CRN roundtable discussion: SMBs in the cloud

If there’s one thing that attendees at CRN’s recent industry roundtable agree on it’s that the cloud is no mere passing fad. Rather it’s a technology trend presenting myriad new and exciting opportunities for the channel.

Nick Verykios, managing director – Distribution Central

Tony Ignatavicius, head of commercial sales –  Synnex

John Donovan, director of channels – VMware

Simeon Joyce, GM business and marketing – Telstra

Jason Ashton, managing director – BigAir

Tony Heywood, vendor alliances director – Westcon

Roy Pater, sales director – Infraserve

Robert Sherry, cloud channel development executive – IBM

Geoff Olds, managing director – TechFlare

Stephanie Browne, cloud services manager –Express Data

It’s a stunning understatement to say that cloud computing has generated a great deal of hype over the past few years.

CRN sat down recently with some of Australia’s smartest and most experienced technology experts to deliver something of a sanity check on this runaway trend in computing.

What emerged was a fascinating discussion about the opportunities, challenges and even dangers facing small businesses as they join the mass exodus to the big new world of shared IT. And the key takeaway message was the cloud has drifted beyond the “hype” phase into being a technology trend which companies – vendors, partners end users alike – ignore at their peril.

CRN: Express Data recently conducted a national roadshow with the aim of helping your SMB partners get a better handle on cloud technologies and how to go about selling them. Perhaps we could begin with you sharing with us the content of some of those conversations.

Stephanie: Sure – we are in the process of delivering a national workshop series to our SMB partners, and it’s really focused on talking to them and their systems integrators about how they can transition their business to the cloud. There are a lot of challenges they face with this transition and two of the key topics that keep coming up for our partners are what is the opportunity and what is the best path for them to go down? Should they invest in their own data centres and infrastructure or should they partner with someone, or just resell a service to do that?

Another key challenge is transitioning your business and how you manage that cashflow. You’ve gone from selling these large on-premise upfront deals, to selling smaller monthly subscription based deals – so there’s a real cashflow challenge there and also a real challenge with renumerating their sales team as well, so how do you incent them to look at transacting that business quite differently?

CRN: One of the key things as well is helping a business understand what its needs are and where it’s going to be in three to five years’ time. I imagine the sorts of companies that are more suited to a cloud model are high growth companies. Is that what you have found?

All: No.

John: In the introduction you talked of cloud hype. I think we’re beyond that to be honest. I think all of us at the table have had significant experience in this space. We’ve got a very healthy service provider community that is billing on a regular basis. People are used to billing on a monthly basis. We’ve had that model in the consumer space for many years now with organisations like the antivirus companies that introduced monthly subscription billing a long time ago.

So I think small, medium and large enterprises are quite used to that operational expense model rather than capital expense model. In terms of who’s actually adopting it, the fastest in the market that we’ve seen has been SMB to be honest, where they don’t have IT infrastructure management as a key proficiency, nor do they want to develop the proficiency in that space. 

In terms of trust of cloud I think there’s probably two markets we need to consider: one is the private cloud and the other is the public cloud and then the hybrid model in between the two. I think we are now almost beyond the confusion between the two. 

Companies see a lot of the benefits they originally saw from public cloud computing, resource pooling, CPU pooling, network resources, storage, all that sort of stuff. When they then need to burst into a model with more capacity, so traditionally the cloud environment, they can now do that in a more confident and secure managed environment, through hybrid cloud models.  So I think probably over the last 12 to 18 months there’s been a significant amount of gain made in this market and I think there’s significantly more confidence in this market as well.

Geoff: As a reseller I still think there’s a lot of business owners, directors and CEOs who are in a holding pattern. They are not sure. And there’s some IT resellers who are very pro-cloud and there’s those who are still in the traditional model. What you were saying before Stephanie, about the cashflow side, it’s a massive challenge. That’s what we’re going through right now. From the feast and famine of projects to the ongoing monthly fees for our managed services and cloud. I think yes, at the top end of town it’s very clear, but filtering right down to some of the CEOs who’ve probably been in business for 10 to 15 years, there’s still a lot of grey areas there that we have to untangle for them.

CRN: Jason, what’s your view on the role of network speeds in the uptake of cloud services in Australia?

