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This report is an attempt to reach out to chief information officers (CIOs) and analyze
their expectations from, and perceptions of, the Indian IaaS market and draw relevant
inferences for the entire IaaS ecosystem. It intends to define areas that will benefit
06
I hope the findings of this research provide you with valuable insights and I encourage you
to share with us your comments, questions and suggestions. I look forward to continuing
our discussions on this constantly evolving and exciting space.
Milan Sheth
30 June 2010
6. Recommendations 22
What are the primary drivers of cloud adoption in India likely to be?
Our survey targeted CIOs of enterprises belonging to both the SMB and large enterprises
segments. On the buyer side, despite the low visibility of IaaS vendor services in the
market, most CIOs surveyed are aware of, and have expressed interest in, the concept and
the potential benefits of moving at least part of their applications to servers and storage
on the cloud. The following are among the key findings from the survey:
• Positive perceptions, awareness levels and expected timelines for adoption are
indicative of a market that is ready to experiment with cloud IaaS services.
• Effective communication from service providers at this stage should dispel some of the
concerns that enterprises have around ecosystem maturity.
• The SMB segment is more attuned to the benefits and challenges of the cloud.
Furthermore, the maturity of the ecosystem is less of a deterrent to the SMB segment.
This makes the SMB segment ideal to approach as an initial adopter of cloud IaaS
services.
• Enterprises perceive data security and privacy as the biggest barrier to adoption.
• Third-party data service providers and traditional IT service providers are being viewed
as the primary channels for enterprises to buy cloud services from. Such providers
should play a pivotal role in bringing the ecosystem together.
For the purpose of this report, IaaS includes both computing/processing capacity and the
storage capacity available through remote virtual server infrastructure.
The cloud services ecosystem is evolving rapidly. Active participation from both service
providers and enterprises at this juncture will help create a more robust ecosystem and
shorter time to adoption. In this report, we evaluate the opportunities, advantages and
challenges for cloud computing infrastructure as a service adoption in India.
• Ecosystem maturity
• Customer awareness of services
• Connectivity
The market is seeing a concerted effort in the related Software as a Service (SaaS) space.
The SaaS market is increasingly gaining acceptance in the SMB segment, indicating a shift
in the thought process of CIOs and IT decision makers. A recent NASSCOM EmergeOut
session, held in August 2009, focused on SaaS and the cloud market. The IaaS market is
also likely to benefit from the increasing maturity of these related markets.
While the market is currently at an embryonic stage, the presence of several positive
drivers lends to the promise of cloud IaaS services evolving into a fast-growth segment.
SMB segment: The size of the Indian SMB market exceeds that of any other country in
the Asia-Pacific region. India is also forecasted to achieve the highest SMB IT expenditure
growth rates, with more than 50% of the expenditure expected to be dedicated to
hardware. Even at its current stage of maturity, cloud IaaS is a viable proposition for most
enterprises in the SMB segment. Cloud IaaS services give SMBs access to technologies
they would otherwise not be able to afford. The low lead time of cloud IaaS to deployment
and scalability also negates technology barriers to growth. For vendors offering IaaS, the
Indian SMB market provides a unique opportunity to enter and grow this segment.
Low profitability of third-party data center service providers: Third-party data centers
currently operate at extremely thin margins. This can be largely attributed to the product
mix, which leans toward basic co-location services rather than value-added, high-margin
services such as managed hosting. Cloud IaaS services offer service providers the
opportunity to leverage their existing IT investments to create a new line of value-added
services with more profitable revenues.
ISP telecom operators: Moreover, in the Indian context, internet service providers
(ISPs) own and operate many of the larger data centers. Telecom ISPs have invested
substantially in bandwidth creation, and currently, the market has excess bandwidth
capacity. Introducing cloud IaaS services to their current portfolio will help ISPs increase
bandwidth usage and increase customers’ switching costs.
Ecosystem maturity: While the cloud IaaS space has elicited interest from a number of
larger players across both system integrators (SI) and telecom ISP providers, there are
very few ‘true’ cloud offerings at present. This is a major deterrent for a potential cloud
IaaS customer.
Customer awareness: Most potential customers are knowledgeable about IaaS services.
However, they not aware of its overall impact and the return on investment (ROI) that
adopting such technologies can yield. They are also not aware of the specific services that
vendors in this space offer.
PaaS 41%
SaaS 67%
IaaS 81%
Gauging from the awareness indicated by 81% of the survey respondents, IaaS awareness
is certainly not expected to hinder cloud IaaS service adoption. A related question on
areas of adoption indicates that people are equally open to adopting cloud in storage and
processing capability.
