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The CSP Opportunity for Cloud Computing Services

Reference Code: OT00084-009 Publication Date: January 2012 Author: Peter Hall

In a nutshell
Cloud computing provides an important opportunity for enterprise communications service providers (CSPs) to draw on and extend their existing capabilities and strengths to generate new revenues and increase their customer base. However, cloud computing is becoming a highly competitive market and CSPs must deliver high-quality, business-grade services to differentiate themselves from low-cost commodity cloud computing providers. This means great care must be taken in the design and planning of the cloud service to ensure that services can be delivered and managed cost-effectively and to high service levels. Choosing the right vendor partners is important for CSPs that want to own their own infrastructure as this can have a big impact on the complexity of the cloud enablement process, the flexibility of the infrastructure to offer competitive services, and the time-to-market for offering new services. Additionally, a wholesale market is developing, which can be an attractive alternative for CSPs that want to go to market quickly but have more limited skills or lack access to capital investment.

Ovum view
Despite considerable industry hype, cloud computing is a powerful model for IT delivery that is able to deliver important benefits for enterprises, including much faster deployment of IT resources for new projects and savings in IT costs. The cloud computing opportunity for CSPs is wide ranging, and both software as a service (SaaS) and infrastructure as a service (IaaS) are key market opportunities that are highly relevant to CSPs. In fact, many CSPs will have been offering communications-based SaaS solutions such as WebEx for many years and now have the
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opportunity to position themselves as a one-stop shop for SMEs across a broad range of business applications via an SaaS model. Communications-based SaaS solutions, often now referred to as CaaS (communications as a service), will become an important component of the SaaS market for all CSPs. IaaS will be a key component of the proposition for most CSPs entering the cloud computing market and this places great demands on the infrastructure, management systems, portals, and billing processes. Leading global CSPs went early to market with IaaS offerings and have largely built the cloud environment in-house using best-of-breed vendors for individual components. This was a lengthy process, and it was common to spend 18 months and considerable resource to get a solution to market and further time to realize the full capabilities of cloud computing with a selfservice portal and automated provisioning. Time to market is now key and fortunately CSPs going to market with cloud computing today can greatly reduce this time through close vendor technology partnerships and adoption of a converged infrastructure.

Key messages
The cloud computing model is already demonstrating its potential to transform the delivery of enterprise IT. However, despite the hype, some important components of the market are still at an early stage of development, and this represents an important opportunity for CSPs to gain market entry before growth steps up a gear. While the early movers in the CSP community launched their first cloud computing offerings up to three years ago, new CSP market entrants still have an opportunity to introduce services and establish their market presence while the market is still in an early growth phase. CSPs have an important opportunity in the provision of cloud computing services to broaden and deepen their enterprise customer relationships. However, enabling and delivering cloud computing services is a complex undertaking, and CSPs that are contemplating a cloud computing proposition should have very clear objectives and draw on the considerable industry expertise that is available to new players to secure successful and early market entry. Local/national CSPs have a role to play alongside the regional/global service providers that have been early movers in the market. Local/national CSPs can play a number of roles in the market for cloud services, including that of trusted supplier of enterprise-grade services to SMEs and national enterprises and/or as a provider of wholesale cloud services to other CSPs and channel partners.

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CSPs face considerable challenges in moving to a cloud-based delivery model. Much has been made of the ability of CSPs to leverage their existing assets when it comes to offering cloud services. However, while CSPs' assets do provide them with key advantages, CSPs will face a number of significant challenges. These include a lack of brand strength and experience in the supply, management, and support of IT services, together with the need to develop or enable a flexible and efficient cloud delivery environment. IT vendors have an important part to play as technology partners in enabling CSP cloud services and as go-to-market partners. Many CSPs will not be able to develop their own cloud services due to a lack of the requisite skills and resources. However, to be successful in the cloud computing market, CSPs will need to quickly establish themselves and build the scale of their offerings as the market grows. Therefore, CSPs should look to take advantage of vendors' expertise by utilizing their cloud enablement services or establishing go-to-market partnerships in order to quickly establish themselves in the market. Rapid service enablement is essential to early market entry. The sooner that CSPs can develop and deliver their cloud offerings, the sooner they will be able to establish themselves in what is already a highly competitive market. Achieving this will require the implementation of a converged cloud infrastructure using standardized building blocks and end-to-end management.

