Cloud Computing Adoption in India

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

Foreword

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 significant interest in the potential of IaaS services. Virtualization, often seen as the first 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 significant 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 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

Contents

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 benefits of implementing cloud IaaS services

2

11

3.1 Perceived operational and business benefits

11

3.2 Moving to an OPEX model

13

Appendix A: models of cloud computing

25

Appendix B: the global cloud market

26

Appendix C: IaaS and the enterprise

29

Appendix D: addressing security concerns

32

Appendix E: customizing the cloud

34

Cloud adoption in India

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 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 August 2010

4. Perceived challenges to cloud IaaS services adoption 4.1 Perceived technical, business and environment challenges 5. Expectation from vendors

15 15 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 22

6. Recommendations 6.1 Recommendations for service providers

22

6.2 Recommendations for enterprises

23

Appendix F: benefits of implementing cloud IaaS services

38

Appendix G: challenges in shifting to a cloud IaaS model

40

Appendix H: cloud enabling technologies: virtualization

41

Appendix I: About the study

42

Sources:

43

Cloud adoption in India

3

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 infinite scalability and a pay-as-you-go pricing model, the primary benefit 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 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.

4

Cloud adoption in India

Both enterprises and service providers are likely to benefit from a consultative approach and in-depth discussions with cloud IaaS service providers in the following areas: • The differentiating benefits of cloud IaaS services • Pricing structures, financial 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.

Cloud adoption in India

5

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 flexible 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 have crystallized offerings for the private cloud, and have taken proactive steps in educating the consumer on the benefits 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 benefit 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-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.

6

Cloud adoption in India

Enterprise data center expenditure: With significant power and electricity overheads, enterprise data centers are a major drain on enterprise IT budgets in India. Ernst & Young’s 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 1,000–1,500 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 significant cost driver. Data center cost composition Equipment Facility Man power Bandwidth costs costs costs costs 12% 12% 10% 7%

NetMagic is the first 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

Power costs 38%

Maintenance costs 21%

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.

SMB segment and provides disposable servers that are configured on demand depending on business needs. ► loud Net is a service model • C that provides the customer with the capability to create complete IT infrastructure, including servers, firewalls, load balancers and switches. This service specifically 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.

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 specific services that vendors in this space offer.

Cloud adoption in India

7

The main drivers of growth in the Indian cloud market are the SMB segment, the current low profitability of Indian data service providers and the enterprise’s need to reduce data center-related costs. Ecosystem maturity and customer awareness of available services and connectivity are the current barriers to cloud adoption.

Connectivity: Poor connectivity may prove to be a significant barrier to adoption. Low internet and PC penetration (less than1% in urban areas, 31 PCs per 1,000, according to NASSCOM’s 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 20–25%. 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 cloudrelated, value-added software solutions related to billing, provisioning and management. This could be a potential challenge for Indian service providers.

Familiarity with cloud-computing concepts “Which of the following concepts of cloud computing are you highly familiar with?”

41%

PaaS

67%

SaaS

81%

IaaS

Key: PaaS: Platform as a Service SaaS: Software as a Service IaaS: Infrastructure as a Service

PaaS

SaaS

IaaS

Source: EY survey — Cloud adoption in India, 2010

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.

8

Cloud adoption in India

2.3 Perception of cloud computing 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. “Which of the following appropriately describes your view on ‘cloud computing Infrastructure as a Service’?”

20%

44% 24%

12%

Cloud computing is an evolving concept and will mature in some years Cloud computing offerings will not suit my business Cloud computing will drive the next wave of IT innovation Not aware of these services in great detail Source: EY survey — Cloud adoption in India, 2010

Cloud adoption in India

9

High awareness levels and the positive perception of cloud indicate a market that will see robust growth rates once the service is available and once enterprises begin adopting the technology.

2.4 Timeframe for adoption “When do you plan to adopt ‘Cloud Computing - Infrastructure as a Service’?”

12%

8% 20%

16%

44% 0-1 year

1-2 year

2-3 year

3-5 year

5+ year

Source: EY survey — Cloud adoption in India, 2010

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. Innovation diffusion curve: IaaS, Indian market

Early majority Late majority

Early adopters

Laggards

Innovators 8% 20%

12% 44%

16%

Mainstream market

Source: EY survey — Cloud adoption in India, 2010

10

Cloud adoption in India

3. Perceived benefits of implementing cloud IaaS services The potential benefits of a well-designed and well-executed cloud-computing infrastructure services strategy can be significant. The relative importance of each benefit varies considerably with the size of the enterprise. Key benefits include lower costs, an on-demand self-service model, low entry barriers and the elasticity and scalability of resources. This section summarizes the benefits as perceived by potential adopters of the cloud IaaS services in the Indian market.