Further, the survey indicates that awareness levels on SaaS are currently lower than that
of IaaS. The SaaS market in India has only just begun to enter a phase of realization. SaaS
vendors are pushing aggressively in the market for the adoption of their services. As this
market grows, a beneficial spillover effect on the IaaS market can be expected.
The positive perception of IaaS indicates a significant mainstream market that vendors
can target. Of the total respondents surveyed, 68% have a positive mindset toward cloud
computing, with 24% regarding it as a driver of the next wave of IT innovation and 44%
believing that it will mature in a few years.
Around 20% of the respondents were not aware of cloud-computing services in great
detail. This section represents a sizeable percentage that is likely to benefit from customer
outreach programs, industry events and demonstrations educating them about the
concepts as well as the benefits of cloud computing. A minority of 12% believes that cloud
IaaS services will not suit their business needs.
20%
44%
24%
12%
44%
The survey response indicates that more than 70% of the respondents are looking
to adopt the technology in the next three years. The implied pattern of adoption is
also indicative of an innovation diffusion curve, with a significant mainstream market
developing in the next three to five years.
Early majority
8%
20% 12%
44% 16%
Mainstream market
42%
Scalibility 38%
14%
4%
42%
High uptime 33%
21%
4%
38%
Reduced risk of 42%
technology obsolence 17%
4%
29%
Improved hardware 27%
utilization 25%
17%
29%
Improved datacenter 21%
efficiency 33%
17%
25%
Faster deployment 21%
50%
4%
Extremely significant Fairly significant Significant Not a driver
80%
70%
60%
50%
40%
30%
20%
10%
0%
Scalability High uptime Reduced risk Improved data center Faster speed
of technology hardware efficiency of deployment
obsolence utilization
Business benefits
29%
Ability to focus on 38%
core activities 29%
4%
29%
Usage-based 33%
payment 29%
8%
25%
42%
No capital investment
25%
8%
13%
42%
Intangible benefits
33%
13%
8%
33%
Ability to innovate
42%
17%
40%
30%
20%
10%
0%
Ability to focus Usage based No capital Intangible Ability to
on core activities payments investment benefits innovate
There is a distinct difference in the perceived benefits of cloud by the SMB and enterprise
segments. The SMB segment considers cloud IaaS services for “true” cloud benefits, while
the large enterprise perceives benefits on the operational side that are generally derived
from an outsourcing model.
• The SMB segment has cited high uptime as the top operational benefit, while large
enterprises regard lower risk of technology obsolescence as the most important
operational benefit.
• The SMB segment regards usage-based payments and low capital investments as
extremely significant business benefits, while the large enterprise perceives the ability
to focus on core activities as the top business benefit.
Cost does not seem to be a factor in driving the decision to adopt cloud IaaS services.
Surprisingly, both the SMB and large enterprise segments have given lower priority to
other typical cloud benefits such as the ability to innovate and faster deployment. This
may be indicative of an awareness gap of the differentiated benefits that cloud IaaS
services are capable of delivering.
At 58%, the majority of the respondents favor a model that facilitates the shift of
expenditures from a capex to an OPEX model.
indicates an area to be
58%
addressed during the initial
contact with a potential
buyer of this segment.
The following section summarizes some of the key challenges the Indian market perceives.
71%
Data privacy and 17%
13%
security
50%
Latency 29%
17%
4%
46%
Resource uptime 29%
25%
8%
Unsure of impact on 54%
current IT 29%
8%
100%
80%
60%
40%
20%
0%
Data security Latency Resource Unsure of impact
% uptime on current
IT architecture
Data security and privacy is a major concern for enterprises considering implementing
cloud IaaS services. Cloud IaaS is a distributed computing model with inherent ambiguity
around where the data resides. This distributed model leads to a perception of higher risk
and security challenges. A cloud service provider can mitigate these risks by establishing
an effective security and controls framework (appendix D) in the following areas:
50%
Vendor lock-in concerns 33%
(inability to switch vendors easily or 13%
bring operations back-in) 4%
29%
Not sure about the ROI to be 29%
expected if I invested in 29%
cloud computing 13%
21%
25%
Internal resistance
25%
to process change 29%
8%
Loss of control over 33%
17%
IT operations 38%
70%
60%
50%
40%
30%
20%
10%
0%
Vendor lock-in Not sure of ROI Internal resistance Loss of control
Enterprises are also unsure of the cost savings that cloud computing can help them
achieve. Vendors need to develop comprehensive financial models detailing the
comparison of in-house infrastructure with cloud IaaS to help firms estimate the ROI.