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SUMMARY In a nutshell Ovum view Key messages THE CLOUD COMPUTING MARKET Beyond the hype The "key characteristics" of cloud computing place considerable demands on infrastructure A highly competitive market THE CSP OPPORTUNITY IN CLOUD COMPUTING IaaS provider Reseller or aggregator of SaaS Wholesale opportunity Communications as a service Professional services An opportunity for domestic and local CSPs CSP STRENGTHS IN CLOUD COMPUTING Leveraging CSP strengths and assets The critical role of the network ENABLING CSP CLOUD SERVICES Approaches to cloud enablement The self-service portal Billing for cloud services The importance of end-to-end management APPENDIX Methodology
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Further reading Author Ovum Consulting Disclaimer

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Figure 1: The cloud computing model

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Beyond the hype
Despite the early hype around cloud computing, there is no doubt that cloud computing will profoundly impact the future of IT in the enterprise. In many respects the term "cloud computing" is too broad, which has led to confusion in the market about its current position and its future. A US body, NIST (National Institute of Standards and Technology), has produced the most widely used definition of cloud computing, which we broadly adopt for this report and have illustrated in Figure 1. NIST identifies three "service models" for cloud computing: software as a service (SaaS) infrastructure as a service (IaaS) platform as a service (PaaS).

Any discussion of cloud computing needs to recognize that these three service models are at different stages of market development. SaaS is the most mature aspect of cloud computing, with salesforce.com one of the best-known SaaS applications now more than ten years old. SaaS enables businesses to use applications that run on a cloud infrastructure. The applications are accessible from various devices (e.g. PCs, smart mobile devices) through a thin client interface such as a web browser. The user does not usually have any control over the cloud infrastructure, although some access to application configuration settings will often be available. SaaS also addresses communications and collaboration applications, which are particularly relevant to CSPs. IaaS is still relatively new by comparison and provides compute and storage resources as an ondemand service. Enterprises of all sizes increasingly view IaaS as a powerful IT delivery model with many benefits. Key among the benefits are a dramatic reduction in time to get IT resources in place for new projects and lower IT operating costs. These translate into important and measurable business benefits for enterprises. Even CIOs who were originally skeptical about the IaaS model (mostly for good reasons) now recognize its potential and the issue for them is more likely to be when, not if, they will make the step into IaaS. In the most developed cloud computing markets, such as the US, we are increasingly seeing new start-up companies basing their entire IT requirements on cloud computing with little internal IT resource or skills. PaaS provides an online development environment by offering computing resources and development tools in the cloud. The platform allows a user to build and test applications and then
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provide the run-time environment for applications to be deployed from the cloud. PaaS is the least likely type of cloud computing capability to be included in a CSP cloud computing portfolio today, as many application developers use specialist cloud platform services based on specific development languages or methodologies. We do not discuss PaaS further in this report for this reason, although we do expect to see some CSPs build services around a PaaS model.

Figure 1: The cloud computing model

Types of service
Software as a service Platform as a service Infrastructure as a service

Essential characteristics
On-demand self-service Broad network access Resource pooling Rapid elasticity Measured service

Cloud computing model

Deployment models Deployment models

Public cloud Private cloud Public cloud Community cloud Virtual private cloud Private cloud Hybrid cloud Public cloud Hybrid cloud Hybrid cloud

Source: Ovum, based on NIST


The "key characteristics" of cloud computing place considerable demands on infrastructure

NIST also defines the "essential characteristics" of cloud computing and "deployment models," as shown in Figure 1. The essential characteristics are what distinguish cloud computing from other hosted services models. Addressing the key characteristics is an essential component of design of infrastructure and management systems for cloud computing platforms. For example, the requirements for on-demand self-service place considerable demands on the cloud infrastructure,
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including customer portals for ordering services, automation of enablement processes, and end-toend management of the entire infrastructure, including compute, storage, security, and the network. The requirement for measured service and rapid elasticity means highly flexible provisioning and billing, which corresponds to the realtime resources consumed and allows service providers to offer creative and differentiated billing models. It is common to see cloud computing services with no setup charges or fixed contract terms. These two elements are quite foreign to CSPs for traditional services such as networking, but are consistent with the prevailing cloud computing market. Broad network access is a key aspect of cloud computing, which not only means standard networking options such as public Internet but also commonly used enterprise-grade networking technologies such as MPLS VPN and carrier Ethernet. While not all customers will want the full flexibility of realtime resource provisioning and elastic services, these are important characteristics of the cloud computing model and are essential to any service that describes itself as such.

