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Cloudnexa 2016 Predictions: Four MSP and Public Cloud Predictions


Virtualization and Cloud executives share their predictions for 2016.  Read them in this 8th Annual series exclusive.

Contributed by Joel Davne, Founder and CEO, Cloudnexa

MSPs and Public Cloud - Four Predictions for 2016

Prediction 1

Traditional Managed Service Provider's (ones that are not set up to effectively deliver and manage cloud services) will adapt to the cloud or die

There is a thinning of the herd taking place in the managed service provider (MSP) industry, one that isn't always on the forefront of embracing change. Cloud-first is the desired methodology of a majority of organizations, and that is the last thing a traditional MSP wants to hear1. To understand why, it helps to look at the characteristics of the traditional MSP vs the new breed of technology partner, the Managed Cloud Service Provider or MCSP, and how these characteristics translate into 2 different business models and cost structures for end users.

Traditional MSP's are typically geographically bound - for example, they'll serve a 20-mile radius in and around Baton Rouge, Louisiana - for example. They go onsite, and manage a number of different devices and endpoints. They also bring with them annual or multi-year contract relationships with high exit costs (time and money).

In contrast, MCSP's work entirely in a virtual environment and operate on a global scale, mirroring the fundamental nature of cloud itself. There is no need to go onsite because all infrastructure is delivered via the cloud. This translates into a significant difference in cost as MCSP pricing tends to be utility based & reflective of actual cloud usage. Contract terms also align with those of 3rd party cloud service providers, giving customers the flexibility to come and go as they please, with no minimum purchase requirements or onboarding fees. Lastly, MCSP's will have cloud management tools allowing them, and you, to efficiently manage security, governance, provisioning, budgets and more.

A recent survey by Sonian into MSP trends found the top challenges MSP's face are meeting the ever-evolving needs of their customers, reducing the need for additional resources and delivering solutions that meet customer needs while also providing healthy margins for the MSP2. Further, more than 40% are focused on overcoming technology capability challenges. This is the chasm that MSP's must cross, or risk extinction. Because the new breed of service provider, the MCSP, is born to automate leveraging technology. They are born to offer solutions that are utility priced, based on usage. And they do not need to invest in costly human resources to deliver these type of solutions. They are already setup to offer low touch, high value, and high margin solutions. Adaptability is vital trait of any species and any business. When the environment or market circumstances change, you must change with them. And if traditional MSP's do not adapt in 2016, they will go the way of the dinosaur. 

Prediction 2

Major cloud providers will follow Amazon's lead and split out cloud financials for true visibility 

Let me paint you a picture. You and I operate lemonade stands across the street from each other in any-town USA. We both sell delicious lemonade, in addition to other items such as Snickers bars, Twizzlers, crackers, chips, soda and the like. At the end of the day we meet and discuss our earnings. I disclose an itemized list of what I sold: $14 in lemonade, $4 in Snickers, $5 in chips and so forth. You bundle all your sales together at $21 and smugly compare it to my lemonade-only sales, remarking you have similar if not greater lemonade market share. This is exactly what the other major cloud providers such as Microsoft, Google and Oracle are doing compared to Amazon Web Services.

Earlier this year, Amazon made a bold move and split out AWS earnings from the rest of the organization. The numbers were impressive. AWS was a $4.6B business in 2014 and is on track to be a $6.23B business in 2015. AWS accounted for 7% of Amazon quarterly earnings in Q1'15. That may seem like a drop in the bucket for a behemoth like Amazon, but the real telling is growth: AWS grew at 49% compared to 22% for Amazon as a whole, signaling hosted infrastructure and services may be the future for the heralded e-commerce company. The response to this transparency was highly positive, and showed that AWS has a powerful hold on the public cloud market.

