Hail the Consumer Cloud

Most cloud-computing related discussion has focused on the use of cloud computing by businesses and government.

However,among consumers, we are witnessing a shift to full cloud computing by stealth. Already, consumers use well known consumer cloud offerings, such as Google’s offerings, Facebook and other collaboration and sharing applications. Video and music streaming are becoming more common. For example, Spotify offers access to an enormous catalogue of music which can be streamed. There are no files to download. Customers pay a subscription fee per month.

Will the notion of files residing locally on devices owned by consumers soon seem quaint and old-fashioned? For music and video, will files become rare as streaming takes over? In effect, consumer choice is driving a shift away from files. Firms like Spotify will undermine the iTunes model of purchasing content as consumers cease to own discrete pieces of content but instead gain access to vast warehouses of content.

True, consumers continue to use personal productivity software products such as Microsoft Office which reside locally. But, for how much longer? Cloud-based alternatives are available including products from Microsoft, and these are witnessing very rapid uptake.

Offerings such as iCloud that provide virtual desktops can be expected to gradually displace traditional PC software. Dropbox offers storage as a service and is widely used by consumers. Other consumer offerings that are experiencing rapid uptake are the chargeable Amazon S3 and the Rackspace Cloud.

The consumer IT market has in recent years seen the emergence of new technology giants such as Facebook and Google. Microsoft has continued to address consumer needs and is shifting to cloud computing rapidly. These firms understand consumers and the impact of their behaviours and choices on business and government computing. It is the more traditional IT suppliers which have more distant consumer relationships that stand to lose as consumers drive yet more change in the IT business.

Cloud Computing Specialisation and the Emergence of Local Champions

I recently attended an announcement of the launch of an Australia-based IaaS firm, Ninefold. The firm addresses many of the challenges created by cloud computing. Its local IaaS offerings represent a key part of the evolution of cloud computing and the emergence of a utility based form of computing.

Most of us have heard about the benefits of cloud computing such as rapid provisioning, usage based pricing, multitenancy (leading to economies of scale), greater scalability, instant updates, and a reduced need to hire scarce skills.

We are also familiar with the challenges associated with cloud computing, such as quality of service issues, provision of support and data sovereignty. Overcoming these challenges is critical, if cloud computing is to evolve further.

At present, data is subject to the regulations of the country in which it sits. As yet, there are no international regulations that protect data from misuse. Such regulations are necessary to overcome concerns about data sovereignty. The WikiLeaks saga has damaged confidence in overseas cloud providers and Amazon has done a lot to cause this, by bowing down to pressure from politicians. Plenty of people may not like the actions of WikiLeaks but its actions have not been proved to be illegal. This precedent suggests that if US politicians do not like what a business is doing or are corrupt (this is possible), they can interfere with cloud-based businesses. Therefore, it is reasonable to assume that politicians in other jurisdictions, like their US counterparts, may choose to interfere with a business, foreign or domestic, because they do not like its activities. This is a very compelling argument for keeping data close to the organisation.

Cloud services that are provided from international locations are often unable to offer the latency and speed that is required for certain activities. Cloud services that are provided in-country or even in the same city can offer higher performance levels. This is another argument for keeping data nearby.

Cloud services such as those offered from US-based datacentres, offer great value for money. But, this service typically does not offer any local support. Although cloud computing reduces the need for support dramatically, some local support will be necessary for some organisations. A lack of available support will also act as a hindrance to the adoption of some Amazon-style cloud computing services.

Companies are emerging that seek to address key challenges associated with cloud computing and to provide offerings that are more specifically targeted. Ninefold offers IaaS that is comparable with Amazon’s offerings, except that it addresses many of the challenges associated with using Amazon. Issues with data sovereignty are immediately overcome as its datacentres are located in Australia and its offerings are targeted at Australia-based customers. Issues with quality of service, in particular latency and speed, are addressed by the relative proximity of Ninefold’s datacentres to customer premises. Finally, support issues are addressed by the provision of local support.

