Impact of Cloud Computing as an Alternate Channel on Indian IT

Company/Industry
Research Objective
As per Gartner (2010 report), the total Cloud business is $30 Billion and India has a capability to garner
around $7 Billion due to its IT horsepower and a strong base for Independent Software Vendors (ISVs).So
we see that there is a lot what ISVs can do with cloud. My Research Project will look at the possible
options with ISV & other channel partners and how they would need to change their operations in the
new Techno-Economic environment so as to reap the benefits for themselves and society.

Scope of Project
The project start by clarifying what is Cloud and how it impacts the Enterprises and Small-Medium
Business (SMB) organizations. It will later look at the various researches already done in this segment
and identify various opportunities for ISVs to expand their business/operations. And finally we will also
try to showcase the need of a strong channel-partner method of operation in the advent of Cloud
Computing / Software as a Service (SaaS).

Proposed Methodology
The methodology adopted here will be to review the various researches available and draw a conclusion
around it.
Introduction/Background to the Project
Cloud Computing makes computer infrastructure and services available "on-need" basis. The computing
infrastructure could include hard disk, development platform, database, computing power or complete
software applications. To access these resources from the cloud vendors, organizations do not need to
make any large scale capital expenditures. The billing model of cloud computing is similar to the
electricity payment that we do on the basis of usage. 1

Cloud computing represents a substantial change in how information technology systems are used, sold,
and built. Economic pressures have forced companies to look into a new model of providing IT services.
Instead of building servers and datacenters supported by a significant number of highly trained staff and
increasing power costs, organizations are looking to outside firms to take away the pain and provide the
services they need. Users access IT services in a more distributed, location agnostic manner, which plays
into the hands of enterprise mobility. While the cloud concept has had many names (utility computing,
grid computing and distributed computing etc), clearly devices, services and software are now at a point
where the concept, in tandem with enterprise virtualization implementations, are starting to become a
reality.

The following table represents the different layers in the cloud:

Consists of computer hardware and/or computer software that relies on cloud computing for application delivery
Client
Examples: POS, phones and other devices, operating systems and browsers
Client

Deliver software as a service over the Internet, eliminating the need to install and run the application on the
customer's own computers
Application
Application
SaaS BPOS, Zoho CRM
SaaS

Deliver a computing platform and/or solution stack as a service, often consuming cloud infrastructure and
sustaining cloud applications.
Platform
Platform
PaaS Windows/SQL Azure, Salesforce.com
PaaS

Delivers computer infrastructure, typically a platform virtualization environment as a service

Infrastructure
Infrastructure Azure, Amazon AWS
IaaS
IaaS

Consists of computer hardware and/or computer software products that are specifically designed for the delivery
Server
of cloud services, including multi-core processors, cloud-specific operating systems and combined offerings
Server

In their research named SaaS Channel Research, Part 1: Subtle, Deadly Change for ISV Channel
Partners?3 published in April 2009 Sagutak Technology has stated that Software as a Service (SaaS) and
Cloud Computing are disrupting the business model of traditional ISV channel partners. Their research
shows that many of these channel partners are in danger, while those who succeed will do so by
embracing the SaaS/Cloud model, even to the extent of beginning to resemble SaaS/Cloud providers
themselves.

Their research into buyer preferences indicates that the channel is critical to the continued growth of
SaaS. This is particularly true for SMB buyers, who show a marked preference for buying IT, including
SaaS, through channels rather than directly from vendors.

Because of the importance of reaching new customers – and supporting them – to the growth of
SaaS/Cloud (particularly in the uncertain economic climate), they believe that we will be seeing a strong
increase in channel-focused outreach, positioning and marketing by SaaS/Cloud providers. These
providers will be looking to build out strong partner ecosystems and will look to appeal to the channel
by offering healthy margins, billing support and connections to a plethora of potential solution partners
– as well as potential customers.

In other report named A Slice ofSaaS: Worldwide Channel Preferences Show Mainstream Trends 4 in
March 2009 we find that US buyers overwhelmingly prefer to buy direct from SaaS providers, while
European and Asian buyers overwhelmingly choose to acquire SaaS through IT consultancies.

