Cloud Transformation Gap Analysis

I’ve now done quite a few business modeling sessions with ISVs about operationalizing their cloud strategies. Every case has its unique needs, but there are some commonalities as well.

When asked about services layer elements, like monitoring, metering, billing and provisioning, all claim to have a handle. However, when you scratch the surface none have all services elements thought out and automated. A whole ecosystem ecosystem of services layer partners exists. Some are more mature than others, but all seem to require a degree of configuration and customization to work with complex enterprise solutions. Green Button plays in an interesting space with regards to burst compute provisioning, but I cannot see ISVs agreeing to their margins for long. The ability to provision compute from hot nodes on demand should be an in built PaaS feature.

Financial transaction modeling is also an area were ISVs need help. It is not that mature ISVs would not have advanced financial systems for accounting or that they would not be able to calculate their cloud costs. It is more a need to have the ability to do sensitivity analysis based on average deal sizes. What is required for breakeven? What is realistic? What is in it for the channel? Often ISVs real their modeling at reaching an acceptable breakeven model, but neglect to calculate what profit margin that would offer for partner who is looking to commit a full time resource to promoting the solution. Partners are not in it to breakeven. They want a profit margin on top of cost of sales and/or cost of support.

ISVs that are not used to SaaS pricing need to rethink their incentive models. A 100k on premise solution with 20k S&M component, for a partner with 40% margin on first year, will provide less than half the profit margin as a reoccurring SaaS deal, all else being equal. We need to look at the life time value of the deal. If we were to provide 10% on subsequent years for both S&M and for SaaS renewal the partner would still not benefit from a SaaS sale over an on premise sale. Assuming that a typical technology depreciation cycle is 5 years, a SaaS partner would not breakeven with an on premise partner before the on premise partner sells a whole new solution with perpetual licensing and the whole cycle starts again. Pricing in all models needs to be based on roles and responsibilities of parties concerned. The question is what are the roles and responsibilities in a SaaS model and how they differ from a perpetual license sale?

Value articulation can also be tricky. ISVs often fall victim to separating their core value and value derived from the cloud. Faster, cheaper and easier associated with cloud in general doesn’t differentiate any more. What that specific solution can do when powered by the cloud differentiates and should be integrated into the core value messaging. One value often under utilized is big data inherent to large multitenant solutions. This degree of benchmarking and data analytics has not been possible on premise and is one of the core value adds of the cloud.


Workforce Analytics

Everyone knows what Business Analytics (BI) is, but do you know what Workforce Analytics is? The term is used on a Deloitte Human Capital Trends 2011 report, but even Wikipedia doesn’t define what it means. SuccessFactors, an SAP company, says: Drive fact-based business decisions with reliable workforce insights. Deloitte report states ‘moving from reactive to proactive’ as a driver. So in summary: using workforce generated data for proactive, rather than reactive, fact-based business decision making. 

So where does this workforce data come from? Deloitte mentions ERP and HR systems having collected such data for a decade. Information security logs are a far more richer data source. Infosec logs will slice and dice every event from an application, client and network perspective. Most mature organizations also have decades of infosec logs that have a key stroke by key stroke record of every workforce action event from the data that recording started.

Business Analytics can be classified into the following categories of analytics:

  • „„Marketing Research & Analytics
  • Supply Chain Analytics
  • Legal research and process analytics
  • Services Operations Analytics
  • Business and Technical Analysis
  • Data Analytics
  • Pharma and Healthcare Research
  • Financial Services Research
  • Human Resources Research
  • Intellectual Property (IP) Research

In each case we are examining the business looking from outside within. Workforce analytics provides the same data, but looking outside from within. In the next years we will see a new breed of analytical platforms analyze and provide insights from workforce data. Eventually workforce and business analytics data warehouses will be linked to form a single comprehensive analytics view.

Social Analytics is neither from outside or from within. Social Analytics is a reflection of the companies actions outside their domain. As contextual search and social analytics develops, we will be able add this additional real time dimension to truly agile business decision making.

