The Cloud Vendor and the Agnostic Intermediary
Abstract: This is Part II in a blog series by 6fusion Co-founder and CEO John Cowan on the emerging trend of Cloud Brokerage and the impact it will have on the technology industry and markets. Be sure to check out Part I of the series here.
Part II – The Cloud Vendor and the Agnostic Intermediary
I gave a presentation a few months back in which I opened with the following statement: The future of cloud computing has little to do with technology. Sounds crazy, right? But before you send me to the virtual nuthouse, let me explain.
What I think is unclear in the emerging Cloud Broker business model is the demarcation point between the business of compute and the technical organization of compute. The era of Cloud Brokerage will see these two concepts treated and considered as two distinct threads. The technical organization of compute is what the myriad of cloud software vendors does today. They are the companies that pitch “hey, buy my software and you too can have a cloud” or “hey, run your apps on our infrastructure and you too can pay for IT like a utility.” The role of this vertical in the industry is about the orchestration and management of the compute resources sitting in customer cabinets and cages across the global data center landscape. It is about, as some of the more vocal pundits and talking heads espouse, a complete paradigm shift in the way IT is delivered.
But cloud vendors, despite their impressive efforts to convince us otherwise, are, and never will be, Cloud Brokers.
Cloud Brokers will focus on the business of compute rather than the technical organization of compute. And the business of compute has nothing to do with cloud computing or the technology driving this revolution. The business of compute is about the commoditization of compute, network and storage infrastructure.
There is a big difference.
Analysts and experts measure the market by examining the adoption rates of cloud technologies private and public. Projections vary widely but I think we can all agree we are already in a Total Addressable Market (TAM) in the billions and on a fast track much higher.
That’s a lot of dough. But the real TAM for Cloud Brokerage is much, much bigger.
Cloud Brokers will play a catalyzing role in the establishment of a commodities market for computing, just like soybeans, metals or corn. One of the principal advantages of any commodity market is for businesses to hedge their risk. It is difficult to argue that such practices could not or should not extend to information technology needs (specifically computing).
In order to truly see this market one must look beyond the resources that are “in the cloud” today. Businesses in the future will hedge their total risk – the needs of the organization both internally and externally. That is – the sum total demand for compute resources. To this end, existing market sizing reports dealing with cloud are inadequate to represent the total opportunity. Based on publically available data on server and storage shipment tracking I believe the TAM for Cloud Brokerage to be north of $1 Trillion.
As a central figure to the emergence of a commodity market for compute infrastructure, the Cloud Broker must be an entirely agnostic intermediary. The job of the agnostic intermediary will be to connect those that consume infrastructure and those that produce infrastructure. It will not be their job to influence, direct, sell or support what the infrastructure is ultimately used for. Nor will it be their job to influence what infrastructure supplier is used.
Herein lies the demarcation point between those facilitating the future business of compute and those enabling the technological organization of compute.
This may come as a revelation to some, but it won’t be players like Amazon, Rackspace and the ‘Magic Quadrant’ of telcos and co-lo providers that form the commodity market for compute. Yes, they will no doubt be suppliers to the market. But they will not be the true market makers.
Today’s leading cloud vendors will learn that you can’t be a retail cloud and an intermediary for a cloud market. The very concept would be like being an arms dealer for the war in which you take up arms. It will not work. While important actors in the emerging story, today’s cloud vendors are merely proving out that there is room for many suppliers in the market.
In Part III of this post I will take a look at the some of the important technologies that will emerge to create what I call “The Market Unified.”
Why 6fusion’s Cloud Resource Meter Launch Matters
By the time this blog post hits the airwaves, 6fusion will have launched it’s second major software product in the first 45 days of 2012. For those of you that run start up software companies, you know what kind of pace it means. To be perfectly transparent, things are, well, nucking futs inside our little company.
The product we launched simultaneously at VMworld Partner Exchange in Las Vegas and Cloud Connect in Santa Clara is called 6fusion Cloud Resource Meter (for VMware vSphere) – more on the vSphere part later.
I wanted to take a few written words to explain a few things about the product and the product strategy. It’s easy to get lost in the noise of the daily product announcements in the cloud space in general but I think this release deserves pause for consideration of what exactly the product does and what it means, and why we chose to launch and support the VMware ecosystem first (‘cause we could have done it with any number of products, and soon will).
In the simplest sense the Cloud Resource Meter integrates 6fusion’s core intellectual property natively within the VMware vSphere software console. 6fusion’s core intellectual property, of course, is the Workload Allocation Cube (WAC). The WAC is the 2004 brainchild of yours truly and my business partner (whom I often call the best kept secret in the cloud computing business) Delano Seymour. The WAC is a dynamic single unit of measurement that encompasses compute, network and storage utilization. We wrote the original algorithm to simplify our ability to meter and bill our private IT customers on the multi-tenant host we had created with ESX 1.0. I first wrote publicly about the algorithm’s use to ‘profile’ apps and the importance of ubiquitous utility metering three years ago. Since 2008 the WAC has powered 6fusion’s proprietary cloud federation platform, called UC6.