3.1 Perceived operational and business benefits We asked respondents to grade a list of operational and business benefits on a four-point scale of extremely significant to not significant. Operational benefits

Scalibility

38%

14%

4% High uptime

Reduced risk of technology obsolence

42%

33%

21%

4%

38% 17%

4%

Improved hardware utilization

29%

21%

33%

17% 21%

Faster deployment

25% 50%

4% Extremely significant

42%

29% 27% 25%

17%

Improved datacenter efficiency

42%

Fairly significant

Significant

Not a driver

Source: EY survey — Cloud adoption in India, 2010

Cloud adoption in India

11

Perception of operational benefits — SMB and large enterprises 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Scalability

High uptime

Reduced risk of technology obsolence SMB

Improved hardware utilization

data center efficiency

Faster speed of deployment

Large enterprsies

Source: EY survey — Cloud adoption in India, 2010

Business benefits 29%

Ability to focus on core activities

38%

29%

4%

29%

Usage-based payment

29%

8%

33%

25% No capital investment

42%

25%

8% 13% Intangible benefits

33%

13% 8%

33%

Ability to innovate 17% Extremely significant Source: EY survey — Cloud adoption in India, 2010

12

Cloud adoption in India

Fairly significant

Significant

42%

42% Not a driver

Perception of extremely significant business benefits — SMB and large enterprises 50%

40%

30%

20%

10%

0%

Ability to focus on core activities

Usage based payments

No capital investment

SMB segment

Intangible benefits

Ability to innovate

Large enterprises

Source: EY survey — Cloud adoption in India, 2010

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.

3.2 Moving to an OPEX model At 58%, the majority of the respondents favor a model that facilitates the shift of expenditures from a capex to an OPEX model. • Of the total respondents surveyed, 38% are neutral to the shift. • Only 4% of the respondents do not see any benefit in the shift.

Cloud adoption in India

13

The SMB segment appears to be more attuned to the total impact of differentiated benefits that can be derived from IaaS. The gap in understanding of the large enterprise indicates an area to be addressed during the initial contact with a potential buyer of this segment.

“How do you view a shift to an OPEX model?”

4%

38% 58%

Good: Helps IT be more adaptable to business needs in a cost effective way Neutral Not good: Not convinced that I can make the shift in a way that stays beneficial to me Source: EY survey — Cloud adoption in India, 2010

14

Cloud adoption in India

4. Perceived challenges to cloud IaaS services adoption Implementing cloud computing will not be without challenges. Ernst & Young’s market survey indicates that an overwhelming 72% of the respondents cite potential data privacy and security issues as extremely significant concerns. The other area of concern is around vendor maturity and the capability to provide cloud services. Among the challenges generally associated with a shift to cloud IaaS services are: • Data security and privacy • Legal and regulatory compliance • Control and responsiveness • Lack of benchmarking or leading practice experience • Ambiguity over how best to quantify, track and communicate the benefits of cloud computing • Threat of potential over reliance on a single-source IT provider • Lack of interoperability • Resistance from datacenter IT personnel The following section summarizes some of the key challenges the Indian market perceives.

4.1 Perceived technical, business and environment challenges We requested our respondents to grade a list of technical, business and environmental challenges on a four-point scale of extremely significant to not significant. Perceived technical challenges

Data privacy and security

13%

Latency

Resource uptime

50%

29%

17%

4%

Unsure of impact on current IT

71%

17%

25%

46%

29%

8%

54% 29%

8%

Extremely significant

Fairly significant

Significant

Not a driver

Source: EY survey — Cloud adoption in India, 2010

Cloud adoption in India

15

Perception of technical challenges — SMB and large enterprises 100% 80% 60% 40% 20% 0%

Data security

Latency

Resource % uptime

SMB

Unsure of impact on current IT architecture

Large enterprises

Source: EY survey — Cloud adoption in India, 2010

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: • Identity and risk management • Compliance and audit • Application level security • Data backup and recovery • Legal Perceived business challenges Vendor lock-in concerns (inability to switch vendors easily or bring operations back-in)

13%

4%

Not sure about the ROI to be expected if I invested in cloud computing

29% 29% 29%

13% 21%

Internal resistance to process change 8% Loss of control over IT operations Extremely significant

17% Fairly significant

Source: EY survey — Cloud adoption in India, 2010 16

Cloud adoption in India

50%

33%

25% 25%

29% 33% 38%

Significant

Not a driver

Perception of business challenges — SMB and large enterprises 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Vendor lock-in

Not sure of ROI

Internal resistance

SMB

Loss of control

Large enterprise

Source: EY survey — Cloud adoption in India, 2010

Vendor lock-in is perceived as a significant challenge to the adoption of cloud computing. Vendors can currently mitigate this concern by making their services more transparent so that customers can understand how their resources are being managed. In the long term, as the ecosystem matures and the industry adopts open standards to facilitate interoperability, this concern will likely be mitigated. Efforts need to be made to develop forums such as the Open Cloud Alliance to enable the development of more transparent and interoperable solutions. 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. Perceived environment challenges Lack of mature service providers

25%

No vendors available with a consolidated value proposition

54%

21% 25%

Lack of guidance, leading practice or experience of other companies to draw from

13%

46%

17% 21%

Lack of ecosystem that supports adoption of the service

Extremely significant

46%

38%

17%

Fairly significant

38%

Significant

42%

Not a driver

Source: EY survey — Cloud adoption in India, 2010

Cloud adoption in India

17

The most significant challenges enterprises perceive in adopting cloud IaaS services include data privacy and security, vendor lock-in concerns and ecosystem maturity. Significantly, the SMB segment does not rate ecosystem maturity as a major challenge.

