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The CSP Opportunity for Cloud Computing Services (OT00084-009)

Ovum (Published 01/2012) Page 1

This report is a licensed product and is not to be photocopied

The CSP Opportunity for Cloud

Computing Services

Reference Code: OT00084-009

Publication Date: January 2012Author: Peter Hall

SUMMARY

In a nutshell

Cloud computing provides an important opportunity for enterprise communications service

providers (CSPs) to draw on and extend their existing capabilities and strengths to generate new

revenues and increase their customer base. However, cloud computing is becoming a highly

competitive market and CSPs must deliver high-quality, business-grade services to differentiate

themselves from low-cost commodity cloud computing providers. This means great care must be

taken in the design and planning of the cloud service to ensure that services can be delivered and

managed cost-effectively and to high service levels. Choosing the right vendor partners is

important for CSPs that want to own their own infrastructure as this can have a big impact on the

complexity of the cloud enablement process, the flexibility of the infrastructure to offer competitive

services, and the time-to-market for offering new services. Additionally, a wholesale market is

developing, which can be an attractive alternative for CSPs that want to go to market quickly but

have more limited skills or lack access to capital investment.

Ovum view

Despite considerable industry hype, cloud computing is a powerful model for IT delivery that is

able to deliver important benefits for enterprises, including much faster deployment of IT resources

for new projects and savings in IT costs. The cloud computing opportunity for CSPs is wide

ranging, and both software as a service (SaaS) and infrastructure as a service (IaaS) are key

market opportunities that are highly relevant to CSPs. In fact, many CSPs will have been offering

communications-based SaaS solutions such as WebEx for many years and now have the


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opportunity to position themselves as a one-stop shop for SMEs across a broad range of business

applications via an SaaS model. Communications-based SaaS solutions, often now referred to as

CaaS (communications as a service), will become an important component of the SaaS market for

all CSPs.

IaaS will be a key component of the proposition for most CSPs entering the cloud computing

market and this places great demands on the infrastructure, management systems, portals, and

billing processes. Leading global CSPs went early to market with IaaS offerings and have largely

built the cloud environment in-house using best-of-breed vendors for individual components. This

was a lengthy process, and it was common to spend 18 months and considerable resource to get

a solution to market and further time to realize the full capabilities of cloud computing with a self-

service portal and automated provisioning. Time to market is now key and fortunately CSPs going

to market with cloud computing today can greatly reduce this time through close vendor

technology partnerships and adoption of a converged infrastructure.

Key messages

The cloud computing model is already demonstrating its potential to transform the

delivery of enterprise IT. However, despite the hype, some important components of

the market are still at an early stage of development, and this represents an important

opportunity for CSPs to gain market entry before growth steps up a gear. While theearly movers in the CSP community launched their first cloud computing offerings up

to three years ago, new CSP market entrants still have an opportunity to introduce

services and establish their market presence while the market is still in an early

growth phase.

CSPs have an important opportunity in the provision of cloud computing services to

broaden and deepen their enterprise customer relationships. However, enabling and

delivering cloud computing services is a complex undertaking, and CSPs that are

contemplating a cloud computing proposition should have very clear objectives and

draw on the considerable industry expertise that is available to new players to secure

successful and early market entry.

Local/national CSPs have a role to play alongside the regional/global service

providers that have been early movers in the market. Local/national CSPs can play a

number of roles in the market for cloud services, including that of trusted supplier of

enterprise-grade services to SMEs and national enterprises and/or as a provider of

wholesale cloud services to other CSPs and channel partners.


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CSPs face considerable challenges in moving to a cloud-based delivery model. Much

has been made of the ability of CSPs to leverage their existing assets when it comes

to offering cloud services. However, while CSPs' assets do provide them with key

advantages, CSPs will face a number of significant challenges. These include a lack

of brand strength and experience in the supply, management, and support of IT

services, together with the need to develop or enable a flexible and efficient cloud

delivery environment.

IT vendors have an important part to play as technology partners in enabling CSP

cloud services and as go-to-market partners. Many CSPs will not be able to develop

their own cloud services due to a lack of the requisite skills and resources. However,to be successful in the cloud computing market, CSPs will need to quickly establish

themselves and build the scale of their offerings as the market grows. Therefore,

CSPs should look to take advantage of vendors' expertise by utilizing their cloud

enablement services or establishing go-to-market partnerships in order to quickly

establish themselves in the market.