A highly competitive market

The various components of the market for public cloud computing services are at different stages of development. The most mature is SaaS, which Ovum forecasts globally at over $40bn in 2016, growing from $15.8bn in 2011 with a CAGR of 21%. IaaS is considerably less developed. We forecast the global IaaS market to be $15bn in 2016, growing from approximately $1.6bn in 2011, and with a considerably higher CAGR at 57%. The SaaS market has a very large number of players, including most of the leading ISVs. The largest players today are salesforce.com and WebEx (Ciscos web conferencing solution), both of which have been in the market for many years. The largest player in the IaaS market is AWS (Amazon Web Services), with almost half of the global market today; other players individually have no more than about 5% of the global market. With only a handful of exceptions, most players are nationally or regionally focused, although many of these have global aspirations. AWS will continue to be a formidable competitor for the lower-value segment of the market, but will also compete strongly for some high-value opportunities. Other competitors will come from a variety of market segments where players have supplemented their core business with an IaaS offer. These segments include managed hosting providers, systems integrators, and CSPs. Hence, competition is diverse and includes global, regional, and national players.
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SaaS provides a rich variety of business applications, and individual players typically have many competitors in their segment of the SaaS market. Also, many of the leading SaaS players have a global market although a large number of niche players address national or regional markets.


There is an opportunity for a wide range of CSPs that have a strong presence in enterprise networking services, a commitment to managed services, and high levels of customer service to offer cloud computing services. In this section we consider some of the key areas of opportunity for CSPs and review the overall dynamics of key components of the cloud computing market.

IaaS provider
IaaS will be key to most CSPs contemplating a position in the cloud computing market, especially as part of a broader strategy to extend their role in the ICT market. For example, these CSPs will typically already offer solutions such as web hosting, email hosting, and data center services, although at least some of these are likely to be offered as bespoke solutions on a project basis rather than as highly productized offers. IaaS is the most demanding of the flavors of cloud computing in terms of CSP enablement. All of the "key characteristics" referred to above need to be addressed in the design, implementation, and management systems, and for most CSPs this will be a major financial commitment and will require considerable expertise. A detailed business plan will be necessary, and CSPs contemplating an IaaS offer should be very clear about their target market and the resources required to address this market. The early movers in public IaaS such as Amazon Web Services have a very strong play at the lowvalue or "commodity" end of the market, although they will also have had some success in winning major implementations from enterprises that are early adopters of IaaS. Commodity IaaS business can be with customers of all types, from SMEs with modest computing requirements to large enterprises that have a small-scale requirement for a "proof of concept" project. Annual IaaS spend for these will be typically less than $10K and customers will not usually have stringent demands for SLAs and overall service requirements; for example, network access to the service over the public Internet is usually adequate. This is a tough market segment for CSPs to address because significant scale is needed to offer competitive but profitable services. However, some CSPs, for example Korea Telecom, are addressing this segment. At the other end of the public IaaS spectrum are mid-sized to large enterprises that have strongly committed to cloud computing and have much larger-scale requirements for compute and storage
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with spend of well over $100K per year. The early movers into public IaaS within the CSP sector have been global CSPs such as Verizon Business and Orange Business Services and have focused on this premium end of the market. This plays more to their strengths in offering stringent SLAs and trusted network access such as MPLS VPN and managed cloud services. In managed services, the provider takes some responsibility for the performance of the applications supported through IaaS. For example, the CSP can deploy probes to monitor and measure the actual performance of the business applications and alert the customer of performance issues that may arise. In addition SLAs can be offered for both the cloud platform and the wide area network, providing an end-to-end guarantee of performance. While this "premium" segment of the IaaS market is considerably lower volume, some CSPs may find this a better fit with their customer base, capabilities, and ambitions. Major CSPs targeting the premium IaaS market may also want to progress to a managed private cloud IaaS offer where the annual customer spend can exceed $1m. However, this will bring them in competition with global CSPs and systems integrators and place very high demands on skills in support and professional services. Given the very high projected growth of the IaaS market, many new players will appear in all geographies and competition will intensify. However, IaaS will offer the greatest rewards for CSPs that can successfully exploit the opportunity.