The shortage of mature service providers is the single overwhelming environment-related challenge that enterprises perceive. Vendors need to develop go-to-market strategies to develop customer relationships and retention strategies. Collaboration among all channel partners is required to build a compelling case and visibility for cloud IaaS services. Vendors need to create effective strategies on the value proposition and features (“what to sell”) for different market segments (“whom to sell”) and a definitive sales and channel partner strategy (“how to sell”). Cloud service providers should invest in developing cloud labs that enable customers to use cloud IaaS services on an experimental basis. This is also expected to assist customers in assessing challenges that could arise from integrating enterprise data centers with infrastructure on the cloud. Cloud-computing adoption case studies of customers worldwide should be made available to enterprises to help them clearly understand the areas where cloud IaaS services benefits can be leveraged. Interestingly, the SMB Perception of environment challenges — SMB and large enterprises 60% 50% 40% 30% 20% 10% 0% Lack of mature service providers

No vendors available SMB

Lack of guidance

Lack of ecosystem support

Large enterprise

Source: EY survey — Cloud adoption in India, 2010

segment does not perceive environmental challenges to be as critical a barrier to adoption as compared to the large enterprises. The lack of mature service providers, guidance or ecosystem support are rated as less significant concerns by SMBs. Vendors should target the SMB segment as potential early adopters of cloud computing.

18

Cloud adoption in India

5. Expectation from vendors This section summarizes the survey’s key findings regarding the enterprise expectation of vendors. It covers areas unique to the cloud IaaS services environment such as the pricing model, service channels, acceptable security and controls framework and key vendor assessment criteria.

5.1 Preferred pricing models Preferred pricing models 8% 13%

29%

25% 25%

Annual contract based on monthly capped resource requirements with coverage charges Month to month minimum commitment on resource usage with coverage Month to month resource usage based charges without any contract Monthly/Annual charges per user Others Source: EY survey — Cloud adoption in India, 2010

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.

Cloud adoption in India

19

5.2 Preferred channels for cloud services

46%

46%

8% Data center service providers hardware and software vendor IT service providers/system integrators Source: EY survey — Cloud adoption in India, 2010

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.

5.3 Enterprise expectations on security and control framework 100% 88%

83%

75%

71%

29%

25% 13%

63%

13% 4%

Disaster recovery

Business continuity planning Need to have

Identity access management Nice to have

Source: EY survey — Cloud adoption in India, 2010

20

Cloud adoption in India

33%

4% Data encryption

Security certifications

Not needed

Third-party audit

As indicated in the challenges section, data security and privacy constitute the primary challenge of the cloud IaaS model. Consequently, the majority of the respondents have identified that the service provider should address the following areas. • Disaster recovery • Business continuity planning • Identity access management • Data encryption • Security certification • Third-party audits

5.4 Vendor assessment criteria Vendor evaluation factors Data security and privacy

SLA compliance

4%

88% 8%

4%

Cost competitiveness Portability and interoperability

13%

46% 42%

13%

21%

4% Extremely significant

42% 46%

13%

Past track record

58%

25%

Vendor support network

Pricing models

58%

29%

13%

4%

75%

21%

Fairly significant

38% 38%

Significant

Not a driver

Source: EY survey — Cloud adoption in India, 2010

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 cloudcomputing 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.

Cloud adoption in India

21

6. Recommendations As the market evolves, economies of scale provided by third-party organizations through cloud computing IaaS can create a viable environment for enterprises to reduce costs and better align limited IT resources with key business goals and initiatives. In a market that is ready to experiment with cloud IaaS services, providers need to begin crystallizing their cloud offerings, while cloud adopters should begin to engage with providers to include cloud IaaS services in their overall IT strategy.

6.1 Recommendations for service providers 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 fullscale 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.

22

Cloud adoption in India

7. Establish collaborative engagements with the enterprise: The cloud IaaS space is evolving. As such, it is necessary for vendors to take a collaborative approach to engaging with enterprises. Providers should focus on the following areas: • Differentiating the benefits of cloud IaaS services • Discussions with potential buyers on the pricing structure, financial model and 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 adoption in either the private or the public cloud model profitably • Security-related aspects 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: • Providing consulting and integration support to customers • Providing excellent customer support options • Building the SLA framework in collaboration with the enterprise • Security and data privacy concerns should be met as a primary hygiene check 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.

