Millennium Pharmacy Takes SaaS Model to New Heights Via Policy-Driven Operations Management and Automation

Transcript of a BriefingsDirect podcast on how a major healthcare provider has used advanced IT management and operational efficiency processes and systems to keep applications up to date, compliant, performant, and protected.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: VMware.

Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions, and you're listening to BriefingsDirect.

Gardner

Today, we present a sponsored podcast discussion on how an online pharmaceutical services provider Millennium Pharmacy Systems, Inc. has implemented a variety of software-as-a-service (SaaS) applications and then managed them through a more automated and efficient operational approach.

We'll learn how Millennium Pharmacy has used advanced IT management and operational efficiency processes and systems to keep applications up to date, compliant, performant, and protected.

To hear more detail on how automation and operational efficiencies help them improve their business results and customer retention, please join me in welcoming Leon Ravenna, Vice President of IT and Operations and Information Security Officer at Millennium Pharmacy Systems, Inc., based in Cranberry Township Pennsylvania. Welcome, Leon. [Disclosure: VMware is a sponsor of BriefingsDirect podcasts.]

Leon Ravenna: Good afternoon.

Gardner: We're glad you could join us. Tell us a little bit about your IT state. What was the situation in your organization that made it clear that the way you had been doing it in the past was not holding up and that some new level of optimization, organization automation, improvement was needed?

Ravenna: I'll be happy to. I've been here about 14 months. One of the things that we looked at doing right, when I came in, is taking both the data centers that we have -- one is owned and one is a co-located facility -- and eliminating a lot of the older hardware that we had.

We are now about 85 percent virtualized. Our  primary datacenter is for our customer-facing application, a SaaS application, built on SQL/.Net and Silverlight, for about 250 nursing care facilities on the East Coast. This basically controls all of the medications that a patient would need. It does our medical reordering and passes that information in an entirely integrated fashion back to our in-house systems for billing and filling of prescriptions.

What we looked to doing first was consolidating, getting rid of the older hardware, and moving us to a much better state. One of the nice things about VMware is that it’s just rock solid. We're kind of weary of knocking on wood, but it’s rock solid for us. It gives us the ability to move applications on an as-needed basis. We can upgrade things on the fly. In one data center, we are currently on 5.1, and we're moving the other data center to 5.1.

On our SaaS application, I have 250 separate SQL databases on seven SQL servers, running in a VMware environment and that helps me dramatically cut my licensing cost for SQL server and helps to manage them in a high availability way.

Gardner: Leon, before we get more into what you do and why you have certain requirements, I'd like to get a bit more information about what was different before you went to high virtualization. Everybody talks about the efficiency in cost utilization, but what about the management? Is there something about the way you've done this that has allowed you to be 24x7 up and keeping the performance where it need to be?

More efficient

Ravenna: We had a couple of older Dell blade chassis, and inevitably you would lose the power supply or a server, and I just don’t have that. From an operational standpoint, it just helps to be more efficient. It has the ability to turn new servers up faster. It’s not something that we do all the time, but it helps me be much more efficient. I have a fairly small staff, and my goal is to let them sleep at night.

By having more VMware in place, about 85 percent virtualized, it allows me to do that. If the server fails, they applications move to a different server. I have the ability to upgrade the servers on the fly. It allows me, from an operational standpoint, to be more secure in what we're doing.

And it helps me lower my cost, because I am not as worried about my HVAC. I have less equipment to worry about. I have less break-fix to worry about. All in all, it helps me be remarkably more efficient.

Gardner: Let’s learn a bit more about Millennium Pharmacy. You're in the healthcare field which of course has already got pretty stringent requirements in terms of compliance, regulations, cost, audit trails, and making sure that data is available. Tell us about what you do and then perhaps a bit about why your requirements are pretty dramatic.

Ravenna: As I said, we host a system for about 250 nursing-care facilities. As a patient, you don’t have much time with your nurse. The nurse is typically gathering your drugs. We have our own pharmacies that service those homes. We deliver, in a cellophane sealed package, your medications.

We're working to implement the new HIPAA regulations so we can be even tighter in that space.

These packages say, "Mr. Smith, take this at dinner time." There's a barcode for every drug, and when the nurse gives them the drug, they use a wireless scanner to scan that barcode and it automatically reorders the next set of drugs. We give patients about a three- or four-day supply, as opposed to 45- or 90-day supply, which cuts the cost for the nursing care facility itself. Then, we manage all of that data back to our other systems, that manage the filling of new prescriptions and billing and then we deliver every day.

The healthcare space is fairly stringent, and and getting more so with the new HIPAA regulations. New ones just came out on March 26 of this year, and the enforcement and penalties are much greater. There’s some significant items that have  changed, but really it’s the enforcement and penalties, things around encryption, and protecting customers' data.

We also have to protect confidential information and so we need to be very secure. We're working to implement the new HIPAA regulations so we can be even tighter in that space.

Gardner: This is all done through SaaS and cloud. There are no on-premises installations of your application. Is that right?

Ravenna: Only one facility of our 250 that has their own system. They are large, and one of their requirements was to have their own, but we support the rest of them, approximately 250, all cloud based. They can get to it from their Internet connection.

All SaaS

Depending on what the customer needs, we may set up the entire environment for them, networks, wireless, scanners, and printers, or they get to us through their own equipment and internet connections. But yes, it's all SaaS. 

Gardner: We're talking about being highly mission critical, people getting their medicine. We're also talking about being highly efficient. What were some of the requirements in terms of the infrastructure, particularly as we look now towards managing so many different instances and the ability to be agile and fire up new versions of VMware and to get those apps up and running? What were some of your requirements just from a management perspective?

Ravenna: It had to be easy. I have three system engineers. I only have a couple of network engineers. We support, on the network side, approximately 250 VPN tunnels out to customers, and as you said, it's mission critical. If people don’t get their drugs, it’s a bad day. We take that mission very seriously, making sure those systems are up and running.

From an operational or management standpoint, we really need to be monitoring to know what’s happening and when. Having VMware in that mix gives us the ability to make things consistent, but it also helps to  reduce our cost from a licensing standpoint and helps us manage them better, because we can see what’s happening at any given moment.

Gardner: So as a mid-market organization, you're resource constrained, you just don’t have a huge stuff, and you need automation. You need to have the ability to manage things, perhaps remotely.

It lets us be a lot more efficient with what we are doing. It lets us manage more efficiently.

So it's this notion of total approach to management, rather than silos, rather than integration of different management approaches and products together. That just wouldn’t fly. What have you done? What have you experimented with, as you move towards this more complete notion of management, one-stop shop, one pane of glass type thing?

Ravenna: There are a couple of things that we've done. We're evaluating vCenter Operations Management Suite. One of the things that it has  let us do is dramatically reduce the size of our virtual machines (VMs).

Typically, if you're moving from a physical environment, VMware is a lot more efficient and it’s really kind of surprising seeing some of the reports that come back from vCenter Operations Management that tell you, realistically, you are running this server with six gigabytes of memory, but you are only really using one.

It’s a little bit spooky to look at it and ask if we really want to go that far. In some cases we would say, "Yes, let’s go ahead and do that," and it’s been, for the most part, dead-on. We've looked at a couple of things where our gut didn't say it was the right thing, even though it probably was. There's still a little bit of that old-school mentality that says you need to get more resources, when in fact the server may not even need them.

It lets us be a lot more efficient with what we are doing. It lets us manage more efficiently, because I can put more databases or more servers on each VM host.

Move quickly

Gardner: So when you look at the total picture, you need to be agile and able to move your resources quickly. You have a small staff. You need to be compliant in the tough confines of the healthcare regulatory environment.

Where do you look to go next? Is there a higher vision that you develop? We hear about the software-defined datacenter, for example. We hear about cloud computing where you can actually mirror your entire data center from one location to another, maybe it’s for disaster recovery (DR), maybe it’s just for operational efficiency. Is that on your radar? Is that what you like to see?

