feature In 2008, as the global hype about the emerging class of cloud computing services was accelerating to break neck speed, flamboyant Oracle founder Larry Ellison used the publicity generated by Oracle’s annual OpenWorld conference to utter one of the most punchy and relevant quotes of all time with respect to the cloud. The Wall Street Journal quoted Ellison as saying:
“The interesting thing about cloud computing is that we’ve redefined cloud computing to include everything that we already do. I can’t think of anything that isn’t cloud computing with all of these announcements. The computer industry is the only industry that is more fashion-driven than women’s fashion. Maybe I’m an idiot, but I have no idea what anyone is talking about. What is it? It’s complete gibberish. It’s insane. When is this idiocy going to stop?”
Ellison’s words turned out to be astonishingly on the money; perhaps not surprising when we consider to what extent the executive has been responsible for building the business software market from scratch over the past three decades.
Over the succeeding five years, as every enterprise IT vendor of any stripe jumped wholeheartedly on the ‘cloud’ bandwagon, and virtually every IT service, software or hardware solution in existence — from virtualisation to networking to email — was re-badged as being ‘cloud’, one might be forgiven for echoing Ellison’s comments: When is this idiocy going to stop?
And yet, as cloud computing as a paradigm of technologies progressed along Gartner’s famous Hype Cycle, hit the ‘Peak of Inflated Expectations’ somewhere shortly after Ellison’s comments and then proceeded downwards towards the ‘Trough of Disillusionment’, the idiocy has, to a certain extent, at least slowed down.
In 2008, few in the global IT industry had much concrete idea about what, ultimately, the term “cloud computing” would eventually come to mean. But in 2014, with most large and many small organisations having trialled some variant of this new technology paradigm, technologists are finally starting to get a grip on what the ‘cloud’ is and may be, and how best to use it.
This week and next week, Delimiter will take a closer took at cloud computing use in Australia with a series of two feature articles. The first — this one — will take a closer look at what classes of cloud computing services are proving most attractive to large Australian enterprises, and how they are being used.
And the second piece, to be published next week, will examine whether cloud computing as a phenomenon is delivering on its promises of cutting costs and delivering more flexibility and scalability to Australian organisations.
We have only been able to put together this feature series due to the support of its sponsor, Microsoft. With this in mind, please click to watch this brief video advertisement about Microsoft’s Cloud. The ad is only 31 seconds long and plays in your browser, but watching it will really help support Delimiter.
When trying to get a grip on how Australia is using the cloud, we firstly turned to one of the most well-known surveys of enterprise attitudes towards technology in this country: Ovum’s Australian CIO Survey. Conducted before the CIO Strategy Summit in Melbourne and informed by the event itself, the survey is in its fifth year and provides deep insights into the attitudes of about 70 chief information officers from a range of industries.
Steve Hodgkinson, the director of Ovum’s Government practice in Australia and New Zealand — and a former deputy CIO of the Victorian Government himself — says the survey shows that the vast majority of organisations are using cloud computing services somewhere.
“In it I asked a series of more detailed questions about sourcing strategies, listing about 15 IT activities,” the analyst says, noting that the questions attempt to ascertain how each activity is being sourced — from shared services, in-house, outsourced or through a cloud computing arrangement, for example.
“Two years in a row,” Hodgkinson notes, “the net of it all is about three to four percent of those basket of activities is currently cloud-sourced.” And the percentage grows when CIOs are asked how they plan to source IT activities in one to two years time. The dominant sourcing avenue is currently 75 percent in-house, but the survey shows that reducing to around 65 percent. Shared services and outsourcing is set to remain about the same, but the adoption of cloud sourcing models is slated to grow significantly — even as high as 15 percent.
Asked which types of use cases are being shifted into the cloud, Hodgkinson says it’s the usual candidates — underlying basic IT services such as Infrastructure as a Service (computing and storage capacity) as well as a small handful of applications in areas such as customer relationship management and case and talent management.
A similar survey conducted last year by analyst firm Telsyte showed a very similar picture. The group’s Australian Enterprise Software Market Study examined more than 100 companies and analysed 25 enterprise software categories. The research was based on interviews with 324 CIOs and IT decision makers in organisations with greater than 20 employees on their use and preferences of enterprise software.
The report found, according to Telsyte, that ongoing adoption of cloud-based software is making its mark on Australian organisations, with the Software-as-a-Service (SaaS) delivery model “reaching mainstream levels in software categories such as customer relationship management, email and collaboration”.
