Following the Money: Investment in the Cloud

The reach of the cloud is unprecedented in technological innovation, save perhaps for Internet itself. Mobile users and the Internet of Things (IoT) rely upon the cloud for back-end functionality. Consumers use cloud-based services, from Amazon to Dropbox to Google to Microsoft, often without even realising it.

Enterprises use cloud-based applications like, build applications to use cloud APIs, and are migrating their data centres into the cloud as well. Service providers, ranging from local telcos to international long-haul carriers, are seeing new business in providing direct cloud connectivity for enterprises, establishing and in retrofitting their networks with SDN and NFV to better accommodate cloud applications.

[easy-tweet tweet=”Today’s #cloud applications and use-cases are spurring vendors and service providers to innovate.” user=”CloudEthernet” usehashtags=”no”]

“That’s only the beginning. We have entered an accelerating virtuous cycle: Today’s cloud applications and use-cases are spurring vendors and service providers to innovate. Those new innovations lower barriers and inspire more enterprises to use the cloud. The increased business sparks more innovation. The virtuous cycle is accelerating – with no end in sight, as established players and startups jump into this market”. Said James Walker, President of OpenCloud Connect.

The best place to start when examining cloud innovation: The money trail.

According to Sean Hackett, Managing Director of 451 Research, “You should look at spending and adoption largely being driven by the enterprise. I think IT is exerting a little bit more control because the nature of the application and workload has changed a bit. Definitely the competitive landscape has changed with incumbent systems integrators and managed services providers looking to co-op the definition of cloud and move into the market. There is a change underway: If you follow the money and you look where enterprises are spending, they’re definitely moving more revenue from on-premises to off- premises. Most of that money is really, from a cloud context, being navigated toward hosted private cloud which is a fairly rough definition of what I would think of as a traditional cloud environment.”

There is a change underway: If you follow the money and you look where enterprises are spending, they’re definitely moving more revenue from on-premises to off- premises.

Dan Pitt, Executive Director of the Open Networking Foundation, also sees global telcos investing in private clouds. “They want to host enterprise services, starting with elastic cloud provisioning, to enable offload into their clouds.” He also sees investment in software-defined networks, where telcos “will start a new greenfield business with new technology to offer an enterprise-class cloud that’s technically a little bit separate from their current network. And so that’s how they’re getting experience. They’re starting small.”

Pitt also looks at data centre web-scale operators: “They’re investing in white-box and bare-metal solutions for servers we see in storage and now for networking in terms of switching and in terms of routing. Vendors too are investing, in semi- proprietary switching and routing. Everyone is saying, oh, SDN is the big thing so I have to be on the bandwagon. I have to go to my customers and say, yes, I’ve got SDN solutions. But if you dig a little bit below the surface, you’ll see there’s still a lot of proprietary technology. Some of it is necessary because there’s a lot of brownfield installations and their customers cannot change as rapidly as the technology might change. But they’re starting to introduce some of the new technologies”.

Dan also sees a lot of money in glass fibers and photonics. “There’s been a lot of investment in packet optical integration. The carriers love it. The optical vendors are doing a great job with this. They’re still using some of the legacy protocols through existing equipment, but they’re also putting in new OpenFlow controls down in their control plane. And in a few cases they’re taking it down to the optical element itself.”

[quote_box_center]Moving from building networks to thinking broadly about IT is another area of investment, said Chris Rezentes, the Asia/Pacific Regional Manager for Verizon. “The change from building network to new IT solutions means you still need network experts that know the network, but you need also those folks that have the IT experience to make things more efficient and reduce your cost and having the new ideas for revenues. That impacts where investment is going as well. At Verizon we’re not seeing as much investment in global networks. We have the global network out there already. So you’re seeing a shift away from that to more of the IT solutions and internal investment on that area.”[/quote_box_center]

Rezentes continues, “Our experience when we’ve been meeting with those application providers, like the Microsofts and the Amazons, they were explaining that they’re running into the same situation that we are. We have the experts that know our network and they have the folks that know their cloud applications.”

You have a lot of customers asking, is the Internet safe?

Security is another investment area, says Rezentes, because of enterprise customer concerns. “You have a lot of customers asking, is the Internet safe? Because they haven’t been hacked yet they’re willing to go with public internet and no security or firewall. And when they’re hit, then it’s oh, wait, now we need to change our way of thinking. We’re still a little bit in that phase, although there is more awareness on the security side. But companies need to be willing to invest. What to invest in? That may be the million-dollar question really.”

[easy-tweet tweet=”Enterprises want their #IT partners to help drive business efficiencies” user=”CloudEthernet & @comparethecloud” hashtags=”cloud”]

Enterprises want their IT partners to help drive business efficiencies, rather than emphasise network infrastructure, said Amit Sinha Roy, Vice President of Tata Communications, and that shift is also driving vendor investment. “Enterprises want to push out the infrastructure as far as possible, as far as regulation and security allows and as far as the confidence they have in their service provider, be it the cloud or the network for a telco. The enterprise is facing the same issues, and more, of getting the people who can perhaps maintain and grow and drive that system, and even design and architect the solution. That’s going to keep driving forward in terms of offloading and investing further into these relationships.”

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