6.2 Recommendations for enterprises 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.

Cloud adoption in India

23

Cloud IaaS service providers should look at building out a complete cloud IaaS service portfolio and begin communicating with potential buyers. Enterprise IT decision makers should continue to monitor the market in the short term for provider strategies around cloud IaaS services and actively participate in creating a robust ecosystem.

Companies considering cloud computing need to consider the broad range of business factors and effects that may arise from such an initiative. Among the cloud computingrelated areas companies should consider are: • Privacy • Enterprise architecture • Information security • Application controls and security • IT effectiveness/transformation The following questions are critical for business leaders to consider when planning a transition to cloud computing: • How can my data center be better equipped to function with part of its infrastructure on the cloud? • What specific areas are most appropriate for cloud computing? • What services are third-party vendors providing? • What are the most significant data privacy and security issues that we will likely face? • What are the cloud provider’s key risks and performance indicators, and how will this impact be monitored and measured from an enterprise perspective? • How can I deploy IaaS in a way that makes it relatively easy to switch providers, if needed? • What are we trying to achieve through cloud computing? What ROI can we expect? • What technology needs will be required with cloud computing? • How do I assess the actual infrastructure that will be needed to support my applications? How do I benchmark application performance in the provider environment? • How does resource pooling and allocation occur within the cloud providers’ infrastructure setup? • Based on the approach, application performance and expected usage patterns, what is the best pricing strategy? • How can existing resources, both machines and people, be reallocated for maximum impact? • What are the broader cultural and operational implications of this approach?

24

Cloud adoption in India

Appendix A: models of cloud computing There are three typical models through which cloud-computing services are offered: • Software as a Service (SaaS): Software is offered as an on-demand service, thereby reducing the need for the customer to install, upgrade and maintain applications. Salesforce.com is one of the first enterprise applications to be offered as SaaS. • Platform as a Service (PaaS): The development environment is provided as a service that encapsulates a layer of software integrating the operating system (OS), middleware and application software. Customers develop applications with the help of vendor-provided application programming interfaces (APIs) on platforms enabled with automated management and scalability. Commercial examples of PaaS include Google Apps Engine and Microsoft Windows Azure.

There are three main cloud service models: SaaS, PaaS and IaaS. IaaS provides the capability to execute rent processing and storage over the internet. It is, in many senses, the most commoditized version of cloud services.

• Infrastructure as a Service (IaaS): Processing, storage and bandwidth are offered on demand with metered billing. A consumer can store data and run an OS, software applications and web or database servers on the rented hardware. Some major commercial examples of IaaS include Amazon, Rackspace and Savvis.

CRM

ERP

Email

Enterprise web applications

Database

Messaging

Queuing

API and middleware

Scheduling

vStorage

vServer

vNetwork

Virtualization Storage

Server

Network

Hardware

Software as a Service

Web management console

Bandwidth Platform as a Service

Provisioning

Infrastructure as a Service

Monitoring

Available as a metered, scalable and ubiquitous service

Storage Compute

Principal characteristics Abstraction of infrastructure Pooled resources Services oriented architecture Scalable

Power

HVAC

Land

Utility based model of consumption

Facilities

Cloud adoption in India

25

Appendix B: the global cloud market The cloud market is constantly evolving as larger scale adoption creates viable commercial opportunities in this space. The IDC forecasts that by 2013, cloud will form 10% of total IT expenditure across the five major IT product segments (business applications, infrastructure software, application development and deployment software, servers and storage). Worldwide IT cloud services spending: 2008–2013* 2008

2013

CAGR

383

460

2.7% 22.5%

All IT spending** (USD billion) Cloud spending

16

44

IaaS spending (% of cloud spending)

14%

29%

Total IaaS spending (USD billion)

2.24

12.8

41%

* Source: IDC 2009 **Business application, application development/deployment, system infrastructure software, storage and server

Cloud computing and IaaS growth 50 44.2

45 40

35.2

35 28

USD billion

30 22.3

25 20

17.8

16.2

12.8

15 10 5 0

2.2 2008

6.9

5.1

3.7

2009

2010

2011

9.4

2012

2013

Year IaaS

Cloud spending

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.

26

Cloud adoption in India

Drivers of cloud IaaS services in the global market 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. Cloud computing timeline 1999

Salesforce.com (SaaS)

2002

Amazon Web Services (AWS)

2006

2008

2009

Verizon CAAS, Amazon EC2 load balancing, monitoring

Google AppEngine, IBM Blue Cloud, Savvis Cloud Hosting

Verizon CAAS, Amazon EC2 load balancing, monitoring

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 marketleading 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.