Business do not sell to businesses. People sell to people. Business is a human endeavor. This is why sentiment analysis adds an additional dimension to business decision making. From work force analytics we know what our people did. From Business Analytics we see how our business performed, as a result. From Social Analytics we see how the world around reacted. Sentiment analysis gives us an indication of why.

We already today have advanced data models for forecasting stock market behavior, weather patterns, etc. This is all statistical based on projecting from historical data points. If we what the people, how business performed, how the world reacted and how everyone felt about it contextually, then run quite advanced predictive models on pretty much any action. Its like being able to look two chess moves into the future. You still would not see the ultimate outcome, but you could predict immediate cause and effect. How will a customer react to this price point? How will consumers react to this marketing campaign? How will my staff react to firing of a certain individual? How would my team be impacted if the team leader switched companies? Which parts of my organization have the most impact on revenue generation and where the optimal resourcing thresholds are?

Accenture Technology Vision 2012

Dr. Gavin Michael, Scott Kurth and Michael Biltz have written the Accenture 2012 Technology Vision statement. Typically these documents, in my opinion, are broad and obvious, but in this case I was positively surprised.

The highlights are:

– Context-based services

– Converging data architectures

– Industrialized data services

– Social driven IT

– PaaS-enabled agility

– Orchestrated analytical security

To me the above are all interconnected and parts of the same conversation…

Contextualization can be through aggregating multiple dimensions of data (such as the social driven dimension) and having the ability to data mine across the aggregated data set. Human analytics will be slowly automated using AI to empower the masses. Putting events in geo context is obvious. Having AI that understands sentiment and word associations is a bit less obvious. The futuristic goal would be AI that places events in conceptual context. This is only enabled if we collect and aggregate data on events from multiple perspectives. I’d claim that cloud and PaaS (Azure), to be specific, are driving integration and data aggregation. ‘A maturing platform-as-a-service (PaaS) market will shift the emphasis from cost-cutting to business innovation.’ In this sense I would have focused more on the ‘innovation’ potential in this report, rather than the deployment agility angle… but hey, I am not a doctor.

Converging data architectures is about mixing structured and unstructured data. In cloud environments data is split in structured relational data and unstructured blob data. Unstructured is much cheaper operationally and hybrid architecture optimization is key to minimizing operating costs. Distributed data from a cloud perspective means that we tap into data from multiple services and not just from the two structures.

The Azure Data Marketplace is a marketplace for industrialized data services. I ask all ISVs that I talk to what their data play is and to date I have not stumbled upon a single one with an aggregate data monetization plan. To me this means that a whole heck of a lot money is being left on the table.

Orchestrated analytical security is an interesting highlight at the end of the report. I have put a lot of thought in this and to me its is just one possible manifestation of innovation based on maturing PaaS. Devices do not cause data loss… people do. In this sense device management is always reactive. Enterprise network security has matured to the point where it is preventing security breaches in real-time against known attack profiles and possible permutations of those known attacks. I believe that the future is more a kin to the movie Minority Report. The more we are able to aggregate data on events from different perspectives and intelligently analyze that information the closer we are to being able to truly predict behavioral patterns and prevent data loss even before it occurs. Orchestrated analytical security is really a possible outcome of the other identified themes and as such sticks out in the report, but definitely a nice closer to the report that gets our imaginations turning.

In a past blog I used a macro economic study of the emerging markets to understand cloud ecosystem growth issues. According the macro economic study the reason why China is outpacing India is because China fully utilizes also the female population and has a higher general level of education. This applies to cloud vendors as well. Accenture’s vision is only possible if the whole partner ecosystem is educated on the ecosystem nature and innovation potential of PaaS. Would be interesting if Accenture would reach out to their clients to see if the clients understand and can envision the vision.

Business Reengineering

I have a back ground in business process reengineering and it came to me last week that companies going into the cloud need reengineer their business strategies. I binged business strategy reengineering and found a wiki for business engineering.

Here’s the definition according to Wikipedia:

Business engineering circumscribes the domain of designing new business fields. Unlike business development, business engineering does not only include marketing related tasks, but also most of the other business administration tasks. Financial and operational tasks are of equal importance, for example.