Ravenna: Absolutely. I have an overriding philosophy, after doing this for last 20 plus years. The simpler I can make it, the more I get to sleep. Sleep is a recurring theme and realistically, that means fewer calls during the night.

We're looking to move to vCloud Suite, in particular Site Recovery Manager (SRM), and using the vCenter Operations Management Suite to allow us to be more efficient. It just helps us work better and faster. Some of the key components will help me to be as efficient as possible. I may eventually need  to build out virtual data centers, so the VMware vCloud Director helps me.

Those are some of the key things I'm looking for in the future. For me, having multiple data centers, the ability to have VMware SRM, is just a great thing. It’s getting ready to thunderstorm here, and having the ability to move my services to a different data center that’s about 35 miles away is key.

I'm very leery about putting my data just in a cloud with everybody else. It would have to be very specific to the healthcare space.

Gardner: It’s pretty interesting that the notion a one-size-fits-all, plain vanilla, public cloud wouldn’t be attractive to you. What would you like to see and what have you heard from VMware that might lead to believe that they would be in a position to offer such as cloud service?

Ravenna: I don’t know that VMware has that today, but it’s a trusted brand, and I'm very leery about putting my data just in a cloud with everybody else. It would have to be very specific to the healthcare space, because you end up signing a business associate agreement with me.

It would have to be what I would term carrier-class facilities that can prove they are in the healthcare space, dedicated to being there, and abide by all the HIPAA Rules. We have all of the things like PCI and SSAE 16. Those type things really need to be there and geared towards the healthcare space specifically for me to be able to look at them.

Gardner: And completely invisible to the end user. They're still getting their meds, making their orders, and everything is up and running. That’s a great vision. Do you see the vCenter Operations Management Suite as a key stepping stone to getting there? It seems to me that you can’t get to that vision until you really rationalize, organize, and lock down your operational integrity of what you have to play.

Ravenna: Yes. It will be key component. In concert, the VMware Operations Management Suite and the vCloud Suite will help me get there. My whole goal is to be able to make things as simple as possible and as easy as possible to manage, and these tools let me do that and be more efficient.

No choice

I'm not a guy who wants to understand electricity or heating and ventilation, but unfortunately in the world that we live today, in the mid-market space, you have your own data centers. You have no choice. You have to play in that game. Anything that I can do that helps me to address those issues to run cooler or run with less equipment is just all goodness.

Gardner: As you have attained 85 percent virtualization and you're looking for efficiencies in your storage and your resource utilization, is there a payback that you can take to your higher ups? When it comes time to invest and go further down this journey, with that fully realization of cloud and ease of moving payloads, workloads across distances that, do you have metrics? Can you say, "Listen, I'm saving x percent?" How do you convince the bean counter that this is the right thing to do?

Ravenna: It’s not necessarily a metric, but when you're spending less year over year on equipment, that’s evidence. Every server you buy is going to be in the roughly $5-$10,000 range. If I'm not doing that, I'm agile and nimble in being able to say that I can accommodate that.

That's opposed to the old process which was, get the capital done, go to finance, and wait six weeks to get a server, and then put it in. Inevitably there is something that’s constrained. So that six-week lead time becomes eight or ten weeks. It just helps me to move faster and spend a lot less capital money.

One of the things that I mentioned a little bit ago was licensing from a SQL standpoint, but things like backup that are running on a per-processor standpoint within VM drop my overall cost.

Anything that I can do that helps me to address those issues to run cooler or run with less equipment is just all goodness.

One of the things that it’s helpful as well is the dashboarding ability to be able to show what’s going on, what’s happening, and what the environment looks like. vCenter Operations Management Suite gives me that and it's all goodness.

Gardner: Leon, for those folks who might not be quite at 85 percent and who are trying to get there for some of the reasons you just mentioned, what advice would you give them? What are some of things that you’ve learned along the way to smooth that path to more managed, automated and agile?

Ravenna: One of the things that you will inevitably hear is -- and this may be kind of an old school thing -- the application won’t do that. You know what, it probably will. You can’t take no for an answer.

Most of the applications that we have, our applications are all custom .NET and SQL. But a lot of the other applications we have just moved there, because it made sense to us.

It make operations easier for me, but realistically, part of it is not taking no for an answer. If you're comparing the cost of, say, a two processor server, and you are going to go buy four, five, or six servers, take one of those servers and put that investment into VMware and vCenter Operations Management. You're going to be happier in the long term.

Managing the manager

Gardner: It sounds like you've made a lot of progress and I wish you well. My last area of questions is around managing the manager, the vCenter Operations Management Suite. Have you had to do a lot of training yourself? Did you go through it? How do you manage the personnel side in an organization like yours, where you do have still jacks-of-all-trades working in IT? What was the ramp-up in terms of the skills and the running of the management system?

Ravenna: For vCenter Operations Management Suite, it wasn’t too bad at all. We were talking to VMware, and they said it would be potentially beneficial. We started up, ran it, and there really wasn’t that much training that was necessary.

The harder thing was when they came back and said we were over provisioned. That was  making that rationalization that VMware is a lot more efficient than physical hardware. It meant taking some of our servers from 4 GB RAM down to one half that, because that’s where they needed to be. In some cases, you want to be a little bit safe. You ultimately find out that the tool was right, and you were being gun shy.

We started up, ran it, and there really wasn’t that much training that was necessary.

Gardner: So you have more information at your finger tips, but sometimes it can be challenging to know what to do with it. I certainly understand that.

Ravenna: Yeah, a lot of it's interpretation.

Gardner: Great. We've been talking about how online pharmaceutical services provider Millennium Pharmacy Systems has implemented a variety of SaaS and other applications, virtualized them, and then managed that virtualization more to an automated operations approach. And we learned how this advanced IT management operation efficiency can keep these mission-critical applications up-to-date, performant, compliant and protective.

I want to thank our guest for joining us. Leon Ravenna. He is Vice President of IT Operations as well as the Information Security Officer there at Millennium Pharmacy Systems. Thanks so much, Leon.

Ravenna: Sure. Happy to help.

Gardner: This is Dana Gardner, Principal Analyst at Interarbor Solutions. I want to thank our audience as well for listening, and don’t forget to come back next time. 

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: VMware

Transcript of a BriefingsDirect podcast on how a major healthcare provider has used advanced IT management and operational efficiency processes and systems to keep applications up to date, compliant, performant, and protected. Copyright Interarbor Solutions, LLC, 2005-2013. All rights reserved.

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Thomas Duryea's Journey to Cloud Part 2: Helping Leading Adopters Successfully Solve Cloud Risks

Transcript of a BriefingsDirect discussion on how a stepped approach helps an Australian IT service provider smooth the way to cloud benefits at lower risk for its customers.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: VMware.

Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions, and you're listening to BriefingsDirect.

Gardner

Our latest podcast discussion centers on how a leading Australian IT services provider, Thomas Duryea Consulting, has made a successful journey to cloud computing.

We'll learn how a cloud-of-clouds approach provides new IT services for Thomas Duryea's many Asia-Pacific region customers. Our discussion today continues a three-part series on how Thomas Duryea, or TD, designed, built and commercialized an adaptive cloud infrastructure.

The first part of our series addressed the rationale and business opportunity for TD's cloud-services portfolio, which is built on VMware software. [Disclosure: VMware is a sponsor of BriefingsDirect podcasts.]

This second installment focuses on how a variety of risks associated with cloud adoption and cloud use have been identified and managed by actual users of cloud services.

Learn more about how adopters of cloud computing have effectively reduced the risks of implementing cloud models. Here to share the story on this journey, we're joined once again by Adam Beavis, General Manager of Cloud Services at Thomas Duryea in Melbourne, Australia.

The question that many organizations keep coming back with is whether they should do cloud computing.

Welcome back, Adam.