Rapid service enablement is essential to early market entry. The sooner that CSPs

can develop and deliver their cloud offerings, the sooner they will be able to establish

themselves in what is already a highly competitive market. Achieving this will require

the implementation of a converged cloud infrastructure using standardized building

blocks and end-to-end management.


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TABLE OF CONTENTS

SUMMARY 1

In a nutshell 1

Ovum view 1

Key messages 2

THE CLOUD COMPUTING MARKET 7

Beyond the hype 7

The "key characteristics" of cloud computing place considerable demands on infrastructure 8

A highly competitive market 9

THE CSP OPPORTUNITY IN CLOUD COMPUTING 10

IaaS provider 10

Reseller or aggregator of SaaS 11

Wholesale opportunity 12

Communications as a service 13

Professional services 14

An opportunity for domestic and local CSPs 14

CSP STRENGTHS IN CLOUD COMPUTING 14

Leveraging CSP strengths and assets 14

The critical role of the network 15

ENABLING CSP CLOUD SERVICES 17

Approaches to cloud enablement 17

The self-service portal 17

Billing for cloud services 18

The importance of end-to-end management 18

APPENDIX 21

Methodology 21


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Further reading 21

Author 21

Ovum Consulting 21

Disclaimer 21


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TABLE OF FIGURES

Figure 1: The cloud computing model 8


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THE CLOUD COMPUTING MARKET

Beyond the hype

Despite the early hype around cloud computing, there is no doubt that cloud computing will

profoundly impact the future of IT in the enterprise. In many respects the term "cloud computing" is

too broad, which has led to confusion in the market about its current position and its future. A US

body, NIST (National Institute of Standards and Technology), has produced the most widely used

definition of cloud computing, which we broadly adopt for this report and have illustrated in Figure

1.

NIST identifies three "service models" for cloud computing:

software as a service (SaaS)

infrastructure as a service (IaaS)

platform as a service (PaaS).

Any discussion of cloud computing needs to recognize that these three service models are at

different stages of market development. SaaS is the most mature aspect of cloud computing, with

salesforce.com one of the best-known SaaS applications now more than ten years old. SaaSenables businesses to use applications that run on a cloud infrastructure. The applications are

accessible from various devices (e.g. PCs, smart mobile devices) through a thin client interface

such as a web browser. The user does not usually have any control over the cloud infrastructure,

although some access to application configuration settings will often be available. SaaS also

addresses communications and collaboration applications, which are particularly relevant to CSPs.

IaaS is still relatively new by comparison and provides compute and storage resources as an on-

demand service. Enterprises of all sizes increasingly view IaaS as a powerful IT delivery model

with many benefits. Key among the benefits are a dramatic reduction in time to get IT resources in

place for new projects and lower IT operating costs. These translate into important and

measurable business benefits for enterprises. Even CIOs who were originally skeptical about the

IaaS model (mostly for good reasons) now recognize its potential and the issue for them is more

likely to be when, not if, they will make the step into IaaS. In the most developed cloud computing

markets, such as the US, we are increasingly seeing new start-up companies basing their entire IT

requirements on cloud computing with little internal IT resource or skills.

PaaS provides an online development environment by offering computing resources and

development tools in the cloud. The platform allows a user to build and test applications and then


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including customer portals for ordering services, automation of enablement processes, and end-to-

end management of the entire infrastructure, including compute, storage, security, and the

network.

The requirement for measured service and rapid elasticity means highly flexible provisioning and

billing, which corresponds to the realtime resources consumed and allows service providers to

offer creative and differentiated billing models. It is common to see cloud computing services with

no setup charges or fixed contract terms. These two elements are quite foreign to CSPs for

traditional services such as networking, but are consistent with the prevailing cloud computing

market.

Broad network access is a key aspect of cloud computing, which not only means standard

networking options such as public Internet but also commonly used enterprise-grade networking

technologies such as MPLS VPN and carrier Ethernet.

While not all customers will want the full flexibility of realtime resource provisioning and elastic

services, these are important characteristics of the cloud computing model and are essential to

any service that describes itself as such.

