How to invest in the age of low-cost public cloud

When Noosa residents voted last year to leave the amalgamated Sunshine Coast Regional Council, it left the fledgling Queensland shire with a problem. It also sowed the seeds of innovation.

Leading up to the new council being re-established on New Year’s Day 2014, Noosa had no IT, a slim budget and barely any time to kickstart its support services and hire staff.

For TechnologyOne founder and executive chairman, Adrian Di Marco, it was the perfect opportunity. Sunshine Coast had used a Civica solution for clerical, HR and payroll, finance and libraries, but Noosa decided to go in a different direction. From a field of six competitors, it chose TechnologyOne’s OneCouncil, a solution that ran in the Amazon Web Services (AWS) public cloud. Noosa paid $1.2 million upfront and will pay $1 million a year in licences, maintenance and support.

Di Marco says that although the council saved $3.8 million in capital spending and $2.6 million a year ongoing, the real benefit in his cloud solution was the speed with which Noosa got its systems in place. It took just four months to scope and deploy OneCouncil and get the first users online before the 1 January deadline. The new council, which has about 400 workers, has also slimmed down its IT staff from nine to five.

And while OneCouncil is hosted on AWS, it’s TechnologyOne’s brains under the hood, Di Marco says.

“We build and run the software [but AWS] has hundreds of services that we tap into,” Di Marco says.

Rather than AWS competing with partners, its public cloud services offer the channel – and especially software-as-a-service (SaaS) providers such as TechnologyOne – a competitive advantage, he says.

“For the average person to get value out of [AWS’ cloud] is challenging. We have teams of people working on it full-time to get the most out of it.”

TechnologyOne started in 1987 in the Queensland hide processing plant owned by angel investor John Mactaggart, so it had a fair legacy of technology and culture that could have hobbled its cloud journey, Di Marco says. “We had to become a cloud company ourselves, so we abandoned the on-premise concept. Unless a company is living and breathing cloud every day, you can’t make the transition.”

It was a tough ride at the outset but TechnologyOne is now passing those lessons down to its customers – a key reason they chose the platform, he says.

“We had huge resistance in the company to Gmail and Google Docs and Salesforce; and for [research and development] we said there’s no more compiling on-premise.

“As we moved to cloud, everyone had a reason why they were different and we said, ‘You’re going to cloud’. ” And although the network changed, the most radical aspect of the 18-month business transformation was cultural.

“A lot of our IT people couldn’t cope with the change, so pretty much our whole IT department left, and maybe we have only five people in IT now but they’re not traditional IT people.

“You need to run your whole business totally in the cloud and if you don’t, you’ll never see the paradigm shift. It’s not the cost saving – although we saved millions of dollars a year – it’s anywhere, any time, any device.”

And it’s the experience of going through the adaptation that Di Marco emphasises heritage channel partners must embrace. TechnologyOne is turning those lessons into saleable intellectual property to help its own customers.

“If we hadn’t been through it ourselves it would be difficult for us to tell [customers] cloud is the future of computing. So when [Noosa] was staring at the abyss, it had confidence to go to cloud because we had done it.”

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Freshly minted Noosa CEO Brett de Chastel said in a statement at the time that TechnologyOne saved the council money on a temporary fix: “This solution and business processes removed complexity from the transfer, it prepared for the future and saved millions of dollars.”

But while TechnologyOne had scale and funding to support its transformation, the issue many in the channel face when considering their route to cloud is that they are under-capitalised, says Andrew Tucker, CEO of managed cloud services provider ITonCloud. “They’re looking for the likes of ourselves, iSeek, Amazon etc; they’re not building it themselves,” Tucker says.

ITonCloud began in 2001 as an application service provider and has transformed to a white-labelled cloud offering for resellers transforming their business model.

“We saw that a number of traditional IT installers and integrators were faced with the new cloud offerings and they didn’t know how to transition and keep cash flow alive. We build the infrastructure and the backend and they keep the client – their profit margins are better and their return on investment is quicker.”

Tucker says the shift to cloud puts recalcitrant IT managers on a collision course with their board of directors. “Seventy percent of a company’s budget is going on maintaining systems and they could be spending it on innovation and enhancing the bottom line. But there’s a whole new generation of CIOs and IT managers coming through the ranks.”