Adam Beavis: Thank you, Dana. Pleasure to be here.

Gardner: Adam, we've been talking about cloud computing for years now, and I think it's pretty well established that we can do cloud computing quite well technically. The question that many organizations keep coming back with is whether they should do cloud computing. If there are certain risks, how do they know what risks are important? How do they get through that? What are you in learning so far at TD about risk and how your customers face that?

Beavis: People are becoming more comfortable with the cloud concept as we see cloud becoming more mainstream, but we're seeing two sides to the risks. One is the technical risks, how the applications actually run in the cloud.

Moving off-site

What we're also seeing -- more at a business level -- are concerns like privacy, security, and maintaining service levels. We're seeing that pop up more and more, where the technical validation of the solution gets signed off from the technical team, but then the concerns begin to move up to board level.

We're seeing intense interest in the availability of the data. How do they control that, now that it's been handed off to a service provider? We're starting to see some of those risks coming more and more from the business side.

Gardner: I've categorized some of these risks over the past few years, and I've put them into four basic buckets. One is the legal side, where there are licenses and service-level agreements (SLAs), issues of ownership, and permissions.

The second would be longevity. That is to say, will the service provider be there for the long term? Will they be a fly-by-the-seat-of-the-pants organization? Are they are going to get bought and maybe merged into something else? Those concerns.

The third bucket I put them in is complexity, and that has to do with the actual software, the technology, and the infrastructure. Is it mature? If it's open source, is there a risk for forking? Is there a risk about who owns that software and is that stable?

One of the big things that the legal team was concerned about was what the service level was going to be, and how they could capture that in a contract.

And then last, the long-term concern, which always comes back, is portability. You mentioned that about the data and the applications. We're thinking now, as we move toward more software-defined data centers, that portability would become less of an issue, but it's still top of mind for many of the people I speak with.

So let's go through these, Adam. Let's start with that legal concern. Do you have any organizations that you can reflect on and say, here is how they did it, here is how they have figured out how to manage these license and control of the IP risks?

Beavis: The legal one is interesting. As a case study, there's a not-for-profit organization for which we were doing some initial assessment work, where we validated the technical risk and evaluated how we were going to access the data once the information was in a cloud. We went through that process, and that went fine, but obviously it then went up to the legal team.

One of the big things that the legal team was concerned about was what the service level agreeement was going to be, and how they could capture that in a contract. Obviously, we have standard SLAs, and being a smaller provider, we're flexible with some of those service levels to meet their needs.

But the one that they really started to get concerned about was data availability ... if something were to go wrong with the organization. It probably jumps into longevity a little bit there. What if something went wrong and the organization vanished overnight? What would happen with their data?

Escrow clause

That's where we see legal teams getting involved and starting to put in things like the escrow clause, similar to what we had with software as a service (SaaS) for a long time. We're starting to see organizations' legal firms focus on doing these, and not just for SaaS -- but infrastructure as a service (IaaS) as well. It provides a way for user organizations to access their data if provider organizations like TD were to go down.

Beavis

So that's one that we're seeing at the legal level. Around the terms and conditions, once again being a small service provider, we have a little more flexibility in what we can provide to the organizations on those.

Once our legal team sits down and agrees on what they're looking for and what we can do for them, we're able to make changes. With larger organizations, where SLAs are often set in stone, there's no flexibility about making modifications to those contracts to suit the customer.

Gardner: Let's pause here for a second and learn more about TD for those listeners who might be new to our series. Tell us about your organization, how big you are, and who your customers are, and then we'll get back into some of these risks issues and how they have been managed.

Beavis: Traditionally, we came from a system-integrator background, based on the east coast of Australia -- Melbourne and Sydney. The organization has been around for 12 years and had a huge amount of success in that infrastructure services arena, initially with VMware.

Being a small service provider, we have a little more flexibility in what we can provide to the organizations.

Other companies heavily expanded into the enterprise information systems area. We still have a large focus on infrastructure, and more recently, cloud. We've had a lot of success with the cloud, mainly because we can combine that with a managed services.

We go to market with cloud. It's not just a platform where people come and dump data or an application. A lot of the customers that come into our cloud have some sort of managed service on top of that, and that's where we're starting to have a lot of success.

As we spoke about in part one, our customers drove us to start building a cloud platform. They can see the benefits of cloud, but they also wanted to ensure that for the cloud they were moving to, they had an organization that could support them beyond the infrastructure.

That might be looking after their operating systems, looking after some of their applications such as Citrix, etc. that we specialize in, looking after their Microsoft Exchange servers, once they move it to the cloud and then attaching those applications. That's where we are. That's the cloud at the moment.

Gardner: Just quickly revisiting those legal issues, are you finding that this requires collaboration and flexibility from both parties, learning the road that assuages risks for one party, but protects the other? Is this a back and forth activity? This surely requires some agility, but also some openness. Tell me about the culture at TD that allows you to do that well.

Personality types

Beavis: It does, because we're dealing with different personality types. The technical teams understand cloud and some love it and push for it. But once you get up to that corporate board level, the business level, some of the people up there may not understand cloud -- and might perceive it as more of a risk.

Once again, that's where that flexibility of a company like TD comes in. Our culture has always been "customers first," and we build the business around the longevity of their licenses. That's one of the core, underlying values of TD.

We make sure that we work with customers, so they are comfortable. If someone in the business at that level isn't happy, and we think it might have been the contract, we'll work with them. Our legal team will work with them to make sure we can iron that out, so that when they move across to cloud, everybody is comfortable with what the terms and conditions are.

Gardner: Moving toward this issue of longevity -- I suppose stability is another way to look at it -- is there something about the platform and industry-standard decisions that you've made that helps your customers feel more comfortable? Do they see less risk because, even though your organization is one organization, the infrastructure, is broader, and there's some stability about that that comes to the table?

Beavis: Definitely. Partnering with VMware was one of our core decisions, because their platform everywhere is end-to-end standard VMware. It really gives us an advantage when addressing that risk if organizations ask what happens if our company doesn't run or they're not happy with the service.

It's something that SaaS organizations have been doing for a long time, and we’re only just starting to see it more and more now when it comes to IaaS.

The great thing is that within our environment -- and it's one part of VMware’s vision -- you can then pick up those applications, and move them to another VMware cloud provider. Thank heaven, we haven't had that happen, and we intend it not to happen. But, for organizations to understand that, if something were to go wrong, they can move that to another service provider without having to re-architect those applications or make any major changes. This is one area where we're well getting around that longevity risk discussion.

Gardner: Any examples come to mind of organizations that have come to you with that sort of a question? Is there any sort of an example we can provide for how they were reducing the risk in their own minds, once they understood that extensibility of the standard platform?

Beavis: Once again, it was a not-for-profit organization recently where that happened. We documented the platform. We then gave them the advice of the escrow organizations, where they would have an end-to-end process. If something were to happen to TD, they would have an end-to-end process of how they would get their data, and have it restored on another cloud provider -- all running on common VMware infrastructure.

That made them more comfortable with what we were offering, the fact that there was a way out that that would not disappear. As I said, it's something that SaaS organizations have been doing for a long time, and we’re only just starting to see it more and more now when it comes to IaaS and cloud hosting.

Gardner: Now the converse of that would be that some of your customers who have been dabbling in cloud infrastructure, perhaps open-source frameworks of some kind, or maybe they have been integrating their own components of open-source available software, licensed software. What have you found when it comes to their sense of risk, and how does that compare to what we just described in terms of having stability and longevity?

More comfortable

Beavis: Especially in Australia, we probably have 85 percent to 90 percent of organizations with some sort of VMware in their data center. They no doubt seem to be more comfortable gravitating to some providers that are running familiar platforms, with teams familiar with VMware. They're more comfortable that we, as a service provider, are running a platform that they're used to.

