrades around Australia.
The other things to be aware of is the NABERS star rating system. They haven’t announced a date yet, but basically it’s going to put a star rating system around a datacentre. So businesses are going to be forced to comply.
The other thing to be wary of is new ASHRAE standards that came out last year. It’s changed the tolerance levels in terms of how you can operate your equipment within a datacentre. A lot of datacentres we see typically operate at 21˚ Celsius; that’s not necessary today, the equipment has changed. There’s lots of ways you can introduce what we call ‘low hanging fruit’ containing your air. So a lot of datacentres you’ll see they’re mixing hot and cold air.
Whether you go a cold aisle or hot aisle solution doesn’t really matter, but there are ways you can bring sustainability about in a datacentre. Take the use of blanking panels with modular scalable solutions within a data centre space. Ten years ago datacentres were building one big block. These days we’re starting to see datacentres being built in modular solutions, so that again you only bought in for what you need when you need.
So there’s other things like introducing DCM (datacentre management) software which will help you measure your energy consumption and therefore you can start to make some decisions. You can’t manage what you can’t measure so you need to look at those sorts of considerations.The other thing is that density zones is a fundamental opportunity within datacentres. We often see within racks, they’re operating at 2 to 4kW.
These days it’s not necessary. There’s opportunities to encourage your end-user clients to look at virtualisation, introducing higher density into the racks. There’s vendors out there today with technology that allows higher density within datacentres. We’ve got a customer that’s operating at 32kW per rack which is quite extraordinary and unusual in the marketplace. I would encourage those sorts of things within the datacentre space, and there’s a lot of ways you can help your customers achieve sustainability within their datacentre.
CRN It occurs to me one of the major risks with cloud computing is that it’s increasing customer expectations right off the charts in terms of what they can actually deploy, and the costs they can get it for. Is that emerging as a problem, and if so how are you addressing it, how are you working with your partners to address it?
John I don’t think it’s a problem, I think it’s a bloody good thing. We’ve had 20 or 30 years of this industry, and the framework and how we’re told to use devices dictated by IT or infrastructure managers. I’m actually thrilled that we as users now get a chance to shape what IT infrastructure looks like and what devices we can use and where we can use them and what sort of data we access and where we want to be when we access it.
It’s the way it should have been at the very beginning. The reason we have all this IT infrastructure theoretically is to drive a better relationship with our own customers, right? Instead it’s been in many cases very limiting for us, so what we’re demanding and what the users are demanding through this revolution is a much more intimate relationship with the customers through much more agile devices. I think it’s a wonderful thing, and we should be reacting to that in a much more embracing manner than we probably have been historically.
CRN You can appreciate that many companies are very anxious about the dramatic drop-off in margins that that threatens?
Michael I see it as a margin opportunity. If you’re looking at complete transformation of IT infrastructure and in the services contribution that comes with that, it’s a tremendous opportunity. Unsustainable business models are unsustainable business models.
I remember a few years ago Paul Harrup drew this analogy between what’s happening in IT and infrastructure with the old age kind of typing pools. That structured approach towards data generation and management went away; it just wasn’t sustainable any more. The historical approach towards manufacturing of IT infrastructure and building and management of that has changed rapidly as well. Businesses are going to transform the way that consumers want them to transform.
CRN How long do you think that transformation’s going to take?
Michael I don’t know. Not fast enough. I’m loving it, I think this is fantastic. The rate of change that we’re seeing at the moment – make jokes about the tablet devices, smartphones and all that sort of stuff – but how quickly has all this stuff happened. This change that usually takes a full generation for us is happening in a number of, you know, single digit years, and it’s interesting the way that level of accelerated change is really driving a high degree of nervousness in the community as well.
And not just from the partner community, but from a lot of vendors as well. This is it guys. It’s going to change whether we like it or not. It’s going to change the rate of change to something we can’t manage. You’ve just got to get on board, and we’ve got to reinvent what we do and how we do it, faster than we’re probably prepared to do at the moment.