Ninefold can be seen as part of the evolution of cloud computing as we move to a utility model of computing. Instead of offering standard services across the globe, it has specialised in serving one geography, Australia. Continued specialisation can be expected as customers demand cloud services that meet increasingly specific requirements. What form will this specialisation take at a local level?

16 Key Attributes of Cloud Computing

The term, cloud computing is being used to describe a continually growing list of computing products and services. Indeed, many people stretch the term to include on-premise IT implementations, sometimes known as ‘private clouds’. Unfortunately, definition stretching can render the term cloud computing meaningless. In effect, terminology pollution of this kind helps legacy IT suppliers to slow the adoption of IT as a service and the migration to a utility model of computing. They prefer to continue gouging huge amounts of capital from their customers and to describe their current offerings as ‘private clouds’.

A great way to simplify the concept of cloud computing is to list the key attributes of cloud computing using non technical terminology that non IT specialists can understand. Buyers of IT products and services can use such a list to determine where their computing resources sit on the cloud computing spectrum. They can also use it as a roadmap to determine what needs to be undertaken or negotiated in order to reap the benefits of cloud computing.

16 key attributes of cloud computing are as follows:

1. Cloud computing offerings are services, not products

2. Cloud computing allows customers to increase and decrease the number of users that have access to services, exponentially

3. Cloud computing allows customers to provision new services to users instantly or within hours

4. Cloud computing turns computing resources into operational expenses rather than capital expenditure

5. Cloud computing enables organizations to pay for computing resources based on consumption of the resources in question

6. Cloud computing allows multiple, diverse customers to share computing resources

7. Cloud computing service enhancements, such as updates, are automatic

8. Cloud computing resources can be accessed using any Internet-enabled device, from any location

9. Cloud computing integrates security into services

10. Cloud computing eliminates the need for support contracts

11. Cloud computing costs less than on-premise alternatives

12 Cloud computing allows the purchase of services without human interaction

13. Cloud computing integrates automatic backup into services

14. Cloud computing services are delivered from remote locations

15. Cloud computing services are delivered by a third party

16. Cloud computing services are delivered via the Internet or via an IP VPN

A spectrum of attributes like the one above allows us to illustrate where a service fits with respect to cloud computing. For example, services provided by public cloud vendors such as Salesforce.com, Netsuite and SuccessFactors satisfy most of these attributes. Hence, it seems reasonable to refer to their offerings as cloud computing services.

‘Private clouds’ typically satisfy comparatively few of these attributes. Hence, it seems unreasonable to refer to such offerings as cloud computing services.

If organizations seek the agility and flexibility offered by cloud computing, they must consider purchasing services that offer as many of these attributes as possible.

WikiLeaks Drama Clouds the Future of Cloud Computing

Most IT commentators agree that we will increasingly move to a computing model where IT resources become commoditized and are sourced in a similar manner to electricity, as a utility.

Today’s cloud computing discussions are typically focused on the speed at which this transformation will take place and on which IT resources will remain on-premise for the foreseeable future.

However, the elephant in the room is government interference. The impact of government interference in the provision of cloud computing services has been clearly demonstrated by the political reaction to Wikileaks.

Although WikiLeaks has done nothing that has been proved to be illegal, some politicians, in the US in particular, have taken it upon themselves to state that WikiLeaks is committing acts of terrorism and to apply pressure on its suppliers. This has caused many organizations to sever their relationships with WikiLeaks. Most notable, from a cloud computing perspective, is Amazon. This sets a disturbing precedent and raises numerous questions about cloud computing and political interference.

Will cloud computing providers also pull the plug on services provided to companies that publish content provided by WikiLeaks, such as The New York Times, The Guardian, Le Monde, El Pais and Der Spiegel?

Will cloud computing providers cease to service organizations that have chosen to fund WikiLeaks?

Given that some leading US politicians have branded WikiLeaks activities as terrorism, could its associates and sponsors be aiding and abetting terrorist activity? Will this impact the ability of these organizations to obtain cloud computing services?

Does this mean that if politicians ask cloud computing providers to sever commercial relationships with organizations which use their services, they will comply?

Will US politicians apply pressure to organizations that host data outside of its own territory?