Saugatuck has detailed the rapid evolution and acceptance of SaaS into mainstream IT since mid-2008,
beginning with their Strategic Research Report SRR-460, “EnterpriseReady, or Not – SaaS Enters the
Mainstream,”5 published 10 July 2008.
In such an environment, SaaS providers need to develop ever-more-advanced (and reliable) enterprise-
ready SaaS solution and platform capabilities. And they must do so in an economic environment that
stifles much spending on research and development. As such, the roles of channel partners become
much more significant in these times. VARs, SIs and consultancies have the expertise to develop, sell,
and implement market-specific solutions at much lower costs than most SaaS providers. Of course,
channel partners themselves will have to adapt business models as well. For many, this means building
value-added extensions that meet industry-specific business requirement, around or on top of existing
SaaS applications or providing specialized business services in addition to the base service (please see
Saugatuck Strategic Perspective MKT-517, “SaaS-mic Shift for Channel Partners, published 22 Oct.
2008)6.

But what types of value-added service offerings will be most compelling in the SaaS cloud world?

Research from Saugatuck Global SaaS Survey 7 suggests that these offerings fall into two categories:
domain expertise-based services and IT management-based services. Based on this research, Saugatuck
suggests that over time, channel partners will choose one of these two areas as the foundation on which
to differentiate their value and their services – choosing either to develop horizontal or vertical domain
expertise, or to develop a capability to manage a portfolio of SaaS offerings on behalf of their customer
base.

This shift in business model on the part of the channel partners will have deep and lasting implications
for the IT ecosystem, as the “balance of power” between service provider and channel partner with
regard to who is truly providing the business value will be permanently altered.

With these reports and information taking into consideration this paper will look further more on the
play that channel partners and ISVs can have in the changing techno-economic climate.

What is Cloud?
Cloud computing is a model forenabling convenient, on-demandnetwork access to a shared pool
ofconfigurable computing resources (forexample, networks, servers, storage,applications, and services)
that canbe rapidly provisioned and releasedwith minimal management effortor service-provider
interaction. According to NIST8cloud consists of five essentialcharacteristic. These characteristics give a
salient set of reasons why a consumer would want to move to the cloud.

On-demand self-service.A consumercan unilaterally provision computingcapabilities, such as

servertimeand network storage, as neededautomatically without requiring humaninteraction with each
service’s provider.

Broad network access. Capabilities areavailable over the network and accessedthrough standard
mechanisms thatpromote use by heterogeneous thinor thick client platforms (for example,mobile
phones, laptops, and PDAs).
Resource pooling. The provider’scomputing resources are pooled to servemultiple consumers using a
multitenantmodel, with different physical andvirtual resources dynamically assignedand reassigned
according to consumerdemand. There is a sense of locationindependence in that the customergenerally
has no control or knowledgeover the exact location of the providedresources but may be able to
specifylocation at a higher level of abstraction(for example, country, state, or datacenter). Examples of
resources includestorage, processing, memory, networkbandwidth, and virtual machines.

Rapid elasticity. Capabilities can berapidly and elastically provisioned, insome cases automatically, to
quicklyscale out and rapidly released toquickly scale in. To the consumer, thecapabilities available for
provisioningoften appear to be unlimited and can bepurchased in any quantity at any time.

Measured service. Cloud systemsautomatically control and optimizeresource use by leveraging a

meteringcapability at some level of abstractionappropriate to the type of service(for example, storage,
processing,bandwidth, and active user accounts).Resource usage can be monitored,controlled, and
reported, providingtransparency for both the provider andconsumer of the utilized service.

Cloud Service Model

A cloud service system is aset of elements that facilitate the development of cloud applications.The
three service model elements should be deployed in a cloud environment with the essential
characteristics inorder to achieve a desired cloud state.
Business Opportunities for organizations
According to Seanan Murphy and Wagdy Samir 9 Service providers (SPs) recently have faced a decline in
core revenues, such as those generated by analogue voice and legacy packet data services, in business
markets. Hence, they have started to move into information technology (IT) service adjacencies such as
data centre operations, unified communications and security. As SPs move into these adjacencies, ‘in
the cloud’ SPs — offering everything-as-a-service and taking advantage of massive-scale, web-hardened
technologies — target transaction costs associated with IT services contracts and realize scaling
economies to change the cost basis of competition and force viable competitors, including Service
Providers, to respond. This shift towards web-hardened technologies is enhancing fluidity (fluid
machines, fluid applications, fluid processes and fluid data), making IT readily accessible across the globe
and changing customer expectations. Fluidity enabled through more flexible and physically available
networks addresses key technology inefficiencies, allowing computing, storage, network, application,
process and data resources to flow to where they are needed. The shift makes it possible for companies
to achieve truly global collaboration, as well as greater productivity and efficiency, from key inputs such
as information, labour and computing assets. The rise of fluidity creates a unique opportunity for Service
Providers to compete in new ways employing network capabilities and other assets to sidestep IT service
providers.
A report from research firm AMI-Partners 10 found the rapid growth of cloud computing is making it
much easier for small to medium-size business channel partners to provide a broader range of offerings
on a 24/7 basis at a lower cost and with fewer IT staff, including services such as SaaS and managed IT
services. The report predicted that as a result, SMB channel partners could lose more than 200,000 IT
jobs over the next decade.