Cloud adoption in India

27

The cloud ecosystem Infrastructure services Storage • Amazon S3 • Amazon SirnpleDB • Microsoft SSDS • Nirvanix • Rackspace Mosso Cloud FS • CTERA

Management Compute • Amazon EC2 • GoGrid • Joyent Accelerators • Flexiscale • Terramark • Flexiscale • Appnexus • Elastra • Savvis • Rackspace

Services management • RightScale • Cohesive FT • Kaavo • Scatr • CloudStatus • Cloud Foundry

Cloud management • 3Terra Applogic • VMWware Ops • Cohesive FT • Open QRM • Enomalism • Eucalyptus • Open QRM • Appistry

Servers • IBM • HP • Dell

Storage • EMC • NetApp • 3Par

Network • Juniper • Cisco • Akamai

Billing • Aria Systems • eVapt • OpSource

Operating Systems • Microsoft Azure • Google Chrome • Linux

Virtualization • VMWare • Citrix Zen • Microsoft Hyper V

Identity • Ping Identity • Open ID • Syrnplified

Industry Bodies • Open Cloud Alliance • Open Cloud Manifesto

Infrastructure providers

IaaS has steadily gained ground in the past few years. Support and commitment from a number of large players in the market and well-publicized implementation of the cloud have contributed to its success.

Rising computing demand in the BRIC countries has also opened up new cloud markets. The overriding business need in these countries is for inexpensive and effective solutions. Using cloud computing’s usage-based pricing models, traditional IT vendors can now leverage cloud to boost growth in these price-sensitive markets. Cloud computing can help vendors shift focus from high-end, large-enterprise buyers of IT resources to the SMBs that constitute the major industry segment in developing countries. Case study: Vendor solutions Source: Amazon Web Services (AWS) website Amazon: The Amazon AWS cloud-computing platform can host business applications on the cloud with resizable compute capacity. The Amazon Elastic compute is a web service that provides a virtual development platform. AWS has recently introduced a limited beta version of its Virtual Private Cloud (VPC). The VPC is intended to be a hybrid solution, extending to enterprises the capability to connect their existing IT infrastructure to an isolated set of resources at the AWS data center through a virtual private network connection. 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.

28

Cloud adoption in India

Appendix C: IaaS and the enterprise IaaS is an operational model in which physical IT resources are delivered as abstracted IT services, both on demand and at scale. IaaS mainly refers to processing and storage capacity available from anywhere, through any connected device. Infrastructure resides in massively scalable provider data centers, where processing capacity and storage can be dynamically provisioned and shared to achieve significant economies of scale. The end user accesses the infrastructure over the internet through a user-centric interface that makes the cloud IaaS transparent. 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 Enterprise cloud user Access through the internet

High demand variability, non core applications Scaling & provisioning

Low demand variability, core applications

User interface

Monitoring

Billing

Provisioning and management Virtualized server

Virtualized storage

Virtualized network

Virtualization Servers

Storage

Networks

Security

Physical infrastructure

Enterprise data center

Cloud provider

• •

Better utilization, lower costs Scalability on demand

Storage as a service: The provider rents out storage hardware on a cost-per-gigabyte-datastored model. Storage as a Service provides a cost-effective method with which to meet the enterprise’s data-storage needs. Cloud storage offers an alternative solution for particular kinds of unstructured file data, which require batch processing and have low security requirements or large datasets such as rich media files, image files and records, streaming media and secondary/tertiary web accessible storage for data. Cloud adoption in India

29

Backup and archival are among the traditional uses of cloud storage. However, as it evolves, cloud storage is expected to also power the development of a new breed of applications that leverages service-oriented architecture (SOA), web services, APIs and their advanced services. An example of such an application is a content delivery network (CDN), which is ideal for cloud hosting and the distribution of popular files accessed frequently. Regular cloud storage networks to access such files are not optimal, as they support lower data transfer speed. CDN is a viable alternative for hosting frequently accessed website components and distributing downloadable software and its updates, media audio and video files. Integration with cloud storage is provided through APIs, which support multiple programming languages. Computing as a Service (CaaS) provides the capability to spin up virtual machines and load them with pre-configured or customized images of OS, web and database servers, thus creating a complete virtual environment for application development and deployment. Processing capability is provided as server instances configured with OS and software images acting as units of deployment. The virtualized server instance may be of varying sizes, with different memory, instance storage and virtual core configurations. CaaS is conducive to a variety of processing needs, and has so far been used primarily for the following: • Building a virtual test and development environment on the cloud, replicating production environments • Applications with unpredictable capacity requirements such as those directed toward marketing campaigns • Data mining applications needing high-powered processing over unstructured data • Bandwidth that is used to access cloud IaaS services is billed for bandwidth usage on a per-GB-data inbound and outbound transfer. Case study: Customer adoption of IaaS • 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.

