The Rise of the Public Cloud

Today, the rise of the public cloud is dominating the agenda in certain sectors of the market. We look at who the main players are and answers questions such as, ‘Is it true to say that for every order the likes of Amazon gets that becomes a server order the channel loses? And, if IaaS providers deliver the building blocks how do resellers decide which blocks users need to meet business demands.Is the result really guaranteed to be increased business agility?’

When Amazon Web Services officially launched in 2006 it was fulfilling a growing need for self-service computing. The dot-com era had come and gone and a digital economy was growing out of the ashes. Today, a decade later, applications have become the lifeblood of the enterprise and their route one strategy is the cloud.

AWS’ $10 billion in anticipated revenue means that thousands of on-premises servers and associated equipment aren’t being sold through the channel this year.

There are therefore many questions for the future that sit behind these events, such as:

Are VARs struggling with this transition to cloud, partly because customers want both cloud and dedicated IT systems?

In order to stay relevant, should VARs look beyond on-premises dedicated solutions and expand their offerings to include public cloud based solutions?

Does this mean VARs must learn how to vet cloud service provider vendors, quickly on-board them, and then resell cloud solutions?

Overall, the VAR community isn’t moving their businesses wholesale into cloud services because while public cloud continues to gain traction within their customer base, there are still opportunities for VARs to sell their current hardware and software portfolios.

In this context, are these the key questions that need to be understood by the channel?

David Dadds, Managing Director at VanillaIP, sets the scene concisely when he says, “We are transitioning to an apps based model where cloud-based solutions run over the top of the IT infrastructure. We have seen a parallel rise in Cloud and the browser becoming the dominant user interface; IT infrastructure is just an enabler of that.

As a VAR you need to be an enabler in that you can unify different public cloud offerings for your customer. Bringing everything together adds value for the customer.”

He adds that VAR’s should have already transitioned to the Cloud by now and the penalty for failing to move will be severe.

“Just ask Avaya. It’s clear that the Cloud effect is as profound as that of the internet and has rendered previous business models obsolete. There will be more companies that suffer ‘Kodak’ moments.”

Dadds concludes by observing that VAR’s will do what suits their skills and market audience and that there is a wide range of specialisation in the channel.

“The Cloud is a mass market model predominantly and there are a higher number of niche and verticals that will probably come as a second wave, if Cloud deployments mirror other tech deployments.

Where we see ourselves adding value is as a unifier for different public cloud offerings providing a central repository and interface, marrying up data streams and providing centralised reporting.”

So, is every order Amazon gets one less server order for the channel?

According to Avner Peleg, Customer Development Director at IT, Cloud and telecoms provider hSo, businesses are embracing the public cloud like never before and buying fewer new servers as a consequence.

“The shift to the public cloud will have a silver lining for many in the channel. What the channel loses in server sales it can make up in service sales.

Firms migrating to the public cloud often need help and advice. There is a massive opportunity for the channel to offer cloud migration services and cloud-related consultancy.

Organisations that shift a large proportion of their IT to the public cloud will often need to upgrade their connectivity so they have sufficient bandwidth and connection resilience. They will turn to the channel for advice on their connectivity options.”

Peleg significantly adds, “Organisations that make extensive use of the public cloud don’t want their cloud strategy to be ruined by Internet congestion. They are often willing to pay for fast, dedicated links to their preferred public cloud provider. hSo now makes more money helping firms securely connect to AWS and Azure than it does from providing dedicated servers.”

Steve Davis, Marketing Director at Next Generation Data (NGD), also believes that whilst the channel may lose some hardware sales there are other revenue lines which can be more profitable in the medium to long term.

“Each company looking at using cloud services must consider connectivity.  There is the opportunity of selling lease lines, MPLS circuits or internet upgrades which will bring additional recurring revenue streams to the channel. Also using services such as the NGD Cloud Gateway service to access Microsoft Azure can be highly profitable to partners. The NGD Cloud Gateway gives reliable, highly secure connections into the Microsoft ExpressRoute service bypassing the public internet.”

Selecting Building Blocks

A way to address this challenge is by partnering with cloud service providers which can support solutions deployed to the public cloud, a private cloud or on-premises with equal facility.

By working with a cloud service provider, channel partners can get a seat at the table, even if the customer isn’t looking to buy hardware. If the customer is looking for a pure services-based, cloud-based solution, the VAR will earn a referral fee or an opportunity to resell white-labelled cloud services. However, most companies discover that moving everything to the public cloud isn’t realistic, resulting in hardware and software purchases that channel partners can fulfil.