So now anybody that owns VMware vSphere 4.1 or later can download a vApp and have the power of the WAC – for free. The WAC shows the customer the granular resource consumption of every single VM under management – instantly.
The problem with current ‘chargeback’ tools and software is their complexity and lack of scope. Complex to design. Complex to implement. And even when implemented, the methodology is relevant only within the four walls of the customer that programmed the complexity.
The WAC is different because it is the first ‘universal’ algorithm. It meters the consumption and utilization of infrastructure not just within the enterprise IT space, but also the multi-tenant host market emerging as ‘cloud providers’. Why use the WAC to meter and bill your VMware infrastructure? Because the WAC is the algorithm your potential multi-tenant hosts use to price their services.
Ah, yes. The penny drops.
The WAC utilization data provides an instant ‘profile’ of my workload requirements, which can then be easily matched to an appropriate host should I decide it more effective to use “the cloud.” This provides a true apples-to-apples comparison of running your workloads in your environment or in the “cloud” and gives you the knowledge you need to optimize your IT operations.
So, why choose to integrate this technology with VMware vSphere out of the gate? Why not other virtualization platforms? Why not emerging open source plays like ‘OpenStack’?
The answer is really quite simple.
VMware, despite the growing amount of backlash they get for becoming the big vendor on the block, represents the single largest footprint to penetrate the Total Addressable Market (TAM) for metered infrastructure. Say what you want about VMware, but the fact remains that the overwhelming majority of businesses – of all sizes – use VMware technology to virtualize privately owned hardware assets. And for 6fusion, this is a significant portion of the infrastructure TAM that we find compelling.
Having said that, the operative phrase here is “out of the gate”. As 2012 progresses look to see Cloud Resource Meter integrated into a number of virtualization and cloud software stacks!
By John Cowan, 6fusion Co-founder and CEO
Is Your Organization Living Below the Information Security Poverty Line?
By Steven Wolford, Director of Information Security, 6fusion
During the season of politics here in the US, I would like to borrow shamelessly from topics in the political debate with a look towards the state of information security.
According to CNN (Poverty Rate Rises as Incomes Decline), the number of US citizens living below what is considered the bare essentials is on the increase. I believe we can say the same for information security programs. According to SANS, the top security controls can be boiled down to 20 Critical Controls (Top 20 Critical Controls). These are regarded as the “poverty line” for an Information Security Program. The bare essentials needed for a program to live at a level regarded as a minimum standard.
Have you turned down a security control because it was too expensive?
ENSIA (the European Network and Information Security Agency) has stated “the same amount of investment in security buys better protection” (Cloud Computing, Benefits, Risks, and Recommendations for Information Security). We have long understood that scale brings cost optimization. By spreading the cost of controls over a larger number of organizations, Cloud Service Providers (CSPs) are able to either deliver equivalent controls at a lower price or enhanced controls at a similar price.
Work with your CSP to understand the controls already implemented, those that are planned, and those that you require for the assets you are moving to the CSP. The different cloud models (software/platform/infrastructure as a service) will each be able to deliver a different set of controls. You should expect to bring more controls to an IaaS provider than to a SaaS provider. However, you should still expect to see cost efficiencies with IaaS.
What if the chosen CSP doesn’t offer the controls you need? Reinvest the capital expenditure (CAPEX) or operating expenditure (OPEX) savings into providing your own controls or even better negotiate with the CSP to get the controls installed and leveraged across all of their customers. Security is moving from “build your own” to “assemble your own” (that sounds like a blog all on it’s own). There is even a growing industry in Security as a Service (SecaaS or SaaS), which is a cloud computing model that delivers managed security services over the Internet. Technopedia defines Secaas as “based on the Software as a Service (SaaS) model but limited to specialized information security services.” Engaging a SecaaS provider is yet another way to help lower the cost of living at the information security poverty line.
Have you not implemented a security control because your environment is too complex?
Your business does not have to be listed on the NYSE for you to have not implemented a security control because your existing IT feels too complicated to integrate with a control or for the cost of applying a control to become cost prohibitive due to IT sprawl.
Most security frameworks today recommend taking a risk-based approach to identifying the controls that are appropriate for any given environment. In order to first identify risk you must know ALL of the components that collectively create an information system. Often the cost of implementing a proper set of controls spirals out of control when attempting to apply them to a complex or spread out system.