Toby Regardless of the BYOD factor and users demanding what they want to use at work, the relationship the partner and the vendor has with a customer does change, and I think it changes forever. I don’t think we ever go back. We talk about the opportunity we discuss with our partners, the margins, and the partner record fees are at the bottom of the list.
It’s that ongoing consultative engagement that you have with your customer, both from a vendor, and the increased expectations there – but also from a partner, not necessarily going in every two or three years, and doing a bigger deal, but that consistent engagement, taking advantage of opportunities that cloud technologies bring to solve different business problems. It’s a very different dynamic, and that’s where we’ve seen some partners embrace that and be very successful with that strategy.
Brendan The early phases of cloud has been very much ‘how do I do something differently than I’m already doing?’ The massive opportunity now, and we’re seeing it in the SMB market for example, is ‘how can I do things that I don’t even currently consider that I can do?’
Look at someone like Dominos based in Queensland. They went through the floods etc, seen the risk in their business and now redundancies, and they’ve made the initial decision based on how they fix immediate problems. The doors opened. Now their app you can get for ordering your pizza let’s you see where your pizza is up to any time.
You can monitor it, and see exactly when it’s going to arrive at your door. So there’s a whole new market that they’ve opened. They can now per minute take three times as many pizza orders than they used to. So this has opened new doors and new markets for them.
The other one is Greyhound buses. They’re now using it and linking it back onto the bus and looking to bring out fleets of business class services. Passengers can now get access to wi-fi while they’re on the bus and a whole lot of new services. They’re monitoring driver behaviour, revs per minute, speed, everything, through all of their drivers, and storing all that information centrally.
Managers and the admin people within Greyhound can access that anywhere any time, and they see their market in the next two years going from 1½ million passengers a year, to 5 million. The reason is, they’re really heavily going into the mining areas, and of course safety is a massive concern. So they know where every bus is, at any time, what it’s doing, how it’s performing, and this has opened up brand new markets they weren’t considering previously.
CRN What about the threat of public cloud services in general? Presumably this is a big issue for resellers, because customers are now able to go with a credit card and establish themselves by provisioning virtually anything in the cloud now. And there’s no ongoing support revenue, there’s no break fix revenue, there’s none of that going on.
We were talking about the fact that this change is inexorable, it’s inevitable, everybody will get on board, and as you were saying Brendan there’s obviously a lot of opportunities, but particularly for smaller resellers, aren’t there real challenges they need to address, and how do they go about doing it?
Brendan I think it’s the new markets that are the opportunity. We spent half a day with Apple recently and I think they’re up to 700,000 applications now that you can download through iTunes. So there’s applications that weren’t there previously and customers are coming up with new ways of doing business. I think some customers will be able to do it themselves. They’ve still got to have the skills. They’ve still got to run the admin, but I think it’s the new markets that provide the opportunities for all of you.
For us, from a partner perspective, we won’t take this journey unless we have the right partners on board, because we know that we’re never going to offer every service and do all the end-to-end to all of our customers. So the partner community to us is absolutely critical. We do see a number of small customers buying things like some software-as-a-service without assistance, but it would be about 30 percent if not less of our base that is unassisted.
So there is definitely a market there for it, but they’re the customers who are managing things themselves, but who aren’t yet thinking about some of the things they do.
John Don’t forget that around the world hundreds of billions of dollars’ worth of infrastructure exists in private enterprise and in small- to medium-sized businesses. In Australia I forecast say there will be a significant amount of acquisition of existing technology hardware, perpetual licence going into private enterprises, in small businesses for the foreseeable future.
This shift to public cloud is not going to happen overnight. It’s going to accelerate, but there’s a huge amount of existing infrastructure. The most desirable model is this hybrid cloud which David spoke of before, where you’re able to take your existing private infrastructure and create a much more virtual relationship with that and a much more agile relationship and create cloud-like services through there and then burst into a public cloud whenever you need the additional processing or capacity, and that’s a really desirable sort of infrastructure state for many organisations to work with.