Reseller or aggregator of SaaS

SaaS is the most mature of the cloud computing services and has been adopted by companies of all sizes. However, it is widely accepted that the potential for SaaS in the SME market has not yet been realized. Many SMEs are not aware of the potential and value of SaaS and would value a trusted advisor to steer them through the diverse range of SaaS solutions, which cover just about all business functions. Most CSPs, from national incumbents to localized alternative players, have a very sizeable SME base, which has increasingly been the focus for more advanced ICT solutions. There is great potential for CSPs to provide a "shop front" via an online portal to a suite of SaaS solutions, covering many aspects of managing small and medium-sized businesses. The individual solutions offered would typically be selected for ease of use, popularity, and value, and the CSP becomes a one-stop shop for addressing all of an SME's SaaS needs. Individual SaaS solutions can be hosted by the CSP or by the underlying software provider. In either case, the solutions are provided seamlessly to customers with simplified ordering, provisioning, and support.

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As this is largely a resale model, margins depend on volumes and ancillary services provided, such as networking and support. Such solutions broaden the product and solution set that customers purchase, resulting in higher value per customer and reduced churn. This type of SaaS offer is easier and faster to implement than IaaS, so can be attractive to CSPs as an entry-level cloud computing offer. They can then build on this by offering additional cloud computing solutions. While SaaS is mostly a resale or partner opportunity from the CSP perspective, they can develop or commission their own applications, especially in the CaaS segment of the SaaS market and in vertical industry applications. Competition for CSPs in SaaS will be mainly with ISVs selling their SaaS solutions direct to enterprises or via their channel partners, including other CSPs and systems integrators. In the case of CaaS the competition will be mainly with other CSPs, though PBX resellers and systems integrators will also provide competition.

Wholesale opportunity
Cloud computing also provides a potential wholesale opportunity for CSPs. Following market entry by the leading global and regional CSPs, we are now seeing a wide variety of domestic CSPs showing interest in launching cloud computing services including IaaS. The task of building a complete cloud computing environment requires internal resources and skills that many CSPs don't have. We also see many emerging markets where the local or regional provider has some of the basic ingredients (network and data center), but needs the skills and systems to offer competitive cloud services. Some major CSPs are now interested in offering a white-label cloud computing infrastructure solution to other CSP players. In addition to providing infrastructure, help can be provided in product launch and go-to-market activities. For many CSPs, this could present an attractive solution with the benefits of faster time-to-market, lower capital commitments, and reduced risk. This can also be used as an initial market entry approach by CSPs contemplating an investment in their own infrastructure at a later date. We are also seeing the evolution of a variety of business models, including revenue-sharing and partnership/alliance models. For instance, we expect to see partnerships and alliances that will allow service providers in emerging markets to take advantage of the skills and capabilities of larger CSPs that have invested in cloud computing infrastructure already, but want to build out geographic capability.

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Communications as a service
CSPs can potentially offer all types of SaaS, but the greatest strategic fit is the ability to offer communications and collaboration applications from the cloud. The SaaS model also lends itself well to UC, where a suite of integrated communications and collaboration applications can be provided from a cloud service. The terms CaaS (communications as a service), UCaaS (unified communications as a service), and other variants are increasingly being used to describe suites of cloud-based UC and business collaboration applications, which can include (but are not limited to) the following components: audio and web conferencing desktop videoconferencing email instant messaging enterprise IP telephony (e.g. IP PBX features) and IP contact center mobility features, e.g. fixedmobile integration features document-sharing and workspaces enterprise-grade social networking.

Applications are supported by common directories and presence features, and can be accessed from a variety of fixed and mobile devices. Many standalone CaaS applications have been available for a number of years, such as WebEx for audio and web conferencing. More recently, suites of communications and collaboration applications have also emerged; one example is Microsofts Business Productivity Online Suite (BPOS), and its successor Office 365, which incorporate several applications including email, web conferencing, instant messaging, and document collaboration. Voice features in CaaS offerings have so far been mainly limited to audio conferencing, but we will increasingly see further voice features added, including enterprise-grade IP telephony (i.e. IP PBX features). We expect to see a proliferation of enterprise-grade CaaS applications suites launched in the next few years that combine the features of enterprise IP telephony with other enterprise collaboration applications. These will come from many different players including CSPs, software vendors, communications technology vendors (e.g. Cisco Systems), and newer IT market challengers such as Google.