Jason: The speeds that I’m typically seeing in the market that people are requesting are still quite small – one meg, two meg services – so it’s not like people are saying ‘I need 100 meg to access cloud-based applications’. I think the key is that it’s reliable and it’s consistent performance. A lot of our partners are actually using us in combination with a fixed network – so where they’re deploying a cloud-based application for an end user, they’ll actually insist on there being diverse connections to the office – so there’ll basically be a red cable and a blue cable. That will ensure there’s always a way for the end users to access their applications.

CRN: How confident are you that many of these companies really understand their needs and the role that cloud is supposedly playing in satisfying them?

John: That’s the interesting thing from a reseller perspective. It was originally applications as a service or something, 10 years ago, and it’s evolved into this cloud-based model. We’ve had opex billing for quite a while but this is a role for the development of the reseller community, and originally when we looked at cloud people were saying ‘that just gets rid of the channel doesn’t it?’ And the answer is ‘no, it forcesthe transformation of the channel’ – a really interesting one – this is where we are spending alot of time and resources, enabling and educating and training the partner community so that they can maintain that traditional relationship they have with their customers, being thought leaders and the trusted adviser.

CRN: What are you doing to help them become forward leaders though, it’s not something that can happen overnight is it?

John: From VMware’s perspective it was the work that we did starting 10 years ago around infrastructure and server virtualisation, giving resellers the confidence that they can create a much more agile approach to IT management through cost effective control of server resources and how you manage that, so being able to lower operating costs, utilisation of energy costs, administrative costs, and IT acquisition costs, that puts us in a really good position to be able then to take them on the next step of the journey, which is helping educate the partner community around how they can control and manage this transformation from a customer’s perspective.

Tony: I think the comment about cashflow is a pretty important one here and one of the most important ratios in a reseller is billable utilisation. Engineers sitting on a bench unutilised is a dead cost to the business. Cloud services offer the ability for the reseller to move away from the product to a services-based environment, and cloud enables you to build environments for customers which vendors would otherwise take control of. 

Roy: To do that the partner does need a transformational plan. Most resellers have grown their businesses organically, opportunistically. They might have been an engineer – started up, started going, started moving forward, but now is the time when partners have to absolutely get a proper transformational plan in their business, to say ‘how am I going to go from a transactional based business to an annuity revenue based business’, and it is a journey. 

Cloud is not about how the SMB wants cloud, or why. They don’t really know what cloud is, but what they do know is that it ‘takes all that infrastructure stuff off my hands’. Go to the industrial revolution, same thing. They all had the steam plant at the back generating power, and eventually they just bought electricity off a grid. The SMB more than any other business wants that, because technology has become a complexity in their business, but they have to have it. They’ve got to be on social media. They’ve got to have websites, they have got to have ERP systems to interface to the big players out there, be it a mining company, be it a supermarket chain – so they’ve got to have this complexity – but why do they have to build it themselves?

Transactional business is going to end. It’s as much a fait accompli as many mainframes came to the end of the road, right. We heard the same guys screaming as they went off the cliff.

Geoff: The transformation thing has to happen for the client as well. So you go in there, you want to transform into a cloud player, which is what we’ve been doing over the last two or three years. Back in ’04 we were doing hosted solutions. So, ‘cloud’? Same thing, new name. The challenge is how do you work with them strategically, and that’s where a lot of IT companies I see out there in the market have the challenge. That is that they’re talking tech. They have to actually talk business plans, and that IT plan has to be about ‘how do we go into cloud?’ – ‘Why do you go into cloud?’ – ‘Can you network enable it right now?’

Stephanie: One of the key things we’re seeing for our clients is that we talk to them about the complexity being margin – so it’s really important for them to think about something that’s really unique and different. If you’re going to go out there and sell a Google Apps or an Office 365, it’s really hard to make any money – so think about something that’s really different to give to your customers.

Robert: There absolutely is a role for the channel in this new landscape. You’ve talked about them being this trusted adviser to help clients to really understand what are the best applications or best services to choose, when there’s a thousand suppliers and vendors advocating that they’ve got this cloud capability – but it’s also that the vendors need the reseller and channel firms to extract the value on that business application and that service, and annuity income is only as good as it lasts. So the retention in this model is going to be key as well.