Business engineering includes all activities that are necessary to develop and maintain an independent line of business. It is comparable with starting a business, but includes the novel component. That means that there is no core market yet and market opportunities need to be created. Most likely, the output of business engineering substitutes known forms of supply, in existing markets.

Therefore business engineering aims to establish new, future oriented forms of businesses but with reference to existing or emerging needs. Business engineering is most likely related with the area of future technology. To abstract it, business engineering combines the establishment of a completely new business in a prospect business environment.

Business engineering is a holistic approach. My personal preference is to use the Business Model Canvas for a holistic approach to business modeling. Business engineering is likely related to an area of future technology. In my case I focus on cloud and social technologies.

Most of my clients are ISVs that have had an on-premise solution and they are facing a need to reengineer their business to meet the new reality. Hence, my niche is Business Reengineering.

Cloud Channel Re-engineering (CCR)

In the past I’ve written about the networked social nature of ecosystems and especially cloud ecosystems. I am writing a channel program development guideline for Azure based cloud offerings and it helps me do a first draft in blog format… so any feedback would be appreciated!

What is a cloud? A cloud is virtual framework with a unified operating system and database, with access to a shared pool of configurable computing resources. To use a construction analogy, Azure is like an upscale sub-division with basic infrastructure, utilities and plenty of empty lots to build your house on.

So what’s the difference between a private and a public cloud? Again let’s use a municipal planning analogy. A public cloud is like a planned community with the city running it. Home owners don’t actually own their land, but rather rent the land from the city, which in return collects a fee for the land use. A private cloud is more like a gated community with property management company from which the home owners rent their land. More importantly, both examples are communities of people. I would claim that it is not the homes that make a community, but the people that live in them.

Now what would be another word for a community of people? Let’s call it a social network of individuals and in the sense of a business community, through individuals, a network of companies (legal entities).

But couldn’t that same thought trail be used in the case of on-premise solutions? Yes, but social networks are stronger when it’s members share more attributes; they all share a passion/hobby or in the case of a cloud community a common platform.

Imagine looking a three dimensional illustration of a cloud community. The bottom layer is the infrastructure. Then you have the platform and database layers. On top of that we lay the core application layer, which would be Microsoft Online offerings. On top of that we lay layers of cross functional workflows and value adding partner applications. Now we can take one of two paths of examination: we can look at the users of the applications or we can look at the application vendors, their key personnel and relationships. I promise that I will take this analogy down the application user path, but for the purposes of this article I’ll focus on the application vendors.

So let’s drop a layer (almost a translucent skin) with vendor brand logos on top of the stack of layers. That is one side to the ecosystem. If we focus our attention only one application vendor we can lay on top a layer channel partners. On top of the channel partners a layer of end customers and their value chains. On top of the end customers and their value chains we could add a layer of application users and we’ve essentially moved past the fork after the application vendor layer onto the application user layer.

If you can visualize the above layered three dimensional cloud ecosystem model in your minds eye you can start to logically examine how to operationalize your vendor strategy in terms of segmentation, value propositioning, channels, technology partnering, etc. This is nothing new. Business consultants have used the same logical process in business process reengineering for decades. If you cannot visualize your processes and their interdependencies, then how can you hope to optimize it?

Cloud Channels

I’ve written a few articles about the changing role of the channel in the cloud era. The expressed outcomes are a bit too neat. The truth is that the next couple of years will be transitional from old channel conventions to the new status quo.

The Azure application marketplace is not an ecommerce platform yet and subscription management is mostly left to Independent Software Vendors (ISVs), integrators and third party vendors, such as Apprenda and Zoura. When the application market place if truly launched it will most likely not support enterprise licensing or cloud sourced subscription bundles. Value Addded Resellers/Integartors are still expected to put solution sets together facilitating the resulting subscriptions mess.