That still requires huge innovation management and expertise from the partner community, so there’s still a huge tail of opportunity in existing infrastructure. We shouldn’t just think this is going to go away overnight and everyone’s going to shift to a public cloud. So there’s the hybrid cloud that’s a very important part of our future still.
David I was intrigued about it. I think the industry reflects inwardly too often and the demise of the channel has been forecast since 1980. The simple fact is most people are technophobic. Most customers out there would rather be hairdressers, accountants, butchers or bakers and they’re very good at that, but when it comes to IT they turn to experts for expertise. As we glibly talk about the cloud, how easy it is to become enabled, these are confronting environments for many people.
If you look at the NBN rollout, there would be 30 to 35 percent of Australian businesses which are not even connected to the internet, and do you know why? Because they don’t know how to and they don’t want to. The role of the reseller is absolutely enhanced for at least the next decade to be the facilitator and the enabler of allowing businesses to go into the marketplace and exploit this investment rightly or wrongly – there’s 30 odd billion bucks on the ground – and really create some differentiation.
So I really see the opportunity for resellers and partners and systems integrators as pure ‘blue sky’ and it isn’t the demise of the channel. If anything, you can see a lot of logic as to why more channel partners will be embraced into the marketplace, because most people are confused by our technologies and they’re frightened by them.
Charles Those kinds of public cloud services wouldn’t be for everyone and I think from what we’ve seen over the life of technology basically is that cloud services provide an idea and a framework, but many customers will need something that isn’t quite that, or isn’t quite linked with dotcom or isn’t quite as-a-service and will need something that is slightly bespoke or more closely caters to their requirements.
So what we’re seeing at Veeam is a lot of our partners taking that opportunity to provide something that from a marketing standpoint looks like a generic public cloud service, but is actually something that provides a very unique and specific service for their customers, and I think we’re going to see more of that, and this idea of the cloud becoming a diaspora of partners, rather than ‘the cloud’ at the back somewhere in the dark.
CRN A year or two ago, Gartner and IDC were excitedly reporting Australia and New Zealand were among the biggest adopters of the cloud and virtual technologies in the world. Is that still the case? Are we still leaders in the adoption of cloud and virtualisation?
John Yes we are. We’re miles in front. The whole of government’s shifted towards cloud services and is ground-breaking in terms of a philosophical approach towards having a much more agile infrastructure. And that’s what’s driving a lot of the really interesting stuff that VMware and a bunch of other companies are doing as well.
We’ve seen this high level of virtualisation and the question is well, what next? We knew that was step one on the journey to the cloud, but now we’ve got to come up with step two and step three a little bit faster. That’s what’s driving a lot of the new technology and new solutions out there. There’s still a bit to go.
Critical applications, production applications, tier one apps and modernisation of some of those older apps, we can certainly help with that. But yes, we’re actually doing pretty well out there.
Brendan Yes, I think cloud goes hand-in-hand with tablets and smartphones too. We are now number two in the world with penetration of smartphones to dumbphone sales. So the only country beating us is Singapore. But comparing the two companies is chalk and cheese, so we are punching well above our weight.
Rob New Zealand’s been punching well above its weight in terms of its propensity to do strategic outsourcing for probably over a decade now and I think all the hype about cloud is nothing more and what it’s done has exacerbated, particularly among small- to medium-sized business, this need to want to move stuff off-premise to another service provider.
So I think what we’re going to see is a continued trend which can only represent huge opportunities for everybody in the room here, for all the reasons described before.
Darren I wanted to add we’ve seen a significant number of businesses moving to co-los in the last two years, moving to this cloud environment and right now I can say that nationally there are a large number of projects under way where we’re going to see a lot more co-lo type data centres rolling out. The latest was the NextDC launch of a couple of large data centres, but there’s quite a large number already in the pipeline that we’re aware of, so there’s been a phenomenal shift to the cloud and we’ll continue to see that over the next two to three years.
