The Australian channel is witnessing the birth of a new kind of service provider – the cloud integrator. Some are cloud natives, born to as-a-service models. Others are more traditional operators making the transition from systems integration and managed service businesses. But they each have one thing in common: they are being driven by the market shift toward new way of doing business.
Research by Oxford Economics and SAP indicates that as many as a third of Australian SMBs are investing in the cloud solutions. That figure is expected to grow to 44 per cent in three years. That might seem low. In fact, it slower than in some mature and emerging markets.
That said, Gartner predicts that cloud will become the bulk of new IT spend in Australia as soon as 2016. The research firm says overall, cloud services revenue will continue to rise at 15.3 percent to 2017 across all segments; growth will be even snappier in SaaS and IaaS, which will grow at 23.6 percent and 24.5 percent, respectively.
Whichever data you choose to look at, the vibe from those out there in the market implementing cloud services is bullish.
Andrew Tucker, managing director of Mascot, Sydney-based hosting company ITonCloud, says adoption has increased in recent months.
Tucker’s company helps businesses move applications such as email and desktop services to the cloud.
He says: “There is a much bigger acceptance of what has been offered in the cloud, the security issues are dissipating and people are starting to appreciate the environments are becoming much more advanced and mature.”
There is also evidence that customers who have made an entry into cloud are getting more sophisticated in their usage. “We did a comprehensive analysis a few months ago and we found that about 40 per cent are proactively throttling up and down, and I think that is quite a large number for such an immature market,” adds Tucker.
History repeats
The IT industry’s capacity to reinvent and disrupt itself is legend. The world has turned from mainframe-based bureau computing to personal computers, to client server, the internet and now to the cloud – which, to many industry stalwarts, looks like we have come full circle.
While the technology has evolved, in many ways the challenges IT departments are trying to solve – aligning systems to business outcomes have remained consistent.
“These problems have existed, but they are now being solved in a new way,” says Nick Verykios, managing director of Distribution Central. At the heart of the shift, he says cloud integrators are simply providing a pathway to market. “It’s bureau computing all over again.”
Verykios is not alone in drawing the parallel. Google chairman Eric Schmidt made the same point in an interview with McKinsey & Company earlier this year.
While change can be dramatic, it often carried with it the legacy of previous shifts.
Daniel McLean, director, hybrid cloud services, APJ at VMware, for instance, sees a lot of similarities in this to the shift from physical data centres to virtual data centres. But there is a critical difference he says, “There are a lot more options out there as an organisation because cloud has given a lot broader scope and options for organisations.”
It is this plethora of options that has opened the door for the cloud integrators to step up. The trend will not just impact fast-moving operators but may have a restructuring effect on the whole IT channel.
Telsyte analyst Rodney Gedda says that while the cloud is more of a direct sales model between vendor and user, there are still opportunities for integrators to add value for customers. Gedda suggests that as their vendor relationships evolve, IT service providers will find themselves in less negotiations around solely being a “channel” to market and more around adding value to an existing channel.
The IT pressure on many end user businesses is growing. They are tasked with managing increasing volumes of structured and unstructured data. They must respond to staff demands for BYOD and greater mobility and flexibility. Customers and business partners want them to interact and collaborate with one another across a variety of platforms.
“Cloud delivers the required business agility to deliver upon these demands, “ says Dean Swan, director of partner strategy, programs & industry, at Microsoft Australia.
“This enables businesses to better compete in the market and enhance staff satisfaction, which in itself often drives improved performance.
“We also know that for today’s CIOs and business leaders, the cloud presents an opportunity to redefine the role that IT and non-IT business functions play in implementing the business strategy. Because of its power to fundamentally change how businesses operate and compete, the cloud is a gamechanger for many companies. Cloud has fast become a critical component of the IT stack.”
Look inside first
There are clearly high hopes for the cloud, yet the transitions customers must make to capitalise on these new ways of working are not easy or without risk. This presents another opportunity for savvy providers. But before they can take their own clients on a journey, they need to successfully traverse the shift in business model themselves.