30

Cloud adoption in India

A key aspect of the overall IaaS experience to the end user is the provisioning and management layer that abstracts the hardware. Some of the key functionalities delivered to the user through this layer include: • Billing • End-user provisioning and scale up capability • End-user monitoring and management • User access and user management interface • Wrapper interfaces such as software backup solutions

Storage as a Service has been primarily implemented to meet storage needs arising from unstructured data and backup needs and to support CDNs. CaaS has been used to primarily build scale into existing infrastructure. number of large players in the market and wellpublicized implementation of the cloud have contributed to its success.

• Animoto: Animoto is a good example of leveraging cloud for instant availability and virtually limitless scope. Animoto’s Facebook application creates videos for consumers and applications. The application is complex, with each subsystem requiring multiple servers. Animoto ramped up from 25,000 to 250,000 users in three days with the help of AWS, thereby provisioning around 4,000 servers simultaneously. • CyberGamer: Online gaming company CyberGamer has tapped the Rackspace Cloud to support its growing number of subscribers. CyberGamer has increased its membership from 1,000 users six months after its launch, to 21,000 by the end of the second year. The requirements of a gaming company are dynamic because of the uneven traffic flow and higher computing power needed to process queries round the clock. On implementing virtualization, CyberGamer found that during peak times, it would still hit a threshold that prevented new members from viewing the website content. Subsequently, the company transferred its IT resources to the Rackspace cloud with virtually no downtime and, as a result, experienced a 137% increase in traffic within the first month. This was indicative of the amount of traffic the company was losing previously on account of overloading.

Cloud adoption in India

31

Appendix D: addressing security concerns Cloud computing IaaS is 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. Data security and privacy is also rated as the top concern of enterprises moving to cloud technology. Listed below are some of these associated concerns as well as suggested guidelines to resolve the concerns:

Security and data privacy guidance principles Issue

Suggested guidance

Identity and access management Identity and access management are very important for the strategic use of dynamic cloud computing resources.

• Providers’ authentication systems should either meet or exceed enterprise standards.

• Enterprises should be encouraged to adopt single-sign on for applications to simplify identity and access management.

• When resources move to cloud, authorization should be

provided at business-line levels, with policies regulating the provision and release of resources. • Encryption and key management policies should be implemented for secure access.

Compliance and audit Data location abstraction and multiple copies of data can prove troublesome with respect to compliance. It may be difficult to audit the data in the cloud, because isolating the scope in a cloud environment is challenging.

• Metrics for formalizing the audit should be developed. • Due diligence of the suitability of existing audit standards to the cloud environment should be conducted.

• Cloud providers should try to acquire certifications such as SAS70.

• SLA and security-level objectives should be redefined to include data audit.

Application-level security Porting an application on the cloud has implications such as what the security levels are and who controls them. The vendor providing virtual machine images needs security levels similar to those of in-house applications.

• Vendors should provide the enterprise with capabilities to create customized virtual machine images.

• I► nter-application communication security should be ensured in a distributed cloud environment.

• Additional security and masking sensitive enterprise information are needed.

• Application security must be represented as a clearly

articulated set of actions and guarantees within the SLA.

• The growth of cloud computing is expected to increase the type and occurrence of incidents, such as malware infection, data breach, Man-In-The-Middle discovery, session hijacking and user impersonation. Application-level firewalls and vulnerability detection need to be put in place.

32

Cloud adoption in India

Issue

Suggested guidance

Data backup and disaster recovery Data backup and disaster recovery are among the most desired security and control framework controls.

• Vendors need to ensure the redundancy and backup of all

hosted data through replication and storage across multiple zones. • Business continuity plan with round-the-clock failover protection are required. • The SLA should include terms on data backup and disaster recovery.

Legal • Some of the legal risks are similar to those faced in any

• Enterprise and vendors need to perform due diligence and

• •

•

• •

outsourcing industry, with the enterprise being held responsible for any acts of its subcontractors. Some customer contracts prohibit trans-border data flow. The adoption of industry standards for security and regulations are mandatory for some types of data. Enterprises may need to know the physical location of their data, which can be dynamic and prone to change. Data residing in the cloud may not be easily accessible for electronic discovery in case of litigation.

• • • •

Cloud adoption in India

evaluate their own practices, needs and restrictions to identify the legal barriers and compliance requirements associated with a proposed cloud-computing transaction. Cloud vendors need to collaborate with the enterprise to define the key components of the contractual arrangement. The vendor needs to provide business continuity and disaster recovery to prevent outages. The contract should be periodically monitored and reviewed. In case of any change in the vendor’s business model or the compliance laws, the contract should be updated accordingly. The legal implications of whether the third-party vendor or the enterprise is held responsible in case of a data breach should be examined. The ownership and control of the data in the cloud should be given to the enterprise so that it controls the confidentiality, security or privacy of its databases, or if it wishes to control the entity that has access to its data.