The Chinese government must be flabbergasted by the apparent hypocrisy coming from some US politicians. It may even be grateful for the precedent that has been set. If the Chinese government does not like the activities of an organization whose data resides in a cloud within its territory, will the cloud provider comply with Chinese government requests including requests to sever commercial relationships?

If a cloud computing provider has responded to pressure from US politicians, will it do the same when under pressure from Chinese politicians? Hong Kong is host to several clouds that service customers outside of Chinese territory.

Singapore is another state that plays host to datacenters which offer cloud computing services. Will it also apply political pressure on organizations which host data that may challenge the legitimacy of its activities?

These are just a few of the questions that the WikiLeaks saga raises in the context of cloud computing.

In recent weeks, other interventions have occurred in markets where public cloud services are being adopted at rapid rates.

Both Australia and New Zealand are markets that have shown a very high propensity to adopt cloud services. In both countries, moves have been made that challenge this adoption. In New Zealand, it has recently been announced that tax records must be kept onshore in order to comply with Inland Revenue Department requirements.

Is it the mandate of governments to determine where corporations, many of which are multinationals, store their data? Why is the geographical location of corporate data of such interest to governments? This intervention stymies the transformation to cloud computing and may affect the competitiveness of those organizations that are impacted.

In Australia, APRA, the financial services regulator, has issued a warning about the use of cloud computing in the financial services sector. Although many of the major financial services companies in Australia already use public cloud services such as Salesforce.com, the warning is making these organizations very secretive about their use of cloud computing. Additionally, it will act as an inhibitor to the adoption of cloud computing as financial institutions will be ultra cautious about getting on the wrong side of the regulator.

So, although the benefits of cloud computing are indisputable and the rate of adoption of cloud services is accelerating, politicians and regulators are now interfering in ways that may inhibit the growth of this market. Indeed recent events raise many more questions about the future of cloud computing.

Three Key Tech Trends in 2010 and 2011. Extract from Speech, November 30, 2010.

Good evening ladies and gentlemen. Before we start, I’d like to talk about, what are to us, the three major areas of focus in 2010. We expect these areas to continue their prominence in 2011.

The first area of focus has been cloud computing. Everybody seems to be talking about it. But, few people share the same definition. There is a huge amount of confusion in the market about how cloud computing can be deployed and how it can benefit customers. We believe that unstoppable momentum has now been built up around the adoption of IT as a service, sometimes known as the public cloud. The benefits in terms of eliminating capital expenditure, lowering overall costs, increasing business agility and creating a competitive advantage, to name a few, are now indisputable. Managers will soon find that the business case for on-premise investments will become very difficult to justify. For now, a lot of companies are deploying so called private clouds, which are a kind of half hearted attempt at reaping the true benefits of cloud computing. These pretend clouds only offer a few of the attributes of cloud computing and surely they are only a temporary solution for some current concerns around data sovereignty, privacy and security. Expect these concerns to be overcome and for IT to become a utility over the next few years.

The second area of focus has been around social media. Many people believe that social media is a fad that offers no business benefit and is used only by young people. Well, the average age of Twitter users is 37, the average age of LinkedIn users is over 40 and the average age of Facebook users is steadily increasing.

Already companies are using social media tools such as Facebook and Twitter to engage with customers. These tools are being used to support a range of business processes including, recruitment, customer service, marketing and sales. Companies are also seeking ways of analysing social media content and using the tools in ways that can increase competitiveness.

The third area of focus is tablet computing. Who would have thought, one year ago, that the iPad and similar devices would have had such a massive impact on our industry? It has been clear for some time that the PCs and laptops that we use are outdated. They are designed for client/server infrastructures of the 1980s and 1990s. We use only a tiny fraction of their functionality. Today, we can get many of the benefits associated with PCs on lighter, simpler and much easier to use tablets. Already, some organisations are replacing PCs with iPads for certain activities. The next generation of tablets will offer even more functionality and be able to displace a higher proportion of PCs. Tablets signal the end of PCs and are also a potent accelerator for the adoption of cloud computing. Less and less content will reside on local devices. Tablets will increasingly become gateways to content that is located elsewhere. In other words, computing resources will increasingly be located in the cloud and accessed by tablets.