Also, I think it’s incumbent on the vendors to educate and provide programs to the channel firms to enable them to develop the skills and capability so they draw on a lot of global experience that vendors have so these reseller and channel firms can get off to a fast start without having to reinvent the wheel themselves.

Roy: Every reseller that’s supplying into the market thinks they’ve got to go and build a cloud, they’ve got to go and build hosted exchange, or they’ve got to go and build file services, or back up and things like that. That’s not where it’s at. The future is most definitely in a different skill, because you’ve still got to have single sign-on identification. The partner has to do that, they still need security, they still need backup, just because the application’s in the cloud doesn’t mean it’s been backed up and can have disaster recovery added to it, or it’s automatically there, it’s not. Very often in the fine print, DR is not part of the deal.

Simeon: Yes, what you said, Robert, absolutely resonates with our experience as well. Telstra’s investment in cloud is in a number of areas, but one of the areas where I think we’ve been quite successful and have been quite pleased with our progress, is in the area of software as a service. We went to market two years ago with Office 365 in a former form, and we’ve since seen over 850 partners sign up with us to sell that solution, and there’s been extensive work done by both us locally and Microsoft on a global level.

We’ve seen some very successful partners migrate from an environment where they’re selling boxes or selling on premise exchange, into a cloud environment, some partners approach it in different ways. Some partners have the cash to actually spin off a dedicated cloud business unit, others use it to supplement their business. Others see it as an opening into a new area of business that they previously couldn’t touch. Once they start that journey, they can continue up the chain.

Robert: Looking at the surveys that IBM have conducted, 60 percent of customers who will adopt a cloud strategy will adopt a hybrid strategy, and that in itself creates significant new opportunities for organisations that can integrate these public and private environments, and if you think about almost all new applications are born in the cloud, organisations don’t want to have these application islands, you know their ‘private’ needs to be able to talk to the ‘public’ – so really again this new landscape, this new opportunity creates opportunities for organisations and vendors that can provide the capability, the tools to enable this integration.

Roy: Migration tools and doing the migration is going to be a massive business in itself, right?

John: The service providers are actually looking to create reseller communities. So they recognise they have potentially best of breed data centre services, and virtualisation management of cloud based services – but they don’t have the relationship building and management of disparate consumers or customers, whether it’s SMB or commercial. So there’s a number of service providers looking to go back and create reseller communities and for them to reach out and manage those customers, which is an interesting transformation.

We’ve seen a number of traditional systems integrators now become advisers around cloud-based services; we’ve seen a number of resellers transform themselves into resellers of white box or rebranded cloud-based services; we’ve seen distribution set up relationships with aggregators of cloud-based services and then being rebadged and resold, even through traditional route to market models, which is a fabulous transformation.

The other thing is the great range of options being delivered through disparate service providers. You’re not locked into this traditional MS model any more. 

CRN: How important do you think SLAs are for company’s cloud providers to differentiate themselves?

Nick: They have to be critical. The SLA has always been there, no-one is going to change the way they do business, and when you work with an integrator to deliver a service to you.

CRN: In the past it was probably going to be on or off. Now it’s more nuanced presumably?

Nick: Well is it because I guess we at Distribution Central got lost in the cloud a while ago. We buy product from vendors and we sell it to resellers – so what is our position going to be in this bizarre love triangle? What we found out was you’ve got the ‘gonna gonna gonna’ – ‘you’re gonna have to do this, and you’re gonna have to do this’ conversation, what is going on, what’s happening. I really don’t care, because the cloud’s been here forever.

It was either called ‘bureau computing’ or it was called ‘software as a service’ or ‘managed services’ or etc etc. Where it gets interesting is when you identify what is a customer buying, and what does a reseller do? Because we’re talking about SME resellers here. The conversations we’re having with our SME resellers become really really interesting – because the bottom line is that cloud is not instead of, it’s as well as. This is what people really lose sight of. There’s almost this myth that’s created, that once you’re using cloud services, you don’t need anything any more. Well you goddam do.

Simeon: When people want to go into the cloud, they need to know more, they need to have more confidence than just about the solution they’re accessing. They need to know that confidence starts at their premise and goes all the way into the cloud. That’s why if you look at telcos globally and look at analysts’ research globally, they talk about the mix of telco and cloud vendors as being the perfect match.