Not to be outdone, Microsoft responded by raising the curtain on their cloud business, saying it was on track for $6.3B in revenue in 2015. But the key difference is Microsoft's number includes its online email and document management service Office 365 and it's CRM service Dynamics (amongst other things) in addition to its cloud infrastructure platform Azure. Similarly, Google does not breakout revenue for its cloud, instead housing it in the gloriously ambiguous "Other Revenues" - a not too shabby $7B business unit itself in 2014. How much of that $7B is actual cloud revenue, versus revenue from Chromebooks, Chromecast, Google Play Store & Apps, Google Glass or even the famed Google self-driving car project - all included in the "Other Services" category?

Even Oracle, not widely considered to be one of the major players in public cloud, says it has a $1.5B cloud business as of year-end 2015. But what does that $1.5B truly represent? Evidence of a thriving cloud ecosystem being adopted by end users, or some creative revenue re-direction through mechanisms such as "cloud credits" to tell the market what it wants to hear? The fact that we have to ask all these questions means there's a problem.

The market needs to be able to make apples to apples (lemon to lemon) comparisons. The practice of bundling hosted applications, platforms and services with hosted infrastructure is certainly not going anywhere - and that's a great value-add for the end user - but cloud providers need to follow Amazon's lead and stop hiding their cloud revenue in non-descript categories, so that we all can have a clear view of who's using what. There's more to running a lemonade stand than simply comparing ALL your sales to my individual lemonade sales. Amazon realized that, and if their competitors want say they are on par with them and can compete with AWS, they will have to as well.

Prediction 3

Data and security breaches will not stop, in fact they'll accelerate. The cloud will prove more resilient to them than on premise models.

"If I'm going to get hacked, I'm going to get hacked with everyone else." This is what a customer recently told me when discussing why they were transitioning from an on premise IT model, to Amazon Web Services. Last year certainly saw its fair share of data breaches and hacks, the most infamous of which being when hackers from a group called "Impact Team" posted personal information like emails and account details of 32 million users of the Ashley Madison dating (cheating) website. But there were many others, some high profile, and some not so high profile.

You'll recall entertainment giant Sony was hacked by group called "The Guardians of Peace" which ultimately led to the cancelation of the in-theater release of controversial movie "The Interview" - the movie was later released online. But that may have been the least of the damage. The hackers also obtained the social security numbers of 47,000 employees (including celebrities) and emails detailing strategy and sometimes embarrassing comments about celebrities, amongst other data. When all is said and done, the total cost of the damage is likely to top $100M, in addition to the reputation damage.

But there were other hacks too that likely didn't fly onto your radar, like Carphone Warehouse in the UK losing personal information on 2.4M customers (roughly 4% of the UK population), or Saudi Aramco, one of the world's largest oil companies, being propelled back to 1970's technology in a matter of hours, after 35,000 computers were partially wiped or destroyed. Hacks won't stop in 2016, in fact they'll accelerate as hacker methods become more sophisticated, and more people seek out the twisted glory inherent in pulling off a massive data breach. Nonetheless the public cloud stands as formidable opponent.

The reality is, 3rd party cloud vendors offer a much higher level of security than most organizations ever can or will build on their own - despite the opposite train of thought continuing to prevail among many IT professionals. Perimeter protection, to start, is much the same be it on premise or in the cloud. Firewalls, intrusion detection and the like will all serve their function regardless of who's managing it.

But the elephant in the room really, is humans. According to a PWC study on U.S. cybercrime, most breaches are inside jobs, meaning they come from within the company's firewall3. Disgruntled employees with malicious intentions, or well-meaning employee's victim of a phishing attack, are the biggest threat to data security, despite high profile hacker antics. However, security breaches due to unauthorized physical access to a cloud host's data centers are incredibly rare4. You therefore conclude that the lack of physical access to data, or relationships with those that have it, make cloud data just as - if not more - secure.

There are other myths too, such as on-premises deployments can be better protected from viruses. But the fact of the matter is, cloud providers can rapidly deploy a virus fix or software patch to all their clients, with the knowledge that it's been fully tested and vetted - a tedious and time consuming process that takes an individual organization's IT staff away from profit driven activities.