Moving an information system into an IaaS CSP is the perfect opportunity to identify, consolidate, and simplify an information system. Identifying all the components of an information system is potentially the most significant step towards proper control selection; you cannot protect what you do not know about. It is still not uncommon to hear about a critical business system that relies on the spreadsheet saved on a folder on the hard drive in someone’s workstation. As an example, when you plan for the security of your current monthly billing do you in fact remember this critical component or do you go about happily installing the latest IDS on the accounting server; congratulating yourself along the way for protecting the companies financial systems.
Consolidating components is at the same time a risk and a benefit (what in life isn’t a dichotomy?). Personally, I see far more benefits and, with the concept of cloud brokering, there are ways to enjoy the benefits while minimizing the risks. Let’s get the scary stuff over first. The risk is that consolidation puts all your eggs in one basket, so to speak. The target becomes a higher value target because the reward of breeching (or the cost of loss) becomes higher. Enter the cloud broker – enjoy the benefits of consolidation by information system but spread the risk by sprinkling your information systems over different CSPs.
What are the benefits that outweigh the risks? Reduced complexity to install, manage, and monitor the controls used to protect the system. There is a reason why banks put valuables into a safe – same risks identified above but even bankers know it is far easier and less costly to put them into a central location.
That leads us to simplify. By moving your information system to a CSP you are able to simplify the implementation of appropriate security controls. One of the leading causes of delay in detecting and responding to a security incident is an overly complicated control implementation. Even if controls are properly implemented in a complicated system, gathering the control information in one place can be difficult (if your environment was such that getting data in one place was easy you would probably already have the information system simplified).
Craig Balding in his cloudsecurity.org blog even lists centralized data as the number one security benefit of “The Cloud”. I think this understates the real benefits. While Craig believes reduced data leakage and monitoring benefits as the winners, I would extend that to improved knowledge of how the system as a whole works and is architected. Move the financial system into an IaaS provider and you will quickly find that critical spreadsheet on that workstation.
Have you not implemented a security control because it was too difficult?
Many modern security controls require infrastructure just as complex as the information systems they protect. Network, application, data, access, logging, and much more all require technical solutions to be implemented, updated, managed, monitored for relevant information, and then responded to when an interesting event happens. It is not surprising at all that some have had to make the decision that applying all of this is just far too difficult. You make a decision that doing that one thing for security is just too hard to digest into your other business responsibilities.
CSPs can help ease that pain. Many security vendors offer solutions that take advantage of cloud architectures and make the implementation process much easier.
Take antivirus (AV) for example. Most major vendors today offer a cloud ready solution where AV can be offered as a SecaaS or in cloud optimized versions to let you maintain total control over the AV solution. Either way, actually implementing the AV solution can be as easy as install the client in a base image and deploy that client with each and every server turned on. EASY.
As we hear the political messages of the day, I encourage your to consider the “Information Security Poverty Line.” Take a look at your security posture and tolerance for risk. Are you forcing the information security program to live below the poverty line? If so, is there something that you can do about that?
I would say YES! The first step, to paraphrase James Carville, is to remember, “It’s the risk, stupid.” Stay tuned for more on that politically inspired theme.
How can cloud computing help my organization?
With the massive growth and attention around cloud computing today, many people are trying to wrap their heads around two primary questions:
1. What exactly is cloud computing?
2. How can cloud computing help my organization?
We’ve come up with a short video that simply explains the trends driving cloud computing and the impact the cloud can have on your organization.
Check out the video here and let us know what you think.
From Rain to Sunshine: Back from London and Headed to Miami, Las Vegas and Santa Clara
Posted on January 30, 2012 by Rob Bissett
Lots going on at 6fusion and it’s all good – last week, we were in London for Cloud Expo Europe and Cloud Camp London.
We previewed our new UC6 IaaS federation platform at Cloud Expo Europe and John Cowan spoke on Equinix’s “Home of Cloud” panel. The show was well attended – in fact they exceeded their expectations by a fair amount. Europe is very cloud focused right now. We heard a lot of feedback around the various options out there and several themes came to the forefront – data residency, and utility metering – both of which 6fusion is well equipped to provide. It will be exciting to follow up on these opportunities in the coming weeks.
I’ll be heading to IT Expo this week and speaking on the “Best Practices for Monetizing the Cloud” panel alongside Nancy Maluso of Sonus Networks and Jim McLaughlin of GENBAND. We are going to discuss the pitfalls resellers and service providers need to avoid and how to build a successful cloud offering. These panels are always interesting as everyone brings their own experience and insights.
After that – I am off to Las Vegas for VMWare Partner Exchange (booth #504). We’ll also be exhibiting at Cloud Connect Santa Clara (booth 910).
If you are attending any of these shows and want to meet up – ping me on Twitter (robbissett).
Why I’m Bullish on Cloud in Europe
Geographic expansion has always been a key component to proving out 6fusion’s technological and commercial strategy, but out of the gates we had never really identified where on the map we would choose to go.