Being able to provide that assurance of the network connectivity all the way into cloud, like a cloud services product – posted in our Australian data centres, accessed via one of our private IP networks, via a wireless IP connection end to end security and end to end SLAs and the full management experience – so I think that’s the full story that the telcos bring to the table and why we see it as a very serious investment for the future.

Robert: Coming back to Nick’s point, I think that’s going to counter one of the comments Roy made, and that is that the cloud environment will always co-exist with some organisations maintaining their own infrastructure. Cloud’s never a generic discussion, it almost always starts with a specific workload in mind, and there are some workloads that are ready and highly suitable to migrating to a cloud, but then there are some workloads that will never be migrating to the cloud by virtue of their complexity. They’re simply not virtualised or regulatory compliance prohibits them from moving to some kind of cloud environment. 

John: Can you expand on that? Why would you not be able to set yourself a target of having 100 percent virtualised applications and workloads?

Robert: You will always have an infrastructure play whether it’s a private cloud environment or just because they’ll host their workloads and applications in a traditional environment – just the way they have done for the last number of decades. It’s not going to be ‘everything moves the cloud’ – these two environments will co-exist, and there will always be a place for our channel partners to stay and remain in reselling and adding value to infrastructure sales, as well as developing new cloud services offerings.

Roy: I agree it’s the same, we didn’t get off minis and mainframes 100 percent ever did we? We are still using minis and mainframes today, all of us do. Whether we use it directly or indirectly. So cloud I don’t think will ever be a 100 percent model.

John: I don’t think you are thinking big enough. I think you should be thinking longer term , so think bigger, think about the transformation we’ve been through in the last 30 years. Don’t you think at some point in the future, whether it’s 5, 10, 15 or 20 years’ time, we can have floating devices that hold no applications, no information – it’s just this seamless connectivity through to some form of centralised easy to manage secure environment. Why is that not something that we could aim to build the industry towards?

Nick: Because this is why we don’t have electric cars. We live in a world where everyone has different interests. The strategies that are going to be competing against cloud are based on technology that hasn’t been thought of yet, and the only guarantee I have of that, is because cloud was doing that to whatever was happening five years ago.

In five years’ time, we are going to be talking about the stuff that made virtualisation redundant, the cloud redundant, whatever redundant, because we live in a commercial world and that’s what happens. What also happens is that strong, well-paid, influential reseller reps are not wanting their customer to do it, because they don’t want to get paid over 36 months. They want to get paid right now, right here. 

John: When I was working in systems integration, it’s purely a net present value calculation on the commission structure. You can get around that very easily just by paying people differently.

Roy: You must be hearing this all the time, like ‘don’t influence my reps too much’.

John: We hear that from the vendors as well, we’ve got enterprise reps paid on selling tin, and a competing strategy around MSPs selling infrastructure to a consumption model. So it’s economy.

Roy: The reps competing for your mindshare to sell it one way or another.

John: That’s what’s transforming the industry and if that’s how sales people are paid, we’ve got an issue. When your business is virtualisation, you don’t have that problem, but when your business is pushing tin, you have a problem.

Nick: We’ve got guys paid through perpetual, and guys who are paid through subscription and you can work it out, it’s not that hard.

Robert: When we talk about business transformation, channel firms need to transform their business so that they can accommodate and manage the transition away from lump income to annuity, and they need to think about new ways to compensate their sellers.

Roy: But the demand is coming from the SMBs regardless. You hear about it in all these sessions; 80 percent of resellers will tell you they’ve had their customer in one way or another ask about cloud and yet you ask them what are they doing about cloud and about 20 percent of the room will say ‘yes we’ve got a plan’ and the rest will sit there like stunned mullets.

John: The resellers, or value-added resellers or systems integrators or outsourcers available can be led by the demands of the customers, or if they choose to ignore them they can deal with the consequences. There will be perpetual licensed sales and tin going into standard environments for many years yet, but it will become a small part of total IT spend. 

Simeon: So that comment was spot on that the demand is coming from SMB.  It’s no longer about enabling partners or trying to get partners on board to drive cloud sales – pick your analyst, but most are predicting around 40 percent of Australia’s SMBs are going to make a move into cloud if they haven’t already in the next 12 months, so the demand is coming.

I think on the compensation model, one of the biggest barriers of SMBs moving into the cloud is ‘how do I get there?’ and that can never be overlooked. The compensation model about ongoing revenue streams is one component and often only a small component of the total compensation.