33

Appendix E: customizing the cloud Like all good things, cloud IaaS services, too, come in many varieties. The nature of the application and the level of control required determine the most suitable deployment and connectivity model. Cloud services can be customized to include the following parameters: • Level of investment the enterprise is willing to make for the transition • Core vs. non-core applications • Expected SLAs and vendor commitment to application uptime • Security • Data privacy • Degree of control the enterprise wants over its infrastructure 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

Deployment

Offsite

Third party shared

Hybrid

Third party managed dedicated

Public clouds

On site

Managed by organization

Private clouds

Third party Traditional internal IT setup IT team Capital intensive and fixed

Mixed

Financial model

34

Cloud adoption in India

Operational expenditure and varibale

Public clouds: Third-party service providers offer public clouds. They are usually multitenant (shared) operating environments with all the benefits of elasticity, but the thirdparty vendor controls the management of the resource and security. 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.

Public-private cloud trade-off Exclusive

Anyone Service access

Private cloud

Public cloud Service control/ownership Enterprise

Third party

Cloud adoption in India

35

Features of various cloud-deployment models Trade-off factors for both public and private clouds Deployment model Managed by

Owner

Location

Users

Most suitable for:

Public

Third party

offsite

Untrusted users

• Start-ups/SMBs • Low level of customization • Higher degree of tolerance for SLAs and

Third party

data security

• Access to a wider audience • Preference for OPEX IT spends Private

Organization or third party

Organization or third party

Onsite

Trusted

Offsite

Hybrid

Both organization and third party

Both organization and third party

Onsite Offsite

• Mature enterprises • High degree of customization • Mission-critical applications with low

level of tolerance for SLAs and data security • Sufficient funds to invest in a private cloud Trusted and Untrusted

• Enterprises can adopt a private cloud

to support mission critical applications, data and a public cloud for other applications and data.

Accessing the cloud 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.

36

Cloud adoption in India

Internet access methodologies and features Advantages

Public internet

Leased lines

VPN

• Cost-effective solution • Highly accessible due to

• Ensured levels of data security • Access to better bandwidth and

• Security is comparable to leased

Disadvantages

Suitable for

lines.

speed • End-to-end SLA ensuring guaranteed quality of service and features • Almost error-free data exchange

• More cost-effective solution as

Security concerns Quality of service not guaranteed Lack of enterprise-level SLA Use of less secure protocols such as HTTP • Prone to disruption due to routing issues and cable cuts

• • • •

• Dependency on a single provider • Investment in some hardware

• Startups, SMBs • Non-critical applications

• Not a cost-effective solution in

ubiquitous nature • Greater customer market

• • • •

Not - cost-effective Not easily scalable Expensive to build Expensive to maintain

compared to leased lines

• Scales easily • Accessible • High quality of service and

performance contractually ensured through SLA • Predictable support for businesscritical applications sensitive to network congestion

equipment to implement VPN

• Quality of service not as high as that of leased lines

• Less cost-effective than public internet

Cloud adoption in India

most scenarios; can be evaluated for private cloud

• Large enterprises • Critical applications and data

37

Appendix F: benefits of implementing cloud IaaS services The potential benefits of a well-designed and well-executed cloud-computing infrastructure services strategy can be significant. The relative importance of each benefit varies considerably with the size of the enterprise. Key benefits include: 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. Provisioning and utilizing data centers 100% utilization

100%

Planned utilization 80% Overheads that can be eliminated using cloud

60%

40% Actual utilization 20% 0% 5 years

38

Cloud adoption in India

On-demand self-service model: The on-demand self-service model of cloud IaaS services essentially implies that a consumer can unilaterally become self-sufficient in provisioning computing capabilities such as server time and network storage without requiring human interaction. This ease of deployment is a major advantage to a line of business that faces roadblocks from the IT department in taking innovations to market. Access to resources in traditional IT involves hierarchical channels, which results in lower speed and ease of deployment as compared to the cloud, where hardware capabilities are offered as transparent, on-demand self services. The end impact is IT infrastructure that is extremely responsive to business and an increased pace of innovation. 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 highprocess computing needs also has the potential to significantly reduce overall time to complete operations.