These survey results match pretty closely with the broader picture being seen in major organisations such as Australia’s Federal Government.
In October 2012 the Australian Government Information Management Office (now part of the Department of Finance) established its ‘Data Centre as a Service (DCaaS) Multi Use List’, which was essentially its first cloud computing panel. Some 35 vendors, ranging from IaaS companies to Software as a Service providers and more, signed up to supply services as part of the panel.
18 months down the track, Finance now has a solid idea of what kinds of services are being procured through the contract. A spokesperson told Delimiter this week that, to date, 30 contracts had been signed through it so far, with a total contract value of $1.4 million.
Of these, the majority were for Infrastructure as a Service (12 contracts) or Platform as a Service (14 contracts). A small number, four contracts, were for Software as a Service deals. Finance was not able to say why it believed these specific classes of services were more popular, stating that there was not yet sufficient evidence available. However, in general the figures match broadly the picture Hodgkinson saw in the Australian CIO study — IaaS adoption coupled with a small number of SaaS applications.
This picture also matches the real-world use cases which have been publicly disclosed by a wide range of Australian organisations over the past several years.
Most of Australia’s major banks, for example, have deployed their own private cloud computing infrastructure over the past several years (which you could broadly categorise as ‘internal’ Infrastructure as a Service), which allows each bank’s separate departments to easily provision their own server and storage resources and have that usage billed back to them internally. The banks have been leaders in the adoption of cloud computing technologies in the IaaS area because they have very high processing requirements compared to other businesses.
Westpac claimed to have kicked off the private cloud trend back in October 2012, but since that point most of the other banks have gone down the same path (NAB, CommBank, ANZ).
The next phase in the banks’ adoption of Infrastructure as a Service has been adoption of external IaaS platforms such as that provided by Amazon Web Services. The company has seen substantial uptake of its IaaS platform since it launched in Australia in November 2012. Banks such as the Commonwealth Bank of Australia have started shifting some less high-priority loads onto Amazon’s platform (especially public-facing websites, often known as ‘brochureware’), and more will definitely follow.
The first thrust for the major banks in terms of switching workloads into cloud computing environments was clearly test and development processes, but increasingly they have transitioned more and more. ING Direct — a minor bank in Australia but a major international concern — made headlines in May this year when it revealed it had switched its entire production IT infrastructure onto a private cloud platform driven primarily by Microsoft software, in a move the company claimed was a first for any bank in Australia.
And the traditional concerns the banks have had around security and data sovereignty are gradually being addressed as the technology becomes more mature.
“The security excuses, the regulatory excuses, the financial excuses; we’ve heard it too much,” Commonwealth Bank of Australia chief information officer Michael Harte said at an Amazon Web Services event in late 2012. The bank anticipates saving hundreds of millions of dollars through its combined cloud computing uptake. Harte reportedly said:
“As a general rule of thumb, we’re looking for 40 percent improvement in pricing across all the things that we consume as a service.”
Ovum’s Hodgkinson says the boundaries are also blurring between in-house private cloud environments, with virtual environments able to be easily moved between the same technology platforms used in-house and on external cloud environments. “You can literally drag an application with a mouse from one environment to another when it’s still running,” the analyst said, referring to in-house environments using Microsoft server software and the vendor’s external cloud Azure platform. The prevalence of virtualisation giant VMware also means it is easier these days than it has been in the past to transfer virtualised workloads around between platforms.
If IaaS has been taken up rapidly by Australia’s banking sector, it has been other sectors that have pushed harder into the separate Software as a Service category. The fast-growing medium business vertical, for instance, has proven itself to be an extremely rapid adopter of comprehensive SaaS business software suites locally.
Cloud business software vendor NetSuite, for example, whose platform encompasses a range of functions from Enterprise Resource Planning to CRM, financials and more, has disclosed a clutch of Australian medium-sized business customers over the past year or so, including sustainable packaging company BioPak, fast food chain Guzman y Gomez, travel guide group Lonely Planet and more.
Rival Salesforce.com, which tends to play more at the larger end of town, has picked up Australian deals with iconic Australian company Hills (which ditched an $18 million on-premises ERP/CRM rollout for a Salesforce.com rollout), Bank of Queensland and the Victorian State Government’s Department of Business and Innovation.