CRN Is there a danger of the trend getting a little out of hand from the point of view of businesses, as you were saying Rob, moving everything to the cloud. Is there a risk of companies going too far? How can they develop a more considered approach?
Rob I don’t think we’ll ever see everything move to the cloud. I think there’ll always be this hybrid environment, there’s always going to be, when you’re looking at the cloud, there’s always a function of what is the sensitivity of your data and what’s the workload, and there’s always going to be workloads that need to reside on-premise and in a private cloud environment perhaps, but we’re not going to see the small business moving all their stuff to everyone else’s data centre.
Charles I think smart IT managers use all the tools available to them and I think what the cloud represents is one of those tools and is broad potentially and certainly powerful and flexible, but it isn’t necessarily the be-all end-all. As I said earlier, one of the key opportunities for channel partners is to help IT managers help CIOs make those decisions about whether or not, which parts of their business are most appropriate for the cloud, and you know Rob’s right, it’s not going to be everything.
Toby I couldn’t agree more actually. It’s the point I made earlier about it being a matter of time, and I do think it is a matter of time for customers to realise what parts of their business we want to move to the cloud and we’ve seen that happening, but again from a Microsoft perspective, and the position we have with both our server infrastructure and public cloud platforms, we’ve seen a lot of these examples come to life.
So back to the scale and performance of Australia and New Zealand specifically, we’ve had 1700 partners enrol in our cloud programs, and over 500 selling. That is very high around the world. As a result, that opportunity that we see specifically, and when we talk about new markets that are in the small to medium business space which we talked about before, customers not necessarily knowing how to move into the cloud, I disagree that they don’t want to.
I think if they actually understood the benefits they would want to move to the cloud, but that doesn’t mean they know how to, and that’s again where the reseller really comes in. It’s that seed and feed mentality that there’s a huge untapped opportunity out there with 1.2 million small businesses in Australia to take advantage of a public cloud offering, while from an enterprise perspective, we can still have a hybrid approach.
Charles Expanding on Toby’s point there I think that as David was saying, it doesn’t become about moving to the cloud, it comes about as really what’s best for your business.
It’s an interesting statistic because our specialities are around disaster recovery or business continuity, and so only about 35 percent of small to medium businesses have a comprehensive disaster recovery plan last year, according to Gartner.
And for organisations that suffer a media outage, or suffer a disaster like the flood in Queensland, like earthquake in Christchurch, only about 6 percent would survive without a major impact to their business, either shutting up shop, or suffering a significant loss of revenue.
So presenting it as a journey to the cloud I think is perhaps the wrong way to present it to those sorts of customers. I think it’s about how do we find ways to make your business more available, how do we find ways to keep you afloat and face the challenges you face as an organisation.
Darren The other thing I wanted to touch on is what we’ve seen in the last couple of years because these organisations are now available and space is readily available that IT managers are now starting to employ disaster recovery solutions whereas previously they may not have been doing that because it’s become affordable and plus we are becoming more and more reliant on technology.
We’re seeing quite a mix, where some businesses are looking towards the cloud environment for their DR or vice versa. We’re seeing quite a lot of that happening in the market.[We need to take this to the audience to see if anyone has questions.
David I was at a conference in Singapore recently, and there were some interesting stats thrown out around cloud from a partner perspective. This perspective was ‘plan to have at least half of your sales organisation leave the organisation and leave the industry, because they won’t adapt to the new selling environment’. That’s half.
Now that’s a major issue when we sit here and you look at the talent resource we have in the industry today. And the other one is the financial model and migration of the financial model from transactions to annuity. How is the industry working together to ensure the partners can actually make this migration? So what’s the industry doing to train soft skills, not hard skills? We’re all very good at that; ‘here’s the new X Y Z’.
