ARN Roundtable - Cloud Evolution and the ongoing journey

As Cloud goes mainstream - what are the key challenges for the channel?
ARN and rhipe’s Roundtable attendees from (L): Luke Power (Intel Security), Dawn Edmonds (rhipe), David Nicol (Citrix), Jennifer O’Brien (ARN), David Gage (Microsoft), Allan Swann (ARN), Warren Nolan (Rhipe), Colin Garro (RedHat), Don Williams (Veeam), Carolyn Agombar (Rhipe), Geoffrey Nicholas (Enspire Australia), Sean Bishop (Harbour IT), John Donovan (VMware), Dan Wright (Regional IT)

ARN and rhipe’s Roundtable attendees from (L): Luke Power (Intel Security), Dawn Edmonds (rhipe), David Nicol (Citrix), Jennifer O’Brien (ARN), David Gage (Microsoft), Allan Swann (ARN), Warren Nolan (Rhipe), Colin Garro (RedHat), Don Williams (Veeam), Carolyn Agombar (Rhipe), Geoffrey Nicholas (Enspire Australia), Sean Bishop (Harbour IT), John Donovan (VMware), Dan Wright (Regional IT)

Australia’s Cloud market has reached mainstream adoption far faster than anticipated. ARN’s latest roundtable 'Cloud Evolution and the ongoing journey' set out to answer the question, where to from here?

The roundtable was held at Jonah’s Restaurant in Whale Beach on Sydney’s northern peninsula, and was sponsored by rhipe (formerly Newlease). Guests were flown up by Sydney Seaplanes to discuss the future of the Cloud market, as it rapidly becomes the de facto infrastructure standard for many Australian businesses, and has vast repercussions for the channel. The concept of Cloud computing has quickly evolved from the early days of simple grid computing, to encapsulate utility computing and software-as-a-service (SaaS).

Today, this emerging model means users can access their applications from anywhere, any time, through their connected devices.

The full pictorial slideshow of the event can be found here.


Partners and MSPs that were quick off the mark – those that got in early and built Cloud services - are already reaping the rewards and have built the strategies to safeguard against the risks. Equally exciting are the new ‘born in the Cloud’ partners, who are keen to capture a piece of the market and differentiate from competitors.

The iPad and iPhone generation won’t tolerate downtime, and have no tolerance for slow load times and poor user experience interfaces. What was acceptable 10 years ago, in the nascent Cloud market, is not acceptable now, according to Enspire CEO, Geoffrey Nicholas.

His company built its first datacentre in 2005, a single HP Box in a datacentre in Collins Street, Melbourne. Customers loved it.

“What we found was that was a better solution than what our customers had. If we went to market with that strategy today we just wouldn’t sell anything. I mean we’ve got to have a fully redundant environment; uptime is enormous. You just can’t underestimate what was acceptable then is just not acceptable now,” Nicholas said.

“I would hate to be trying to break into the Cloud service provider market now. It was so much easier in 2005. We didn’t have the tools that we have today, seven, eight, nine years ago, but the customer expectations demand it.

“People will come and they will look at our datacentre, they don’t care what sits behind it whether it’s Hyper-V or VMware, whether we’re replicating with Veeam… they just want to know they can get their data back if they need to. In our solution we’ve got to be able to have something on the site that can actually drop the VM in their environment. Security is also really, really important for them, alongside accessing old data. If something happens to Enspire or there’s a disaster in Melbourne and the ASX building that we’re in just goes offline, those are the sort of things that are really driving the customer behaviour now.”

Newcastle-based Regional IT managing director, Dan Wright, agreed that Cloud has gone mainstream, and customers’ Cloud solution demands are becoming more sophisticated.

“I think a lot of them are well and truly on to the Cloud, whether they’ve done their own research or not, they’re well and truly onto the fact that they need to make the move. Customers are even saying to us ‘we need a hybrid Cloud model’. There are a lot of areas where we’re working where broadband isn’t that great, so they want some kind of model where it can be resilient – so if the broadband is down they can still access their information. The customers - particularly a lot of our customers that we wouldn’t expect to be fairly advanced - have grown and they understand and expect that it’s going to be an element of whatever we deliver,” Wright said.