According to AMI-Partners’ Cloud Computing Research studies, SMB channel partners will play a critical
role in bringing cloud-based services to SMBs in the early years. However, as large companies scale up
cloud-based offerings in coming years, they will make greater use of automation, reducing the need for
IT staff employed by local channel partners, who have traditionally dominated SMB market spending,
leading to significant attrition and consolidation in the industry.

Cloud computing cuts two ways for small SMB channel partners:

a) It allows them to offer new kinds of services and solutions to their SMB customers without
having to incur high initial capital expenditures.
b) The automated service delivery via the cloud will also reduce the need for internal IT staff. The
new providers target buyers’ economic costs and — through the sharing of computing, storage,
applications, processes and even data — create scaling economies.

Sources: Gartner, 2004 to 2010 forecast; Ovum (2005); SP Systems Engineering; Cisco IBSG (2007)

FIG 1 New opportunities for network service providers

The DNA of IT service is quite different from that of the connectivity services offered by Service
Providers, and competition in some markets is intense. Although data centre services and application
management services experience the greatest amount of growth, these markets are not easy to enter.
Service Providers must offer enterprise customers a value proposition that is superior to both the ‘do-it-
yourself’ (DIY) approach and to incumbent IT service providers’ experience and capabilities. In other
words, Service Providers must find a way to deliver more value at a better price while at the same time
building brand, a channel, repeatable methods and tools, and economies of labour. Traditionally, such
services are low-margin, primarily due to the DIY competition, which requires a provider to offer
essentially the same service for less than an enterprise could do it internally. This provides few
opportunities to realise scaling economies across customers, as most IT environments are not shared,
but isolated islands of disaggregation.

Source: Cisco IBSG (2008)

Figure 2: Competitive landscape for telecommunications and IT service providers

Clouds provide a powerful—and often otherwise unattainable—IT infrastructure at a modest cost. In

addition, they free individuals and small businesses from worries about quick obsolescence and a lack of
flexibility. Yet, at the same time, large organizations can consolidate their IT infrastructure across
distributed locations. Even government entities can benefit by enabling services to consumers on a
shared basis. In some cases, cloud-based computing grids enable research that simply wasn’t possible in
the past.

Cloud computing could “level the playing field,” says World Wide Web Foundation’s Steve Bratt,
“because it breaks down barriers to entry.”
Even more remarkable is how clouds connect developers all over the world to technology and markets
that would have been entirely out of bounds in the past. The New York Times recently reported that
Wilfred Mworia, a 22-year-old developer in Nairobi, Kenya, built an iPhone app using only an online
iPhone simulator (iPhone service isn’t available in Kenya), which he can sell all over the world.

As geography becomes irrelevant, further changes will occur. In fact, both developed and developing
nations will benefit through cloud-based software as a service model. A software product developed in
the USA can be extended and supported by a developer in another place, such as Uganda, and software
can be purchased at a lower cost by eliminating components that are not relevant to a developing
country’s needs.

We have seen advent of Google Docs which has given a lot of benefits to users who do not have access
to latest software. And now Microsoft has given free access to its Office Suite by introducing Office Web
Apps. With this now the most beneficiary is the end user. They have plethora of choices to choose from
and the big enterprises are now struggling as their profit margins are reducing due to low barriers of
entry.

To help them keep winning the companies are working on developing their partner base so that they
can be more agile and competitive. Their idea is to provide as many options as possible to their
customers though their wide network of partners. They are collaborating with big Telcos who can
provide better connectivity while they are also connected with small developers who can use their basic
software to build application to be consumed on the cloud. This is a WIN-WIN situation for all parties
involved in the business. Now instead of one organization eating the BIG PIE alone there are small
organizations working together to capture as BIG as possible the PIE to be shared among themselves.

The big enterprises like Microsoft, Google, and Amazon are working to define their strategy to capitalize
the new market of SMBs.