Peleg at hSo says that most public cloud customers tend to use only basic building blocks such as Amazon S3 for data storage or Elastic Compute Cloud (EC2) for virtual server hosting.

“Big public cloud providers have created a bewildering array of services designed to appeal to giant multinationals and trendy software developers, but most offerings are too niche to be relevant to the channel and its customers.

The channel’s customers primarily consist of SMEs that are reluctant to re-engineer their systems to run on the public cloud. Over 90% of the firms that have virtualised their servers use VMware ESXi or Microsoft Hyper-V. They won’t necessarily want to switch to using AWS’s Xen-based service.

Meeting business demands requires more than just scaling data storage and ‘compute.’ The channel needs to nudge its customers to consider their connectivity, security and availability requirements as well. Too often, these are neglected until after something goes wrong.”

How can the channel stop the major public cloud providers eating their lunch?

The channel’s customers are already embracing the public cloud. Resellers should accept this reality and partner with connectivity providers that can help them offer cloud connectivity to their customers. That doesn’t just mean providing standard Internet access but also dedicated private links to the leading public clouds. To offer private connectivity to AWS, resellers should find an APN Technology Partner or APN Consulting Partner that supports AWS Direct Connect. Firms that want to offer connectivity to Azure and other Microsoft hosted services should partner with an ExpressRoute connectivity provider.

hSo points out the old business saying: ‘Commoditise your complements.’

As the big public cloud providers commoditise the low-margin IaaS market, much of the money that customers save will flow back to the channel as demand for other IT services, including high-margin managed services. Few IT managers are looking to cut their total expenditure, though if Brexit goes wrong that may change.

The public cloud isn’t going to kill off the traditional data centre. Many businesses still prefer the sense of control that comes from having their own physical servers and storage devices. These firms aren’t full of luddites. Most already use the public cloud, but prefer to take a hybrid approach, as public cloud providers haven’t fully allayed concerns about data security, vendor lock-in and value-for-money.

The big public cloud providers often make mistakes. They were late to introduce services hosted in the UK and seem reluctant to cater to the needs of average-sized firms. For example, the majority of businesses that have virtualised their servers use VMware’s ESXi hypervisor and VMware tools to manage their virtual machines, yet none of the big cloud providers offer these. AWS offers a hypervisor based on Xen, Azure uses one that’s similar to Hyper-V, and Google relies on KVM.

And Finally, Some Perspective…

Steve Glaister of Invosys says that Cloud services are all around us and have been for some time.

“The problem that the channel and the end users often have is that they wrongly believe it is a complicated, brand new technology – yet in essence, they are already using it all the time.

So, the key question to be understood is just what, exactly, is ‘the cloud’? If we can establish that, we can start to lose some of the distrust that surrounds it.  Let’s start by getting rid of some of the terminology and reminding people how they are already using it. Of course, we know there is no cloud, no mythical water vapour of computing. It is simply someone else’s computer in a datacentre - or a group of lots of computers in different parts of the country or the world - connected by the world-wide web (it’s been a long time since that phrase has been used!).

Customers are used to the cloud. Many have already got rid of CDs and DVDs, sending them off to Music Magpie and reclaiming their cupboard space.  They use Sonos, Netflix, Dropbox, Google Drive, Amazon Prime, iCloud, Spotify, Apple Music… the list goes on. Their own product held on someone else’s computer, which they can draw down at any time, so long as they have connectivity.

Once customers understand this, the sell is actually very simple.

For every sale AWS gets, the channel loses. (Well, technically their previous IT provider has lost the roll over.) In the same way, for every hosted platform that is sold, the previous hardware seller has lost that roll over. The industry is always changing, and it is this that makes it so exciting. Everyone is trying to steal everybody else’s lunch and the most agile will benefit.

As Darwin put it; it is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able to adapt to and to adjust best to the changing environment in which it finds itself.

So my advice? Open your mind to the public cloud. It’s not as daunting as you think.”

Ed Says…

The use of public clouds has nearly doubled to 57 percent from 30 percent since 2012, while private cloud use has dropped to 40 percent from 52 percent, according to an Interop ITX survey.

The move away from private clouds toward public clouds is primarily driven by scalability, performance, and better or faster access to resources with the success of the public cloud directly related to being able to deploy hardware resources to run software quickly.

Clearly, for the channel reseller, finding the right partner is crucial.