Usage-based pricing models with monthly or hourly billings can be used to compare costs
with the current datacenter costs and estimate the ROI.
46%
Lack of mature service providers 38%
17%
25%
No vendors available with 54%
a consolidated value proposition 21%
21%
Lack of ecosystem that supports 38%
adoption of the service 42%
50%
40%
30%
20%
10%
0%
Lack of mature No vendors Lack of Lack of
service providers available guidance ecosystem support
8%
13% 29%
25%
25%
Annual contract based on monthly capped resource requirements with overage charges
Month to month minimum commitment on resource usage with overage
Month to month resource usage based charges without any contract
Monthly/Annual charges per user
Others
The essence of the cloud IaaS model is a pay-as-you-go financial model. The high percentage
of respondents indicating their preference for annual contract-based pricing indicates lack
of clarity on the cloud’s financial model. Further analysis indicates that the majority of the
respondents opting for an annual contract-based model are the large enterprises, while the
majority of the SMB segment prefers the resource-based usage model.
At this stage, a single pricing model is unlikely to satisfy all potential customers in the
market. Vendors need to have pricing structures that are easily understood, transparent
and offer substantial benefits in terms of cost savings. Options for alternative pricing
models can be as follows:
• A true pay-as-you-use model based on the use of resources such as per hour usage or
CPU cycles consumed will be attractive to the SMB segment.
• More flexible models integrating the features of usage- and contract-based pricing can be
developed, where server instances can be charged on a daily or monthly basis instead of hourly.
• Reserved instances with discounts on hourly rates can be more cost-effective for larger
enterprises with visibility on demand. Reserved instances are likely to help large enterprises
better estimate and plan their cloud IaaS needs.
46% 46%
8%
The stated preference of enterprises to buy cloud IaaS services from IT service providers
or data center service providers could mean that the cloud computing idea becomes
central to these service providers’ portfolios. Equipment vendors should recognize and
respond to this possibility.
For data center providers, cloud IaaS services may prove to be a more profitable source
of revenue as compared to their existing service/product mix. IT service providers looking
to leverage the cloud IaaS opportunity should form alliances with third-party data center
service providers or invest in building their own infrastructure.
Data center service providers and IT system integrators also need to play a pivotal role in
bringing the ecosystem together to demonstrate commitment to security, service-level
agreement (SLA) adherence and complete support at every layer of the cloud
service model.
33%
29%
25%
13% 13%
4% 4%
• Disaster recovery
• Business continuity planning
• Identity access management
• Data encryption
• Security certification
• Third-party audits
88%
Data security and privacy 4%
8%
75%
SLA compliance 21%
4%
58%
Cost competitiveness 29%
13%
58%
Portability and interoperability 25%
13%
4%
Vendor support network 46%
42%
13%
42%
Pricing models 46%
13%
38%
Past track record 38%
21%
4%
Data security and privacy again shines through as the top differentiating factor for the
enterprise. Providers should refer to Appendix D for an initial guidance on security areas
to be considered for cloud adoption.
While vendor lock-in and lack of guidance are perceived to be challenges to cloud-
computing adoption, interoperability and vendor support network are not rated very high
on the criteria list of vendor assessment. This indicates that both these factors can be
expected to be barriers to adoption and associated with the environment rather than as
differentiating factors between vendors. With cloud IaaS services being a new business
and operational model, a high degree of customer interaction during the sales cycle and a
strong support framework will assist customers in adopting the technology seamlessly.
1. Develop a cloud IaaS strategy: The market is ready to experiment with cloud IaaS.
Cloud providers should incorporate a cloud IaaS strategy in their overall portfolio and
initiate communication with potential buyers on the drivers and total value proposition
of cloud IaaS services to enterprises. Storage as a Service can serve as an initial service
offering, since it is an easier area for enterprises to experiment and integrate with. There
is an expressed need-awareness gap on the storage offering in the market, with 55%
indicating their readiness to adopt the technology and only 33% indicating awareness of
the service.
2. Reach out to the SMB segment: Providers should target the SMB segment for initial
adoption. The SMB segment is more attuned to cloud benefits and challenges, thus
making the SMB segment the ideal early adopter of the technology.
3. Develop go-to-market strategy focusing on future roadmap for cloud IaaS: Providers’
go-to-market strategies need to be aggressive in communicating the cloud IaaS services
currently on offer as well as the future roadmap of these services.
4. Set up test labs: To allay apprehensions surrounding the actual applicability of cloud
IaaS services, vendors should set up test areas, which customers can access on an
experimental basis. This will allow enterprises to experience the technology before full-
scale adoption.