We'll probably talk about the hybrid cloud a bit later on, but that ability for them to still maintain control in a familiar environment, while running some applications across in the TD cloud, is something that is becoming quite welcoming within organizations. So there's no doubt that choosing a common platform that they're used to working on is giving them confidence to start to move to the cloud.

Gardner: Do you have any examples of organizations that may have been concerned about platforms or code forking -- or of not having control of the maturity around the platform? Are there any real-life situations where the choice had to be made, weighing the pros and cons, but then coming down on the side of the established and understood platform?

Beavis: More organizations aren’t promoting what their platform is, and we’re not quite sure that it could be built on OpenStack or other platforms. We're not quite sure what they're running underneath.

We've had some customers say that some service providers aren’t revealing exactly what their platform is, and that was a concern to them. So it's not directed to any other platforms, but there's no doubt that some customers still want to understand what the underlying infrastructure is, and I think that will remain for quite a while.

As they are moving into cloud for the first time, people do want to know what that platform sitting there underneath is.

At the moment, as they are moving into cloud for the first time, people do want to know what that platform underneath is.

It also comes down to knowing where the data is going to sit as well. That's probably the big one we’re seeing more and more. That's been a bit of a surprise to me, the concerns people certainly have around things like data sovereignty and the Patriot Act. People are quite concerned about that, mainly because their legal teams are dictating to them where the data must reside. That can be anything from being state based or country based, where the data cannot leave the region that's been specified.

Gardner: I suppose this is a good segue into this notion of how to make your data, applications, and the configuration metadata portable across different organizations, based on some kind of a standard or definition. How does that work? What are the ways in which organizations are asking for and getting risk reduction around this concept of portability?

Beavis: Once again, it's about having a common way that the data can move across. The basics come into that hybrid-cloud model initially, like how people are getting things out. One of the things that we see more and more is that it's not as simple as people moving legacy applications and things up to the cloud.

To reduce that risk, we're doing a cloud-readiness assessment, where we come in and assess what the organization has, what their environment looks like, and what's happening within the environment, running things like the vCenter Operations tools from VMware to right-size those environments to be ready for the cloud.

Old data

We’re seeing a lot of that, because there's no point moving a ton of data out there, and putting it on live platforms that are going to cost quite a bit of money, if it's two or four years old. We’re seeing a lot of solution architects out there setting those environments before they move up.

Gardner: Is there a confluence between portability and what organizations are doing with disaster recovery (DR)? Maybe they're mirroring data and/or infrastructure and applications for purposes of business continuity and then are able to say, "This reduces our risk, because not only do we have better DR and business continuity benefits, but we’re also setting the stage for us to be able to move this where we want, when we want."

They can create a hybrid model, where they can pick and choose on-premises, versus a variety of other cloud providers, and even decide on those geographic or compliance issues as to where they actually physically place the data. That's a big question, but the issue is business continuity, as part of this movement toward a lower risk, how does that pan out?

Beavis: That's actually one of the biggest movements that we’re seeing at the moment. Organizations, when they refresh their infrastructure, don’t see the the value refreshing DR on-premise. Let the first step cloud be "let's move the DR out to the cloud, and replicate from on-premises out into our cloud."

Then, as you said, we have the advantage to start to do things like IaaS testing, understanding how those applications are going to work in the cloud, tweak them, get the performance right, and do that with little risk to the business. Obviously, the production machine will continue to run on-premises, while we're testing snapshots.

DR is still the number one use case that we're seeing people move to the cloud.

It's a good way to put a live snapshot of that environment, and how it’s going to perform in the cloud, how your users are going to access it, bandwidth, and all that type of stuff that you need to do before starting to run up. DR is still the number one use case that we’re seeing people move to the cloud.

Gardner: As we go through each of these risks, and I hear you relating how your customers and TD, your own organization, have reacted to them, it seems to me that, as we move toward this software-defined data center, where we can move from the physical hardware and the physical facilities, and move things around in functional blocks, this really solves a lot of these risk issues.

You can manage your legal, your SLAs, and your licenses better when you know that you can pick and choose the location. That longevity issue is solved, when you know you can move the entire block, even if it's under escrow, or whatever. Complexity and fear about forking or immaturity of the infrastructure itself can be mitigated, when you know that you can pick and choose, and that it's highly portable.

It's a round-about way of getting to the point of this whole notion of software-defined data center. Is that really at heart a risk reduction, a future direction, that will mitigate a lot of these issues that are holding people back from adopting cloud more aggressively?

Beavis: From a service provider's perspective it certainly does. The single-pane management window that you can do now, where you can control everything from your network -- the compute and the storage -- certainly reduces risk, rather than needing several tools to do that.

Backup integration

And the other area where the venders are starting to work together is the integration of things like backup, and as we spoke about earlier, DR. Tools are now sitting natively within that VMware stack around the software-defined data center, written to the vSphere API, as we're trying to retrofit products to achieve file-level backups within a virtual data center, within vCloud. Pretty much every day, you wake up there's a new tool that's now supported within that.

From a service provider's perspective it's really reducing the risk and time to market for the new offerings, but from a customer's perspective it's really getting in that experience that they used to. On-premise over a TD cloud, from their perspective, makes it a lot easier for them to start to adopt and consume the cloud.

Gardner: One last chance, Adam, for any examples. Are there any other companies that you would like to bring up that illustrate some of these risk-mitigation approaches that we've been discussing?

Beavis: Another one was a company, a medical organization. It goes back to what we were saying earlier. They had to get a DR project up and running. So they moved that piece to the cloud, and were unsure whether they would ever move any of their production data out. But six months after running DR in the cloud, we just started to provide some capacity.

The next thing was that they had a new project, putting in a new portal for e-learning. They decided for the first time, "We've got the capacity seeing over in the cloud. Let's start to do that." So they’ve started to migrate all their test and dev environment out there, because in their mind they reduced the risk around the up time in the cloud due to the success that had with the DR. They had all the statistics in reporting back on the stability of that environment.

Then, they became comfortable to move the next segment, which was the test and dev environment. And all things are going well. That application will run out of the cloud and will be their first application out there.

We have the team here that can really make sure we architect or build those apps correctly as they start to move them out.

That was a company that was very risk averse, and the DR project took a lot of getting across the line in the first case. We'll probably see that, in six to eight months, they're going to be running some of their core applications out of the cloud.

We'll start to see that more and more. The customers’ roadmap to the cloud will move from DR, maybe some test and dev, and new applications. Then, as that refresh comes up to the on-premise, they would be in a situation where they have completed the testing for those applications and feel comfortable to move them out to the cloud.

Gardner: That really sounds like an approach to mitigating risk, when it comes to the cloud, gradual adoption, learn, test, and then reapply.

Beavis: It is, and one of the big advantages we have at TD is the support around a lot of those applications, as people move out -- how Citrix is going to work in the cloud, how Microsoft Exchange is going to work in the cloud, and how their other applications will work. We have the team here that can really make sure we architect or build those apps correctly as they start to move them out.

So a lot of customers are comfortable to have a full-service service provider, rather than just a platform for them to throw everything across.

Gardner: Great. We've been discussing how a leading Australian IT service provider, Thomas Duryea Consulting, has made a successful journey to cloud computing. This sponsored second installment on how a variety of risks associated with cloud adoption have been identified and managed, comes via a three-part series on how TD designed, built and commercialized a vast cloud infrastructure built on VMware.

We've seen how, through a series of use case scenarios, a list of risks has been managed. And we also developed a sense of where risk as a roadmap can be balanced in terms of starting with disaster recovery and then learning from there. I thought there was really an interesting new insight to the market.

So look for the third and final chapter in our series soon, and we'll then explore the paybacks and future benefits that a cloud ecosystem provides for businesses. We'll actually examine the economics that compel cloud adoption.

With that, I’d like to thank our guest Adam Beavis, the General Manager of Cloud Services at Thomas Duryea Consulting in Melbourne, Australia. This was great, Adam. Thanks so much.

