cloud trends: what clients want; what providers are delivering

Copyright © 2012 Information Services Group, Inc. All Rights Reserved. No part of this document may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval devices or systems, without prior written permission from ISG, Inc.

Cloud Services

Outsourcing Institute Service Provider Summit

January 30th, 2013

Stanton Jones, Analyst, Emerging Technology

What Clients Want; What Providers are Delivering

2 Copyright © 2012 Information Services Group, Inc. All Rights Reserved

2

1. Cloud and the sourcing agenda

2. What we’re seeing in the market

3. Recommendations

Agenda

Copyright © 2012 Information Services Group, Inc. All Rights Reserved

Cloud and the sourcing agenda



CIOs are under pressure to reduce costs and move faster. Tactical response is rapid functional out-tasking to ‘as-a-service’ models.

Pressure to rapidly reduce cost/move faster

Rapid/unstructured functional “as-a-service” out-tasking



The standardized nature of as-a-service models is creating dramatic changes in external engagement models…

Contracting for IaaS, and especially SaaS, requires input from several traditional towers, usually including both BPO and ITO.

Features and service levels are highly standardized; creating a significant change in the traditional contracting process.

High level of interaction with legal and procurement; helping the client what can (and can’t) be negotiated.

Comparing business case often apples & oranges.

ITSM and DR often ignored.



Transition &

Transformation Operations Contractual Relation

Client

Integrator Cloud

Provider

Client*

Integrator Integrator** Cloud

Provider

Cloud Provider

Client*

* Delivery of potential services that are not included in standard cloud offering

** Responsibility for full service, including elements not included in standard cloud offering

Increasingly, we’re having contracting discussions with our clients, helping

them to understand new options created by the movement to as-a-service.


Wave 2 (Shared) Wave 1 (Traditional)


The single most important discussion we’re having with clients is about transformation. If the platform is shared, provider won’t change – you will.

► Document current state via an RFP; supplier replicates

► Negotiated terms and service levels

► Volume = leverage for price and terms

► Contract for innovation

► Benchmark against years of data

► Contract commitments of 3, 5 or 7 years

► Dedicated systems

► Document requirements; determine fit

► SLAs and many terms generally non-negotiable

► Volume = leverage for price discount; minimal impact on commercial terms

► Innovation inherent

► Shared systems

► Limited data to benchmark

► Significant internal transformation may be required


What we’re seeing in the market


Assessing the Level of Cloud Adoption

27% 20%

9%

2012 YTD20112010

1

3 ISG Quarterly Provider Survey: Cloud Computing

300e 220

110

2012e20112010

↑100%

*ISG Contracts Knowledgebase®

Provider Pipeline

► Half have cloud scope in 25% of their pipeline opportunities

► Cloud-based opportunities are up over previous periods

► All providers expect cloud services to grow faster than traditional ITO,

predominantly in the U.S. market

Percentage of ISG Advised

Contracts with Cloud in Scope

Number of Industrywide

Contracts with Cloud in Scope* 2


Assessing the Level of Cloud Adoption: Your Input


Recognizing the Realities of Cloud Deployment

Converged / Utility / Dynamic Computing SaaS IaaS

Public Cloud Shared Infrastructure

Private Cloud Dedicated Infrastructure

Cloud Deployment Models

Cloud

Strategy

Cloud Service Models

BPaaS

Caution!

Does not fully

realize cloud’s

promise

Perceived Risk Security & data

privacy concerns

Opportunity

•Economies of Scale

•Standard

•Modern


Expansion of existing ITO business Integrating acquisitions

Opportunities and Challenges in the Provider Community

Unbound by legacy constraints

Security and privacy concerns

Pure-play SaaS and IaaS Providers

1

Traditional Multinational Providers

Application transformation and modernization Reliance on infrastructure partners

2

India-heritage Providers

5

Innovative shared hosting platforms Supporting large, complex clients

Mid-market Hosting Providers

Existing relationship with IT and procurement Cannibalization of license revenue streams

Traditional Software Companies

3 4

Solution

Assessment


What we’re seeing in the market

Software-as-a-Service

Infrastructure-as-a-Service


Cloud and the sourcing agenda: SaaS

►Strong demand for Workday and Oracle Fusion (SaaS):

≈75% of US HR clients using SaaS on periphery.

Half of HRO clients are evaluating Workday or Oracle Fusion – adoption still remains low however. Sunk cost in Oracle and SAP as well as immaturity of SaaS outside US are primary reasons.

►Demand for cloud-based email and collaboration picking up:

Microsoft 365 picking up steam over Google Apps.

More interest in contracting directly than via a SI.

►ServiceNow continues to displace traditional on-premises ITSM platforms; internal “all advisor” discussions picking up considerably.

►SAP as-a-service: client brings license, provider transforms to service

HR, CRM, ITSM and email lead the way; SAP as-a-service has moved into the mainstream…


What we’re seeing in the market: SaaS

SaaS Vision Value to ‘Buyer’ ISG Asks

Rapid access to new capabilities High Who will test?