5. Communicate with buyers on the perception of cloud benefits and challenges: The
perception of these benefits and challenges need to be factored into communication
strategies, service offerings and SLA structures.
6. Develop pricing models and ROI expectations: Enterprises are expected to benefit
from detailed financial models benchmarking in-house data center costs with the
investment and running costs associated with the cloud IaaS model, using different pricing
models to help estimate the ROI.
8. Building the ecosystem: Data center service providers and IT system integrators
should also play a pivotal role in bringing the ecosystem together and demonstrating the
commitment to security, SLA adherence and complete support at every layer of the cloud
service model.
9. Building competitive advantage: Some of the ways in which cloud service providers
can build their competitive advantage in this space include:
10. Addressing security concerns: Cloud computing IaaS services constitute a distributed
computing model with inherent difficulties in locating where the data is stored. This leads
to a unique set of security challenges and concerns.
Enterprise IT decision makers need to continue monitoring the market in the short
term for provider strategies around cloud IaaS services. Enterprises at the forefront of
technology adoption should start interacting with service providers to understand current
offerings. Although the ecosystem does not appear to be mature enough to extend
support to a complete cloud IaaS services portfolio, the economic crisis could well serve
as an impetus to both providers and enterprises to opt for the cloud. With providers
beginning to invest in infrastructure, the economics and feasibility of cloud services are
likely to evolve rapidly.
Virtualization
Principal characteristics
Abstraction of infrastructure
Storage Server Network
Pooled resources
Hardware Services oriented architecture
Scalable
Power HVAC Land
Utility based model of consumption
Facilities
40
35.2
35
28
30
USD billion
25 22.3
20 17.8
16.2
15 12.8
9.4
10 6.9
5.1
3.7
5 2.2
0
2008 2009 2010 2011 2012 2013
Year
While the market share of cloud services is forecasted to be around 10%, its growth
trajectory, at a CAGR of 22.5 %, is four times the growth of traditional IT. IaaS accounted
for 14% of the total cloud market in 2008 and is expected to grow to account for
approximately 29% of the overall cloud market in 2013. This is expected to position the
IaaS market at USD12.8 billion in 2013.
Among the major factors contributing to the growth of the IaaS market is a maturing
ecosystem. Amazon.com was one of the first to offer cloud IaaS services on a commercial
scale, and has successfully established market dominance in this space. Amazon currently
has more than 440,000 developers registered with Amazon EC2 and storage services.
IBM is also betting heavily on becoming one of the few true utility providers of technology.
The company has strategically located IBM cloud labs in both major and emerging
markets. IBM is now looking to leverage these cloud labs to address the specific needs of
customers experimenting with transitioning IT requirements to the cloud model.
Within a short span of time, other top players such as Google and Microsoft started
offering cloud products. A number of niche players are also challenging Amazon’s market-
leading position, including service providers such as Savvis, Verizon, Box.net, GoGrid and
Terramark. Support and commitment from large players have also led to a concerted
effort to educate customers through conferences, seminars and publicity. Industry
forums such as the Open Cloud Alliance are focusing on resolving some of the barriers to
cloud adoption, including inter-operability and security. An extremely robust developer
community that has taken to developing and deploying applications on the cloud has also
helped popularize cloud IaaS services.
Instances are charged on hourly usage basis, with charges increasing in tandem with
compute capacity. There is also a provision to reserve the instance by making a low
one-time payment with a significant discount for its hourly usage rate. Limited inbuilt
memory for a server instance is free. More volume of data can be stored in Amazon
Storage Services (S3), where it is billed at storage rates. Data transfer is billed based on
data transferred in and out of Amazon EC2. Elastic IP and elastic load balancing are also
charged separately.
On the buyer side, adding cloud IaaS leads to reduced capital spending on hardware and a
progressive shift from a capital to an operational model of IT expenditure. The degree to which
an enterprise implements cloud IaaS services can be directly related to the company’s growth
stage. A start-up company is more likely to use cloud infrastructure for most of its IT needs, as
this is expected to drastically reduce entry barriers. Larger enterprises are likely to use public
clouds to meet stretch capacity needs, while continuing to use private clouds and existing
enterprise data centers for heavier applications that require more uniform resource usage.
Integrating in house data centers with cloud infrastructure
Physical infrastructure
Enterprise data center
Cloud provider
CaaS is conducive to a variety of processing needs, and has so far been used primarily for
the following:
• July Systems: July Systems is a leading mobile media company offering feature-rich
mobile solutions for live events, updates and advertising on its Mi™ Channel. July
Systems Live Center on Mi™ faces extremely dynamic requirements due to support
extended for multiple devices, dynamic content and the personalization of delivered
content. The platform also faces steep hikes during sports events and live news.