But the soft skills that allows our sales organisations in the community to change the selling process from an IT manager to a boardroom or a CFO; and what about the financial model? It’s all very good encouraging these people, but every one of us sitting here with businesses promising a revenue stream and balance sheet – and we’re asking for massive changes – what is the industry doing with that?
Toby We’ve had some experience in the last 12 months with a particular activity which we call business model transformation workshops. There’s a whole component of that focused on the operational aspect of annuity-based revenue streams and how to think about your business differently, right down to how you compensate your sellers and really across the business.
The content has been very well received, and what I would say is that regardless of the solution, it could be applied across any cloud solution, so it’s something for us that was a fairly significant investment. We’re not able to scale broadly, but we got some great feedback from the partners themselves, and we also see a return of three to four times on their cloud business, so it’s something we’re absolutely going to continue to do at least from the Microsoft perspective.
Audience question - Damien Rossiter: I represent an organisation on the Gold Coast, ONCG Systems (CRN Fast50 20012 No.18) which is traditionally an SME provider. My question goes to the whole panel, Toby probably in particular. We live in the SBS (small business server) world, we don’t need to get into the arguments about what’s going to happen with the death of SBS, and yes, we are moving our market or our business towards cloud.
And we believe it’s inevitable and everything but I’m still waiting for a logical argument, especially from the ‘tin pushers’ to say where’s the better value in what you were just discussing, from transaction to annuity business.
When you lose that hypothetical three-year transaction, the value that’s placed at the moment in that SME, the returns that we get for a 365 project with Telstra for 10 to 15 users, we still do those services when we had the server in place, the SBS server, where every service is there. We’re a relationship business, and obviously everyone in this room is a trusted adviser; all those types of things, otherwise the business wouldn’t grow.
So all the services that everyone’s spruiking as being value adds, I would guess most of the people in this room have captured, not saying we’re the best at it, can do all of it, and that there’s not much more to be learnt.
But there’s a massive value chunk that’s just been taken away from the integrator that goes through, and I’m yet to find someone who can tell me where that’s gone. Everyone talks about the hype, particularly Telstra with their bundle, and Microsoft going through, and I can understand the business model about why they go that way at that big end of the town. At the small end of the town I’d like some answers.
Toby Damien, thank you very much for the question. SBS is a fantastic product and will be continued to be sold through December 2013. What I can say, and I’ve talked to a lot of partners and customers about the concern which is very real in the market, is that the $9 billion that Redmond is spending on research and development is very much focused on our cloud services product and unfortunately not necessarily investing in another small business server suite like SBS.
That said, we still very much are about providing choice to the market. I talked about this a little bit before. Now it’s potentially a slightly different choice, and I’ll come back to the business model around this.
Just from a technology perspective, and I’m sure you’re aware of this, with Windows Server 2012 and specifically Window Server 2012 Essentials, as our new cloud OS and the connections that model has into Office 365 and the ease with which you can start to bring hosted email, hosted SharePoint into that box on premise and in a small business, has taken some great strides.
I think the reason we are investing R&D in that space is that’s where the market is going. That’s really where we see the markets going and where customers are telling us they want to go. If that scenario doesn’t work for a customer and they just don’t want to do Office 365, we have great hosting partners as well that can do hosted exchange or hosted SharePoint. If that doesn’t work another choice is to install the individual server components and as has been talked about is the more expensive solution.
So those are the three choices that are available for customers. I talked to a partner up in Townsville as well and the further out you go, as in Far North Queensland, there’s some very real concerns around latency performance and things like that.
As far as your relationship with your customers, and you know better than any of us, that trusted adviser relationship that you have absolutely is what we’re talking about before. I think the trick is that that untapped market in the small business area, in those 1.2 million small businesses out there in Australia, if we can scale to take advantage of an incremental opportunity there – which I don’t think anyone has necessarily cracked yet – that is what we want to do with partners such as yourself to enable you to talk to more and more of those customers, as well as try to maintain those trusted relationships that you have to the best of your ability.
