Thoughts RightScale Annual State of the Cloud Report

May 2, 2015

In January of 2015 cloud portfolio management company RightScale Inc. surveyed 930 users of cloud services for their Annual State of the Cloud report.  The findings are both interesting and insightful.  Several key findings are highlighted here.

  1. Cloud is a given and hybrid cloud is the preferred strategy. According to the survey 93% of respondents are using the cloud in one way or another.  Further more than half (55%) of enterprises are using hybrid clouds – either private clouds or an integration with on premise solutions.
  • Savvy start-ups realize that public clouds can be expensive relative to self-hosting in an economy co-lo facility. Until traffic ramps to the point where the ability to immediately scale justifies it there is no urgency to host in AWS or Azure.
  • Public clouds are ideal for a variety of scenarios – unknown, unpredictable, or spiking traffic, the need to host in a remote geography, or where an organization has other priorities than to focus on hosting. Conversely self-hosting can be more economical.  Example, Amazon c3.2xlarge – 8 vCPU and 16 GB RAM (as of May 2015) is $213 / month or approximately $2500 / month / per server.  Organizations who already have an investment in a data center or have on premise capacity often find it cost-effective to self-host for internal applications.
  • Many enterprises are not surprisingly reluctant to walk away from significant capital investments in their own equipment. Hybrid clouds allow organizations to continue to extract value from these investments for tasks that may be difficult or costly to implement in a public cloud.  For example, high security applications, solutions which must interact with behind the firewall systems, or processing / resource intensive programs.

93% of Respondents Are Using the Cloud

  1. DevOps rises; Docker soars. DevOps is the new agile.  It is the hip buzz word floating around every organization.  According to Gene Kim, author of the Phoenix Project, DevOps is the fast flow of code from idea to customer hands.  The manifestation of DevOps is the ability to release code as frequently as several times a day.  To achieve this level of flexibility organizations need to eliminate bottlenecks and achieve what Kim calls flow.  Tools like Puppet, Chef, and Docker are enablers for DevOps.  In forthcoming surveys it can be expected that Microsoft’s InRelease (part of Visual Stuido Online) and Hyper-V Containers will have prominent roles in organizations that use the Microsoft stack.

DevOPs Adoption Up in 2015

  1. Amazon Web Services (AWS) continues to dominate in public cloud, but Azure makes inroads among enterprises. AWS adoption is 57 percent, while Azure IaaS is second at 12 percent.  (Among enterprise respondents, Azure IaaS narrows the gap with 19 percent adoption as compared to AWS with 50 percent.)  This is consistent with other market surveys – see Synergy Research Group Study from October 2014.
  • At this point the market has effectively narrowed to only two major cloud IaaS providers Amazon and Azure. While there are other offerings from Rackspace, IBM, HP and other non-traditional sources (i.e., Verizon) these seem to be solutions for organizations who already have a relationship with this vendor or there is a specific reason for going away from the market leaders.
  • There are certainly many other PaaS solutions including Google, Salesforce.com, Heroku (owned by SFDC). Similarly there are many SaaS solutions again including Google Apps, NetSuite, Salesforce.com, Taleo, and many other vertical specific solutions.
  • This respondent base is heavily represented by small business – 624 SMB vs. 306 Enterprise. Although Microsoft is working hard to attract start-ups the reality is that today most entrepreneurs chose open source technologies over Windows.  Conversely Microsoft technologies are disproportionately represented in larger enterprise.  While today AWS is the undisputed market leader Azure is growing quickly and can be expected to close the gap.  Microsoft is investing heavily in their technology, is actively reaching out to the open source community, and is making it apparent that they are not satisfied with being an also ran.
  1. Public cloud leads in breadth of enterprise adoption, while private clouds leads in workloads.
  2. Private cloud stalls in 2015 with only small changes in adoption.
  • Private clouds are being used for functional and load testing as well as hosting internal applications (i.e., intranet) where the costs and risks associated with a public footprint do not exist. It makes sense that where in the past organizations would have had “farms” of low end desktop PCs and blade servers in server closets that these types of applications have been moved to private clouds that are hosted on virtualized servers that can be centrally managed, monitored, and delivered to users more cost effectively.
  • It is interesting that the data suggests that the market virtualization infrastructure has matured and is not growing. The market leader in this space continues to be VMWare with Microsoft gaining traction in enterprises.
  1. Significant headroom for more enterprise workloads to move to the cloud. An interesting data point – 68% of enterprise respondents says that less than 20% of their applications are currently running in the cloud.
  • It will be interesting to see how his number changes over time. Reversing the statistic – 80% of enterprise applications are still run on premise.  This could be due to IT organizations heavy investment in capitalized equipment / data center.  It could be that the economics of a public cloud are still too expensive to justify moving to a public cloud.  There could be technical limitations such as security which are holding back cloud adoption.  Finally, there could be organizational prejudices against taking what is perceived as a risk to embrace the public cloud.  Very likely it is all of the above.
  • The role of a visionary CTO is to move their organization forward to embrace new technologies, break down prejudices, and find new and better ways to serve customers. Cloud vendors are working to make it easier for organizations of all sizes to adopt the cloud by lowering cost, increasing security, and providing new features which make management more seamless.
  • While this study does not provide any data on the breakdown of PaaS vs. IaaS it is a reasonable assumption that most enterprise adoption of the cloud is IaaS as this is by and large simply re-hosting an application as-is. PaaS applications on the other hand typically need more integration which in many cases involves software development.  Once done, however, PaaS applications are often more secure, scalable, and extensible as they take advantage of the hosting platform infrastructure.

