Cloud Computing Adoption in India

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    Cloud adoption in IndiaInfrastructure as a Service (IaaS)Trends and perceptions in the Indian market

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    2 Cloud adoption in India

    The cloud computing Infrastructure as a Service (IaaS) market is at a nascent stage both

    globally and in India. Across industry segments, the Indian market has shown signicant

    interest in the potential of IaaS services. Virtualization, often seen as the rst step in a

    cloud strategy, has begun to be more widely implemented across Indian data centers.

    Related markets such as Software as a Service (SaaS) is experiencing increased

    adoption and this can be expected to contribute to a more rapid implementation of the

    IaaS concept. However, there are signicant barriers to adoption, including the absence of

    an IaaS ecosystem and the lack of awareness of available services on the part of

    potential buyers.

    This report is an attempt to reach out to chief information ofcers (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 dene areas that will benet

    1. Executive summary 04

    2. The Indian IaaS market 06

    2.1 Drivers for cloud IaaS services in the Indian market 06

    2.2 Barriers to adoption in the Indian market 07

    2.2 Familiarity with cloud-computing concepts 08

    2.3 Perception of cloud computing 09

    2.4 Timeframe for adoption 10

    3. Perceived benets of implementing cloud IaaS services 11

    3.1 Perceived operational and business benets 11

    3.2 Moving to an OPEX model 13

    2

    Appendix A: models of cloud computing 25

    Appendix B: the global cloud market 26

    Appendix C: IaaS and the enterprise 29Appendix D: addressing security concerns 32

    Appendix E: customizing the cloud 34

    Contents

    Foreword

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    3Cloud adoption in India 33

    4. Perceived challenges to cloud IaaS services adoption 15

    4.1 Perceived technical, business and environment challenges 15

    5. Expectation from vendors 19

    5.1 Preferred pricing models 19

    5.2 Preferred channel for cloud services 20

    5.3 Enterprise expectation of security and controls framework 20

    5.4 Vendor assessment criteria 21

    6. Recommendations 22

    6.1 Recommendations for service providers 22

    6.2 Recommendations for enterprises 23

    most from a conversation between emerging cloud IaaS service providers and interested

    enterprises in the Indian market. The primary data for this report was collected through an

    Ernst & Young administered survey among leading enterprises and interviews conducted

    with IaaS ecosystem players.

    I hope the ndings 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

    August 2010

    Appendix F: benets of implementing cloud IaaS services 38

    Appendix G: challenges in shifting to a cloud IaaS model 40

    Appendix H: cloud enabling technologies: virtualization 41Appendix I: About the study 42

    Sources: 43

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    4 Cloud adoption in India

    1. Executive summary

    Cloud computing IaaS brings utility computing closer to reality. It has the potential to

    change the way IT hardware is purchased, designed and used. With its promise of innite

    scalability and a pay-as-you-go pricing model, the primary benet that cloud IaaS services

    extends to the large enterprise is greater business effectiveness at lower IT costs. For the

    small and medium business (SMB) segment, cloud IaaS services lower barriers to market

    growth by lowering technology costs and upfront investments.

    What are the primary drivers of cloud adoption in India likely to be?

    On the demand side, improving high-speed connectivity, an emerging SMB segment

    investing in IT infrastructure and increasing enterprise data center expenditure are

    drivers that are expected to contribute to a growing cloud IaaS market. From the supply

    perspective, a maturing traditional IT market and an extremely competitive third-party

    data center market are likely to be primary drivers of cloud IaaS services.

    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 benets of moving at least part of their applications to servers and storage

    on the cloud. The following are among the key ndings 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 benets 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 providersshould play a pivotal role in bringing the ecosystem together.

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    5Cloud adoption in India

    Both enterprises and service providers are likely to benet from a consultative approach

    and in-depth discussions with cloud IaaS service providers in the following areas:

    The differentiating benets of cloud IaaS services

    Pricing structures, nancial models and return on investment (ROI) that a cloud

    adopter can expect from moving to the cloud

    Guidelines and benchmarks to help enterprises select applications that are most

    suitable for adopting either the private or the public cloud models

    Addressing security and data privacy issues satisfactorily

    Extending customer support to adopters of the technology

    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.

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    6 Cloud adoption in India

    2. The Indian IaaS market

    At present, the Indian market does not have a mature ecosystem that supports cloud

    IaaS services. As such, the cloud IaaS market in India is yet to take off. A few players from

    the service provider segment such as Tata Communications, Wipro and NetMagic have

    announced services that are likely to evolve into more stable cloud offerings.