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Professional services
In addition to technical concerns over the performance and reliability of cloud services, CSPs will need to overcome cultural barriers in many enterprises if their cloud offerings are to succeed. Cloud services involve outsourcing parts of an enterprise's IT function, and as with any outsourcing decision it can be met with resistance from within the organization. In order to facilitate cloud adoption, CSPs should offer a consultancy-based approach that identifies applications that are suitable for a cloud delivery model and then help customers transition to the cloud.

An opportunity for domestic and local CSPs

While the major IT players and global CSPs may be in a strong position for multinational companies moving to infrastructure-based cloud computing services such as IaaS, many companies, both large and small, will prefer to buy such services from a national or local player. Some companies will have concerns regarding where company data is hosted, and will prefer that it is hosted within the geographic boundaries of their home country. Some may even have concerns over hosting by a foreign-owned company. In many cases these concerns may be driven by national data protection standards or business compliance standards. In addition, the market for SaaS and CaaS solutions is likely to be focused on SMEs that have little internal IT expertise to support these services. SMEs typically have a stronger relationship with a national or local CSP than with major IT suppliers. This is an important opportunity for domestic CSPs.


Leveraging CSP strengths and assets
Cloud computing plays to the strengths of CSPs in many areas: Shared infrastructure. The cloud concept arose from telecoms networking, in particular the concept of VPNs, where enterprise-grade network services are provided securely and to high performance levels from a shared platform. Managed and hosted IT and communications services. Leading CSPs have addressed a range of managed IT services requirements for many years. These include co-location and data center services, managed security, and hosted services including enterprise-grade web hosting, hosted email services, and hosted PBX services.

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Data center infrastructure. CSPs are major users of data centers for both their internal computing requirements and for supporting enterprise hosted services. Data centers are "big-ticket" capital items and a key component of cloud services. Security, data integrity, and trust. Ovum research indicates that security, data governance, and privacy are the main barriers to adoption of cloud computing today. CSPs have a long track record and reputation for data privacy and network security, and these are key areas for CSPs in terms of internal IT expertise. Many CSPs have also launched managed and hosted security solutions and have an established customer base and reputation for security solutions. Security and privacy are key to success in cloud computing, and many customers will demand adherence to security standards and auditable security processes. This could be an important differentiator, particularly with regard to competition from smaller and less well-known players. Communications as a service. Many CSPs have already embarked on hosted communications and collaboration services, which share some of the characteristics of the cloud computing model and SaaS in particular. These include resale of vendor services such as WebEx, and CSP proprietary services such as AT&T Connect. In addition, many CSPs both global and domestic have provided hosted IP PBX services, either through a multi-tenant IP centrex model or through dedicated hosting of IP PBX platforms. These share many aspects of cloud computing, and we will see many of these evolving to a full cloud computing model. Large enterprise customer relationships. Major CSPs have strong customer relationships with important large enterprise customers through managed voice and data networking solutions and, in some cases, managed IT services. CSPs can build on these relationships with a high-performance, business-grade public or private cloud offer. Strength of SME customer base. Most CSPs have a substantial SME customer base, with sales and support channels for a wide variety of solutions, from communications and networking to web hosting and Internet security. The SaaS model is well suited to the SME market where CSPs can become a "trusted advisor" and provide cost-effective access to a wide range of business and communications applications usually only available to large enterprises.