He says a forward-thinking construction industry customer with 1,800 workers saved $1 million in licences by using ITonCloud’s services.

ITonCloud hosts with iSeek, which has data centres in its hometown of Eagle Farm, Brisbane, and at Gore Hill on Sydney’s lower north shore. Jason Gomersall, managing director of iSeek, says there are up to 70,000 internal computer rooms around Australia that could migrate into data centres or the cloud.

“They’re really closets,” Gomersall says. “For myself as a data centre provider, and some of my customers who are cloud providers, there’s plenty of market opportunity.”

He says the cloud channel is streamlined from traditional IT reselling and break-fix. His data centre operator also helps heritage distributors launch their clouds: “We’re selling space to international and local providers.”

Despite the momentum behind cloud, iSeek still sees action from organisations running racks on their premises. “We’re still having conversations with customers who are running their own computer rooms that they should outsource in a collocation sense, but year-on-year we’re seeing cloud as the preferred model.”

Go your own way

Customers aren’t the only ones grappling with a decision between on-premise server rooms and outsourced arrangements. The question whether a channel partner should build their own data centre, offer collocation services or resell public cloud comes down to their ability to raise capital and manage physical infrastructure. It’s essentially a game of commercial real estate.

Operating a data centre comes down to volume, says NextDC CEO Craig Scroggie, where it’s hard to compete with the likes of Amazon and Google.

What data centre providers like NextDC offer is akin to a digital Westfield shopping centre, with huge anchor tenants with the likes of Myer or David Jones and hundreds of smaller, specialty stores. When a customer comes to one of NextDC’s data centres in Perth, Melbourne, Sydney, Canberra or Brisbane, they’re getting connectivity to other services and providers within the data centre as much as to the outside world, he says.

“The data centre used to be home for your own infrastructure [but] it has moved rapidly to a public-private hybrid and SaaS style of marketplace where you will host some of your own infrastructure.”

And even data centre owners may buy space in each other’s facilities for reach of redundancy. Scroggie says: “The data centre is very different today to how it was even a few years ago.”

Jules Rumsey’s Cloud Plus enables resellers to white label infrastructure services located in NextDC data centres. Despite early recalcitrance, Rumsey says his sales pipeline looks good.

“A lot of those guys said, ‘Help me out. I’m competing with cloud providers and the client is up for $50,000 for on-premise and they’re not going to pay. Can you provide me with an alternative where I can provide a subscription model?’ ”

Cloud Plus, which only provides services to resellers, has found even managed service providers are “grooming themselves out of their own infrastructure”.

For a reseller that may have once had a business dropping servers on a customer’s floor, getting into the cloud means adjusting their thinking, says Rumsey. An easy way to sell a customer on a virtualised server solution is to lead with the promise they can be upgraded to the latest operating system with all the security and patching becoming automatic. That may mean physically taking the legacy hardware servers into the data centre and copying their data to virtual machines at line speed. He says: “Some partners will be involved in the process and some say, ‘You manage it’. ”

Then there are companies such as UltraServe and Bulletproof, which have a heritage of providing their own infrastructure but are blasting away from the pack by reselling Amazon services. In April, NBN Co director and Internode founder Simon Hackett took a 40 percent stake in UltraServe, which specialises in cloud for retail sector customers.

UltraServe founder Samuel Yeats says his company can do something that Amazon can’t do: “We understand our customers’ business intimately, their architecture, and can manage it – and that’s not something that Amazon offers.”

Similarly, Bulletproof, which has customers including Sydney Airport and Tourism Victoria, started by providing managed hosting. It now offers managed cloud services including VMware and AWS.

“As our business switched from hosting to cloud services, there’s a lot of complexity in getting applications working on the cloud,” says Bulletproof chief customer officer Mark Randall.

In the case of Bulletproof’s pioneering AWS relationship, it was a customer, Movember, which led the way. Bulletproof partnered with AWS to support the annual charity drive’s overseas expansion, so attracting the behemoth’s attention when it turned its attention Down Under.

“We decided if this was a platform that would provide benefits to customers, we should go with it and provide our own solution and the AWS solution with the same level of support.”

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