Mobile enabled High Multi-device support?

Decrease reliance on IT High What about ITSM?

Eliminate upgrades Medium Are quarterly releases forced?

Eliminate customizations Medium Will retained staff configure?

Reduce TCO Medium Business case 5+ years?

Faster to implement Medium Can legacy be sunsetted?

Pay per user Low How much required up front?

More secure than current Low Produce artifacts/auditable proof

Easy to integrate Low Are external systems API enabled?

Majority of time spent on SaaS deals today: feature comparisons, evaluating standard commercial terms, creating business case.


What we’re seeing in the market: SaaS Before

Software: Client-

Owned Tier 1 ERP

ITO ADM: Sourced to Provider X

ITO Infrastructure: Sourced to Provider Y

ITSM

eBo

nd

ed T

oo

ls

Ho

stin

g&

DR

R

un

, In

tegr

ate

&

Bu

ild

Client HR

Client IT

BPO HR: Sourced to Provider X

PR

, Co

mp

, B

en

The pre-SaaS service model is typical for many multi-tower clients.


What we’re seeing in the market: SaaS After

SaaS Provider

SaaS Provider

ITSM

Ho

stin

g&

Ru

n

Inte

grat

e,

Co

nfi

gure

, DR

Client HR

Client IT

BPO HR: Sourced to Provider Z

PR

, Co

mp

, B

en

eBo

nd

ed T

oo

ls

The post SaaS model not only displaces providers, but functions shift as well.


Cloud and the sourcing agenda: IaaS

►Renew, restructure, recomplete infrastructure clients want to evaluate new delivery models and expect cloud-like features to be a significant portion of new service.

►Reducing provisioning times from weeks to hours/days is #1 priority.

►However, final agreement typically has very little cloud. Here’s why:

Apps not considered upfront ; significant modernization required for legacy apps to run on shared platforms.

Retained org does not have skills, or see value, in self-provisioning.

Lack of business case; clients don’t know how much they use today.

Inability of provider to educate client on strategic benefits of shared platforms, and the relationship between different delivery models.

We’re seeing the promise of “as-a-service” giving way to gradual transition to dedicated, standardized & virtualized infrastructures…


What we’re seeing in the market: IaaS

IaaS Vision Value to ‘Buyer’ ISG Asks

Pay only for what you use High* Do you know how much you use?

Self-service provisioning High* Does retained org have skills?

Rapid provisioning High SLAs for both dedicated & shared

Lower TCO Medium Assumes large % of low tier storage?

Transparent pricing Medium Unit pricing vs. summary

Inherent modernization Medium Transformation required to get there

Highly elastic Low Is there a RRC threshold?

Robust service tiers Low What % of apps need platinum?

Fewer maintenance windows Low Will standard work for client?

Majority of time spent on deals with IaaS in scope: determining where applications will land, rationalizing delivery models and service tiers, developing business case.

* Initially high, then generally moves to medium or low during discovery


What we’re seeing in the market: IaaS

Forklift (no change)

Standardize (virtualize)

Private Shared Public

(IaaS or SaaS)

Apps that require dedicated

infrastructure, or are too risky to transform

Virtualized infrastructure – typically based on VMWare reference

architecture

Commodity applications that can be modernized

and standardized (e.g. SAP as a service)

Test/Dev for IaaS; HR, CRM, Email for SaaS

In general, the provider approach we see with new infrastructure deals is transition + transformation, using a tiered model…

x86 Applications Non x86 Applications

Physical Virtual Physical Virtual

Windows/Linux Windows/Linux Unix

% of portfolio % of portfolio % of portfolio % of portfolio

Filter based on application,

database, platform, utilization, etc.

1

2

4

Platinum Gold Sliver Bronze

Determine service tier. 3


Recommendations


Platform

Value

Recommendations

Cloud is a disruptive force; not a technology. Use this disruption to help clients move faster, and modernize.

► Clients do not yet understand the value of using a enterprise level partner for cloud; help them see significant value in exchange for marginal cost difference (e.g., Service Integration, SLAs, liability).

► Accept that hybrid, multi-sourced models are the new norm. Creating ITSM and orchestration layers to sit on top of this model is key.

► Clients do not yet fully appreciate the linkage between shared platforms and staying modern; key strategic benefit.

► Analytics generally inherent in shared platforms; key strategic benefit.

► For shared platforms, full transparency is key; this applies to external audits, pricing and operations. Provide web 2.0 forum for customers.

References

► Provide tangible, client-driven examples of how cloud technology can speed up operations, especially in upgrade avoidance and OS provisioning.

► Provide cost savings or cost avoidance case studies; reference-ready clients with production examples key.


Let’s Talk…

►As long as we’ve met, I’ll accept!

►@stantonmjones

►Blog on Consider the Source focused on how emerging technology is impacting the broader sourcing market

► [email protected]

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