Lost in Translation - Outsourcing in China

The term outsourcing can have many different meanings to a native English speaker. Some people use the term to refer to the offshore delivery of services, others use it to mean the delivery of services by a third party and others use it to mean something as specific as the management of call centers by third parties, in offshore locations. To make matters, even more complex, the term business process outsourcing (BPO) is, by many, only associated with the outsourcing of contact centers.

So, for me, a recent trip to an outsourcing conference in China was a very valuable experience that forced me to seek clarity from my hosts when the term outsourcing was used. Needless, to say, it was very difficult to ascertain whether or not there was a common understanding of outsourcing among the hosts and the delegates. My experiences led me to believe that there was no common understanding. In fact, identifying the real outsourcing-related opportunities in China and cutting through myths are very difficult tasks. In China, one of the main issues that is discussed around outsourcing is what China can ‘learn’ from India. I assume that what is meant here is how China can replicate India’s success as an offshore destination for the delivery of services, in particular contact center services? This is definitely what people seem to mean. But, it doesn’t really make sense. China and India are so dramatically different. It is a bit like asking the question ‘How can China emulate Australia’s success in crocodile farming?. Surely, the Chinese authorities should focus on developing greater capabilities in the areas where China has some clear differentiation. Creating English-language contact centers in China that are designed to service the US and UK markets seems pointless. Wouldn’t it make more sense for the Chinese authorities to focus on industries in which China excels such as the development of infrastructure, in particular urban transport systems, engineering skills and software development?

Indeed, offering English language contact center services also faces a major cultural challenge. The concept of customer services is not mature in China. There remains a strong belief that the government knows best and that customer s (or individuals) should take what they are given and make the most. The notion of contacting the government, or any other organisation, to complain about a product or service is not one with which most Chinese citizens are familiar.

But the Chinese authorities are investing mind bogglingly large amounts of capital in 21 ‘service outsourcing model cities’. It is not totally clear what kind of outsourcing services are intended to be delivered from these cities but there are strong signals that they seek to emulate India’s success in contact center related offshore outsourcing. My experience and understanding of China suggests that attempting to replicate India’s areas of success would be a complete waste of resources. Instead, Chinese authorities and multinationals that want Chinese business, must focus on the following:

• The potentially enormous domestic market. As the Chinese economy matures, there will be increased demand for specialised services from third party suppliers. Additionally, the cost of local skills will increase and outsourcing will make clear business sense. Today, the Chinese domestic outsourcing market is very small, but will be one of the world’s largest outsourcing markets within the next 10 years. There will be very sizeable opportunities for overseas outsourcing firms such as IBM, HP and Accenture to offer services to Chinese clients. Already, these multinationals are working closely with the Chinese authorities to provide systems integration services locally. It is clear that today, the majority of the IT services opportunity is centered around project skills. China has its own ERP vendors such as Kingdee and Ufida, around which there is a sizeable services (including outsourcing) opportunity. Overseas services vendors will increasingly find it necessary to develop skills in Chinese software products such as these.

• Areas of expertise in which China has a competitive advantage and which also offer long term opportunties. China now leads the world in many types of infrastructure projects. The country has succeeded in creating a sophisticated infrastructure for its population in a remarkably short period of time. In the process of doing this, it has developed world beating skills in areas such as urban rail systems. Companies that wish to outsource engineering processes or other types of knowledge processes will increasingly find that many ‘best of breed’ services can be found in China. In my view, this is one key area where the Chinese authorities should be focusing to a greater extent.

• Software development. China has vast, low cost resources that can be deployed on software development. Many of these projects are comparatively short term so may not fall under typical outsourcing definitions. Nevertheless, there is a huge opportunity in this area. The majority of Chinese outsourcing activity is currently in software development.