The critical role of the network

The performance and reliability of a cloud service is determined by both the cloud service provider's infrastructure and the network delivering the cloud service to the customer. Enterprises
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may find it acceptable for many SaaS solutions to be delivered over the public Internet, and most commodity IaaS solutions use the public Internet for delivering the service to the customer. However, as we start to see the adoption of cloud computing for business-critical workloads, the network will become a critical component of the end-to-end infrastructure and will be a major consideration in selection of a cloud service provider. While many mission-critical workloads may be more suited to private cloud solutions, these may be remotely hosted by a third party so the network will still be a critical link. Additionally, we will see growth in support for business-critical workloads in public cloud services where the network is viewed by the cloud service provider as an integral component of the end-to-end solution. Today, most enterprises use a trusted network service such as MPLS VPN or carrier Ethernet to support their enterprise WANs. These services provide enterprise-grade SLAs with high site-to-site availability and stringent performance levels in network parameters such as latency, packet loss, and jitter. Networking over the public Internet is not able to deliver SLAs, so any SLA given by the cloud service provider effectively stops at the interconnection of the cloud service provider's data center with their Internet service. Cloud service providers mitigate this to an extent by providing multiple interconnections with the Internet via different Internet service providers and peering points, but this still does not provide the assurance of an end-to-end SLA for provision and delivery of the cloud service. Additionally, some workloads have additional network requirements such as low latency which a network solution such as MPLS VPN can provide, together with the assurance of SLAs. CSPs are uniquely positioned to provide both the cloud platform and an enterprise-grade networking solution fully managed as an end-to-end solution. A networking solution such as MPLS VPN also provides a higher level of security than provided through the public Internet, unless a tunneling and encryption method (such as IPsec) is applied. The success of MPLS VPNs, in contrast with IPsec VPNs, suggests that many CIOs are not comfortable with any enterprise data traversing the public Internet. Major global CSPs that have launched IaaS solutions in the last two years are now seeing over 50% of their IaaS customers demanding a trusted network solution (most commonly MPLS VPN) rather than public Internet. This will increase as the demand for high availability IaaS solutions (both public and private cloud) to support business-critical workloads continues to grow. In spite of the opportunity to offer a single end-to-end SLA, most CSPs today offer separate SLAs for the cloud platform and the network as many customers already have a network solution such as MPLS VPN in place to support their enterprise WAN requirements. However, they are able to offer integrated service management and reporting, which incorporates both the cloud platform and the network, thus delivering a level of service not normally available from cloud computing
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providers that do not also provide enterprise-grade network services. Hence, CSPs are in a unique position to drive growth in the cloud computing market as customer demands for service quality and assurance grow in line with the need to support more demanding and business-critical workloads.


Approaches to cloud enablement
CSPs that are considering entering the market for cloud computing services will need to assess whether they can develop services internally or instead form a partnership or alliance with an existing cloud computing player. CSPs may also look to acquisitions as an alternative market entry route or as a means to grow the market faster than can be achieved organically. For CSPs that dont want to invest in infrastructure but still want a competitive IaaS offering, a wholesale partnership with an established player may be the best route to market. The availability of wholesale cloud computing services is expanding and both branded and white-label wholesale services are now available from a variety of service providers including CSPs. CSPs that plan to develop their own cloud computing offering must be aware of many considerations that demand skills and capabilities that extend well beyond those that they will have acquired from developing and running data centers for the internal needs of their IT operations and/or the delivery of data center services to enterprises.

The self-service portal

CSPs looking to offer cloud services must implement a self-service portal that allows customers to provision services themselves. The portal should interface directly with order-entry systems, allowing orders to automatically flow through to the fulfillment process. However, CSPs should be careful not to simply replicate the format of back-office order-entry systems for self-service portals. The self-service portal is more than a means of order capture, and it is extremely important that CSPs are able to administer service through the portal. It should give an integrated view of current and historic resource utilization and provide customers with the ability to increase or reduce resources, make configuration changes, and perform account management such as allocating user privileges and viewing order status. The self-service portal also provides CSPs with a means to upsell additional services, and allows them to customize the user experience by making it visually appealing and intuitive, and by providing additional tools that allow users to monitor service utilization, cost, and other metrics.

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CSPs have indicated that the next stage in the development of IaaS will focus on building more functionality and ease-of-use into self-service portals. Many CSPs have already looked to facilitate faster deployment of cloud service infrastructure components by giving customers the ability to create images and use templates to quickly provision services designed to support similar workflows. In addition, some have developed pre-provisioned stacks to further increase the speed of the provisioning process on the CSP's side. A number of CSPs are also looking to abstract the IT infrastructure components of their cloud services in order to present business users with selection criteria more attuned to their business needs than the IT-centric component requirements of those needs.

