cloud computing: the telco opportunity

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    the way we see it

    Cloud Computing

    The Telco Opportunity

    Telecom & Media InsightsIssue 57

    Telecom, Media & Entertainment

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    Contents

    1 Abstract 1

    2 Introduction 2

    3 Market Dynamics 3

    4 Telco Activity in Cloud Computing 5

    Target Segment 5

    Service O erings 6

    Entry Strategy 7

    5 Attractive Opportun ities or Telcos in Cloud Computing 8

    Low Hanging Fruits 9

    Phase 2 10

    The Future 10

    6 Recommendations 12

    Service O erings 12

    Service Delivery 13

    Customer Segment 13

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    Cloud computing is the latest technology trend in which IT in rastructure andso tware programs are accessed over the Internet or private networks. Cloudo erings can be largely categorized as So tware as a Service (SaaS), Plat orm as aService (PaaS), and In rastructure as a Service (IaaS) (see Figure 1). These servicesare delivered via three main models: public cloud 7, private cloud 8, and hybridcloud 9.

    Enterprises o all sizes are being increasingly drawn to cloud computing. Bene tssuch as reduced IT costs, pay-per-use, better resource utilization, and elasticscalability are driving its uptake. The percentage o CIOs interested in cloudcomputing has grown rapidly rom 5% in 2009 to 37% in early 2010 10. The risinginterest in these services is driving increased enterprise spending, and as a result,cloud computing presents an attractive revenue potential or technology playersand telcos alike.

    While the bene ts o cloud computing make it attractive or customers, concernssuch as data security, privacy, and compliance have slowed down the pace o adoption. For instance, strict privacy laws that place limits on the movemento in ormation beyond the borders o the European Union, have hindered theevolution o cloud computing in Europe.

    Software applications running on aCloud infrastructure

    Applications are accessible througha thin client interface such as webbrowser

    Delivering storage, computing,monitoring and backup servicesfrom the cloud

    Companies can manage their infrastructure remotely

    SaaS Offerings

    IaaS Offerings

    Applicationruntime

    environmentWeb serversDatabases

    ApplicationsEnd-user applicationsavailable throughInternet

    The Cloud

    Stack of Cloud Services

    Service Catalog,component library

    Monitoring and management of: -- Services & Resources- Virtual servers (Virtualization)- Physical servers

    (Datacenters)

    VirtualInfrastructure

    ApplicationDevelopmentEnvironment

    Applications built using toolssupported by the provider

    Clients have control over theapplication hosting environment

    PaaS Offerings

    Source: Capgemini TME Strategy Lab Analysis

    7 Public cloud services are delivered to multiple customers from third party data centers over the Internet.8 Private cloud is deployed within an enterprise for its internal use.9 In a hybrid cloud model, some resources are provisioned and managed in-house while others are

    delivered from the cloud.10 Harvard Business Review,What Were Watching in Cloud Computing , http://hbr.org/2010/06/what-

    were-watching-in-cloud-computing/ar/1.

    2 Introduction

    Figure 1: Categorization o Cloud Computing O erings

    A ter care ully weighing the bene ts and risks o cloud computing, severaloperators have advanced into this lucrative market. However, the key challengeahead or these operators is to di erentiate themselves in this highly competitivearena. In this paper, we take a close look at the cloud computing space, quali y theopportunity or telcos, and propose some recommendations around how operatorscan maximize the opportunity in this market.

    Given the revenuepotential, telcos should notnot delay their entry in thecloud computing space

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    Telecom, Media & Entertainment the way we see it

    3Cloud Computing The Telco Opportunity

    Worldwide IT cloud services revenues are expected to grow rapidly at a CAGR 11 o 26% rom 2009 to 2013 to reach US$44.2 billion. While SaaS will continueto contribute the highest to the overall revenue, its share is expected to decline,largely due to an increased enterprise ocus on IaaS (see Figure 2). The rapidgrowth o IaaS will be uelled by a keen interest rom businesses on curbing thehuge costs associated with IT in rastructure.

    Several companies are competing aggressively to grab the largest share o thelucrative cloud computing market. These players all largely under one o thesethree categories: enablers, vendors, or service providers (see Figure 3). The role o some mature players, however, can also span a number o categories. For instance,both Cisco and IBM are cloud enablers as well as CSVs 12.