The big win for resellers is actually in providing professional services. So compensation is a tricky one, there’s no getting around it, but it is a change in model that the opportunities are still there and they’re still big.

CRN: How important do we think the issue of data jurisdiction is in Australia, or rather how important to Australian business is the issue of data jurisdiction? Is that an interesting way for you to differentiate yourselves?

Robert: It really is and I’ve been surprised. I’ve been kicking around the industry for quite a while, and I went through the whole data centre consolidation phase, where people were pulling data centres apart and I find that service providers are building multiple data centres, because of security requirements and data legislation relating to state based initiatives.

So if you are dealing with any state based governments or health organisation, they require the data restored within states, not just within the physical confines of Australia which was the traditional approach. So there seems to be an ongoing issue around clarification about what that actually means.

Stephanie: There are certainly a lot of challenges we’ve seen. As you say John, and with government departments in particular, there’s legislation that doesn’t allow them to move offshore. We’ve seen ourselves scenarios where customers have gone and looked at different quotes between an onshore and offshore solution, and they’ve been quite adamant that they’ve wanted something local, but when it’s really come down to the price, the decisions change quite rapidly. So I think that’s quite a factor with some companies as well.

CRN: So data jurisdiction matters in Australia if it’s cheap?

Stephanie: In some cases.

Simeon: I think if you’re talking genuinely about SMB, SMB as a whole tend to be less concerned about jurisdiction than enterprise in certain segments. 

Roy: Another thing is latency. It’s not always about having the cheap service offshore. It doesn’t matter how good the network is, latency is always going to kill you. You have got to host onshore. So it’s the two that come into play.

Tony: A parallel conversation is not only about data security, but data access continuity. A tin reseller with a sniff of cloud gets a killer customer to say ‘yes I’ll buy your managed service’ on the back of a very flimsy proposal and all of a sudden that reseller is a mini services provider, or a cloud provider, and quite frankly, we as an industry have a responsibility to build standards and regulation around what is a robust cloud solution, what is a robust cloud provider, because we’re putting data, we’re putting company applications and company performance, into a third party environment, almost with no control.

There is no current regulation or standards based approach to providing a cloud solution. 

Robert: IBM’s response to that is that they actually developed a certification program for channel firms around becoming cloud builders, organisations that want to design, build and manage private cloud environments for example can join an IBM certification program to enable them to develop and acquire those skills that will give them that credibility in the marketplace, and help us to achieve some of the standards.

Simeon: Some of the conversation we have about hybrid cloud and virtualising applications is still a bit esoteric for a lot of SMBs. When we go out to the market, the discussions we’re having are actually quite simple ones, around ‘wow my server is three years old, I’ve run out of capacity, I need a bit more storage, I need to on-board more people, it’s going to cost me 30k to go out and buy a new server and migrate to the latest software’ – or ‘I want access from a wireless device to my email, but without having investment in a data centre and IT staff’.

It’s just that level of conversation that partners are having today with customers, and providing outcomes, rather than having a technology deep discussion – it’s more about the outcomes and solutions.

John: Why is that an esoteric conversation? Australia and New Zealand are the most virtualised countries in the world. We are more advanced with this journey through the cloud than any other nation on earth. So I think people are quite used to the idea of virtualising servers, they’re quite used to the idea of virtualising applications, and I think they’re quite ready to make this change, this transformation that you’ve all been speaking about.

The challenges that I’ve heard today, from what I can see, are very small speed humps on a long journey. I don’t think there are any issues today that we’ve thrown up that we in this room don’t have the ability to fix, to be honest.

We have the ability to control the conversation, and to assist the partners in the role that they play in this transformation as well.

Roy: And more so for SMBs this is probably the biggest game changer in the SMB market.

Simeon: To respond to that, and I absolutely take your point John. This discussion is about SMBs. My view and Telstra’s view of SMB, we’ve got a million SMB customers, and the range of size and complexity and depth of IT knowledge is vast. So we are dealing with a lot of small businesses that don’t have experienced IT staff, so the discussion just does not and cannot get down to that level. We want to keep the very high level of solving solutions about fixing the cost, changing capex to oppex that’s the discussion we have.  

John: The reseller community are the advisers in this stuff, they sold the infrastructure they’re there to lead the SMBs on this virtualised and SMB journey. They are the guys who will solve that problem.