Europe at the time looked like as good a place as any when traditional filters were applied. There is a good swath of the market that speaks our language. It’s not generally too far removed from North America from a support perspective (at least not as far removed as some other regions). The acumen for cloud is generally pretty high and the potential to tap available talent seems strong.
But every time I brought the subject of Europe up, I would encounter a number of objections for young companies like 6fusion. As I sit here about to kick off my company’s foray into the European market I was reminded of some conversations I had as I was working on the company’s course trajectory a little more than a year ago.
First there was the logic to consider among the Analyst community. I’ll call this “The Macro Theory”. It runs something like this: Although EMEA generally runs a tight second to North America in terms of market projections, the general consensus is that APAC will leapfrog EMEA. The theory is that the Total Addressable Market (TAM) in APAC is much larger and the propensity for that market to “skip” an evolutionary step or two to leverage the cloud is much greater. And the problem is magnified further by EMEA’s regulatory quandaries. The risk, as it was put to me, is that I could be potentially investing in a region with questionable growth and one about to fall to a distant third place among the developing regions for cloud computing.
Sheesh. Sounds pretty scary.
Next is what I call “The Lemming’s Guide to Market Planning”. Domain experts in this category suggested the behavioral patterns of other players in the industry suggest the Analysts might be correct. Peers in the cloud software business seemed to be flocking to APAC as though it was definitely the place to be for the cloud rapture. Recent acquisitions in the industry showed visible undertones about the importance of the APAC market as a deal driver.
Fair enough.
But if I can be accused of anything, I can definitely be accused of not giving a sh…., um, hoot about how others go about their business. Blazing new trails is part of our entrepreneurial DNA at 6fusion.
So onward I pressed.
I spent some time in Europe and listened to resident experts talk about the challenges they faced. I learned a lot about two major objections to investing in the region:
- There is a serious financial crisis in the EU which is breeding uncertainty at a rapid pace and;
- Regulations about data privacy and data residency were not conducive to supporting many cloud models and the idea of open systems seemed completely counter intuitive.
I couldn’t argue so much with the first point, so I conceded to avoid federating 6fusion iNodes in Greece or Italy in the near term, nor will I put my company into hock with Germany!
But… it’s the second problem that I saw as very intriguing. I can see how most emerging cloud companies would examine the region and basically throw up all over the place when they saw the way in which most European authorities treated data residency. As illustrated in a recent EuroCloud publication, there remains a lot of legal and regulatory plumbing yet to be done before the full advantages of cloud can be leveraged. Certainly it is more work than most young companies would ever entertain – and for good reason.
But not me.
You see, 6fusion emerged as a company built around technology designed to satisfy a customer base in the offshore Caribbean. I would argue you don’t know anything about data residency control until you deal with the subject in the context of companies whose very livelihood is based on financial and other data remaining firmly planted in remote places like Bermuda or the Cayman Islands (I lived in worked in both countries over a 12 year period). And no, I’m not talking about tax cheats, porn peddlers and online bookies. I’m talking about the world’s multi-nationals spanning the finance, investment, insurance and re-insurance verticals.
Coming from this pedigree it was hard for me to dramatize the challenge the European market poses. To me the challenge of data control, data residency and export as not so much of a problem. It is an opportunity. In fact, I see it as every reason why 6fusion would prioritize expansion into Europe above other important regions. As time goes on what we’ll see is simply that the way we think about cloud fits very well with the way European regulators and businesses view data control.
And it would appear the market in Europe is not exactly waiting around to usurped by other more creative regimes to eat its lunch.
It’s with this view that we’ll be making landfall next week at Cloud Expo Europe to showcase our wares to the combatants of the cloud war across the pond. And with the help of some major strategic partners we’ll be launching our European presence in a big way in the weeks to come.
Cloud Brokerage and the Future of the IT Utility
Abstract: Cloud Brokerage is an emerging trend in the broader cloud computing industry. Opinions differ widely about what it means to be a broker and the significance brokers will have on the future of the industry as a whole. The reality is that the brokerage model signals the real potential to commoditize the compute utility, which will climax with the genesis of compute as a tradable commodity like soybeans, oil or minerals. In this four part series I will take a deep dive into the concept of cloud brokerage and connect the dots between the key trends and market demands that will shape a force few in the industry see coming and fewer still are prepared to accept.
Part I: The Analysts Weigh In
The National Institute of Standards and Technology (NIST) has established a working paper on the subject of cloud brokerage, signaling the importance of a movement that is taking shape inside the cloud computing industry as a whole.
The NIST working document describes the Cloud Brokerage success criteria as follows:
A cloud-user wishes to carry out an action on cloud-provider-1 using a federated interface, with no direct knowledge of cloud-provider-1 commands or interfaces. A cloud-management-broker offers the cloud-user a federated interface to multiple cloud-providers through a human user interface, an application programming interface or both. The cloud-user selects desired cloud-provider-1 resources, action and action parameters using the cloud-management-broker interface. The cloud-management-broker collects and marshals the selected action and parameters from the cloud-user‘s selection and issues the desired command to cloud-provider-1 using cloud-provider-1 native interface.