July Systems uses Amazon’s cloud computing services to cost-effectively scale its
business.
• British Telecom: British Telecom uses AppLogic to deliver market-leading, on-demand
telecom services using only a web browser and basic IT skills. 3Tera offers AppLogic
utility computing services through a grid platform that converts commodity servers
into scalable grids, on which users can visually operate, deploy and scale transactional
web applications without any code modifications.
• Eli Lilly: To invent a breakthrough drug, Eli Lilly needed 25 servers to crunch large
volumes of data. Rather than taking months to become functional, Eli Lilly took
the alternate cloud route. Eli Lilly created an account on AWS and had 25 servers
operating almost instantaneously. Consequently, transactions were completed within
a day at a total cost of USD89.
Differences in cloud models arise from the deployment method and the way in which a
customer chooses to access cloud IaaS services.
Deployment models
Cloud services are primarily deployed and managed in three modes: public, private and
hybrid. The deployment models differ on two important factors:
• Service access
• Service control/ownership
Cloud-deployment models
Managed hosting
Third party
shared Hybrid
managed
dedicated
Deployment
Managed by
organization
internal IT setup
IT team
Private clouds: An organization or its designated service provider supplies private cloud
services with dedicated firewalls and operating environments. The organization controls
the management and security of the cloud IaaS.
The challenges to private cloud adoption are primarily around high initial capital
investments and less scalability due to the limited availability of resources as compared to
a public cloud.
Hybrid clouds: Hybrid clouds are a combination of public and private cloud offerings. They
enable the organization to retain direct local control over critical data while continuing to
offer the advantage of the economies of scale available through a public cloud for services
that are not critical. For example, a single application such as email systems can span
through both realms by linking an on-premise email infrastructure with a public cloud
service for continuity. This can help organizations reduce the total cost of IT operations
while still meeting their security and regulatory requirements.
Service access
Private cloud Public cloud
Service control/ownership
Enterprise Third party
A number of network options such as public internet, private dedicated lines or hybrid solutions (VPN) should be evaluated to select
the best-access option for the service. Performance and cost are among the parameters that are used to judge the network. Indian
ISPs currently provide high-speed broadband ranging from 100Mbps for public internet to Ethernet-based WAN 10Gig-Ethernet of
dedicated internet access for enterprise customers. Network options such as VPN provide enterprises with the same capability that
private leased lines traditionally deliver, but with cost savings enabled through the use of shared networks. Virtual private cloud is
built on the concepts of VPN, providing enterprise-level security to resources deployed on the vendor’s public cloud platform.
Lower costs: The combination of reduced capex with a pay-as-you-use model effectively
changes the profile of IT expenses from capex to OPEX.
Data centers currently account for around 30–45% of enterprise IT costs. Data center
capacity is usually provisioned for close to peak-capacity utilization, while actual
utilization varies between 15–45%. Apart from the direct costs of setting up the data
center, the actual running costs almost double the actual cost on a per server basis. This
is primarily due to high overheads arising from power and cooling requirements. The
cloud model eliminates the overheads with the pay-as-you-use model and the dynamic
allocation of resources based on actual demand. Public clouds are also most likely to have
infrastructure with higher processing capacity, which translates to lesser time to run
compute-intensive applications.
100% utilization
100%
Planned utilization
80%
Overheads that
can be eliminated
60%
using cloud
40%
Actual utilization
20%
0%
5 years
Low entry barriers: Cloud computing reduces the barriers to entry because infrastructure
is rented rather than purchased. With minimum upfront capital investment, even firms
with lower IT hardware budgets can leverage the scale and capability of the cloud provider
to build applications on the latest technologies. To the SMB enterprise, cloud IaaS services
extend the benefit of minimizing start-up costs by making available much of the required
computing capacity easily. For the SMB segment, this becomes the primary driver for the
adoption of cloud IaaS services.
Elasticity and scalability of resources: The capabilities available for rent appear to be
infinite and can be purchased in any quantity at any time — an application never “goes
down” due to the inability of infrastructure to scale up to demand. Computing resources
can be rapidly and elastically provisioned to quickly scale up and rapidly released to swiftly
scale down. The capability to provide and use multiple systems simultaneously for high-
process computing needs also has the potential to significantly reduce overall time to
complete operations.
Automation
Application Application
Cloud computing
Management Management Management
Survey highlights:
48%
10% 24%
Currently using In the next one to three years In the next three to five years In the next year Not sure
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