Larger companies Oracle and Microsoft, too, have had successes with their own SaaS CRM platforms. Local customers who have been provisioned in Oracle’s local datacentre on the Oracle CRM On Demand platform include the Victorian Department of Human Services, NSW government agency NSW Businesslink, NBN Co, AJ Lucas and Suncorp. Microsoft Dynamics CRM Online customers include Redback Conferencing, Australian Power & Gas and group buying site Cudo.
Other SaaS apps are also growing rapidly. Major publishing companies News Ltd and Fairfax have announced major shifts to Google’s Google Apps platform, including its Gmail email service, and Microsoft is also picking up wins with its rival Office 365 platform, with Qantas and home appliance rental franchise Mr Rental picking up the solution recently.
In April this year, in another example, the Queensland Government announced it had signed a $26.5 million deal with Microsoft which will gain the state access to Microsoft’s Office 365 software and services platform. The NSW Government is also conducting a trial of both Google and Microsoft cloud email platforms.
“This new contract means that for the first time all government departments will have access to the same technologies, allowing for greater sharing and collaboration,” said Queensland IT Minister Ian Walker in April. “Access to the most up-to-date IT services and world class innovations will further boost the services Queenslanders receive and help reach our goal of having the best public service in Australia. We are moving from a government owned and operated model to one that uses world-class solutions to deliver flexibility that drive innovation and transformation.”
Some of the other apps which are slowly making their way into the cloud are ERP platforms are storage as a service (both Dropbox and rival firm Box have launched local offices in Australia recently, and are starting to pick up customers), and even larger ERP platforms. One of the most high-profile of these has been a deployment of SAP at the NSW Department of Trade and Investment, notable for its success in an era of widespread public sector ERP failures. And even enterprise cloud social networking platforms such as tibbr and Microsoft’s Yammer are seeing adoption.
Retail giant Coles recently highly praised the Software as a Service paradigm particularly, with the company’s head of strategy and architecture Patrick Ramsden noting at a recent conference that Coles preferred to procure SaaS services wherever possible, or if it had to build its own solution for a certain use case, it preferred to use a Platform as a Service basis to underpin it. Software-as-a-service “is really the ultimate ‘buy’'” Ramsden reportedly said at the time.
Ovum’s Hodgkinson says every major software vendor globally had a plan to convert their existing on-premises offerings to Software as a Service platforms, with the paradigm “rapidly becoming the default way to buy software”. “In the future it will be the exception to buy on-premise software,” he says.
However, there are still categories of enterprise technology use which also remain relatively untouched by the cloud.
All throughout Government, for example, it is possible to find custom, bespoke platforms in areas such as policing, e-health, justice case management and more which are seen as being too complex and custom-developed to be switched into a Software as a Service environment.
Salesforce.com, for example, may be great at providing CRM solutions for many, perhaps most organisations, but it’s hard to imagine a major police force such as NSW Police swapping out its crime database for a Salesforce.com platform.
Likewise, the major banks and government departments remain very reluctant to place any sensitive data into a cloud computing platform which is not located on Australian shores. US cloud computing vendors Amazon and Rackspace have established on-shore facilities, and Microsoft is in the throes of doing the same with its Azure platform, but concerns will remain, due at least partly to US legislation such as the Patriot Act, which makes it possible that such vendors might have to hand over customers’ data to US law enforcement authorities in certain situations — even if that data is stored overseas.
To a certain extent, the maturity of Australian adoption of cloud computing is still also governed by the fact that the nation predominantly still sees the technology as a technology — and not as a fundamental underlying business enabler which can be taken for granted.
As the chief information officer of electronics manufacturer Altium for four years, Alan Perkins was seen as a very early adopter of cloud computing technology in Australia. He’s now chief technology officer for Rackspace.
Perkins says that ultimately Australians will start seeing cloud computing the same way we currently see roads — as underlying infrastructure which we take for granted. “With a road, we can go wherever we want. We want to focus on being in B and not getting from A,” he says. “The context should be irrelevant. I shouldn’t be thinking about toll gates, negotiating pass-through rights.”
Perkins says where Australia has seen cloud computing adoption so far, there have been clear business benefits. However, in future, the true benefits of the new paradigm will be seen when businesses adopt a hybridised approach to technology that means they will stop paying particular attention to what technology they’re using, and focus on the outcome instead — the destination, and not the particular method of getting there. We’re on our way, and early cloud categories such as IaaS and SaaS (particularly CRM) are showing the path. But as a nation, we’re not quite there yet.
Stay tuned next week as we look at whether cloud computing as a phenomenon is delivering on its promises of cutting costs and delivering more flexibility and scalability to Australian organisations.