A highly competitive market

The various components of the market for public cloud computing services are at different stages

of development. The most mature is SaaS, which Ovum forecasts globally at over $40bn in 2016,

growing from $15.8bn in 2011 with a CAGR of 21%. IaaS is considerably less developed. We

forecast the global IaaS market to be $15bn in 2016, growing from approximately $1.6bn in 2011,

and with a considerably higher CAGR at 57%. The SaaS market has a very large number of

players, including most of the leading ISVs. The largest players today are salesforce.com and

WebEx (Ciscos web conferencing solution), both of which have been in the market for many

years.

The largest player in the IaaS market is AWS (Amazon Web Services), with almost half of the

global market today; other players individually have no more than about 5% of the global market.

With only a handful of exceptions, most players are nationally or regionally focused, although

many of these have global aspirations. AWS will continue to be a formidable competitor for the

lower-value segment of the market, but will also compete strongly for some high-value

opportunities. Other competitors will come from a variety of market segments where players have

supplemented their core business with an IaaS offer. These segments include managed hosting

providers, systems integrators, and CSPs. Hence, competition is diverse and includes global,

regional, and national players.


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SaaS provides a rich variety of business applications, and individual players typically have many

competitors in their segment of the SaaS market. Also, many of the leading SaaS players have a

global market although a large number of niche players address national or regional markets.

THE CSP OPPORTUNITY IN CLOUD COMPUTING

There is an opportunity for a wide range of CSPs that have a strong presence in enterprise

networking services, a commitment to managed services, and high levels of customer service to

offer cloud computing services. In this section we consider some of the key areas of opportunity for

CSPs and review the overall dynamics of key components of the cloud computing market.

IaaS provider

IaaS will be key to most CSPs contemplating a position in the cloud computing market, especially

as part of a broader strategy to extend their role in the ICT market. For example, these CSPs will

typically already offer solutions such as web hosting, email hosting, and data center services,

although at least some of these are likely to be offered as bespoke solutions on a project basis

rather than as highly productized offers.

IaaS is the most demanding of the flavors of cloud computing in terms of CSP enablement. All of

the "key characteristics" referred to above need to be addressed in the design, implementation,and management systems, and for most CSPs this will be a major financial commitment and will

require considerable expertise. A detailed business plan will be necessary, and CSPs

contemplating an IaaS offer should be very clear about their target market and the resources

required to address this market.

The early movers in public IaaS such as Amazon Web Services have a very strong play at the low-

value or "commodity" end of the market, although they will also have had some success in winning

major implementations from enterprises that are early adopters of IaaS. Commodity IaaS business

can be with customers of all types, from SMEs with modest computing requirements to large

enterprises that have a small-scale requirement for a "proof of concept" project. Annual IaaS

spend for these will be typically less than $10K and customers will not usually have stringent

demands for SLAs and overall service requirements; for example, network access to the service

over the public Internet is usually adequate. This is a tough market segment for CSPs to address

because significant scale is needed to offer competitive but profitable services. However, some

CSPs, for example Korea Telecom, are addressing this segment.

At the other end of the public IaaS spectrum are mid-sized to large enterprises that have strongly

committed to cloud computing and have much larger-scale requirements for compute and storage


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with spend of well over $100K per year. The early movers into public IaaS within the CSP sector

have been global CSPs such as Verizon Business and Orange Business Services and have

focused on this premium end of the market. This plays more to their strengths in offering stringent

SLAs and trusted network access such as MPLS VPN and managed cloud services. In managed

services, the provider takes some responsibility for the performance of the applications supported

through IaaS. For example, the CSP can deploy probes to monitor and measure the actual

performance of the business applications and alert the customer of performance issues that may

arise. In addition SLAs can be offered for both the cloud platform and the wide area network,

providing an end-to-end guarantee of performance.

While this "premium" segment of the IaaS market is considerably lower volume, some CSPs may

find this a better fit with their customer base, capabilities, and ambitions. Major CSPs targeting the

premium IaaS market may also want to progress to a managed private cloud IaaS offer where the

annual customer spend can exceed $1m. However, this will bring them in competition with global

CSPs and systems integrators and place very high demands on skills in support and professional

services.

Given the very high projected growth of the IaaS market, many new players will appear in all

geographies and competition will intensify. However, IaaS will offer the greatest rewards for CSPs

that can successfully exploit the opportunity.