Beavis: Absolute pleasure.

Gardner: And of course, I would like to thank you, our audience, for joining as well. This is Dana Gardner, Principal Analyst at Interarbor Solutions.

Thanks again for listening, and don't forget to come back next time for the next BriefingsDirect podcast discussion.

Listen to the podcast. Find it on iTunes. Download the transcript. Sponsor: VMware.

Transcript of a BriefingsDirect podcast on how a stepped approach helps an Australian IT service provider smooth the way to cloud benefits at lower risk for its customers. Copyright Interarbor Solutions, LLC, 2005-2013. All rights reserved.

You may also be interested in:

• Thomas Duryea's Journey to the Cloud: Part One
• VMware-Powered Cloud Adoption Delivers Bevy of Data and Performance Benefits for Revlon, Says CIO David Giambruno
• Services Provider BancVue Leverages VMware Server Virtualization to Generate Private-Cloud Benefits and Increased Business Agility
• Roundtable: Revlon and SAP executives describe accretive benefits from aggressive cloud adoption
• From VMworld, cosmetics giant Revlon harnesses the power of private cloud to produce impressive savings and cost avoidance
• VMware CTO Steve Herrod on How the Software-Defined Datacenter Benefits Enterprises

Market Confidence in Cloud Soars, Especially Among Providers, Says North Bridge Survey

Transcript of a BriefingsDirect podcast on the state of cloud computing and its future outlook based on a recent survey of buyers and sellers.

Listen to the podcast. Find it on iTunes. Download the transcript. Access the survey.

Dana Gardner: Hi, this is Dana Gardner, Principal Analyst at Interarbor Solutions, and you're listening to BriefingsDirect.

Dana Gardner

Today, we present a special podcast discussion that draws on a new survey about cloud computing and explores the business growth opportunities for buyers and consumers of cloud services alike.

First we'll hear the results of this multi-year annual survey on the cloud market and then explore some of the implications for where the growth opportunities are and where the inhibitors for the growth may be.

Here to share his insights into where the cloud business has been and where it’s going, we're very pleased to welcome Michael Skok, Partner at North Bridge Venture Partners.

For more details on the survey, go to:

 http://www.zdnet.com/blog/btl/the-future-of-cloud-computing-9-trends-for-2012/80511

Before joining North Bridge in 2002 to seek out great entrepreneurs and lead innovative software investments, Michael had himself been an entrepreneur and CEO in the software business for 21 years.

We'll hear the results of this multi-year annual survey on the cloud market.

He founded, led, and attracted more than $100 million in venture backing to his investments in multiple successful software companies. As a VC himself, Michael has invested in many entrepreneurs who have built more than a $1 billion of value, focusing on large market-changing technologies and disruptive business models such as software as a service (SaaS), cloud computing, open source, and mobile.

Current representative investments include Acquia, Akiban, Apperian, Demandware (NYSE:DWRE), and Unidesk, as well as Actifio and Revolution Analytics.

Michael's passion for innovation and entrepreneurship is also fueling his work mentoring and developing the next generation of entrepreneurs. For example, he is currently developing and leading workshops such as the "Startup Secrets" series with the Harvard i Lab. You can follow him at www.mjskok.com and @mjskok.

I'm very happy to welcome you to the show, Michael.

Michael Skok: Great to be here.

Cloud hype curve

Gardner: I'm very intrigued by any survey on the cloud market nowadays, so let’s start at a fairly high level. I'd say we're probably now in about the third year of a fairly steep cloud-hype curve. Is there anything to indicate from your survey and your experience lately that there is a waning interest or enthusiasm for cloud? Are we past the peak? Are we still in a period of where people are still building up their enthusiasm for clouds?

Skok: That’s a great question, Dana, and it falls into two parts. Obviously, there's an increasing interest in understanding cloud, but as cloud has captured so much attention, there is also a respectful, significant actually, interest in understanding what the real applications and potential for it are. People are trying to get beyond the hype, at this stage, to understand the practical applications and opportunities.

Gardner: Is it fair to say that confidence is up because the perceived risks are down, or are we still working through how confident people are and whether there are significant risks here?

Skok: Maybe the best way to answer that is to give you some specific data from the survey, and rather than have my commentary, it will give you the market’s viewpoint on this. That’s one of the key reasons we run the survey -- to try to understand what vendors and customers believe are some of the key issues, both driving and inhibiting the cloud.

So I'll jump in and give you some of the inhibitors first to answer your question on risk, for example, and then perhaps we can talk about some of the drivers. Does that sound good?

Gardner: Yeah.

Skok: On the inhibitors, one of the things that’s interesting this year is that, if you look back to 2011, 10 percent of the survey respondents would have said that the cloud is just too risky, and they gave many reasons last year. This year, we're down to 3 percent. So that’s a significant drop.

Michael Skok

Now, I'd argue that 3 percent says that you're at a point where people are beginning to understand cloud better, because the issues that they are raising are things like data sovereignty and the Patriot Act. Those are very real issues that are unlikely to just disappear, and they are beyond just cloud. They have to do with the reality of how people have to run their businesses.

The good news is that 12 percent feel that the cloud still needs to mature. That's not so significant number, but it’s down from 26 percent in 2011. So again, people are starting to feel that the cloud is obviously meeting more of their needs.

When you look at the issues behind those 12 percent who are looking for greater maturity, there are things that again you would expect to see in an early-stage market -- things like security and compliance, and that’s very typical.

If you looked at any major trend that comes into the marketplace, if you looked at the initial early days of the web and eCommerce, people said things like, "We'll never put our credit cards on the web." Now, not only do we put our credit cards on the web, but we allow people to do Internet banking and take photos of the checks as a means to make deposits from their cellphones.

So things have come a long way, and that’s just the time-scale that it takes. It’s typically several years before things mature and get people confident in these kinds of applications.

Encouraged by results

So I'm encouraged by those results. The next obvious thing that comes out of the survey is how many people are still experimenting. About a third are experimenting, 34 percent to be precise, with concepts in the cloud, driving applications, and using the cloud in some innovative ways.

For example, you see companies like Bank of America, who do trials using the cloud, and if they are successful, they use the cloud’s elasticity to quickly expand their trials. If they're not, they just throw them away. That’s a great example of how the cloud is specifically enabling people to do trials and get to market faster and be more effective.

And the other side of the coin, the great news this year is the rapid growth in confidence overall in the marketplace. If you had asked how many people had complete confidence in 2011, you would have gotten an answer about 13 percent, and this year it was fully 50 percent.

So we're not quite at a tipping point, because you have to double-click on that 50 percent. You have to understand the split between vendors and customers, and vendors were over half. In fact, 56 percent of them have complete confidence in the cloud. So you're seeing net new development in cloud from independent software vendors (ISVs), absolutely the tipping point. You see very few companies starting up today that aren’t building in a cloud.

If you look at the customers, they're not quite at that same level of confidence.

But if you look at the customers, they're not quite at that same level of confidence. Just over a third, 37 percent in fact, have complete confidence. More of them are experimenting and waiting for it to mature, as we were just talking about, and some of them still feel it’s too risky.

So it’s a long answer to your question. I hope it gives you some substance backed up by the survey to get a sense of this, and I am happy to answer any questions behind that.

Gardner: It’s interesting that those who are in the cloud ecosystem themselves are very confident, and you'd think that they would have the most to lose. They're making their investments, but the longer tail toward the consumer side is still catching up to that.

It certainly seems optimistic for the market in general that those in the know -- those that are using these to build business -- that they themselves will be providing cloud services and are so confident.

Skok: It turns out that there’s an interesting representation of players in the survey here, in that we have got both vendors and users responding. There were over 785 in total, mostly C-suite, but more than a third of it are customers.

Of the vendors that are represented, we're covering everything from Amazon to Citrix, to some of the mid-tier players like Rackspace, Red Hat, and others, and also up-and-coming and emerging players, for example, Eucalyptus and Acquia.