Rob There’s no doubt the ultimate beneficiary of infrastructure-as-a-service and software-as-a-service is the end-user customer. It’s a low cost entry point for them, and unfortunately for many resellers that means it hits their bottom line as well. As-a-service, whatever it is, is low cost. It’s DIY everything. DIY download, DIY install, DIY educate yourself, and my view is that extracting the true value out of many cloud applications is going to require people like yourselves and organisations like yours to help your customers to do it.
Because you’re right, the comment was made earlier on, people are attracted to the cloud because it enables them to move stuff off-premise or to minimise the number of technical people they have on staff. The reality of it is, someone’s got to do that piece of work for them.
Brendan From a Telstra perspective, at $7 a user there’s no way the customer can do it themselves on-premise for anywhere near that. There’s definitely going to be a shift of customers wanting to go and seek value in cloud. I think it’s also an ‘over a beer conversation’, but make sure the broader conversation is ‘have I got the right network to run cloud?’ and thinking around ‘how are they sharing information, and are they accessing it remotely?’ ‘Can they do it on their smartphone?’ ‘Have they got a sharepoint set up?’ ‘Have they got other applications that they’re running on-site that we could start putting into the cloud as well?’
There’s a whole lot of other conversations because obviously the customer’s an early adopter if they’re starting to move to cloud, so something about the other doors that they could open can assist them.
Audience question - Keenan Haigh: I’m from Thinkin’ IT in Perth (CRN Fast50 2012 No.10). My business is mainly five or 10 users. My whole business has been built on running SBS server app for clients in the middle of nowhere, such as in Karratha in WA. Now that obviously everything’s been pushed to the cloud and everyone’s promoting the cloud and stuff like that, it’s making life a lot harder for the smaller guys.
They’ll save up just enough money to get their own little three and four user office running, where they don’t even have a mobile connection. They’ll sit out there and they’ll just have their own internal email policy and can’t even take external emails unless they get a mobile tower and they occasionally get a signal if they stand up on a rooftop with a TV antenna type thing – we’re talking the middle of nowhere.
So we’ll go up there maybe once a year, do updates with them and do what we need to do with them. That’s it. We don’t hear from them again. So even this cloud stuff, these guys are essential services to the WA mining industry and gas industry up north. What is the solution here?
The cloud’s great for people in metro areas, but like every other IT company I know in Perth, the biggest problem we face is broadband access. I live less than 3 km from the CBD and I have to have three ADSL lines merged together so I can have 10MB down. It’s a joke.
So the cloud scenario is obviously wonderful for the big business, but what about the small users? They can’t afford to have the higher broadband that you need to have their main capability, so what is the solution in the cloud there for the killing of the SBS side of things – because like you said, we can go to Server 2012. We can do all that sort of stuff, but the budget blows out to ridiculous figures once you start doing the licensing for them.
So how does the cloud cater for those really, really small clients?
Toby I think it’s a great point, and the fact of the matter is that there is still that choice for a completely on-premises solution with individual server components, and I totally understand the pricing and cost impact of that. I just want to clarify your comments around really small customers: I don’t believe it’s a small customer thing, versus a big customer thing. It’s a remote thing, and that’s a very real concern.
The bandwidth, and Brendan you might chime in here as well, it’s a weighing in of the costs, whether it’s bandwidth, or completely on-premises hardware and software solutions.
But the promise of the cloud is to allow those small businesses to use exactly the same tools that their larger competitors use and actually grow their business. So if we can make it work, and I want to continue these discussions, then that is the opportunity for those customers and they may see a return on that investment, and that’s how we articulate that potential return.
Brendan From a network point of view, I think it comes down to we’re a damn big country, and so if you compare us to the US, there’s not much difference in size, but there is a big difference in population. So our land mass is 7.7 million square km and if you look at our NextG network for example it covers 2.3 million square km, so we have an amazing network, but it still only covers a third of the land mass of Australia. So it is a challenge.