Reseller or aggregator of SaaS

SaaS is the most mature of the cloud computing services and has been adopted by companies of

all sizes. However, it is widely accepted that the potential for SaaS in the SME market has not yet

been realized. Many SMEs are not aware of the potential and value of SaaS and would value a

trusted advisor to steer them through the diverse range of SaaS solutions, which cover just about

all business functions. Most CSPs, from national incumbents to localized alternative players, have

a very sizeable SME base, which has increasingly been the focus for more advanced ICT

solutions.

There is great potential for CSPs to provide a "shop front" via an online portal to a suite of SaaS

solutions, covering many aspects of managing small and medium-sized businesses. The individual

solutions offered would typically be selected for ease of use, popularity, and value, and the CSP

becomes a one-stop shop for addressing all of an SME's SaaS needs. Individual SaaS solutions

can be hosted by the CSP or by the underlying software provider. In either case, the solutions are

provided seamlessly to customers with simplified ordering, provisioning, and support.


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As this is largely a resale model, margins depend on volumes and ancillary services provided,

such as networking and support. Such solutions broaden the product and solution set that

customers purchase, resulting in higher value per customer and reduced churn. This type of SaaS

offer is easier and faster to implement than IaaS, so can be attractive to CSPs as an entry-level

cloud computing offer. They can then build on this by offering additional cloud computing solutions.

While SaaS is mostly a resale or partner opportunity from the CSP perspective, they can develop

or commission their own applications, especially in the CaaS segment of the SaaS market and in

vertical industry applications.

Competition for CSPs in SaaS will be mainly with ISVs selling their SaaS solutions direct toenterprises or via their channel partners, including other CSPs and systems integrators. In the

case of CaaS the competition will be mainly with other CSPs, though PBX resellers and systems

integrators will also provide competition.

Wholesale opportunity

Cloud computing also provides a potential wholesale opportunity for CSPs. Following market entry

by the leading global and regional CSPs, we are now seeing a wide variety of domestic CSPs

showing interest in launching cloud computing services including IaaS. The task of building a

complete cloud computing environment requires internal resources and skills that many CSPsdon't have. We also see many emerging markets where the local or regional provider has some of

the basic ingredients (network and data center), but needs the skills and systems to offer

competitive cloud services.

Some major CSPs are now interested in offering a white-label cloud computing infrastructure

solution to other CSP players. In addition to providing infrastructure, help can be provided in

product launch and go-to-market activities. For many CSPs, this could present an attractive

solution with the benefits of faster time-to-market, lower capital commitments, and reduced risk.

This can also be used as an initial market entry approach by CSPs contemplating an investment in

their own infrastructure at a later date. We are also seeing the evolution of a variety of business

models, including revenue-sharing and partnership/alliance models. For instance, we expect to

see partnerships and alliances that will allow service providers in emerging markets to take

advantage of the skills and capabilities of larger CSPs that have invested in cloud computing

infrastructure already, but want to build out geographic capability.


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Communications as a service

CSPs can potentially offer all types of SaaS, but the greatest strategic fit is the ability to offer

communications and collaboration applications from the cloud. The SaaS model also lends itself

well to UC, where a suite of integrated communications and collaboration applications can be

provided from a cloud service.

The terms CaaS (communications as a service), UCaaS (unified communications as a service),

and other variants are increasingly being used to describe suites of cloud-based UC and business

collaboration applications, which can include (but are not limited to) the following components:

audio and web conferencing

desktop videoconferencing

email

instant messaging

enterprise IP telephony (e.g. IP PBX features) and IP contact center

mobility features, e.g. fixedmobile integration features

document-sharing and workspaces

enterprise-grade social networking.

Applications are supported by common directories and presence features, and can be accessed

from a variety of fixed and mobile devices.

Many standalone CaaS applications have been available for a number of years, such as WebEx

for audio and web conferencing. More recently, suites of communications and collaboration

applications have also emerged; one example is Microsofts Business Productivity Online Suite

(BPOS), and its successor Office 365, which incorporate several applications including email, web

conferencing, instant messaging, and document collaboration.