Geoff: One of the challenges of course is that the conversation with the end user, or with the client, is not so much with the IT manager or IT adviser, it’s actually with the financial controller, the CEO, because this represents strategic change, not just technology change.  It’s not about ‘do we go to the next version of the HP box?’ I’s about do we invest in that box, and that’s where you’ve got to be somewhat agnostic in your approach to say ‘where are you at as a business right now, how much risk do you want to take, will the public cloud threatening to screw your business at any given time. 

CRN: The average IT manager with a small business needs to be involved in that conversation, but are they not a little bit afraid and scared about this transition – is that what you are all finding with the feedback you’re getting from businesses via your partners?

Geoff: A lot of IT managers are afraid of what it’s going to do to their role in the business, and my conversation with them is always first start thinking more like a CIO than an IT manager, because you’ve got to think more about managing your suppliers, partners, your strategy, rather than keeping the lights on, network running and so forth. So it is a challenge, but I think over time it will just roll through as this becomes more and more of a standard.

John: The IT manager’s role is evolving probably more rapidly than any other job specification related to the cloud transformation I think. Traditionally you think about 5, 6, 7 years ago, the IT manager controlled the entire end to end point of the infrastructure – what applications we used, what hardware we used, what devices accessed it, what the operating environment looked like. Think about the environment that we’re in today with smart phones and iPads and iPods and blah blah – end users are determining what the infrastructure actually looks like – they’re bringing their own devices in and saying ‘this is what I choose to use, connect me’. 

Roy: I think it’s for the first time that we’re going to see with the advent of cloud that the IT manager goes from being reactive, and the whole IT department to becoming proactive. Often you go and ask them, they’ll say to you ‘I’m fearful of that managed service’ or ‘that cloud service’ and so ‘how many outstanding projects have you got to roll out today in this next 12 months’ and they’ll all pull out of their bottom drawer, a pile of projects like that and put them on the table ‘well there you go, now you can go and focus on some good proactive new things in the business projects, rather than worrying about whether the server’s patched, and whether that application is on the latest – all that disappears, and now they can start to focus for the first time on really advising the business on how IT can take them to the next step.

CRN: It must be a daunting task for resellers. Geoff, to what extent have you had to rethink your business to fit into this new cloud paradigm that we’ve been discussing?

Geoff: I’ve been very excited about the whole thing, and to be honest when we opened the doors in 04, the first thing we did was move an ERP that was hosted. So it’s been in our DNA more or less from day one, and we struggled with some of the box moving aspects that we do, simply because it still feels fairly inefficient.

I think any resellers that are looking at this right now should be really excited about it, because there’s a lot of stuff up there that they can leverage, that they can use for their clients, rather than having to spend a lot of money having to provide that for their customers. They can leverage it, and they can look at adding value through strategy and service. 

Roy: I agree and if they don’t do that another reseller will. There are resellers embracing this technology today; they’re going to use this new technology as a calling point or reason to call a client that they couldn’t previously get.

But just going back to your points about the IT manager, again I disagree. If you look at most businesses they go to the IT manager today with their business problem, and Mr IT Manager, Miss IT Manager, we have this problem how do we get that solved – and they go away and find the technology or find the solution through their partner, or their own research. So I think we’re giving the IT Managers less credit than they’re due, really in terms of understanding the business, in understanding how to get a solution to solve the business.  

They’re doing that today. Plus in the SME world they tend to also be the actual hands-on guy fixing things. These IT Managers you talk to today, do they just talk tech to you, or do they actually talk to you about a business problem and how can you solve it?

Geoff: One of the key challenges for those guys is they are aspirational in terms of their skillset. They are wanting to get advanced. They are wanting to get into virtualisation, they’re wanting to get into cloud and all the rest of it.

Here’s the problem, with budgets in IT slashed majorly, they’re struggling for resources; they’ve got huge amounts of risk management on their shoulders – so what do they do? They go to the tried tested and true model to solve business problems, and therein lies our challenge at the moment around our economy and the way business is operating, and also the shortage of skills here in Australia, it’s a challenge for a lot of organisations.

And you will find a lot of the bigger players are pulling good resources out of companies, so IT managers to be very fair to them, are struggling with a huge amount of tasks on their shoulders and also risk management. So often it’s better to go we’ll just put it in another box.