Has Cloud adoption been in-line with expectations, or faster or slower than expected?

“My gut feeling is that it has been a faster adoption than we probably would have anticipated if we were sitting here 12 months or 24 months ago,” Microsoft’s director of small and midmarket solutions and partners, David Gage, said.

“There’s no question Cloud is now mainstream. It’s not an advertisement, but if you want a proof point around the scale that they’re seeing - Office 365 has had 21 quarters of triple digit growth. Azure has had 16 quarters of triple digit growth. And when you get to that point the law of small numbers does not apply. You’re talking massive stakes. It’s a significant business now and I think that the acceleration that we’re seeing it surprised me.”

RedHat’s Australian sales director, Colin Garro, agreed.

“Cloud is now mainstream in Australia and it will continue to grow. A survey done by IDC said that Cloud computing will now grow six times faster than traditional enterprise IT. Those numbers are irrefutable now.”

Citrix’s director of field sales, David Nicol, observed the market had changed fundamentally. “From our observations, starting with small business and now progressing to larger businesses and organisations, is the recognition that doing it themselves, particularly for core infrastructure, doesn’t make a lot of sense,” Nicol said.

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This level of Cloud sophistication in the market has surpassed industry expectations and made Australia one of the most advanced Cloud markets in the world. As a result, the conversations the channel is having with their business partners have changed rapidly.

IT managers and their departments are being cut out of the loop, and increasingly conversations are with C-level executives.

“We’re finding as products evolve and the technology becomes a lot better that the IT companies are shrinking; there’s certainly very little hiring going on. It’s much more of a business conversation now than an IT conversation,” Wright said.

“The owners of the business typically would just say ‘look, we know we need to do it.’ It does come back to that consumption model versus the upfront cost.

“It’s a fraction of the price of refreshing three or four servers, and then you just pay per user, per month. So that’s typically what’s driving it. Funny, people think it’s all about price but it’s not. If you can demonstrate the value around the redundancy, potentially a reduction in headcount, and it’s not necessarily just ‘I’m saving money’, you just don’t need to worry about it. You’re outsourcing that worry about your IT to us, that’s what we do. We are the experts.”


Sean Bishop, director of Melbourne-based Harbour IT, added a big selling point for these customers is passing on that risk – which also means that Service Level Agreements (SLAs) have to be tighter than ever before. That alone can be the differentiator between success and failure.

“On face value we can all look the same, but when customers start doing their due diligence they employ a company to do risk management,” he said. “Then of course you’ve got your SLAs – and they’re getting all legal. I mean there’s a lot more legal involved.”

Rhipe senior vice-president of strategic alliances, Warren Nolan, said getting the SLA right up front, can save problems later, and even open up new opportunities for sales.

“Touching on the SLA, once you’ve managed to take more and more workload on as a result of actually meeting an initial SLA commitment, such as around email, you are then able to meet those cost savings, they are more productive. You create those efficiencies, lower the cost, get the opex going and then as a result those larger clients bring more and more workloads to you,” Nolan said.


One thing remains a constant, and that is ensuring you have the right people to reach out to your customers, be they sales, support or tech. Rhipe COO, Dawn Edmonds, said the modern Cloud service provider needs to ensure it has the right company culture in place. “It’s still about getting the right people, the right processes in place and even the culture. But how do you do that? Look at your focus in terms of your recruitment drive and people management,” she said.

This is especially important for the incumbents when dealing with the new players on the market, which has created a far more competitive and cutthroat environment. Older MSPs looking to make the transition often don’t have the discipline or professionalism to beat rivals – often customers assume that anyone and everyone can provide Cloud, Edmonds said.

Veeam vice-president of APAC and Japan, Don Williams, claimed in the Australian market, trusted relationships are absolutely key.