Voice features in CaaS offerings have so far been mainly limited to audio conferencing, but we will

increasingly see further voice features added, including enterprise-grade IP telephony (i.e. IP PBX

features). We expect to see a proliferation of enterprise-grade CaaS applications suites launched

in the next few years that combine the features of enterprise IP telephony with other enterprise

collaboration applications. These will come from many different players including CSPs, software

vendors, communications technology vendors (e.g. Cisco Systems), and newer IT market

challengers such as Google.


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Professional services

In addition to technical concerns over the performance and reliability of cloud services, CSPs will

need to overcome cultural barriers in many enterprises if their cloud offerings are to succeed.

Cloud services involve outsourcing parts of an enterprise's IT function, and as with any

outsourcing decision it can be met with resistance from within the organization. In order to facilitate

cloud adoption, CSPs should offer a consultancy-based approach that identifies applications that

are suitable for a cloud delivery model and then help customers transition to the cloud.

An opportunity for domestic and local CSPs

While the major IT players and global CSPs may be in a strong position for multinational

companies moving to infrastructure-based cloud computing services such as IaaS, many

companies, both large and small, will prefer to buy such services from a national or local player.

Some companies will have concerns regarding where company data is hosted, and will prefer that

it is hosted within the geographic boundaries of their home country. Some may even have

concerns over hosting by a foreign-owned company. In many cases these concerns may be driven

by national data protection standards or business compliance standards.

In addition, the market for SaaS and CaaS solutions is likely to be focused on SMEs that have little

internal IT expertise to support these services. SMEs typically have a stronger relationship with a

national or local CSP than with major IT suppliers. This is an important opportunity for domestic

CSPs.

CSP STRENGTHS IN CLOUD COMPUTING

Leveraging CSP strengths and assets

Cloud computing plays to the strengths of CSPs in many areas:

Shared infrastructure. The cloud concept arose from telecoms networking, in

particular the concept of VPNs, where enterprise-grade network services are providedsecurely and to high performance levels from a shared platform.

Managed and hosted IT and communications services. Leading CSPs have

addressed a range of managed IT services requirements for many years. These

include co-location and data center services, managed security, and hosted services

including enterprise-grade web hosting, hosted email services, and hosted PBX

services.


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Data center infrastructure. CSPs are major users of data centers for both their

internal computing requirements and for supporting enterprise hosted services. Data

centers are "big-ticket" capital items and a key component of cloud services.

Security, data integrity, and trust. Ovum research indicates that security, data

governance, and privacy are the main barriers to adoption of cloud computing today.

CSPs have a long track record and reputation for data privacy and network security,

and these are key areas for CSPs in terms of internal IT expertise. Many CSPs have

also launched managed and hosted security solutions and have an established

customer base and reputation for security solutions. Security and privacy are key to

success in cloud computing, and many customers will demand adherence to securitystandards and auditable security processes. This could be an important differentiator,

particularly with regard to competition from smaller and less well-known players.

Communications as a service. Many CSPs have already embarked on hosted

communications and collaboration services, which share some of the characteristics

of the cloud computing model and SaaS in particular. These include resale of vendor

services such as WebEx, and CSP proprietary services such as AT&T Connect. In

addition, many CSPs both global and domestic have provided hosted IP PBX

services, either through a multi-tenant IP centrex model or through dedicated hosting

of IP PBX platforms. These share many aspects of cloud computing, and we will see

many of these evolving to a full cloud computing model.

Large enterprise customer relationships. Major CSPs have strong customer

relationships with important large enterprise customers through managed voice and

data networking solutions and, in some cases, managed IT services. CSPs can build

on these relationships with a high-performance, business-grade public or private cloud

offer.

Strength of SME customer base. Most CSPs have a substantial SME customer

base, with sales and support channels for a wide variety of solutions, from

communications and networking to web hosting and Internet security. The SaaS

model is well suited to the SME market where CSPs can become a "trusted advisor"

and provide cost-effective access to a wide range of business and communications

applications usually only available to large enterprises.

The critical role of the network

The performance and reliability of a cloud service is determined by both the cloud service

provider's infrastructure and the network delivering the cloud service to the customer. Enterprises


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may find it acceptable for many SaaS solutions to be delivered over the public Internet, and most

commodity IaaS solutions use the public Internet for delivering the service to the customer.