Cloud Challenges 2015 vs. 2014

Finally, RightScale has a proprietary maturity model which ranks organizations comfort level with using cloud related technologies.  Interestingly the data suggests that nearly 50% of organizations have yet to do any significant work with the cloud.  This data can certainly be expected to change over the next 2-3 years.

Cloud Maturity of Respondents


Predictions 2015: CIOs Accelerate The Business Technology Agenda

February 21, 2015

At the end of 2014 Forrester published a short research note entitled “Predictions 2015: CIOs Accelerate The Business Technology Agenda.”  (The report is $499 if you get if from Forrester but Microsoft has apparently licensed the content to make it free.)  Some of the provocative ideas in the note include:

Many CIOs have the technical expertise and cross-functional business purview to help drive digital innovation, but they are too often still seen as the leader of a cost center.

This is the truth.   Not that it is much fun for anyone but for those of us in IT budget season is a constant battle for funding.  Many times the best outcome is level funding.  Generating revenue on our own would change the game.

Both consumer and business customers increasingly expect real-time access to connected product and service information. These expectations not only define customer engagements but also ripple throughout the supply chain — shortening product cycles, requiring more agile operational capabilities, and creating opportunities for new, disruptive digital services.

Even some of the smallest businesses – appliance dealers, car services, and even dentists offer on-line access to inventory, scheduling, and account information.  Larger companies that offer primitive or worse no access to this type of information absolutely stand out as laggards. Increasingly not only is the expectation that information will be on-line and accessible organizations without a credible mobile strategy are at a competitive disadvantage.

  • Prediction No. 1: CIOs Accelerate The Business Technology Agenda

There are a ton of buzz words buried in this predication including agile development, connected products, mobile services, and customer-focused governance models.  The reality that many of us live with every day is doing more with less.  Technology is lever to these new challenges.  For example, automation of tasks previously only done by humans can lead to dramatic cost and time savings.  Better, cleaner execution, using new development techniques (e.g., DevOps, automated testing) make it faster and more efficient for development teams to get code in the hands of customers.  Cross platform development is now realistic using tools like Xamarin.  Finally, highly reliable consumption based cloud delivery platforms are available from multiple different providers.  While the challenges have never been more formidable so too the tools at our disposal have never been more powerful.

  • Prediction No. 2: CIOs Unlock Data-Driven Business Opportunities

According to CSC there will be more than 35 ZB of data generated in the year 2020 – a 4300% growth from 2009.  It’s hard to visualize that much data.  Much of that information will come from the emergence of sensor data (think connected refrigerator) that has previously never been on-line or accessible.  While there will no doubt be new unstructured data such as this, traditional web and mobile applications (Facebook, Instagram, and Twitter) will continue to evolve and grow.  The dramatic growth of information calls for new solutions to make sense of it all.  Again there is cause for real optimism that technology is keeping pace; There are powerful NoSQL / NewSQL databases such as Cassandra, analysis engines such as Hadoop, and visualization platforms such as Tableau.  Many of these technologies are open source and most of the commercial solutions are reasonably priced – often tied to consumption.  One of the primary challenges is the imperative to get technology organizations thinking differently.  For example, it is fully possible to use Cassandra like a relational database but in so doing much of the value of the solution would be lost.