Bridge the gap

So it’s a very good breadth of players to drill one level beneath this, and we did that. We tried to understand what’s going to bridge the gap between vendor’s confidence and user’s confidence and we heard five specific things.

Number one, people want more complete value propositions. A lot of what’s being sold at the moment is technology and what people really want is the second key thing, which is clear business benefits. And they want that in the form of case studies, which is the third thing that would help people.

The fourth thing is more proof of specific opportunities that are being addressed in their industry, the vertical specific applications if you will. The bottom line, the fifth thing, is that people want greater return-on-investment (ROI) case studies to be presented to them so that they can put that forward as they champion this on an economic basis.

So to answer your question in summary, Dana, what we'll see is this gap between the confidence in the cloud the vendors are seeing and what users are seeing it is going to get bridged, as we become more able to deliver on the benefits with specific examples that drop right to the bottom line.

Gardner: Just to allow our audience to evaluate the data that we're presenting, tell us a little bit about the survey -- how it was sponsored, when it took place. You've told us already about the participants being C-suite level folks in both the sell and buy side, but tell us a bit more, just so we have a better sense of the quality of this data?

The beauty of the survey is that it represents a broad swath, about 40 of the key vendors.

Skok: Sure and by the way, the full results of the survey, as you may have already pointed out, are available on our site at mjskok.com. Just look under the "Industry for Cloud," and you'll see "Future Cloud."

This year’s survey is an opportunity to get a level set as to what’s going on in the industry, where are we, and to understand what’s going on in the key drivers and inhibitors, because everybody in the ecosystem is trying to understand how to better address the tsunami that’s rolling over the industry in cloud computing.

So the beauty of the survey is that it represents a broad swath, about 40 of the key vendors, both driving and enabling cloud, and also key buyers and C-suite members who are trying to evaluate and deploy cloud.

The idea behind the survey obviously is to enable both sides to get a better understanding of how to take actionable steps toward implementing what might be the next generation of IT. Pretty much everybody recognizes cloud as the platform on which not just applications and solutions are going to get built, but IT is going to transform to the next generation of providing itself as a service in an effective form.

Gardner: When were the results gathered?

Skok: The results were gathered in the summer of 2012, and they're continuously updated.

Independent survey

For example, we're in constant conversations with these vendors and also with the CIOs to continue to keep them fresh. But while we sponsor it, 40 collaborators are driving it. Again, the details of that are on the web, but the point is that it’s an independent survey so that no one vendor is driving it, it’s a collaboration of the industry as a whole to ensure that it's an independent survey.

Gardner: One of the things that jumped out at me, as you were trying to define what we could start to call loosely "killer applications of the cloud," where this is going to get traction, clearly one of the areas was platform as a service (PaaS). So let’s address that. Then, there's also big data -- fast data, analytics in the cloud. How prominent were they in the survey in terms of the priorities or the endgame for these two types of uses?

Skok: That’s a great question. You only skipped one, so I'll cover it briefly. The most surprising thing is just how much SaaS has gained in the survey since last year.

We also worked with Goldman Sachs, to give credit to them, and some of the information is also pulled from the industry as a whole. We found that 67 percent of the survey respondents are already deploying SaaS applications, and the value that people are seeing is in the application solving real business problems.

Respondents were saying that 75 percent of them thought that they would be building software with PaaS in the next five years, which is a big jump.

Of course, SaaS is built on PaaS and infrastructure as a service (IaaS) too. The important thing that you are pointing out is that there was a significant jump of interest in PaaS this year. In fact, looking forward to the future, the respondents were saying that 75 percent of them thought that they would be building software with PaaS in the next five years, which is a big jump.

We have a viewpoint on that, and I'll come back at it in a second, but what’s interesting here is that people recognize that they're going to be building applications. Why would they build them in anything other than in a cloud-based manner? That’s what’s so interesting here.

Now, I'll come back to that, because there’s some interesting controversy around how PaaS will play out and that came out of the survey too. But to talk a little bit about what you were describing as key application areas, big data was certainly one of them. It was top of the list on what people thought would be changed by cloud. As far as which application categories would be disrupted most, big data was at the top of the list.

Beneath that, were others that wouldn't surprise you, for example, customer relationship management (CRM). With Salesforce having led that charge, it’s not surprising that people see that continue to be a key area.

What was exciting to me was that number three was eCommerce. In our own portfolio, for example, we saw one of my investments, Demandware, go public this year and that was real evidence to me that you're going to be able to build confidence in mission-critical applications.

eCommerce applications, like Demandware, are the front door representing major vendors and brands, and people can track the nature of their business literally second by second and measure how much revenue would be lost if eCommerce applications were down.

Mature and strong

So the fact that major retailers and brands now bet billion of dollars on eCommerce as a service gives you a sense that people feel like the technology is in place and mature, strong, and reliable enough for them to back it with their brand and have it at their front door. That was very interesting.

Gardner: Just to expand on that a bit, in addition to retail and consumer side eCommerce, we saw SAP acquire Ariba. So there is obviously some interest in the B2B side as well.

Skok: Exactly. The B2B side is very early, and there is tremendous potential there too. We think that’s relatively untapped and that there's great white space there. You're quite right.

Gardner: So continuing down your list.

Skok: The list obviously is long, but what we did was to look forward and try to understand some of the key areas that are driving cloud and some of the opportunities. I'll cover what we talked about as the future cloud formations and the potential opportunities for applications. Would that be helpful?

Gardner: Yes, please.

Skok: They fall into what we call five cloud formations, and we're specific in talking about formations, as opposed to cloud-washed opportunities. What we mean by that is that you've seen a lot of vendors try to bring out just another level of their application and host it in some shape or form and deliver it via the cloud. That’s really not what we're talking about here.

We think the future is in applications that have been built specifically for the cloud.

Those kinds of things that aren’t true multi-tenant applications that are born in the cloud, and we think they're not the real future here. We think the future is in applications that have been built specifically for the cloud and enable you to do things that you wouldn’t find possible should you not have had the cloud available to you.

The formations we talk about first are media and entertainment. People have gotten used to that with iTunes and their music and Netflix to get their movies online. That was a major revolution and it started initially with web ordering where Netflix was delivering physical DVDs. As the pipes got fatter, we could just physically deliver over the web, and you're seeing more and more of those opportunities.

If you look at gaming, it has also all gone online, and people are taking it for granted. That’s actually a lot of what drove the cloud initially. This media and entertainment formation is very real, here to stay, and we think has tremendous opportunity, especially as the mobile platform expands too.

The second key area is what we call social and collaboration. The social and collaborative cloud is very much understood by people who use Facebook in the consumer world. What's interesting is that it has moved into the enterprise with applications important to supply chain management that are enabling things like tighter inventory control.

Also, there's collaboration all the way down to the customer, so that people can get better service and support, and in many instances self-service, which has a great cost savings and ROI payback.

Easier to collaborate

You're seeing that now start to play out. People are getting used to the fact that it's so much easier to collaborate in the cloud than it is to try to send people on-premise applications to work with, when you want to collaborate with them. We'll see a great expansion of that going forward, too.

The third key area, which I would describe as almost a platform shift, is identified as mobile and that includes location data, too. Mobile, if you think about it, is not possible without the cloud. Again, it goes to a real, true cloud application.

These devices that we carry with us, smart as they are, are nothing without the connections back to the cloud, to be able to do everything from synchronizing our contacts, calendars, and email, to much more important and significant things, such as to connect back to business processes and provide such key information as price lists and contracts for the people in the field to be able to do their job in situ.

That’s a really important shift, and the incredible rise, it's unparalleled, of new devices like the iPad, which has been the fastest growing device ever, in both consumer and enterprise, are giving rise to new demands and new services.

eCommerce has really become something that people take for granted that they can do over the web.