“The thing that differentiates us from our other competitors is that we put a big emphasis on that relationship. Sure the technology might be the same environment and it may be very similar outcomes, but it’s that relationship that we’ve had. You can call us at all hours. We’re mates. We go to each other’s kid’s birthday parties and all that kind of thing, so you’ve got to have that relationship with a customer that is really strong,” he said.

Gage agreed, with some caveats. The relationships of the past are changing quickly.

“The fact is, over 50 per cent of IT purchases are now made by non-IT people. Some of our partners feel like they are the trusted adviser to the IT contact, but the IT contact no longer has a budget, so those decisions are going elsewhere. We are seeing new partners emerge in some of our customers because the existing partner doesn’t necessarily have the relationship with the CMO or the CEO. I think that there is a risk to some of our partners that still have the perception that ‘It’s okay I’ve a trusted relationship with the IT manager or the CIO,” he said.

VMware director of channel sales, John Donovan, said the changing pace of technology adoption has caught a lot of companies off guard, including vendors.

“It’s changing so rapidly, and constantly, that I’m wondering what sort of pressures that places on businesses. Organisations like VMware and Microsoft and others create these massive public Cloud infrastructures, and then invest heavily in the service provider community, and then invest heavily in the technology that sits behind all of that as well,” he said.

Nicholas agreed, noting that one of the major pressures on any business, especially the smaller ones, is keeping staff up to speed.

“We’re still a small business so it places a lot of pressure on us, but also makes your staff so much more valuable and the training you invest in them. We’ve changed our cycle of not just attracting people into that business, but also rewarding them and retaining them and the training is so critical. It’s just about trying to keep everyone current. The effort to get guys to go and study – in their own time or by giving them time off, is a real challenge, just to keep them up to date,” he said.

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This is even a problem at the management level of partner businesses themselves - put simply, many of these operators don’t have the business acumen, the will, or the funding to completely restructure their business overnight. As Nolan puts it, “It’s not just about running IT, it’s about running a business.”

“Some of the partners that we’re seeing fall over are not necessarily delivering a bad service, they’re not necessarily delivering a bad product, they just don’t know how to run a business where they’ve changed from big lumps of revenue to incremental month on month revenue. It is a different business to try and run and make a profit,” Nolan said.

“Let’s face it, some IT professionals who are really, really good at what they do are not necessarily the best business managers in the world. It’s not just about the revenue coming in, it’s the cost to going out as well. So if you’re a system integrator that has just resourced stuff when you had a big sale, and then when those resources are thrown in on a contract basis - when you’re providing a month to month service - you’ve got to have all those resources on call all the time so those upfront costs are there.”

The transition period is the most difficult, often requiring businesses to run on little to no margin until the business has been transformed. Nicholas said it is almost like running two businesses side by side.

“You’re running your traditional managed services business on one side, and perhaps eight years ago that was 80 per cent of your revenue. Today, it’s just 20 per cent and Cloud is 80 per cent, but you still want to hang onto that 20 per cent because you know that one day they will come over and you are their trusted advisor,” he said.

“There’s no doubt that once you’re there, the new model is much more profitable – and stable," Gage said.

“It’s that transition period that’s critical. It’s irrefutable that it’s a more profitable business model because you’ve got that annuity revenue, you’ve got that short turn drop in revenue, but you move away from that, the peaks and troughs associated with a traditional services disappear and you end up with a more valuable business,” he said.

Nicol agreed that it’s a huge opportunity for those that want to seize the day – locking customers to long term, valuable contracts – especially when transferring customers to the Cloud.

“The services transition of the customer either from an on-premise to a Cloud, or from another provider to your service, either that’s a services opportunity or an opportunity to get the customer committed to a multi-year contract as part of you delivering those services to a client. It’s huge,” he said.

“The cost of delivering a Citrix desktop is pretty cheap, but if you add all the services, helpdesk, exchange, or whatever it might be, that’s a much more significant service. That’s where your money is.”

Red Hat’s Garro said the change is an important one, and has kept the market on its toes.