Microsoft is providing partners with business planning tools that will help develop solutions and
strategies for capturing customers in different market segments (SMB to enterprise). It’s also launching
Partner Profitability Modeler, an online tool for determining the financial position of new cloud
computing opportunities and estimating three-year profit/loss, revenue and investment costs. To
accelerate cloud computing adoption, Microsoft is providing partners with its new Cloud Essentials Pack,
a one-year subscription for training on Microsoft cloud solutions, technical and sales support, and
licenses for internal use of cloud applications.

According to Steve Wexler11 Half of IBM's partners rated the cloud as a leading driver of profitability over
the next two years. A recent survey reported that 50 percent of respondents believe cloud computing
will be a leading driver of profitability over the next two years, says Sandy Carter, vice president of IBM
software channels. And the same percentage ranked consulting services as their top cloud opportunity.
She says IDC data backs up the opportunity, predicting that the total IT spend on cloud computing will
reach $44.2 billion in 2013 -- about 10 percent of the total IT spend worldwide. IDC estimates $17.4
billion was last year spent on cloud-based services for server, storage, systems infrastructure,
applications development, and enterprise application resources.
The current economic condition is also support the advent of cloud. Early results from IT research firm
AMI-Partners’12 World Wide Cloud Services study indicated small to medium-size businesses are rapidly
adopting a variety of cloud services consistent with their stated intentions over the past 12-18 months.
The study concluded with the economic situation still in a state of flux particularly across North America
and Europe, cloud services are well positioned as a cost-effective strategy that not only reduces costs
but also enables greater SMB agility. The study confirms CRM (customer relationship management),
payroll, accounting/financials and Web-conferencing tend to be the leading applications currently used
in the cloud.

RMITS (remote managed IT services), SAAS and Web/video conferencing are the highest-growth
components within the cloud, with more than 20 percent CAGR each, AMI research discovered. “The
SMB ICT landscape will get a makeover during the next 5-7 years, as new entrants and new services
claim a piece of the total ICT spending pie,” Sahni said. “In several instances we are seeing SMBs adding
new ICT capabilities (and expanding the total spending pie) because the cloud makes them more
affordable and easy to deploy, especially CRM.”

References:

1. Cloud Computing Tutorial

http://thecloudtutorial.com/

2. What Does Cloud Computing Really Mean for the Enterprise and Mobility?
http://www.strategyanalytics.com/default.aspx?mod=ReportAbstractViewer&a0=4263

3. SaaS Channel Research, Part 1: Subtle, Deadly Change for ISV Channel Partners?
http://www.researchandmarkets.com/research/aee176/saas_channel_resea

4. A Slice of SaaS: Worldwide Channel Preferences Show Mainstream Trends

http://research.saugatech.com/fr/researchalerts/570RA.pdf

5. Enterprise Ready, or Not – SaaS Enters the Mainstream

http://www.researchandmarkets.com/reportinfo.asp?report_id=613816

6. SaaS-mic Shift for Channel Partners

http://www.researchandmarkets.com/reports/659942/saas_mic_shift_for_channel_partners.ht
m

7. SaaS Channel Research, Part 2: How Can ISV Channel Partners Differentiate in the Brave
New SaaS/Cloud World?
http://www.researchandmarkets.com/reportinfo.asp?report_id=903327
8. The NIST Definition of Cloud Computing
By: Mell, Peter; Grance, Tim. Communications of the ACM, Jun2010, Vol. 53 Issue 6, p50-50,
2/3p; Abstract: A glossary of jargon related to cloud computing is presented.; (AN 51189663)
http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=51189663&site=ehost-live

9. In the cloud' IT creates new opportunities for network service providers.

Authors: Murphy, Seanan Samir, Wagdy
Source: Journal of Telecommunications Management; 2009, Vol. 2 Issue 2, p107-120, 14p, 5
Diagrams, 1 Chart, 4 Graphs
http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=43734943&site=ehost-live
http://www.cisco.com/web/about/ac79/docs/tl/Third_Generation_WP_FINALFINAL.pdf

10. Channel Looks to the Cloud as Microsoft Courts SMB Partners

http://www.channelinsider.com/c/a/Cloud-Computing/Channel-Looks-to-the-Cloud-as-
Microsoft-Courts-SMB-Partners-723540/
http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=52303641&site=ehost-live

11. Clouds Reign On IBM Channel Parade

Channel Insider; 2/19/2010, p1-1, 1p
http://www.channelinsider.com/c/a/IBM/Clouds-Reign-On-IBM-Channel-Parade-349625/

12. Cloud Services Momentum on Track Among SMBs, Report Finds

http://www.channelinsider.com/c/a/Cloud-Computing/Cloud-Services-Momentum-on-Track-
Among-SMBs-Report-Finds-306761/