What's perhaps obvious when you think about it, but less obvious in this context, is how much location data is being generated from that. We'll talk about that in terms of the big data formation in a second, but location data is providing new opportunities for new applications. That links nicely to the fourth key cloud formation that we think about. That's commerce and that includes payments.

eCommerce, as we were just talking about, has really become something that people take for granted that they can do over the web. It's not just Amazon anymore, as you said, it's even B2B commerce, for example, that companies are taking a lot of the supply chain, collapsing it, and taking out cost.

That’s being enabled by the cloud. As mobile payments and the payment system in general become more accessible by the cloud, which is more of a political challenge than it is a technical one, that will become a very interesting opportunity for new applications that will be spawned and connected back to the cloud.

All of those applications, as I started to hint at with location data, are generating a huge amount of data, and that’s giving rise to the big data cloud. Big data is interesting on two fronts. It's interesting because with every click and step we take we're creating information that is being collected in the cloud, in a form that you can consider part of the big-data opportunity.

What's interesting on the second side of the coin is that the cloud itself provides the kind of scale, indeed economy of scale, for crunching that data, analyzing it, and providing insight from it.

The fact that you can spin out an analysis of anything from the human genome to a click stream in the cloud, and then provide insight, in some cases in real time, to drive applications wherever they may be and reach them with things like your mobile devices, is really changing the game.

Cloud formations

So these five cloud formations: media and entertainment, social collaboration, mobile and location, eCommerce and payments, big data and analytics, are where we think cloud is dramatically changing the scope of the landscape.

When you look at them, what's really exciting here is what's happening at the intersection. I'd be happy to give you an example of that, if it's useful to you.

Gardner: What's very fascinating to me, Michael, is not just these impressive arenas that you have described on their own, but how they intersect and in many ways multiply each other -- being mobile, having the big data to crunch, relating that data into a commerce activity, and bringing that back out through collaboration or social activities. It's really the whole greater than the sum of the parts here. Please explain a bit where you think that is going or where the survey tells you it's going?

Skok: You said it very well. The sum is greater than the parts here, and you've obviously picked right up on it. We could give you many examples, but I'll take one that’s simple, so that everybody can relate to it.

It used to be that if you thought about going to see a movie, you would have to go and check your local listings, but obviously people are way beyond that today. We can go right online and if it's not available to you at Netflix, you can quickly check to see where it is available on your local cinema from your cellphone geo tag where you are and it can quickly tell you that the closest place to go to see the movie.

Of course, you can use commerce in the cloud to buy it on something like Fandango. Then what's interesting is that you can choose at that time to check out what your friends think of the movie, see the collaboration that’s been going on of reviews from people that you know, and decide whether it's that movie or something else you should see.

At the application level, the big game changer is going to be what I call social commerce.

So you're using all of the things we are just talking about, media and entertainment, social collaboration, mobile and location, commerce and payment, to do all of that.

What gets to be exciting is all that data that’s being generated, if you go and see the movie, or if you rate it yourself, it gets fed back to you in things like recommendations for the next movie you might want to see, or if you take your kids, the kind of merchandizing that follows up with offers to you, and payments that can drive you to make further additional purchases.

And that’s just a simple example. There are many others I can think of that are, exactly as you say, the whole being much greater than the sum of these individual client formations. It's really quite game changing.

Gardner: So who are the beneficiaries? Clearly there is a business to be had providing cloud services and in integrating process benefits across some of these domains. You can sell hardware and software. You can build new business models by either giving consumers things they couldn't get before or making what they had done before far more efficient and productive. But where is the margin?

This gets to the business of cloud. We see Amazon being very aggressive on price, maybe racing to the bottom on some of the commodity services for IaaS for example. And we certainly expect a lot of competition between the likes of Google and Microsoft for cloud and PaaS types of services. Salesforce of course is in there.

But where is the point in all of this where you could say, "Here is another Apple with the iPad. Here is the margin. Here is the place where the business is as revolutionary as the productive benefits of cloud activities?"

Three examples

Skok: Very good question. I'm going to give you three examples at the different levels: so one at the application level, one at the PaaS level, and then one at the infrastructure level. I hope that will be helpful.

At the application level, the big game changer is going to be what I call social commerce. It's the intersection of two of those cloud formations, if not three of them, which is social connections and recommendations, connected with eCommerce, and potentially mobile within there too.

You're going to see there is tremendous opportunity, because what people most rely on when they are actually buying things is their friends and trusted recommendations, and we're very early in that. Surely, people have begun to recognize the power of the like button, but we haven’t yet seen that translate into commerce. We're early in Facebook trying to realize that.

The other extreme, the eCommerce companies, are taking off doing what we call omni-channel commerce, connecting everything from bricks and mortar, and are also recognizing the power of being able to do that as people are out and about with the mobile devices and gaining data on, for example, local offers and so forth.

The next great opportunity is going to come in the combination between social and commerce, and it might involve mobile and local as well. We haven’t seen the next great company emerge from that, but we're certainly seeing many opportunities. At the application level, that’s probably a good example.

People are looking for more analytics, and more of the capabilities that are going to be specifically taking advantage of cloud scale.

To deliver on all of that, one of the things we're taking for granted is that the infrastructure is going to be in place to do all that. A part of the survey that we always take time to ensure we cover is to understand the things that people are actually spending money on right now.

If we look at the intersection between vendors and users, and in the survey it's a slide called "Rainmakers," at the bottom of the infrastructure stack there's still a tremendous amount to do to enable the kinds of applications that you and I are talking about here.

Some things are very basic, the things like single sign-on on authentication to enable this collaboration across the supply chain. More specifically, in mission-critical businesses, it's things like backup, archiving, and business continuity to ensure that all this information is being stored and managed on a significantly scalable basis.

When we looked at all that, the thing that stood out, which is not going to surprise you probably, given that we talked about big data, is that people expect one of their greatest areas of spend to be analytics.

So at the infrastructure level, I think we are going to see some of the things that I talked about that are basic, like next generation of single sign-on. But the big thing that came out was that people are looking for more analytics, and more of the capabilities that are going to be specifically taking advantage of cloud scale.

Insights in real time

Whether that’s using things like Hadoop or next generation NoSQL or NewSQL, our capability is to get those kind of insights in real-time. In the end, the more data that’s being generated, the more we're going to have to step up the scale of analytics to provide insight in an effective time scale.

Those two would exemplify the application opportunities and the infrastructure opportunities. In the middle, as we talked about earlier, there’s a great deal of interest in PaaS, and it's less clear to me what the opportunity is for a specific breakout.

I'll say both what the survey revealed and what it didn’t reveal, which is interesting. We talked about how it revealed that there is a strong interest in PaaS, but when we dig in with vendors, what we see is that the vendors are actually at the bottom of the stack. The IaaS vendors, people like Amazon, VMware, and others, are actually trying to add more capabilities to their IaaS platform, to enable them to feel more like a PaaS.

If you look at Amazon, they've added numerous new services to make themselves more platform like, and they have become the de facto standard there. So they are moving from the bottom upward.

But you also see the SaaS vendors, exemplified by Salesforce.com, introducing their PaaS, like Force.com, to extend the use of their infrastructure or their applications to be more platform like too. There's a pretty big squeeze from the top and the bottom that’s making it difficult to see what will be the white space for a PaaS vendor.

People have historically very rarely made money out of tools. I don't think it will be any different in the cloud.

The honest truth is that I can describe the first two, what the opportunities for the SaaS and IaaS are, but it's not clear to me where the white space is in PaaS, and it feels like it's getting squeezed, if that makes sense.

Gardner: So to sum up, perhaps there is a significant business to be had up and down the spectrum, infrastructure, hardware-software, facilities, management, building out the applications, but perhaps one of the larger two opportunities that's yet to be solidified or clear is in the analytics and in PaaS.