The idea of cloud brokerage warranted enough noise to be covered in detail within the analyst community in 2011. However, depending with whom you subscribe, cloud brokerage has very different meanings. While there has been definite progress on the behalf of the analyst community, I think the potential for what this model could mean for the cloud computing market goes much deeper.
To be clear, I believe the role of what I am calling the “infrastructure broker” will be the most significant movement in the computing industry since the advent of virtualization and cloud.
Before I get into the immense complexities of that statement, let’s take a look a few perspectives from key industry analysts:
Gartner:
According to Gartner research expert Benoit Lheureux, the role of the Cloud Service Broker (CSB) is to “aggregate and add value to cloud services by providing a single point of entry to different types of cloud services.” Gartner goes on to illustrate some key defining characteristics of a cloud broker. According to Gartner, a CSB is a CSB if they genuinely perform:
- Aggregation across VARS and IT Distributors
- Integration with Systems Integrators
- Customization for SI’s and Professional Services organizations
Gartner’s definition of Cloud Brokerage is by far the lightest among the analysts. If you believe Lheureux, Cloud Brokerage is really just the modernization of the IT channel.
451 Group:
451 generally consider the category of CSB a part of broader market called cloud on-ramps. In addition to providing some sort of provisioning technology, CSBs differ “in that they provide a value-added economic function, which matches workloads to the best execution venues.”
While I think 451 only provides cursory attention to cloud brokerage as a concept, the are at least more directionally correct in the sense that they see Brokerage providing a level of sophistication that is unique in the delivery of cloud services – namely the concept of ‘workload matching’.
Forrester:
I think Forrester has done the best job among the research outfits when it comes to taking a seriously deep look at the CSB market definition. Forrester sees the CSB
playing a pivotal role in the future of the entire industry. Analyst Stefan Reid’s taxonomy picture does a fantastic job of identifying the interaction of different players.
According to Forrester, “the simple broker model gains value only by comparing similar cloud provider options and using dynamic provisioning based on the actual spot prices of these resources.” This sounds similar to 451 and Gartner in direction and tone.
But Forrester goes on to elaborate on what they see the as the evolution of the brokerage model. “The full broker [model] goes far beyond [the simple broker]. It uses “cloud bursting” to provide IT users with higher value for a lower price.” Cloud Bursting, Forrester explains, “is the dynamic relocation of workloads from private environments to cloud providers and vice versa.” I’ll admit a slight sigh when I hear the cloud ‘bursting’ term (again), but I think Forrester has a great grasp on the technical role of the broker.
Gartner sees brokering as little more than modern distribution. 451 sees the concept as something they instinctually must cover but the details are hazy. Forrester has obviously put the most thought into their analysis. But the consistent underlying theme within these analysts is that brokerage insinuates a model whereby vendors inserting themselves and their technology between supplier and consumer to provide a layer of transactional value.
The debate and discussion goes much deeper than this and the potential for the cloud broker is much more profound.
In Part II of this post we will take a closer look at the role of the intermediary and who is likely to take up this position in the market.
6 things I think I think for IaaS in 2012
By John Cowan, Co-Founder and CEO of 6fusion
Time sure goes by in a flash, doesn’t it? Its that time of year again. Time for the requisite prognostication for the year ahead in the IaaS business!
Most pundits seem to think their slate gets cleaned at this time of year and they get to make a new set of blanket assessments for the year ahead. I don’t think it works quite like that. The 6 things I think I thought (or is it I thought I think??) for 2011 are still largely what I believe today, but some things have set a more or less aggressive course. Other things I was admittedly a bit premature about.
With that in mind, as I try to offer some insight into the year ahead I’ll do so with a bit of a redux to my 2011 post with updated thoughts and insight.
- 2011 Prediction: Hybridization Will Prove Critical to Enterprise Adoption. I’ve been to the edge and back and I have a few words of wisdom to share with my peers about the Enterprise cloud. Unless what you are doing bridges a gap between what exists inside the four walls of the enterprise data center and what might safely and securely exist outside of those four walls you are just another GUI in the Red Ocean peddling the same wares we’ve seen for years. Hybridization is something enterprise buyers will use to separate the crème from the crop in 2011.
2012 Perspective: Hybridization WAS key in 2011 and I’m doubling down in 2012. If you’ve paid attention to the consolidation in the industry, you’d best do the same. The big boys are snapping up anything that smells like bridging the enterprise to the multi-tenant host. Look for this trend to intensify.