How will a distributor help a cloud ISV take product to market? ‘Ingram Micro’s Cloud Conduit program provides channel partners with a comprehensive portfolio of cloud-specific enablement resources and service offerings including Infrastructure-as-a-Service (IaaS), educational tools and resources such as face-to-face engagements, business development resources, sales training and webinars.’ Sounds like all that a growing ISV might need. The press release I copied the text from also mentions that ‘as part of the Cloud Conduit initiative, Ingram Micro is pursuing three distinct relationships with Amazon Web Services, Rackspace Hosting and  Amazon Web Services is working closely with Ingram Micro to bring the benefits of the AWS platform to Ingram Micro’s many channel partners.’ No mention of Microsoft Azure, even though Ingram Micro is also the largest Microsoft distributor in the world.

Pinpoint/application marketplace will already provide a comprehensive portfolio of cloud-specific application offerings. BizSpark and WebSpark programs have enablement services partner listings for start-up ISVs to engage for help; and honestly there are not that many that have the in depth skills-set to really add value on a strategic level. The Developer Evangelist Group and the ISV Incubation Centers are pushing educational tools, business development support, training and webinars. So I ask again, what is the role of distribution in the Azure ecosystem?

If I put my ISV hat on and what I think I would need. Well yes, I would like my solution listed in as many application marketplaces as possible. Depending on my target market I would put more emphasis on one marketplace over another. With volume enterprise solutions I would on the short term look at what the distributors are doing, until the Azure Application Marketplace is fully matured to handle enterprise volume subscriptions and subscription bundling. I would say that the majority of ISVs need help with strategic cloud planning, business development, architecture/migration support and general training. I would expect Microsoft to highlight a number of service provider options within their programs. I would be really helpful to have map of the Azure cloud ecosystem influencers, multipliers and integrators by vertical competency, so that I can effectively plan my branding and outreach. I would also like to see a ‘cloud alley’ in all of the major MS conferences in 2011, so that I can get a ‘helicopter perspective’ of what the ecosystem looks like and what people are doing.

Ecosystem mapping is something that I’ve been doing in the MS ecosystem since 2007. In 2009 I actually mapped the cloud IaaS, PaaS and SaaS communities globally. Now is the right time to focus on SaaS and the supporting channels for Microsoft Azure.

Cloud Channel Management

Migration to the cloud is not just changing software architectures. ISVs need to rethink their over all business models and go-to-market strategies. Data and application marketplaces will become core to marketing, selling, invoicing and subscriber management for cloud solutions. This transformation will have far reaching impact on channels.


The Reseller

When Microsoft announced Windows Azure, Online and BPOS offerings the reseller/distributor community and hosting partners saw their reason for existing diluted overnight. With the beta launch of the Azure Application Marketplace resellers, integrators and distributors of Microsoft ISV partner solutions have been put on notice. The application marketplace will eventually be a full ecommerce service (think iTunes), through which Azure based applications can be marketed and sold in volume. Even if resellers are enabled to help with discovery by directing subscribers to buy, their margins will be dramatically cut. Resellers need to be able to provide higher value services to compensate lost license commissions… become integrators?


The Integrator

The enterprise end customer has outsourced their infrastructure and platform strategy to the cloud vendor. The enterprise end customer’s next concern is finding the best applications that make their cloud sourced portfolio complete and how to maximize their return on investment through configuration and optimization.

Large integrators typically bring in contractors to deliver massive projects. Smaller integrators specialize in a specific domain area or industry segment. Both have to create portfolios of applications that provide their end customers with a holistic cloud sourced solution. However, integrators are mostly limited to workflow, dashboard and reporting integration, which is still not fully optimized.


The Distributor

The role of distribution also needs to change in a fundamental way. A distributors role traditionally is to support their ISV partners with brand marketing, amplifying access to market through existing reseller channels and providing funding for payment terms. The crucial funding role seizes to exist, as payments become monthly subscription based and are funneled through application marketplaces. As resellers are forced to specialize the distributors ability to offer an ISV broad market access becomes limited. Distributors are finding themselves hard pressed to keep hold of a meaningful role.



The questions an ISV must think of of are:

a) How do I position my application in relation to other applications? What is my value proposition and my ‘cloud sourcing’ story?

b) How do I carve my brand niche in this era of cloud colonization?

c) Whom do I need to partner with to succeed?