    Source: Capgemini TME Strategy Lab Analysis; Forrester Research; Cloud Computing 2010, An IDC Update , September2009

    11 Compound Annual Growth Rate.12 Cloud Service Vendors.

    3 Market Dynamics

    x% CAGR

    69%

    10%

    21%

    58%

    13%

    29%

    21%

    35%

    37%

    $17.4billion

    $44.2billion

    Figure 2: Worldwide IT Cloud Services Revenue (US$Bn) and Growth Rate by

    Service Type

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    Leading technology vendors such as Amazon, Sales orce.com, and Microso t haveestablished a rm ooting in this market and o er a range o services spanningSaaS, PaaS, and IaaS (see Figure 4). In terms o revenues, the current CSVlandscape is dominated by players such as Sales orce.com, Amazon, and Oracle.Sales orce.com, the leading provider o SaaS CRM13 solutions, reported revenueso over US$1billion14 in 2009, which is the highest amongst CSVs. The success o these leaders can be attributed to their technical prowess, early mover advantage,and the strong ocus on cloud computing.

    Though large technology players have emerged as leaders in cloud computing,several smaller companies such as Rackspace and Netsuite are trying to carve theirniche. Telcos such as BT and AT&T have also entered this market. In the nextsection, we will evaluate the cloud computing initiatives and strategies o telcos.

    13 Customer Relationship Management.14 Company Websites; Annual Report.

    Source: Capgemini TME Strategy Lab Analysis

    Source: Capgemini TME Strategy Lab Analysis; Company Websites

    Service ProvidersCloud ServiceVendors (CSVs) Cloud Enablers

    Provide cloud focusedbusiness consulting, andtechnology services such assystem integration, cloudmigration, and maintenance

    Provide the actual cloudservices, spanning SaaS,PaaS and IaaS, to customers

    Provide the technology,infrastructure , platforms, andmiddleware to enable theprovision of cloud services

    Examples Software (SaaS)Application

    DevelopmentPlatform (PaaS)

    Servers Storage

    Oracle on Demand Cisco Webex Salesforce CRM IBM Lotus Live Salesforce Force.com Google App Engine Microsoft Azure Amazon Web Services BT Orange Business Services AT&T GoGrid Rackspace

    EMC MozyEnterprise Nirvanix CloudNAS

    Figure 3: Stakeholders in the Cloud Computing Ecosystem

    Figure 4: Enterprise Cloud O erings o Select Vendors

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    Telecom, Media & Entertainment the way we see it

    5Cloud Computing The Telco Opportunity

    Compared to market leaders such as Amazon and Sales orce.com, telco entryinto cloud computing has been reasonably late. While Sales orce.com startedo ering services in 1999, BT and T-Systems, one o the earliest telcos to o er cloudsolutions, entered only in the 2003 to 2004 time rame (see Figure 5). Despite thelate start, several telcos such as BT, AT&T, and Verizon are competing aggressivelywith market leaders to establish a strong oothold. The majority o operators havetaken the role o a CSV while a ew such as Verizon also act as service providers.This section presents an overview o key telco strategies in cloud computing.

    Target SegmentThe cloud computing o erings o most telcos are targeted towards the enterprisesegment. Enterprises and governments spend nearly US$2.4 trillion worldwide 15 on IT products and services, many o which can be delivered rom the cloud. Thishigh revenue potential makes the segment attractive or operators. Moreover, theconsumer cloud space is nascent and the revenue opportunities limited.

    Within the enterprise segment telcos are aggressively targeting SMEs due tothe growing interest in this segment or cloud-delivered so tware. SME sharein overall cloud services revenue is expected to increase rom 25% to 40%between 2009 and 2015 16 . To bene t rom this opportunity, several telcos o erservices customized to ul ll SME needs. For instance, IT Plan rom Orange isa packaged SaaS solution o ering a suite o o ce productivity, messaging, andbusiness applications targeted at SMEs.

    15 Forrester Research, The Evolution Of Cloud Computing Markets , July 6, 2010.16 Capgemini TME Strategy Lab Analysis; Analysis Mason,Seize the US$35.6 billion global market for

    enterprise cloud services , June 2010.

    4 Telco Activity in CloudComputing

    Source: Capgemini TME Strategy Lab Analysis; Company WebsitesNote: Deutsche Telekom spun off from Zimory as an independent subsidiary in November 2007

    2003-2004 2007-2008 2009-2010 Planned

    SaaS

    PaaS

    IaaS

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