- 2011 Prediction: Regional Clouds Unite. The arms race among regional managed hosting providers to beef up for cloud services was evident in 2010. But the silo approach to building up IaaS on a regional basis will prove difficult if not impossible to compete on scale – and it won’t take long to figure this out. In 2011 expect to see the concept of broad-based IaaS federation become a much more prominent theme as owners of regional facilities and compute partner to create scale and increase market size in the quest to truly monetize their resources and compete with the national players.
2012 Perspective: I’ve spoken with some pretty big names in the business and scale is an issue with their regional plays in the market. The challenge in 2011 for federation was the degree of difficulty associated with interoperability. There was much progress on this front in 2011 but I think before broad based federation goes from concept to reality there needs to be more plumbing. 2012 will be the year real interoperability tracks are laid as a foundation for scalable cloud federation.
- 2011 Prediction: The Ecosystem is Bigger Than the Organism. The IaaS industry is beginning to realize that the creation and quantification of IaaS demand is much more important than the creation of supply. Its one thing to have the capability to power or enable the creation of IaaS resources, but it is entirely another to drive revenue and margin to the cloud. The emergence of business ecosystems will be a consistent theme for the coming year because partnering is the key to success in a nascent market. In 2011 you will see more and more eyebrow-raising deals announced based on ‘synergistic’ partnerships – partnerships that drive mutual revenue and margin between companies that are bound by the common interest of leveraging, distributing and powering IaaS.
2012 Perspective: VMware unveiled its plans to stitch together Vcloud operators at its big VMworld shindig, but this wasn’t the only giant making big bets on the cloud ecosystem concept. Equinix, one of the world’s largest data center operators, hatched is master plan for a ‘Marketplace’ of Platform Equinix Partners and Synnex, one of the most powerful IT Distributors in North America took a huge step with its Cloudsolv application and services portal. Watch what these three companies do in 2012 to drive ecosystem growth.
- It’s All About the Channel. Building a global business one end-user customer at a time doesn’t scale if your business is supposed to compete with the market pioneers. In order to generate a serious outbound push to globalize IaaS the cost of business acquisition will be too high for almost every player. In 2011 IaaS vendors will wake up to the fact that they need help in order to scale revenues and ultimately generate the ROI they are promising shareholders. Queue the channel gold rush.
I am still a firm believer in the channel and I’m still banking my company’s future on it. However, the Channel failed to capitalize on the cloud opportunity in 2011 the way I thought it would. Don’t get me wrong, the needle definitely moved. But the cloud operators and the broader channel are still separated by an expertise gulf that is limiting how much cloud money flows via the intermediary. The investment from the IaaS providers continues to be there. Find me one IaaS services or software provider that doesn’t showcase a channel program today. 2012 will see the gulf shrink and the channel heat up because Distribution will hit its stride and carry with it more evidence of the gold rush I saw last year.
- 2011 Prediction: Communities Will Emerge. I subscribe to the notion that one day every business in every vertical will consume a form of public cloud – but we are not anywhere close to this reality. Large scale IaaS operated by a trusted third party and made available to a select group of common-interested stakeholders is a concept that has legs. Trust me on this one. Building out community clouds will emerge in 2011 as one of, if not the most important, concepts to help accelerate IaaS adoption.
2012 Update: By the middle of the 2nd quarter I was beginning to worry about this prediction? Was I going a bit too far out on a limb? Then, bang! VMware announces the big deal with the NYSE. Wow. Talk about going big or going home. The NYSE community cloud has a lot of eyes on it. A large number of other vertical deals are hanging in the balance, hoping to learn what not to do when details of the NYSE project become more public. I think this VMware play will be a big success and in 2012, you will see many other big players follow suit.
- A Course Will Be Charted for an IaaS Futures Market. If you don’t subscribe to the notion that the final destination for this ride is a commodity exchange for compute, stop and take a look around. Spot markets emerged in 2010, much to the surprise of many industry pundits. But spot markets, as novel as they are, do not a true market make. The real money and the real opportunity are in futures trading. There are forces at work on this as I type away, and although you won’t actually see compute on a major exchange in 2011, do expect to see this theme to creep it’s way into mainstream IaaS thinking.
2012 Perspective: Spot market concepts made progress in 2011 but as expected were not able to truly capture the imagination of the market. However, the groundswell around commodity compute resource trading is gaining momentum. And in 2012 look for general progress in this area with a few players coming out of the woodwork to surprise some.
As a bonus prediction this year, maybe a 6.1 on the list so as to stay with my theme, look for vendors and pundits alike to completely drink the cloud brokerage kool aid. You’ll wake up one morning in the third quarter and vendors new and old will be touting themselves as the onramp to many clouds. It won’t be quite like the cloud washing we’ve seen over the past couple of years, but you’ll still shake your head in disbelief.
Have a great 2012!!