Martin Gregory runs consultancy MG365, which consults for vendors and partners on the business model transformation required to profit from the shift to cloud. He says that whatever kind of partner a company has been in the past – whether VAR, legacy integrator or the new breed of agencies born in the cloud – to be relevant in the market, a provider must be relevant in the boardroom.
“Successful partners need to understand what is on the business agenda for their customers and recognise the changing role of IT. When customers think about innovation and improving their business outcomes, those decisions are increasingly being driven from outside of IT. Partners need to be able to speak the language of their customers’ business to line-of-business executives and to help IT as their role evolves.”
For an industry built on disintermediation, it is telling how much vendors and customers alike need this new middleman to succeed.
Take SAP, for example. Two-thirds of the ASX 20 – which between them represent 50 per cent of ASX’s market capitalisation – run SAP software. Today, the enterprise resource planning (ERP) platform is mostly run on-premise.
“But we see the balance shifting toward the cloud rapidly, “ says Beth Ryan, general manager, ecosystem and channels, SAP Australia.
“On the one hand, these companies – and indeed companies of all sizes – want to continue to get the most out of their on-premise platform investments. On the other, they want to be able to innovate on the edges to take advantage of the business benefit from newer technologies like mobile, analytics, big data and, of course, cloud.
“The value of the integrators in this landscape is to effectively marry the best of both the on-premise and cloud worlds, integrating the solutions toward the customer’s desired business outcome,” she adds,
SAP’s view is that the hybrid model has a long way to run, especially as it enables its customers to transition to the cloud at the pace that is right for them. But one thing is clear: the giant German ERP developer is rushing headlong toward as-a-service, consumption models for its systems – and it sees a role for the channel in that growth. SAP was historically a very direct business servicing tier-one customers, but has a global target to grow indirect sales to 40 percent by 2015.
“In the case of SAP, cloud integrators will bring exceptional value in extending innovation to cloud offerings using SAP cloud-based tools, such as the SAP HANA cloud platform, our platform-as-a-service offering.”
The need for specialist providers is particularly apparent when you look at the different models for deploying SAP’s systems. Ryan says that cloud integrators are innovating new approaches for linking SAP cloud to non-SAP cloud solutions, as well as SAP cloud to SAP on-premise and to non-SAP on-premise solutions.
Microsoft is another vendor rapidly transforming from a traditional software company to a new model. It has a huge stake in cloud computing through both Office 365 and its own Azure cloud. Like SAP, Microsoft understands the value that cloud integrators provide through their ability to give clients options beyond simply managing the traditional IT infrastructure.
Customers want a safe pair of hands, says Microsoft’s Swan.
“Working together, partners can provide a full range of services – in some cases consisting of solutions from a variety of vendors – designed to be the perfect cloud solution tailored to their clients’ needs. They are also able to combine cloud offerings with their current services.”
For example, partners could sell online productivity services such as email, contact management and calendaring in the cloud while continuing to keep business-critical information or software on-site for a perfect mix of security, reliability, and scalability.”
What drives choice
To understand the emergence and the evolution of the cloud integration market, it is first necessary to understand the driving force behind this trend – customer choice. HubOne, which was established in 2008 and has offices in Sydney and Melbourne, bills itself as “the world’s first cloud integrator”. Founder and CTO Nick Beaugeard says the cost advantages of cloud are well documented, at least in terms of cash flow.
“Unless you are a massive asset squatter then it’s clear that you will get savings. If you are someone who bought a business server in 2002 and still has it running under the desk, you will probably find at this stage you are still saving money – at least until the day of your catastrophic failure.”
But the real savings come from how people use the cloud, not simply from the price on the sticker. “We have a client, a bus company, and we found that they only worked in business hours but they did nothing outside of business hours. They didn’t need it outside of hours. So we put it on the cloud and we turn it off at night. There savings are enormous.“
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