Roy: You made a good point, they are aspirational, they do want to be more of that business consultant – but it’s because they’ve got to keep the lights on, they become this ‘sleeves rolled up’ guy, rather than navigating a business.

Geoff: I think the challenge there for SME resellers is to have a wholesale sweep of services to offer, because what we’re hearing here is that it’s a pipeline for many things, so you can’t just be a work provider, you can’t just be a hosted exchange provider – you have to be able to provide an IT solution as a sweep.

Simeon: Yes, absolutely agree with that comment. I think if resellers think that cloud is simply about virtual servicing computing in the cloud, they are leaving a whole lot on the table, a number of opportunities where we’ve gone out to have a conversation about virtual computing, when all the customer wants is the latest version of Exchange Server and that’s turned into an Office 365 sale, you know significant. Our view of the cloud and I think many others’ view of the cloud is that it’s broader than just computing. It includes software in the cloud – productivity and security applications in the cloud.

The conversation can actually start at any point in the customer’s journey. A customer who has a private network may already have IP telephony and use that as a catalyst to explore all other cloud options or vice versa.  So there’s a number of ways they can get into that.

Roy: I think the big area the next big phase in cloud is going to be this whole single authentication and security piece because like you guys say, you’re not going to buy one cloud service from one provider, you’re going to buy it from a multitude of providers. You may be using Office 365, or Google Apps, an ERP you could be housing, the VoIP could be brought from someone else. Their file serving and their disaster recovery could be sitting in someone else’s data centre. It’s now making sure that all of that works together harmoniously, which is no different to what systems integrators do today, the reseller or the system integrator today is about system integration. It’s now going to be about cloud integration. So it’s not going to die. 

Geoff: Which is actually still systems integration. Professional services is still alive and well.

Tony: The reseller as the organisation supplying multiple cloud services to the end user who has an appetite for 30, 50,100 cloud services over the next ten years, has the ability, with very little skill, to be the purveyor of a much greater portion of the IT budget of that end user. That is because the distribution channel has the ability to be that services aggregator and the point of logical aggregation of multiple different types of services in the market.

Nick: If the distributor knows how to, but he already is the winner, because we break bulk on product, we break bulk on services, we break bulk on maintenance, we break bulk on licences, we break bulk on everything, right?

Roy: Break bulk on cloud, and you need guys that become cloud vendors, and the true cloud vendor is someone who’s providing just that service through the channel.

Simeon: I’m going to take a punt and say that Telstra will probably still be in this business in five years. We have invested $800 million recently and will do that over two or three years, in our cloud strategy, so we are very serious in this, and we are putting very serious money, probably unmatched anywhere else in Australia.

I hear about this idea of cloud services existing with multiple providers, and that may sound attractive to some, but it sounds a bit like a service nightmare waiting to happen to me. One of the service propositions that a telco like Telstra brings to the table and why we think we bring our strengths is by providing that integrated service model. 

Tony: With the greatest of respect Simeon, that model has been around the Telstra wholesale network, where the service provider has been providing one point of contact all the way through to the last mile for the last 15 years. The Telstra retail model says that, but the Telstra wholesale model allows the rest of the industry to survive and prosper.

Jason: We’re completely independent, we’re agnostic, so we just provide the plumbing to enable guys like the distributors and the resellers to actually deliver those cloud based services, be it data based, or voice based, hosted telephony, or cloud storage. We are big believers in the delineation. We are just the plumbing provider, and you guys are putting the service layer on top. So everyone’s got some money to survive.

CRN: How key do we think the faster network speeds are going to be in terms of driving this market?  I thought it was interesting Jason, you were saying, you’re not seeing a lot of demand for super fast connections.

Jason: We can deliver up to a gigabit a second, but the demand typically at this stage for most offices SMB is still in that sub-10 megabit space. It’s going to change I’m sure. You guys are the experts. What speeds do you need to actually access a cloud based application, what does the end user need? If you’ve got a 50 person office, what speed do you need?

Geoff: If you look at concurrent use, as opposed to maximum and so forth and go down that path, you find out that you don’t actually need a lot. One thing that I’ve been questioning of late, is putting a motor way into peoples’ houses. I’d be interested to see how soon we are going to actual use that capacity, are we talking 2020, 2030, 2040, for some of those things. Then again you can never predict what technology is going to do. What if someone comes up with something whizz bang that needs a gigabit? Until you create the capacity to have it and then the capacity to get used.