However, as we start to see the adoption of cloud computing for business-critical workloads, the

network will become a critical component of the end-to-end infrastructure and will be a major

consideration in selection of a cloud service provider. While many mission-critical workloads may

be more suited to private cloud solutions, these may be remotely hosted by a third party so the

network will still be a critical link. Additionally, we will see growth in support for business-critical

workloads in public cloud services where the network is viewed by the cloud service provider as an

integral component of the end-to-end solution.

Today, most enterprises use a trusted network service such as MPLS VPN or carrier Ethernet to

support their enterprise WANs. These services provide enterprise-grade SLAs with high site-to-site

availability and stringent performance levels in network parameters such as latency, packet loss,

and jitter. Networking over the public Internet is not able to deliver SLAs, so any SLA given by the

cloud service provider effectively stops at the interconnection of the cloud service provider's data

center with their Internet service. Cloud service providers mitigate this to an extent by providing

multiple interconnections with the Internet via different Internet service providers and peering

points, but this still does not provide the assurance of an end-to-end SLA for provision and delivery

of the cloud service. Additionally, some workloads have additional network requirements such as

low latency which a network solution such as MPLS VPN can provide, together with the assurance

of SLAs.

CSPs are uniquely positioned to provide both the cloud platform and an enterprise-grade

networking solution fully managed as an end-to-end solution. A networking solution such as MPLS

VPN also provides a higher level of security than provided through the public Internet, unless a

tunneling and encryption method (such as IPsec) is applied. The success of MPLS VPNs, in

contrast with IPsec VPNs, suggests that many CIOs are not comfortable with any enterprise data

traversing the public Internet. Major global CSPs that have launched IaaS solutions in the last two

years are now seeing over 50% of their IaaS customers demanding a trusted network solution

(most commonly MPLS VPN) rather than public Internet. This will increase as the demand for high

availability IaaS solutions (both public and private cloud) to support business-critical workloads

continues to grow.

In spite of the opportunity to offer a single end-to-end SLA, most CSPs today offer separate SLAs

for the cloud platform and the network as many customers already have a network solution such

as MPLS VPN in place to support their enterprise WAN requirements. However, they are able to

offer integrated service management and reporting, which incorporates both the cloud platform

and the network, thus delivering a level of service not normally available from cloud computing


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providers that do not also provide enterprise-grade network services. Hence, CSPs are in a unique

position to drive growth in the cloud computing market as customer demands for service quality

and assurance grow in line with the need to support more demanding and business-critical

workloads.

ENABLING CSP CLOUD SERVICES

Approaches to cloud enablement

CSPs that are considering entering the market for cloud computing services will need to assess

whether they can develop services internally or instead form a partnership or alliance with an

existing cloud computing player. CSPs may also look to acquisitions as an alternative market entry

route or as a means to grow the market faster than can be achieved organically. For CSPs that

dont want to invest in infrastructure but still want a competitive IaaS offering, a wholesale

partnership with an established player may be the best route to market. The availability of

wholesale cloud computing services is expanding and both branded and white-label wholesale

services are now available from a variety of service providers including CSPs.

CSPs that plan to develop their own cloud computing offering must be aware of many

considerations that demand skills and capabilities that extend well beyond those that they will have

acquired from developing and running data centers for the internal needs of their IT operations

and/or the delivery of data center services to enterprises.

The self-service portal

CSPs looking to offer cloud services must implement a self-service portal that allows customers to

provision services themselves. The portal should interface directly with order-entry systems,

allowing orders to automatically flow through to the fulfillment process. However, CSPs should be

careful not to simply replicate the format of back-office order-entry systems for self-service portals.

The self-service portal is more than a means of order capture, and it is extremely important that

CSPs are able to administer service through the portal. It should give an integrated view of current

and historic resource utilization and provide customers with the ability to increase or reduce

resources, make configuration changes, and perform account management such as allocating

user privileges and viewing order status. The self-service portal also provides CSPs with a means

to upsell additional services, and allows them to customize the user experience by making it

visually appealing and intuitive, and by providing additional tools that allow users to monitor

service utilization, cost, and other metrics.


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CSPs have indicated that the next stage in the development of IaaS will focus on building more

functionality and ease-of-use into self-service portals. Many CSPs have already looked to facilitate

faster deployment of cloud service infrastructure components by giving customers the ability to

create images and use templates to quickly provision services designed to support similar

workflows. In addition, some have developed pre-provisioned stacks to further increase the speed

of the provisioning process on the CSP's side. A number of CSPs are also looking to abstract the

IT infrastructure components of their cloud services in order to present business users with

selection criteria more attuned to their business needs than the IT-centric component requirements

of those needs.