Part IV: Evolve (Again) or Die
By John Cowan, CEO
Tiffani Bova from Gartner recently published a major research report looking at the impact of the cloud on the channel and vice versa. One of Gartner’s principal conclusions goes like this:
If traditional channel partners don’t react quickly enough to the changes in the market, they will be replaced by other channel partners in their accounts.
I think Gartner made an understatement here. I think this is a more appropriate conclusion:
VARs and MSPs must evolve to embrace the cloud or they will perish.
I’ve never really been good at the FUD propaganda. I’m a historian. And I use the benefit and insights of history to foresee future market conditions so that I can build technologies to address what I know will be the world’s business requirements.
Every thirty years or so, the market endures a technological paradigm shift. For those of you as interested in the academic side of this as I am, start with Carlota Perez and go from there. This shift invokes a process of natural selection in the business ecosystem. Just take a look at what the Internet age did to the VAR business built in the 1980’s. As margins eroded and the V in VAR was called into question, the herd was dramatically thinned. Those that survived the Internet era were either so big they could weather the storm or they changed their business model from “reseller” focus to “services” focus.
As the cloud continues to fuse services to infrastructure, the channel service provider must take the next evolutionary step. Their business must become about the cloud. And their customers will demand it because the cloud is exactly what Perez describes as the difference between a technology revolution and a paradigm shift. Cloud is not a product to sell. Cloud is a way of doing business. It is a way of delivering technology to customers.
Larry Walsh from the 2112 Group (and former publisher of Channel Insider) recently provided some valuable insight into the market dynamics of the channel as it relates to cloud. This insight was based on survey results from the recent Cloud Convergence Council study. A number of channel partners are trying to build their own cloud services offerings, Walsh observed. But “there’s tremendous risk in developing a cloud platform.” For the record, I couldn’t agree more. As a former channel partner that developed a complete cloud platform, I attest to such risks. But, as Walsh so aptly concluded, “it does have the advantage of control; channel partners are able to set pricing, terms and conditions, and operating parameters without the restrictions imposed by vendors.” So, the ideal scenario is thus one where the channel partner can reduce or absolve risk while maintaining control over the service offering to clients.
Makes sense to me.
Ok, so now what? What is a VAR/MSP to do staring down the barrel of the obsolescence gun (yet again)?
Let me start with what not to do. Don’t hand your clients over to Google Apps. Don’t yield to Gartner’s Magic Quadrant hosting providers. Don’t go off to get a Master’s Degree so that you too can figure out what the hell an Amazon instance is.
In fact, making a specific vendor product bet in the cloud business is probably the surest way to seal your fate if you are a VAR/MSP. Gartner seems to agree, making the case for traditional resellers to adopt “a new ongoing role as a broker or aggregator to various cloud offerings.” The fact of the matter is that there is no ‘clear cut’ winner in the cloud game. This is not 1990 Microsoft pitting itself against Novell and IBM. There are not sure bets or silver bullets.
The fate of the channel will depend on its ability to abstract the technology and services that underpin the many cloud vendors that have emerged in recent years. Alas, the fate of the channel will depend on client relationships and the channel’s ability to do what it did with x86 computing: Take complex technology, simplify it and apply it to customer problems in ways that they could understand and appreciate.
Sound familiar? It should.
The channel will thrive in the cloud era only if it exerts itself as the control valve to the cloud. The inherent challenge, and thus the work ahead, is the reinvention of the processes, technologies and systems that are needed to materialize the new market position.
Consensus opinion is that the reward will be worth the effort. I think analysts and experts have grossly underestimated the size of the market at stake here. They say billions. I think trillions.
More on that in another post.
The Market Unified
Abstract: This is Part III in a blog series by 6fusion Co-founder and CEO John Cowan on the emerging trend of Cloud Brokerage and the impact it will have on the technology industry and markets. Be sure to check out Part I of the series here and Part II here.
Part III – The Market Unified
The feedback and fallout from Part II of this post has been quite interesting. I thought for sure the bulk of the flack I would have to take would be from the cloud vendor incumbents I said would be relegated to the world of retail cloud business. But since I posted my perspective I’ve found myself digging in to the nature of the Total Addressable Market (TAM) for the Cloud Brokerage industry.
For those of you keeping score at home, I said the market for cloud brokerage is more that 10 times the market for cloud computing software and related services.
Yes, 10 times.
And it is because this market is so big that cloud brokerage will spawn the next generation of technology innovation.
But before I get to the underlying technologies that are on the horizon and necessary for the future that I, along with my collaborators, envision, let me first spend a few paragraphs to explain why I am not just pulling numbers out of my, um, ‘IaaS’.
On the 6fusion iNode Network the median server in production in the cloud is a quad core dual processor unit with an average of 4TBs of available storage. Using this standard configuration, partners and customers yield approximately $42,000 per year in net billable proceeds. I would classify that number, give or take on either side of it, to be a reasonable annual revenue estimation.