In 2016, organizations will begin to realize their on premise deployment is actually the less secure one, and the cloud provides the type of robust security they need. Why? They need look no further than all the hacks in 2015 that affected on-premisesIT models. It all comes back to the concept of power in numbers. AWS, Azure, Google Cloud and all cloud providers are much more incentivized to have the strongest and most up-to-date security measures as possible. Just one security or data breach of any significance would likely cause irreparable damage from which none of them could recover. This is why we predict that the (undeserved) stigma of the cloud being less secure than the on-premises model will lift in 2016.

Prediction 4

Lower energy costs will help cloud providers improve margins and profitability

Energy costs have been steadily declining over the past year and will continue to drop throughout 2016, according to the Energy Information Administration. For cloud providers powered by data centers, this is a huge deal. In 2013, US data centers consumed approximately 91 billion kilowatt-hours of electricity (enough to power New York City households twice over) and are on track to reach 140 billion kilowatt-hours by 20025. Therefore significant fluctuations in energy prices would impact on the business of cloud computing.

While it might seem intuitive to think that public cloud providers are consuming a majority of this energy, the opposite is in fact true. The vast majority of data center energy is consumed in small, medium and large corporate data centers, as well as outsourced data centers5. There are a few reasons for this, including the under-utilization of data center equipment and misalignment of incentives.

The public cloud model provides advantages over traditional data centers from an equipment utilization standpoint due to the ability to share IT resources, and dynamic provisioning (scaling up and down as needed). Traditional data centers must provision infrastructure against a forecasted (and set) peak demand. Cloud providers, however, can match discrete peak demands against average demand by sharing infrastructure across its entire customer base. By pooling shared compute workloads and leveraging diversity in traffic peaks, cloud providers see much smaller peak-to-average ratios, reducing the need for idle server capacity and increasing server utilization by over 40%6.

The second primary reason cloud providers are operating at a very high energy-efficient level, and will therefore benefit from lower energy prices, is that they do not suffer from organizational misalignment as it relates to power consumption costs. In the traditional data center model, the data center owner pays the power bill, the tenants buy power blocks, and the tenant's IT department specifies the necessary equipment. This disparate, siloed process offers little visibility between parties, and even less motivation to optimize towards efficiency. A drop in energy prices may benefit the data center owner, but won't mean anything to his or her tenants.

Cloud providers, on the other hand, typically have one data center budget, with responsibility and oversight thereof consolidated with one person or group. Since data center energy costs represent a large share of a cloud providers operating expenses, it is a priority for them to optimize them. Ultimately as energy prices continue to fall, cloud providers - already setup to efficiently utilize energy - will continue to benefit with increased margins and profitability.


About the Author

Joel Davne, Founder and CEO, Cloudnexa

Joel Davne leads Cloudnexa as an experienced cloud computing executive having successfully launched two cloud ventures. Prior to founding Cloudnexa, Joel was a Founding Partner, President and CEO of Freedom Professional Services & Technologies (Freedom OSS). With over 20 years IT industry experience, his previous roles also include as CEO for Content Solutions and Chief Operations Officer at Talk Technology (Acquired by Agfa). He holds U.S. patents in speech recognition and has several U.S. patents pending for Cloud Computing processes. Joel has an MBA from LaSalle University.

 Joel Davne



1.       Verizon State of the Market: Enterprise Cloud 2015

2.       Sonian MSP Trends Survey

3.       PWC, US cybercrime: Rising risks, reduced readiness: Key findings from the 2014 US State of Cybercrime Survey, June 2014

4.       IDC Whitepaper: The Business Value of Amazon Web Services Accelerates Over Time

5.       National Resources Defense Council: Data Center Efficiency Assessment Paper

6.       WSP: The Carbon Emissions of Server Computing For Small-to-Medium Sized Organizations

Published Tuesday, January 12, 2016 6:30 AM by David Marshall
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