CRN: If you are a reasonably large organisation and you are thinking about VoIP in the cloud you are going to need a big pipe right? But it’s not being deployed, because those pipes are not available yet, but there’s not a great deal of awareness of the need for them is there?

Roy: I guess it’s a question of whether they’re not buying big pipes because we’re not used to having these big pipes in Australia and it’s been at a premium, so they generally don’t put their heavy duty applications or their network hungry applications out into the cloud, but I think if cheap bandwidth was available, they would use it.

Jason: When you’ve got more affordable access to cheap bandwidth definitely, there’d be more people putting those heavy lifting apps, I’m sure.

Tony: Some of our partners like Bluefire are using it for hosted apps as well as hosted telephony. But there’s always internet in the background, everyone’s doing internet over their links. One of the great things about putting in a network that supports cloud based apps is that you can drive these other efficiencies like hosted telephony and by beefing up your internet link, by virtue of the fact you are putting in a decent WAN that’s going to support your cloud based apps, it’s going to have to deliver these other apps as well.

They are going to help the IT manager justify the investment, because he’s going to be able to cut his telephony costs, roll out a proper telephony solution, potentially cuts his Telstra bill, and potentially also reduce costs on things like storage, internally, because he can put that in the cloud as well, but it is an iterative process, because the bandwidth is not there today everywhere.

Simeon: Cloud doesn’t always mean you need more bandwidth, but it can change the way that you use bandwidth. It might mean that instead of traffic flowing internally through a network, it’s now flowing through an internet connection or through a private IP network, and I think that’s probably the more important question for businesses to ask.

Geoff: One of the things about cloud SaaS providers is that they are looking to provide the service over 3G and they’re looking globally, so they’re looking at big markets expanding into Asia and some of these other places where bandwidth is somewhat limited – so what they’re actually doing, like a mob called Xero, which I’m sure you’ve all heard of, is they’re looking at programming it in an efficient manner in terms of how much bandwidth is being used. I still think we’ve got some of that mentality around efficient coding, to reduce that bandwidth and over time that would be less of an issue, I imagine.

Roy: Another issue we’re seeing is length of contract from the operator from the telco. Suddenly they go ‘I need 10 meg’ are you going to sign up this 10 meg for 36 months for them, and they go ‘wow, I don’t know what’s going to happen in 36 months’ right? We buy from the big providers and then we’re an on seller – and we sell it by the month, literally by the month, 30 days on, and 30 days off.

What we’re finding is that they take up the bandwidth quite easily, because they’re quite happy to say ‘let’s take the 10 meg – because when I don’t need it in months 3, 4, or 5, or there’s a downturn, I can reduce the size of my pipe. It’s that not having the ability to reduce the size contractually that causes people to shudder. The reality is that they don’t reduce, whoever reduces bandwidth? 

Jason: I guess we’re in a lucky position because we’re using microwave and using radio equipment, so we can actually re-deploy the infrastructure, so if your end customer wanted a 10 meg service, and then after six months he said ‘actually we’re moving office, we’re moving from Bankstown to Wetherill Park’ – we can actually go and re-deploy our – whereas if I was a fibre based carrier, I’m stuck, the fibre’s in the ground, it’s into your building and if you decide to move in six months, I’m going to have to tie you to that contract – so unless I can serve you in the new location, they’re going to be paying out the contract – it’s going to be an ugly discussion. That’s the advantage of using wireless.

Roy: Do you know what the reality is? There is somebody else who’s in retail who needs to bump up the bandwidth. We’ve got to get used to in the SMB space, that it’s going to be a consumer play. It’s up and it’s down. Cloud bursting is all about that.

Somebody says ‘I need a lot of bandwidth’ or ‘I need a lot of computer power’, but come December I don’t need that. We’ve been for instance approached by guys in the US who want lots of computer power and lots of bandwidth over December and January and they’ve come to Australia, because they say ‘you guys generally have a sleep during that time, so let’s use that spare capacity’ ---- so we start to work with the global world.

Through consumerism, consumer or consumption based models, you don’t need long-term lock-in contracts. It all shifts and changes.