    Tata Communications, for example, offers its customers an advanced virtualized

    environment with exible arrangements to enhance capacity. On the consumer side, Airtel

    is offering Net PCs, low-cost online computers with processing capability accessible over

    the net. Infrastructure providers of the cloud such as VMWare, NetApp and IBM havecrystallized offerings for the private cloud, and have taken proactive steps in educating

    the consumer on the benets of cloud IaaS services. Some of the challenges the market

    currently faces include:

    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 benet from the increasing maturity of these related markets.

    2.1 Drivers for cloud IaaS services in the Indian market

    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-Pacic 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 deploymentand 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 protability 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 protable 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 investedsubstantially 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.

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    7Cloud adoption in India

    Enterprise data center expenditure: With signicant power and electricity overheads,

    enterprise data centers are a major drain on enterprise IT budgets in India.

    Ernst & Youngs survey indicates that more than 80% of the enterprises surveyed are

    considering initiatives to reduce the overall footprint of their data centers. The average size

    of an enterprise data center in the Indian market is in the range of 1,0001,500 sq. ft. The

    cost structure of an average data center is illustrated below. As a result of under-utilization,

    the overhead cost of under-utilized infrastructure tends to be a signicant cost driver.

    Maturing traditional IT market: The growth projection for the domestic IT market is

    between 2008 and 2013 is expected to be 15.8%, as against the average annual growth

    of 25% recorded during between 2003 and 2008 (IDC estimates). With slower growth

    and increasing competition in the traditional IT outsourcing services market, vendors are

    seeking new business models to increase their revenue streams.

    Equipmentcosts

    12%

    Facilitycosts

    10%

    Man

    powercosts

    7%

    Bandwidthcosts

    12%

    Power costs38% Maintenance costs21%

    Data center cost composition

    2.2 Barriers to adoption in the Indian market

    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 specic services that

    vendors in this space offer.

    NetMagic is the rst vendor

    to offer cloud infrastructure

    services in India. As part

    of its cloud-computing

    portfolio, NetMagic offers

    the following services:Cloud Serve is targeted at the

    SMB segment and provides

    disposable servers thatare congured on demand

    depending on business needs.

    Cloud Net is a service model

    that provides the customer

    with the capability to create

    complete IT infrastructure,

    including servers, rewalls,

    load balancers and switches.

    This service specically

    addresses the opportunities

    of hosting portals, disaster

    recovery and the testing of

    mid-sized internet companies

    and traditional enterprises.

    PrivateCloud is a dedicated

    hosted cloud infrastructure

    service catering to large

    individual enterprise

    requirements.

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    8 Cloud adoption in India

    Connectivity: Poor connectivity may prove to be a signicant barrier to adoption. Low

    internet and PC penetration (less than1% in urban areas, 31 PCs per 1,000, according

    to NASSCOMs report, Perspective 2020) are discouraging. However, given the recent

    regulatory progress in third-generation (3G) and fourth-generation (4G) technologies, the

    expansion of private players, government initiatives and the declining cost of PCs, India is

    likely to see considerable progress in broadband and internet connectivity over the next

    two to four years.

    While exact price structures are yet to evolve, vendors are looking to reduce prices by

    at least 2025%. Existing players can expect to see other international and local players

    enter this space. As compared to the global market, India is yet to see the entry of cloud-

    related, value-added software solutions related to billing, provisioning and management.

    This could be a potential challenge for Indian service providers.

    81%

    67%

    41%

    IaaS

    SaaS

    PaaS

    IaaSSaaS

    Key:

    PaaS: Platform as a Service

    SaaS: Software as a Service

    IaaS: Infrastructure as a Service

    PaaS

    Source: EY survey Cloud adoption in India, 2010

    Which of the following concepts of cloud computing are you highly familiar with?

    Familiarity with cloud-computing concepts

    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 benecial spillover effect on the IaaS market can be expected.

    The main drivers of growth

    in the Indian cloud market

    are the SMB segment, the

    current low protability of

    Indian data service providers

    and the enterprises need to

    reduce data center-related

    costs. Ecosystem maturity

    and customer awareness

    of available services and

    connectivity are the current

    barriers to cloud adoption.

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    9Cloud adoption in India

    2.3 Perception of cloud computing

    The positive perception of IaaS indicates a signi...

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