Now, in the past, development was often a tricky market to make money in -- tools, frameworks, IDEs, but in many cases there was a deferment involved. You might break even or even lose money on some of those areas in order to capitalize on the deployment side or even gain lock-in for those applications on a platform, and that's where you would have a very good business.

I think what we're seeing with cloud is something a bit different. When it comes to lock-in, and you have had experience of course in open source software, what are some of the good things and some of the more risky things when it comes to this desire, as we've seen in the past, to lock people in to either a platform, a service, a standard, or even a toolset?

Skok: You're on the money on a number of different fronts. First of all, as you say, people have historically very rarely made money out of tools. I don't think it will be any different in the cloud. The interesting piece in the cloud is you have the runtime potential to make money, but even then, it's an economy of scale game, so it's not a place that's easy for startups to play.

Platform lock-in

The second key point you're making is that people traditionally have looked at it as a means to get lock-in to a platform, and that is the exact thing that people are worried about in this cloud revolution too. The third biggest item of what's inhibiting cloud adoption in the survey is lock-in, and the fourth was interoperability. They were both very high on the ranking.

What people are worried about there is very simple. If we double-click on it, they're looking for three things to avoid lock-in. They want to avoid data lock-in, they want to avoid programmatic lock-in with application programming interfaces (APIs), and they want to avoid being locked into proprietary services or features that can't be transparently supported on other platforms.

That's a real challenge for the PaaS players at this point, because the giant here is Amazon, and they've got a series of de-facto standards. There are some companies like Eucalyptus who have been very smart and are reverse engineering or making sure they are compatible with those standards.

But those that are trying to compete on new grounds are certainly going to have to struggle with gaining critical mass and then answer the question about how they'll provide that interoperability on those three layers we just talked about, to get over that inhibitor of an adoption that people are worried about around lock-in.

People will have open access to the source to modify, adopt, and even change to create their own abstraction layers.

Gardner: So perhaps there's a de-facto standard around Amazon, but being challenged by OpenStack and CloudStack as well. Is there any inference in the survey as to whether the OpenStack and CloudStack approaches would mitigate a de-facto standard evolving rapidly, and how do you view that?

Skok: I'm going to slightly branch outside of the survey and mention that for several years, we've run an equivalent industry survey on open source. It's very widely adopted now, but when we started several years ago, it was early.

We've seen that cloud has very much become a part of open source, not just because a lot of cloud is built on open source, but because, as you say, people are looking at open source as a means to answer this lock-in. It answers one of the key areas, which is certainly programmatic, an API type lock-in.

People will have open access to the source to modify, adopt, and even change to create their own abstraction layers, but that will potentially enable this kind of interoperability.

Things like OpenStack, CloudStack, OpenShift, and other platforms are potentially an answer to that. The challenge there is that they're relatively young and early in their adoption. While they've got significant backing, you have yet to see broad deployment of them yet.

I'm hopeful that open source will provide some of the answer to vendor lock-in. It's certainly being proposed that way and it's being supported that way. If you talk to a certain segment of the user population, they would tell you that it's exactly what they're relying on, but in reality, we're too early to call that one.

Making good money

Gardner: One observation from me would be that the folks that are in a position to make good money on infrastructure, hardware or software facilities, and management, seem to be a natural affinity environment with the OpenStack, CloudStack approach, but those higher up the food chain in cloud that have more of a pure-services business model might be interested in having the de facto standard land in their particular data center. It will be interesting to see how that pans out.

Tell us once again, Michael, how people can get more information on your survey. Where could they go to get the nitty-gritty?

Skok: They can just go to mjskok.com under Industry, Future of Cloud Computing, and the full survey is available from that site on a slideshow for people to click through. Also, it's being covered in many different places by many of the vendors who have supported it. There's a lot of information being disseminated by the collaborators. You have full access to it.

Just to answer your question, because it's too good a question, who has what interest to go where? It's best exemplified by Oracle. Oracle took a long time to enter the cloud market. Of course, they have benefit all the way from hardware out to the applications because of the acquisition of Sun.

That's how they're pushing their cloud approach as a series of applications that are totally integrated from hardware, all the way through to software. That's certainly going to suit some class of buyers.

If you look at major waves like this, it's always a while before people can afford to have best of breed at various different layers.

But if you look at major waves like this, it's always a while before people can afford to have best of breed at various different layers. If you started building application, as we did in some of our investments like Demandware eight or nine years ago, there was no IaaS, there was no real depth of Amazon and no service-level agreements (SLAs) that you could have built a mission-critical eCommerce application on.

That is evolving, and the more stable and capable the IaaS and PaaS players become, new applications will be to take advantage of those, and new vendors will potentially be able to take advantage of best of breed. That's what's interesting about the surveys, but it's all about verifying and tagging the state of the industry to see where we are and benchmark how the future is going to play out.

Gardner: Perhaps what we're seeing is a flip from best of breed being a technology to best of breed being a service or ecosystem approach. And if you can perhaps sweeten the offer of moving your best of breed mentality in that direction by not locking people in, or at least giving them an option to have interoperability, or mobility of their services, then that might be an irresistible offer that the market can't refuse. We just don't know who is going to make it, right?

Skok: That's exactly right. That's perfectly said. A good example to highlight how this is still playing out is Zynga, who reverse burst to their own zCloud because the economies of scale made it worth their while to do that.

If you look forward, people are even talking about cloud brokerages. I think it's too early to do that. Forrester had some thoughts about that and was talking about cloud brokers like travel agents. I think we are a ways off from that.

But in the ultimate scenario, exactly as you were talking about it, you might see a place where you have best of breed, cloud services, and all kinds of cloud formations that we were talking about.

Best of breed

Applications will effectively be an amalgamation of the best-of-breed cloud services and cloud formations that will enable new classes of applications that have interoperability, or at the bare minimum of things like data that's passed up and down supply chains or along applications streams. The consumer is the ultimate benefactor, because they're getting those, not only at best of breed, but hopefully at the lowest cost and at highest value.

Gardner: Then, perhaps it would be embedded services across those best of breed processes that would include widespread analytics, mobility, and location services, so those become more sweeteners to the offer. There would be a race to who can put together the best banquets of services under the best interoperability terms and licensing terms. So again, it could be a very interesting next five years.

I assume that over the next several years, you're going to be continuing to do this survey each summer and therefore get the gravitas that we have seen with your open-source survey.

Skok: Indeed. There's been unbelievable response to it. In fact, just to give you a sense of it, the open-source survey took a number of years to gain the kind of momentum that it's now enjoying in its seventh year here.

This survey gained such incredible popularity that within the first couple of years, it already has as much support from the industry as the entire open-source survey does.

This survey gained such incredible popularity that within the first couple of years, it already has as much support from the industry as the entire open-source survey does. And we have got tremendous demand to continue doing it, from both vendors and customers alike.

We're continuing to use it to keep dialogue between vendors and customers and enhance the industry’s ability to respond to what they see as the future. So  with your support, we will continue to do it.

Gardner: I look forward to periodically dropping in and learning more about the survey results and, of course, some of the insights and inferences that we can draw.

Skok: Thanks.

Gardner: You've been listening to a special BriefingsDirect podcast discussion on the cloud-computing market and how a recent survey at North Bridge Venture Partners helps define the business growth opportunities for buyers and consumers of cloud services alike.

I want to extend a huge thank you to our special guest, Michael Skok, a partner at North Bridge Venture Partners. You can follow him at www.mjskok.com and @mjskok. Thank you so much, Michael.

Skok: Pleasure. Great being with you here, Dana.

Gardner: This is Dana Gardner, Principal Analyst at Interarbor Solutions. Thanks to you also our audience for joining us, and don't forget to come back next time.

Listen to the podcast. Find it on iTunes. Download the transcript. Access the survey.

Transcript of a BriefingsDirect podcast on the state of cloud computing and its future outlook based on a recent survey of buyers and sellers. Copyright Interarbor Solutions, LLC, 2005-2012. All rights reserved.

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