Billing for cloud services

An important aspect of cloud computing is its utility pricing model that adopts a form of usagebased pricing. Currently, most cloud services have no setup charges or fixed terms, and while these elements are relatively foreign to traditional CSPs, they are consistent with the prevailing cloud computing market. Cloud computing denotes some form of utility-based pricing, and a number of different variants of this model are emerging. These range from hybrids of utility and contract pricing models, which fuel convergence between clouds and managed service offerings, to those that offer more flexibility within a utility-based pricing model. Flexibility in billing is a crucial requirement for cloud enablement. If cloud providers ignore this fact they will find it increasingly difficult to introduce new and complex services (in particular those that incorporate services from third parties) or pricing models that move beyond the simply priced IaaS offerings that are prevalent today.

The importance of end-to-end management

The most critical component of cloud computing infrastructure is the requirement for end-to-end management of infrastructure components including (but not limited to) compute, storage, security, LAN, and WAN. End-to-end management is important in any data center solution but becomes particularly critical in infrastructure to support cloud computing services. This is because infrastructure elements need to be configured in realtime to meet the requirements of individual cloud computing customers and the resulting configuration and allocation of resources needs to have precise and predictable performance. Early adopters of cloud computing among the CSP community had a much tougher job to build their cloud computing infrastructure than is necessary for CSPs today. Typically these early adopters selected infrastructure elements (e.g. compute, storage, security) from vendors that they regarded as best of breed in their individual areas and then took it upon themselves to stitch them
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together and build the management environment to control the infrastructure together with the automated self-provisioning environment so that services could be delivered on-demand, linked to a customer portal. This was usually a long and difficult task and might have taken 12 to 18 months of development. Fortunately for CSPs planning entry to the cloud computing market today, the task of building an integrated environment, with full end-to-end management and tied to auto-provisioning, a customer portal, and a billing engine, is simpler and faster because of the capabilities offered by vendors with converged infrastructure solutions. These were originally developed to simplify the build and operation of enterprise data centers but also offer benefits to service providers in building a cloud computing service platform. The greatest potential benefit is a significant reduction in time-tomarket for a new service, but there are many further benefits in using a converged infrastructure over a less modular and more siloed approach. Converged solutions are packaged and configured for rapid deployment but still provide the flexibility needed for different usage models. Flexibility is vital as cloud computing services are still evolving and CSPs will need the ability to adapt their offering to the changing market. Individual modules may come from different vendors but are pre-integrated and pre-tested for interworking. This reduces development and testing time and reduces the risk of changes and upgrades impacting performance, and so provides a greater degree of future-proofing against changes in technology. Converged infrastructure solutions also simplify the task of end-to-end management as they provide a well-defined infrastructure environment which assists in ensuring that end-to-end performance and availability can be proactively managed. This can also mean higher performance and more efficient provisioning of individual infrastructure elements such as virtual machines and storage. It also has an impact on service assurance as it simplifies root-cause analysis for performance issues and other problems. This can also help reduce operational costs. End-to-end management in a cloud computing environment also extends to the wide area network. This will most commonly mean allocation of Internet bandwidth and IP addresses but, as alternative wide area networking technologies become more prevalent for support of missioncritical workloads, it will also mean integration with network management systems used by CSPs in their network operations centers. Hence, it is important to ensure that management systems are upgradable as new networking requirements evolve. The requirements for management are also developing in a broader way. For example, we are now seeing managed cloud computing services where the application's performance of a cloud computing workload is monitored and reported to the customer. Where a customer's workload is
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variable this could potentially lead to a requirement for virtual resources to be automatically adjusted to maintain a guaranteed level of performance. Advanced requirements such as this may not be an immediate requirement for CSPs planning a cloud computing offering, but it is important to ensure that a prospective infrastructure vendor has a vision and roadmap that recognizes potential future requirements such as these.

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Research for this report included in-depth discussions with leading CSPs and other players in Europe, US, and Asia regarding their experience in the planning, enablement, and launch of cloud computing services. In addition we conducted primary research with enterprises globally regarding their plans, aspirations, and fears in adoption of cloud computing.

Further reading
Public Cloud Computing Services Global Market Forecast Model, OI00147-045, (Sept. 2011).

Peter Hall, Principal Analyst, Enterprise Telecoms

Ovum Consulting
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