Cloud adoption in India

39

Appendix G: challenges in shifting to a cloud IaaS model Data security and privacy is the most often cited area of concern around the implementation of cloud computing. Security issues arise mainly due to the dependence on an external service provider and sending potentially sensitive data out of the enterprise data center. Some of the anticipated challenges are generic to any outsourcing scenario, while others are unique to the cloud services provider. Overall, the challenges that enterprises anticipate when transitioning to cloud include: • Data security and privacy issues: As compared to a more traditional IT outsourcing arrangement, cloud-computing clients do not have dedicated servers. This raises concerns around where exactly client data exists and under whose jurisdiction it resides at any single given point. • Legal and regulatory compliance: Many companies have to follow a number of regulatory compliance laws. Some firms have regulations, which do not allow their data to cross national boundaries. The data-handling regulations require the ability to track changes and follow audit trails. In cloud, there is a perceived compliance and operational risk of dependence on the vendor. A well-developed compliance and risk mitigation strategy by the service provider will help mitigate this risk. • Control and responsiveness: With in-house IT functions and employees reporting directly to in-house executives, there is little question about who should be doing what and when. However, when employees and servers are separated, the provider’s and executive’s priorities may not be aligned. • Lack of benchmarking or leading practice experience: Because the use of off-site computing capability is relatively new, there is insufficient experience from which to draw guidance for companies looking to build an effective cloud computing strategy. For example, there is some uncertainty on how to plan cloud capacity to meet the existing performance requirements of current applications, or how to factor in current architecture into cloud servers. • Ambiguity over how best to quantify, track and communicate the benefits of cloud computing • Threat of potential over reliance on a single-source IT provider: The relatively easy turnkey nature of cloud computing and its subsequent attraction of cost reduction may promote a company’s gradual overdependence on a particular third-party service provider. • Lack of interoperability: There are no prevalent standards for vendor interoperability. This gives rise to fears of vendor lock-in among the enterprise. • Resistance from datacenter IT personnel: Current datacenter operations personnel may resist the adoption of cloud computing at present, owing to the fear of losing their jobs. The adoption of any new technology requires a change in mindset and culture of the organization.

40

Cloud adoption in India

Appendix H: cloud enabling technologies: virtualization Virtualization is the technology that makes cloud computing a reality. Shared resources are made available on demand through memory, storage and network abstraction enabled by virtualization, thereby allowing multiple operating systems to run on a single physical system. The virtualization of servers and storage helps improve hardware utilization dramatically, from 15–20% to 75–80%. An added advantage is reduced expenditure on cooling and power. Virtualization and the dynamic data center Automation Application

Virtualized infrastructure Hypervisor Port test and development environment

Management

Virtualized infrastructure

Hypervisor

Virtualized infrastructure

Hypervisor

Virtualized infrastructure

Hypervisor

Capacity on demand

Save capital expenses

Management

Cloud computing

Management

Application

Hypervisor

Save OPEX expenses

Dynamic datacenter

Survey response: is virtualization a key enabler of cloud technologies?

Survey highlights: • Of the total respondents surveyed, 84% perceive virtualization to be a key technology in enabling public or private-cloud creation. • Out of the 84% who believe virtualization is a key enabler, 12% are currently using virtualization, 20% plan to adopt virtualization within a year, while 40% are looking to adopt virtualization in the next one to three years. Perception of virtualization as a key enabler of cloud services

48% No

16%

84%

14%

Yes

5% 10%

Currently using

In the next one to three years

In the next three to five years

Cloud adoption in India

24%

In the next year

Not sure 41

Appendix I: About the study This report is an outcome of a primary survey Ernst & Young conducted in January - March 2010. The primary respondents were CIOs belonging to both large enterprises and the SMB segment. Participant profile, awareness and perception of cloud IaaS services, expected benefits and challenges of adoption and outlook were among the areas the survey covered. The respondents were representative of all industry sectors.

42

Cloud adoption in India

Sources • “Perspective 2020,” NASSCOM report, May 2009. • “About us,” NetMagic website, http://us.netmagicsolutions.com/company/corp_overview.html, accessed September 2009. • “Mi™ Platform,” July Systems website, http://www.julysystems.com/mi_channel/mi_platform.html, accessed September 2009. • “BT selects 3Tera AppLogic,” 3Tera website, http://www.3tera.com/News/Press-Releases/Archive/BT-Selects-3Tera-AppLogic.php, accessed September 2009. • “Eli Lilly on what’s next in Cloud Computing,” InformationWeek website, http://www.informationweek.com/cloud-computing/blog/archives/2009/01/whats_next_in_t.html, accessed September 2009. • “What you need to know about Cloud Computing, A Real-World Example: Animoto,” PCMag website, http://www.pcmag.com/article2/0,2817,2330239,00.asp# , accessed September 2009. • “CyberGamer Beats the Boss and Conquers the Cloud,” Rackspace website, http://www.rackspacecloud.com/blog/2009/07/02/cybergamer-beats-the-boss-and-conquers-the-cloud/, accessed September 2009. • “About AWS,” Amazon Web Services website, http://aws.amazon.com, accessed September 2009.

Cloud adoption in India

43

Ernst & Young Pvt. Ltd. Assurance | Tax | Transactions | Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. For more information, please visit www.ey.com/india Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. Ernst & Young Private Limited is one of the Indian client serving member firms of Ernst & Young Global Limited. Ernst & Young Pvt. Ltd. is a company registered under the Companies Act, 1956 having its registered office at 22 Camac Street, 3rd Floor, Block C, Kolkata- 700016

© 2010 Ernst & Young Pvt. Ltd. All Rights Reserved. Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Ernst & Young Pvt. Ltd. and CII accept no responsibility for any loss arising from any action taken or not taken by anyone using this material. EYIN0911-154 cloud adoption.indd (India). Artwork by Mukul Dhingra.