• Offering services to Asian economies. China is in a comparatively strong position to focus on offering services to Asian economies. Already, most of its offshore contact center activity is for Japanese and Korean customers. There are strong Japanese and Korean language skills in parts of China. Many in China’s enormous population also have a very strong cultural understanding of other Asian countries. In other words, China may be better placed to offer many types of BPO, in particular contact center services, to other Asian countries rather than to English speaking countries. It has a competitive advantage over both India and the Philippines here and is likely to benefit from better long term growth opportunities.

In summary, if your definition of BPO or outsourcing, is the offshore delivery of English language contact center services, then the opportunities in China are likely to be limited for the forseeable future. Surely, companies operating within China and the Chinese government must focus on areas where China has a competitive advantage and where the future opportunities are greatest rather than developing infrastructure to offer commoditised English language voice services in what is already a crowded and competitive market.

Private and Public Clouds - Why Semantics Matter

In an earlier post entitled ‘Private Cloud – An Oxymoron’, I wrote about how the term, private cloud offers little value and is arguably a term that is used by legacy IT suppliers to exploit concerns about their customers migrating computing resources to the (public) cloud. Is the private cloud simply a datacenter with lipstick? In other words, is it a virtualized datacenter that has many of the characteristics of a (public) cloud?

Many people in the industry believe that arguing about public and private cloud definitions offers little value and fails to focus on the huge changes that are taking place in the way people implement, operate and use technology.
I disagree. If people are expected to invest millions of dollars in new products and services, it is important that we, in the industry, share common definitions. How can businesses plan when there is no clear understanding of the ways in which they are using technology? As an analyst, it is impossible to size a market if the definition of that market is not clear. So, to all those that say, stop arguing about semantics, I say, rubbish. We need to constantly challenge the marketing spin that comes out of our industry if we are to make sense of it. And step one requires clear definitions. I talked about definitions in previous posts and I made it clear that, in my view, there is only one type of cloud and that is what is commonly known as the public cloud.

Most people in the IT industry understand what is meant by the public cloud and could instantly give you examples of suppliers of public cloud services. Few share a common understanding of the so called private cloud.
This confusion inhibits our ability to focus on the real issues that organisations face today and how they can best ensure that on-premise technology meets their current and future needs, while increasingly using (public) cloud computing services.

Large companies typically have huge amounts of on-premise technologies in which they have invested large amounts over the years. It often doesn’t make sense to throw all of this technology out. Indeed, there are activities that are not suited to the (public) cloud. The reality is that many organisations wish to keep significant chunks of their technology on-premise for a whole host of reasons, some real and some imaginary. For those IT resources that remain on-site, it makes perfect sense to invest in making that technology more efficient and effective. This may involve investing in fabric computing, some new development platforms such as Microsoft’s Azure, virtualization, and datacenter optimization. Rather than describing these investments as private clouds, why not just describe them as they are? There is a huge opportunity here for the large systems integrators and hardware suppliers as well as leading suppliers of infrastructure software.

Inevitably, these same companies will purchase (public) cloud services at an increasing rate over the next decade and can be expected to use these services where it is at all possible, given the huge benefits offered. These companies will be looking to partner with technology companies that can optimize their internal IT architectures and integrate these technologies with the (public) cloud services that are being used. I’ve heard people use the term hybrid cloud to describe these environments. This creates even more confusion. As far as I can gather, a hybrid cloud means everything. It means all of your on-site technology plus all of the resources that you source from (public) cloud providers. It is a term that offers little value. In fact, just about all IT infrastructures could be called hybrid.
So, companies are seeking ways in which their internal IT resources can share some of the characteristics of (public) clouds, given that this is becoming increasingly feasible and cost effective.

Organizations are also looking at migrating an increasing proportion of their resources into the (public) cloud. The integration of (public) cloud resources with internal resources is a key challenge and opportunity for organizations. Cloud-related discussions should indeed focus on these issues.

But, in order to do this, it helps us enormously if we communicate more clearly and call a cloud, a cloud and we call internal resources what they are. There is plenty of terminology that can help us to do this. The term private cloud continues to create a lot of confusion and a lot of debate. I am sure that this nonsensical term will eventually be dumped. I hope that this happens soon.