When you get to these remote areas where we’ve got to make commercial decisions about what we roll out, there are programs around with government to help assist that, and also if there’s mining companies out there, we do an awful lot of work with the mining companies where there’s appropriate demand for the rollout.
So you have to make sure you’re linked into that. But I just think it’s a reality of being in Australia, and I think NBN will help to some degree, but it would be interesting to see some of the towns you’re talking about, will it be one of the areas where it gets satellite, or will we be rolling out NBN out there, so it is a very genuine concern.
We’ve worked with a number of customers, more medium to higher than the ones you’ve talked about where we’ve rolled out things like brand optimisation where they can get by with small links where they do have those requirements
Audience question: Thanks guys it’s been very informative today, and as a tin pusher moving to the cloud very interested in terms of talking about partners, talking model changes etc. From a partnership perspective, I’m interested in the comment from yourself Michael and David – distributors if I segment the two. I read in the media, CRN etc about a lot of partners creating services.
You don’t see a lot from the distributors so I’d be interested in getting some more specifics around commentary from you guys around strategy and specifically your moves to the cloud.
David Yes, we’ve had a lot of reflection on this as where do we move to in the next 36 to 48 months, and we keep coming back to the philosophy that you know distribution will probably keep doing what distribution does exceptionally well and that is aggregation, funding, billing and facilitating and adding competence to our channel partners.
The point I made early on about understanding your core competency, within that core competency you may have to supplement that. So the aggregation conversation or the catalogue that the distributor has should be leveraged to ensure you maintain your customer set with a fully-fledged aggregated solution.
I think distribution will need to play that role. When it comes to financing, and funding, you will continue to play that role. We, like all the partners in this room, will be going through this transformation from the revenue perspective, which is actually driven by vanity more than reality, because we look at it very differently.
Our business model is an EBIT model. If we come to sell our business no-one checks about your revenue number, everyone goes down the ‘that’s your ebit line’ and I think that’s what we all have to understand as we migrate to cloud, that the value of the business is actually determined by EBIT and not by revenue.
You might get five or six times EBIT, and you will be lucky to get one or two times revenue.
So we’ve been through the transformation and our businesses from a finance viewpoint will change. I think the relationship we have with our partners will continue to be enhanced by the fact we can ensure you’re competitive in the marketplace, by leveraging our catalogue that we take into the cloud.
So we see a very optimistic future in the next 36 to 48 months, and in the next 12 to 24 months, we still see – actually I quite like selling tin and I like Cisco tin too by the way – and because there’s still a lot of infrastructure being built out.
One of the interesting stats is 24 months ago there was about 180 identified SPs. The research we conducted two months ago says there’s now 870. Now we all know that’s not the case; people have changed their position in the marketplace, and as they do that they’re building out infrastructure. They’re buying infrastructure to move into the cloud and we just love it.
So in the next 12 to 24 months we want to work with our partners to build that competency into the marketplace and during that time we’re making a migration from a financial model as our partners are doing as well. Once again the demise of distribution is a myth and it will continue to grow and continue to add value.
Michael Like David said, everything old is new again, so as a solutions distributor, what we do is that we take best-of-breed solutions from our vendor partners, and we take those up, we bundle those up, we aggregate as David mentioned and we give those to our partners to go and sell to their end users.
Now in the old world we took physical product. In the new world, we will take virtual product and we’ll wrap more services around that, to enable our partners to go and sell. It is an exciting time and when the cloud first came out, it was a bit of a threat, we thought ‘ooh, what are we going to do now, we’re going to get bypassed, the vendor may go straight to the end-user’ and so it was a bit of a threat for a distributor and for a partner.
As I said, we work with some of the world’s leading vendors, and we take the best parts of their solutions, bundle them up and then we get the feedback from the business partners and their end users, you know what markets those end users are playing in, and working with those partners to deliver our solutions.
Some of the fundamental changes, David’s already mentioned, you know the financing models. Also the profitability models, that’s going to be the biggest challenge for us as distributors as we move forward, and sales models. How do you sell that subscription service, as opposed to that transactional product type of service as well? - they’re some of the fundamental changes that will happen.