Billing for cloud services

An important aspect of cloud computing is its utility pricing model that adopts a form of usage-

based pricing. Currently, most cloud services have no setup charges or fixed terms, and while

these elements are relatively foreign to traditional CSPs, they are consistent with the prevailing

cloud computing market. Cloud computing denotes some form of utility-based pricing, and a

number of different variants of this model are emerging. These range from hybrids of utility and

contract pricing models, which fuel convergence between clouds and managed service offerings,

to those that offer more flexibility within a utility-based pricing model.

Flexibility in billing is a crucial requirement for cloud enablement. If cloud providers ignore this factthey will find it increasingly difficult to introduce new and complex services (in particular those that

incorporate services from third parties) or pricing models that move beyond the simply priced IaaS

offerings that are prevalent today.

The importance of end-to-end management

The most critical component of cloud computing infrastructure is the requirement for end-to-end

management of infrastructure components including (but not limited to) compute, storage, security,

LAN, and WAN. End-to-end management is important in any data center solution but becomes

particularly critical in infrastructure to support cloud computing services. This is becauseinfrastructure elements need to be configured in realtime to meet the requirements of individual

cloud computing customers and the resulting configuration and allocation of resources needs to

have precise and predictable performance.

Early adopters of cloud computing among the CSP community had a much tougher job to build

their cloud computing infrastructure than is necessary for CSPs today. Typically these early

adopters selected infrastructure elements (e.g. compute, storage, security) from vendors that they

regarded as best of breed in their individual areas and then took it upon themselves to stitch them


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together and build the management environment to control the infrastructure together with the

automated self-provisioning environment so that services could be delivered on-demand, linked to

a customer portal. This was usually a long and difficult task and might have taken 12 to 18 months

of development.

Fortunately for CSPs planning entry to the cloud computing market today, the task of building an

integrated environment, with full end-to-end management and tied to auto-provisioning, a customer

portal, and a billing engine, is simpler and faster because of the capabilities offered by vendors

with converged infrastructure solutions. These were originally developed to simplify the build and

operation of enterprise data centers but also offer benefits to service providers in building a cloud

computing service platform. The greatest potential benefit is a significant reduction in time-to-

market for a new service, but there are many further benefits in using a converged infrastructure

over a less modular and more siloed approach.

Converged solutions are packaged and configured for rapid deployment but still provide the

flexibility needed for different usage models. Flexibility is vital as cloud computing services are still

evolving and CSPs will need the ability to adapt their offering to the changing market. Individual

modules may come from different vendors but are pre-integrated and pre-tested for interworking.

This reduces development and testing time and reduces the risk of changes and upgrades

impacting performance, and so provides a greater degree of future-proofing against changes in

technology.

Converged infrastructure solutions also simplify the task of end-to-end management as they

provide a well-defined infrastructure environment which assists in ensuring that end-to-end

performance and availability can be proactively managed. This can also mean higher performance

and more efficient provisioning of individual infrastructure elements such as virtual machines and

storage. It also has an impact on service assurance as it simplifies root-cause analysis for

performance issues and other problems. This can also help reduce operational costs.

End-to-end management in a cloud computing environment also extends to the wide area network.

This will most commonly mean allocation of Internet bandwidth and IP addresses but, as

alternative wide area networking technologies become more prevalent for support of mission-

critical workloads, it will also mean integration with network management systems used by CSPs

in their network operations centers. Hence, it is important to ensure that management systems are

upgradable as new networking requirements evolve.

The requirements for management are also developing in a broader way. For example, we are

now seeing managed cloud computing services where the application's performance of a cloud

computing workload is monitored and reported to the customer. Where a customer's workload is


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variable this could potentially lead to a requirement for virtual resources to be automatically

adjusted to maintain a guaranteed level of performance. Advanced requirements such as this may

not be an immediate requirement for CSPs planning a cloud computing offering, but it is important

to ensure that a prospective infrastructure vendor has a vision and roadmap that recognizes

potential future requirements such as these.


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ovum. the csp opportunity for cloud computing services

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