The cloud gold rush

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This article appeared in the July issue of CRN magazine.

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The cloud gold rush
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The Australian channel is splitting into two camps; the trailblazing resellers who are changing their business to take advantage of cloud services, and those who are or will be losing business to the first group. 

The pioneers are finding themselves on the edge of a "gold rush" that promises to be as lucrative as the decade-long migration from mainframes to micros. 

"It is a gold rush at the moment, a hugely open marketplace. It's one of those massive changes in the industry that you see once a career. The nice thing about this one is the customers end up saving money rather than spending more," says Nick Beaugeard, managing director of HubOne, an enterprise software integrator founded just two years ago. 

Of the integrator's 180 current customers, 20 percent have moved applications to Microsoft's Business Productivity Online Suite (BPOS) and another 60 percent are committed to moving.

"It's ridiculous numbers. And the rest of them are seriously considering the move but they've just bought new infrastructure or they're looking at doing it in the next couple of months. It is massive. We're hearing things from customers like, 'This is a no-brainer, why don't I just do it?'" says Beaugeard.

HubOne's profits have increased 560 percent in the past year and it has had to hire 15 staff to help migrate customer data from on-premise systems to Microsoft's cloud platform, says Beaugeard.

Systems integrators that have built their own infrastructure-as-a-service (IaaS) platform are seeing similar demand.

"Our biggest problem isn't finding customers - it's trying to service them fast enough," says Nick McMenemy, marketing manager at Brennan IT. 

"It's the fastest growing part of our business by some distance. "We have a qualified pipeline for $20 million. When you know the size of our organisation and the market we play in, that's very big." 

Moving with the times

Common sense says that server sales will continue for many years while cloud computing comes of age. However, conversations with companies on the cutting edge of technology adoption reveal that the end for the physical, on-premise server could approach much faster than expected.

Executive director Nick Holmes á Court walks through a long list of plusses after moving all mission-critical applications to Azure for his online media analytics company, BuzzNumbers. Backup and system updates occur without taking servers offline or reducing their performance; higher level of security and safety as data is backed up to three separate sites rather than one; BuzzNumbers can scale up immediately in response to customers' media campaigns without buying more hardware; Azure's close integration with the .Net developer environment simplifies writing code to run on the cloud platform; competitive advantage over non-hosted companies due to faster build and ship times; reduced downtime and infrastructure overheads from human error and server administration. 

"It's allowed our organisation to focus on what we do best. Developers can spend more time writing great software and less time worrying about deployment, hosting, servers, infrastructure and all those kinds of things," he says. 

Holmes á Court estimates that the shift to cloud has increased productivity by 25-35 percent by reducing the administration overhead that comes with managing and deploying servers.The company tested Azure for six months before the Australian launch and continued the service afterwards. During that time the company has experienced no downtime, says Holmes á Court.So would Holmes á Court buy another server for his media analytics business? 

While the company still maintains servers for file sharing and test and development, "I would be very reluctant to continue investing in internal infrastructure for critical production environments," he says. 

The glory won't all go to the marquee names such as Azure, however. Some integrators have seized the initiative and brought their own virtual-infrastructure-for-hire to market as a boutique cloud computing platform. The response from early adopters is a big thumbs-up.Take James Mulvaney, manager of infrastructure and IT at heavy mining equipment manufacturer CQMS Razer.

Hired with a brief to build a greenfields data centre in the company's new headquarters, Mulvaney decided that nearly half a million dollars for real estate, hardware, installation and integration was simply not feasible. Instead he fired up 15 virtual servers using NSW integrator Brennan IT's infrastructure-as-a-service (IaaS) for $100,000 a year, including bandwidth through Brennan's ISP arm and a personal SLA.

"No matter how I shook it around, going for a completely OpEx [option for] $10-20k a month meant that the business was paying the same amount as doing it through corporate finance [to fund building my own data centre].

But now I could scale it up and up and I had a data centre with full fire resistance, 24/7 operation, staff seven days a week, and full power backup.

"There are no servers in head office and Mulvaney says he will never buy another server for internal use. The only reason he might buy one would be to experiment with desktop virtualisation, the next IT project, which requires accessing the virtualisation layer.

Mulvaney also has plans to consolidate servers sitting in the company's six Australian and two international offices. "By the end of the next financial year we don't intend to have any servers on any sites at all," he says. 

Revamping a reseller

The cloud business is so good for HubOne that in this financial year the company is rebranding itself as a cloud integrator rather than a systems integrator. From Beaugeard's account, the market is more than ready to move to cloud services despite confusion around security, location of data, even the definition of cloud computing itself. Resellers who can reliably shepherd businesses from on-premise to cloud are already hoovering up new customers, says Beaugeard.

"The market is so wide open and so big, it's almost the first person who gets to the customer gets to the gig. Which is kind of like it was at the beginning of my career when we were having the move from mainframes to the minis in distributed computing. It's those same heady days where it's not hard to win business." Beaugeard says the integrator leads every sale with the cloud option first out of necessity.

"The reason for that is that if I don't somebody else will." Changing a traditional reseller business to one focused on cloud requires sacrificing normal channels of income. The installation and maintenance revenues for servers, and the margins on sales, disappears when your customer moves their data to a Microsoft or Amazon cloud platform.

Instead, a Microsoft BPOS reseller is paid an annuity per application that drops from 12 percent in the first year to 6 percent in the following. HubOne saw its revenue dip a little from lost revenues on maintaining servers, says HubOne's Beaugeard, and were hardly replaced by annuity revenue streams from Microsoft's BPOS service, which contribute just 3 percent to revenue.

However, the integrator has also found that customers are spending the money saved from "lights-on" maintenance on strategic IT projects, such as customer-facing websites and new infrastructure projects. The migration work and higher-level consulting has transformed the company's bottom line.

"Profitability is huge now, way bigger than I thought it would be. I'd be attributing most of that to the work we're doing online," says Beaugeard. Not only is the work more profitable, it's more interesting for staff.

"Now the customers are more agile and flexible we can do more interesting things with them, which is more margin for us. It's opening up new doors, whereas we could have been stuck in the world of deploying Active Directory and Exchange or lots of Small Business Servers at a tiny margin, because it's very competitive, and never moving up the value chain.

"Beaugeard predicts that the bulk of migrations will end in three years and he is focusing heavily on the strategic aspects of the business. He is hiring staff "with the aptitude to grow into the other end of the business as well".

He has also had to make several changes to the company; it is now more focused on sales to take advantage of opportunities in the market. Cloud computing services were initially viewed by many in the channel as a threat to their business.

However, Beaugeard has found the exact opposite. The reseller who successfully takes a customer to the cloud enjoys a much strengthened relationship.

"If I was looking after on-premise Exchange and a hard drive dies, the customer is off for five or six hours. That is massive, massive dissatisfaction. 

"To take customers from that world to a world where those core things work all the time actually deepens the relationship and the trust the customer gives you. This is especially true for brand new customers," says Beaugeard.

"It's just the fact that it works and we were the ones that delivered it. Customers don't seem to forget that." However, loyalty must still be earned. Competition among resellers will centre on who can provide the best service to the customer.

"No longer can you afford to deliver a substandard service. you have to deliver a great service the whole time," says Beaugeard.

Next page: Building your own cloud

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