  • Prediction No. 3: CIOs Make CDOs Unnecessary

The notion of a Chief Digital Officer (CDO) is perhaps a role that exists in larger organizations.  Someone, whether it be a CDO or the CIO, needs to truly own the responsibility for protecting the organization’s customer data.  High-profile security breaches such what happened to Target, Sony, the US Army, and many others have made it apparent that this huge issue.  Organizations are under near constant attack from outsiders that at best want to put an offensive message on the home page and at worst want to hold it hostage for ransom.  Protection of data starts with penetration testing, applying best of breed solutions (FireEye, Palo Alto Networks), and aggressively patching vulnerabilities as they are found.  This all will maintain the status quo.  Forrester rightfully points out that the best organizations will find ways where the Chief Marketing Officer (CMO) will be tightly aligned with the CIO to leverage technology to move the business forward.

Become leaders of digital change – or be usurped. Somebody has to be in charge of increasingly connected and dependent technology for the enterprise.  Fast-cycle, tech-based innovation drives a coherent, cross-channel digital experience is crucial to succeeding in today’s markets. …  Are all CIOs up for the challenge? No.  But in 2015, any CIO who isn’t will be replaced by one who is.

As Zig Ziglar said “Success occurs when opportunity meets preparation.”


2013 Pacific Crest SaaS Survey

October 20, 2013

In September David Stock of Pacific Crest (Investment Bank focusing on SaaS companies) published the results of their 2013 Private SaaS Company Survey.   The survey covers a variety of financial and operating metrics pertinent to the management and performance of SaaS companies, ranging from revenues, growth and cost structure, to distribution strategy, customer acquisition costs, renewal rates and churn.  Here are some top-line observations from me:

  • 155 companies surveyed with median: $5M revenue, 50 employees, 78 customers, $20K ACV, and a global reach
  • Excluding very small companies, median revenue growth is projected to be 36% in 2013
  • Excluding very small companies, the most effective distribution mode (as measured by growth rate) is mixed (40%), followed by inside sales (37%), field sales (27%), and internet sales (23%)
  • Excluding very small companies $0.92 was spent for each dollar of new ACV from a new customer, where it was only $0.17 to upsell
  • The median company gets 13% of new ACV from upsells, however, the top growers upsell more than slower ones
  • Companies which are focused mainly in enterprise sales have highest levels of PS revenue (21%) with an median GM of 29%
  • Median subscription gross margins are 76% for the group
  • Approximately 25% of companies make use of freemium in some way, although very little new revenues are derived here.  Try Before You Buy is much more commonly used: two-thirds of the companies use it and many of the companies of those derive significant revenues from it
  • The average contract length is 1.5 years with quarterly billing terms
  • Annual gross dollar churn (without the benefit of upsells) is 9%

The full survey can be accessed here.


AT&T and Cloud Computing – Sorta

August 25, 2008

A colleague of mine recently sent me an article from the Washington Post about AT&T getting into cloud computing. http://www.washingtonpost.com/wp-dyn/content/article/2008/08/05/AR2008080501574.html. The this article clubs AT&T (and eventually Verizon) into the same space as Google or Amazon. In my view this is not the right way to think about it. AT&T and Verizon are heading into the space occupied by OpSource, Rackspace (Mosso), 3Tera, Joyent. This is certainly a good this type of solution for clients that want to deploy a solution that will grow with them or need flexible infrastructure to seamlessly accommodate spikes in traffic (e.g., Superbowl commercial, Olympics, etc.).

I view what Amazon (AWS), Google (AppEngine, Gadgets), IBM (Blue Cloud), and Salesforce.com (Platform as a Service) are doing as being very different. Indeed these organizations are offering a platform on which an organization can deploy their application. I’ve seen this referred to as utility computing. The key difference in my mind is that you are running application code on the provider’s grid vs. having a scalable hosting infrastructure. The lines are fuzzy between on-demand computing and what I am referring to as utility computing as some of the on-demand computing players are offering services of their own (i.e., OpSource Billing). One way to think about it is that in on-demand computing a developer needs to be aware of the underlying operating system where in utility computing they do not.

Each partner offers different services. For example, Amazon S3 (part of AWS) is a great solution for an on-line backup application like Jungle Disk. IBM Blue Cloud appears to be meant for scientific research that requires mainframe computing resources. No doubt by design Salesforce.com has carved out a spot for themselves right in the middle of the pack and appears to be applicable for many general purpose applications.