IDC recently reported that the 2011 server shipments topped out at 8.3 million units. At a $42K clip, that is a market growing by a healthy $350 billion each year.
But of course, as we all know, server shelf life is not exactly the same as what you’d expect from a box of Krusty-O’s from the Kwik-E-Mart.
A quick trip down the hall to Gary Morris’s office at 6fusion is always an educational adventure. “Depreciation,” Gary explains, “is a systematic and rational process of distributing the cost of tangible assets over the life of those assets. US GAAP calls for depreciation of servers using the server’s cost, estimated useful life and residual value. Typically, computers, software and equipment are depreciated over a period of 1 to 5 years, with the average useful life being 3 years.”
If we take Gary’s use of the GAAP average as a multiplier, it means there is estimated to be over $1trillion in billable utility computing presently in use around the world.
The point here is that cloud brokerage is underpinned by the availability of both private and public compute, network and storage resources. And it is this massive untapped market that will drive the next wave of innovation.
If the origins of the cloud business belonged to the innovation of companies like Amazon, Rackspace and VMware, then the future of the cloud brokerage belongs to a new cadre of agnostic intermediaries that will enable a true utility computing marketplace to flourish.
The unification of the market is what I refer to as the point in time at which cloud computing technologies in production today can be used to interface to the commodity market. In order for that to happen, cloud brokerage as an industry must form and deliver the underlying technologies necessary to make a true market.
Just what are these technologies? Let’s take a look at three areas of innovation that will underpin the future of the utility computing.
Cloud brokerage technologies are best considered in the context of supply, demand and delivery.
Universal Resource Metering: Quantification of Demand and Supply
I delivered a presentation in Asia a few weeks ago and I opened with a slide that had two simple definitions: Utility and Commodity.
A Utility, I paraphrased, “is a service provided by organizations that are consumed by a public audience.”
A Commodity, according to common definition, “is a class of goods or services that is supplied without qualitative differentiation.”
Theoretically, you can have a utility without it necessarily being commodity. But it rarely ever works that way because in order to have a utility in the way we think about the utilities we consume every day, you must have scale. And in order to achieve scale, the utility must be pervasive and uniform. One should not require any special skills in order to use it. It must be simple and consistent to use. Think about your interaction with things like power or water services or subscribing to the Internet.
Utility is a word used quite often to describe the cloud. In a post a couple months ago Simon Wardley aptly explained the difference between the cloud and a computer utility. The difference, says Wardley, is really only that “cloud was simply a word used by people to explain something that really wasn’t well understood to people who were even more confused than they were.”
So is the cloud really a computer ‘utility’? Not yet.
You see, what the cloud is missing is the factor that truly negates qualitative differentiation – common measurement. You simply cannot claim something to be a true utility if every provider measures services differently. Common utilities all share the characteristic of universal measurement. Think about it. Power. Water. Energy. The Internet. Whatever.
A standardized unit of measurement for the computer utility will be one of the greatest innovations to come from the emerging market for cloud brokerage because it will establish basis from which a commodity market can emerge.
Cloud Infrastructure Federation: Tapping Global Supply
When you buy corn or wheat or soybeans by contract on a commodity exchange today, you don’t buy a brand. You buy a commodity. Cloud brokers of the future will move commodities, not brands. Today, cloud brokers form ‘partnerships’ with service providers. But for a true brokerage model to blossom, there can be no possibility for vendor discrimination. Anyone that brings product to market can and should trade it. The denial of interoperability cannot happen.
With this in mind true cloud brokers will overcome the interoperability hurdle through collaboration and cooperation. This doesn’t mean ascribing to one API framework or another, regardless of how high and mighty the leading retail cloud properties might become. It means absolving oneself from the politics of the API game completely.
The Underlying Transport System: Delivering the Commodity
It doesn’t always happen, but when a commodity contract comes due, something must be delivered. The party that holds the paper for a hundred thousand units of corn must be able to take possession of it. Modern commodity markets are supported by an elaborate network of supply chain delivery systems – from tankers to trains and transport trucks.
The equivalent underlying transport system must exist for the cloud infrastructure market.
Commodity brokers don’t own the transport system for the market. And for good reason. However, if you subscribe to the early analyst view of cloud brokerage, they do. The analysts see brokers facilitating the transaction and delivering the compute commodity itself. To me, they either don’t fully grasp the potential of the broker or they are describing something all together different.
Cloud interoperability is not a new concept. It has been bandied about the blogosphere for several years already. The problem to date is that such movements have been nothing more than thinly veiled product sales pitches. The cloud brokers of the future will drive the innovation to construct the underlying transport system to “connect the clouds.”
In the final part of this series I will explore the future state of cloud computing; a world where the immovable IT asset becomes movable in a commodity exchange.