“That’s a good thing for all of us because we’re delivering more value to the customer and you don’t have that level of complacency that comes with three years until refresh. So we’re all on the hook whether you’re a vendor, partner, or distributor. I think we’re delivering more value today than we were in the old days.”

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In a market that changes so rapidly, keeping on top of the latest trends is a key part of running a Cloud service provider based business. Nicholas said that his company spends around 20-25 per cent of its revenue in R&D.

“If I was just running a business to make a profit I could probably do with about four or five less resources than we have, but I’m going to stay at the forefront. And one of the benefits is that, typically, it took three to four months to bring a client in if I go back even five or six years ago, now we can actually bring a client in, in about three weeks,” he said.

The iPad and iPhone generation aren’t making it any easier for CSPs - not only are they demanding more, and quicker, the experience has to be seamless and the end product of a much higher quality. Cloud also means scaling and migration has to be easier. This means the trusted advisor has to be more on the ball, Donovan said.


What is changing is the approach - Cloud’s former ‘all or nothing’ approach is unrealistic. By the same token, ‘going back’ is not an option. Most clients beyond SMBs have on-premise systems to match their offsite Cloud needs. ARN’s attendees all agreed that Hybrid is becoming the de facto standard.

“We’ve never seen so many lawyers involved in contracts as we have now as people shift to on premise environments. That’s not a bad thing because it means that they’re not being bedazzled by the technology, they think about commercial legalities and how solid the infrastructure actually is. On that basis I don’t think stuff will go backwards,” Donovan said.

“People will most likely lose some workloads in some environments because of poor planning, for example, but I think because everyone at this table represents the really large companies, they’re critically involved in how this stuff works, there’s a tremendous amount of experience.”

Intel security’s ANZ channel sales director, Luke Power, agrees - nobody is going back. All security discussions now involve Cloud in some aspect.

“Look at risk management, we have all different types of risk management companies that contact us every day around the type of solutions they can provide, and their security vulnerabilities. I can’t see it going backwards based on some of the conversations we have with those guys,” he said.

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All of these market challenges have seen a year of unprecedented consolidation, as multi-national distributors and resellers look for local partners with expertise, vendors look for ways to fill the holes in their offerings and, in a dog eat dog world, others simply go out of business.

Microsoft’s David Gage believes it comes back to something more than just that basic metric - market share.

“I think it’s about capability. I think there are partners out there that recognise that potentially they haven’t moved as fast as they would have liked to if they had their time over. They’re looking to acquire the capability because they recognise for them to build it themselves it’s going to take too long,” he said.

Harbour IT’s Sean Bishop said his company is approached to buy, or be bought around once a month at the moment.

“There’s just so much activity happening out in the marketplace. And it is almost by necessity. So I think if you stay small you’re just going to be gobbled up. You’ll just disappear. You’ll become irrelevant. There’s so many big players moving in now and so many of the large SIs are just taking over. It’s hard to compete,” he said.

Interestingly, it can also be some of the smaller, more dynamic players that are disrupting the market, according to Gage.

“What we’re seeing is that there are some small ‘born in the Cloud’ partners that are selling significant size deals to major enterprise customers. They’re not necessarily that classic trusted advisor,” he said.

“Some of the smallest, most disruptive players, that are most forward thinking, are the most attractive targets getting pretty decent priced offers,” he said.

Enspire has also seen multiple approaches from larger parties.

“We want size. So if we can find someone that doesn’t have a Cloud offering, we’re looking to sell,” Geoffrey Nicholas said.

“Two of the people we’ve spoken to I’ve sort of turned away. They didn’t focus on people; they didn’t focus on our customers. I didn’t go into business to just make money, I mean I’ve got to have fun. I want to look after my team and I want to look after my customers that I’ve known for 10-plus years. I won’t sell them out to someone who’s just going to take advantage of them.

“We want to do something, and I have seen a lot of the MSPs that haven’t moved to Cloud - they’re dead in the water. If you haven’t made that transition I think you’re dead.”

Allan Swann is the Editor of ARN, published by IDG Communications Australia. Follow Allan on Twitter @allanswann, and at Google+.