Consolidation of supplier products is exciting as well with this new model. The access to vendor products I think will fundamentally change with this new model, rolling out some of those best of breed solutions not only in Australia but the region. For us looking at where we have centres of excellence, can we now expand regionally, can we now push services in different parts of the world?
Some of those things will really impact our business. Now, we’ll still be a solutions distributor and people are our most important asset. For us that is where our intellectual property resides, and we’ll still be here.
Audience question: Joe Ciancio here from Maxsum Solutions, Bendigo. We are a classic system integrator, mostly based around small business server, and initially we had a relationship with Telstra for over 10 years and we had some initial trepidation against pushing Office 365 because it was going to be provided through Telstra, but we got over that and we embraced it and we’ve signed up.
We did the business transformation models workshops. We’re cloud essentials partners, we’re up with T-suite, and there’s a lot of talk about the value of the channel. But how does Telstra frame that value when from time to time you have Telstra AEs going direct to your clients and undermining opportunities that you may have in cases where cloud might not be the best solution for the client, as happened to us last week?
Brendan While we’re all playing in this space we do kind of trip over ourselves from time to time, there’s no doubt about that. What we want to do is put a stop to it, and so we absolutely see value in the channel. We cannot offer end-to-end service in the cloud domain.
So for us, we cannot go this alone, so the partner community is absolutely vital. Sometimes we won’t always see eye to eye, but we always need to have those conversations and we always need to represent the customer and not our own interests or vice versa. So you will have a channel manager and I really encourage you to go to your channel manager if you’re ever seeing that, we want to stamp on that very quickly. As we move to cloud there’s so many opportunities that we’re seeing for partners.
I think distributors play a key role in this moving forward also. So we’re getting more and more partners coming to us now, just on the broader suite of services, when we went out with one thing like Office 365 I think there was definitely a mixed reaction, but I think now that we’re offering more and more services for the suite, there’s definitely a lot more interest.
I think the quote from me to one of our distributors about 12 months ago has always stayed in my mind, and that is some of their partners were telling them they were starting to be concerned because they weren’t having a cloud conversation. Their value proposition said a number of times here in the panel is that ‘they’re the trusted adviser’.
If the customer’s picking up the paper every day and reading about cloud, and their trusted adviser is not even talking to them about it, bang, there goes their trusted adviser status.
So taking the customer on the journey with the person they trust is absolutely essential here, and what we want to do is play the role behind that to help you be successful and obviously us to be successful. Take the customer on their journey and you have my absolute support to sort those things out when they pop up.
Audience question: Tony Haywood from Weston Group. One of the panellists talked about co-lo, there’s a lot of talk about co-lo – can you just draw a differentiation of where you see co-lo versus hosted rack space, hosted applications in co-los, and proper outsourcing of cloud services, rather than just hybrid cloud infrastructure in a datacentre?
Darren Good question. What we see in the marketplace is quite interesting. You’ve got some organisations that will provide the end-to-end service offering. You’ve got other organisations just providing the space to real estate. Different business models obviously for different parts of the market, and we’re seeing at the moment a shift towards selling real estate or selling floor space, as opposed to providing that end to end service.
So there lies some opportunity for yourselves to step in and take that role. But yes, it’s an interesting space and there are all these different operators, there’s new operators coming, but yes, some do end to end, some do a mix and some just provide the space on a rental basis.
Toby I just want to reinforce what I opened up with earlier, that we really feel as far as this particular topic is concerned, and I’m responsible for the entire partner strategy for MS in Australia, we’re absolutely committed to providing that path to profit for our partners.
We feel the cloud is here now, it’s not coming, and I would just encourage every single one of you. My email is tobybo@microsoft.com if I don’t get a chance to meet you here today, to let us know what more we can do to help support your business, because we are absolutely committed as a general company, we always have been for more than 30 years and we will be in the future.
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