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December 4, 2013

The Secret to the successful Cloud is Commoditization and Democratization and the resulting Governance

Hi,

It's been a while since the previous post. I've been way too busy with all kinds of projects and initiatives.

One of these concerned a customer of mine that wants to venture into the Cloud. The reason for them is, mainly, reduction of costs. Or rather reduction of IT expenditure.

Upon analyzing the benefits of a Cloud initiative within the four walls of the data center already in use we stumbled across something completely different. A means of saving quite some IT budget without moving to the Cloud. But interestingly enough, the effort would also mean a better paved road to the Cloud.

Okay, done with all the secrecy. Let's lift the veil.

One of the problems my customer is facing is the fact that a lot of their compute resources are dedicated to fulfill specific business needs. Well actually, they're the needs of some people within the company.

As we found out, a lot of time, effort and money are spend on customizations of COTS (Common Of The Shelve) products. And as we went down memory lane, reminiscing, I learned that over the last decade many projects within the company were long term, strategic projects involving the implementation of large products. An ERP here, an HR system there, some BI with the DWH thrown into the mix as well. Some more initiatives like a true IAM setup had been concluded as well. Each of these projects were concluded as a success. Predominantly because they were backed by the senior managers and each of the projects had been implemented as gradual implementations instead of Big Bang implementations. Nevertheless, millions of Euro's had to be spend and are still spend on the resulting systems.

Another key reason why the projects were a success, was that the resulting systems fitted nicely within the business processes already in place, hence people hardly needed to learn a new way of working, so benefits were reaped almost immediately, albeit limited to just some optimizations due to automations. Not really LEAN.

The issue here is that the products, the services if you will, were customized if not already tailored, towards the organization. Although of the shelf, they were no longer suitable to be put back on the shelf. Interesting detail in this regard, is that in pretty much all these cases, the implementation projects were quite costly and took considerable amounts of time.

Also note that in many cases, these projects were actually failures and a lot of time and money was wasted, because of these customizations. I'm sure you've been in these situations or at least heard of them.

The issue here is that the customizability of these products define their usefulness in the enterprise. And their profitability for the vendor, especially its professional services group and its partners.Now with the advent of the Cloud and most notably applicative services provided through the Cloud, SaaS, customizability is the last thing you want. Why? Because economy of scale is what drives SaaS and the more customizations are allowed, the smaller the scale.

You probably noted that this post is not about SaaS perse, but about Cloud. Yet I am treating SaaS here specifically and will delve into the realms of IaaS and PaaS later in this post.

Just for your reference, when I talk about SaaS, PaaS and IaaS, I'm using the definitions of NIST as found in: "The NIST Definition of Cloud Computing". This is important to know, as there are many definitions out there and some are conflicting with the one I'm using in this post.

SaaS - Software as  a Service

So far I hope you'll agree, it is in the SaaS provider's interest to standardize as much as possible in the service offered. Meaning that the functionality provided and the context in which it should be used, typically where in a particular (business) process and how in that process the service should be called. In addition, the SaaS provider will limit the customization of the offered service as much as possible ensuring that diversification is as limited as possible. Why? Because this will trigger the economy of scale aspects of the Cloud that are so beneficiary for the SaaS provider.

And obviously for the SaaS consumer as well. Economy of scale at the provider's end translates into lower costs of the service at the consumer's end. And isn't that what we want when going to SaaS? Yes, it is. But in addition, one thing to remember and take into account as well is the fact that more of the same results, typically more of a high quality. Less is easier to control, maintain and support. And with more consumers it will be more enticing for the provider to keep the consumers happy. Happy customers drive marketshare to a significant extent.

Concluding, standardization of services provided as SaaS is a key aspect of SaaS. There's no way around this. But that means that the service will more and more become a commodity. It has to be, because a commodity is something that is in widespread use, meaning that as a SaaS provider, you have a lot, preferably as many as possible, consumers. Here's your economy of scale again.

So there's your commoditization of the service and with that, you'll lower the cost of the actual service. Up to a point where you can offer it for free for a limited time. Get your consumer hooked on your service. An initial free service, or one with such low entry costs that it's almost free allows everybody and their mother to subscribe to the service if they wish to do so. And there's your democratization.

Back to the SaaS consumer end as the afore mentioned is more concentrating on the provider end. The consumer will be required to use the service as the SaaS provider intended it to be used. There's some room to customize the service to fit within the existing environment, but that's limited. The days for huge customization projects are over. This is not a problem, because the service is considered a commodity, hence it is most likely based around best practices, organically grown from market presence of the service. So the individual users will be happy to adjust their working patterns because the new patterns, if any, will feel as a natural fit. Mind that typically it are not the end users that want the new product to be customized to fit the needs of the organization, it's management. Those that should govern the process, not those that should work the process. With the democratization of the service, it will be those that are willing to change when needed that will consume the service.

As such, the provider and the consumer are benefitting from the commoditization and democratization of the SaaS offering.

IaaS - Infrastructure as a Service

Okay, so let's talk infrastructure. What about infrastructure and how does this relate to commoditization and democratization? Again it's economy of scale that's key.

Cloud offerings are interesting to the provider, including IaaS providers, because of the huge amount of customers they have and the standardized offering they provide and the streamlining they can achieve with their processes because of this. Because of the standardization, they can automate most of their processes. The investments to do this, which are huge most of the time, are warranted because the cost per piece are low. Here's your economy of scale at work, again.

For this to work, the IaaS provider will standardize on the hardware that will be used to build the cloud offering on. Typically this is the hardware of the quality "as cheap as possible". It's the commodity hardware everybody can buy. The off-the-shelve hardware. Again, the cheaper the boxes, the more can be bought. The more are bought, the more customers can be hosted on the infrastructure. The more customers, the lower the costs per customer. And again, here comes the democratization part; lower costs means that more people can start leveraging the cloud. But as with the SaaS offering, the true benefits are in the economy of scale for both the provider and the consumer.
As already pointed out, the provider clearly benefits of the economy of scale, but predominantly because it strengthens the position in the marketplace.

For the consumer, the benefit is in the lower costs and because of the fact that you can buy the service, or rather subscribe to it with a pay per use cost. In most cases there's a monthly fee, to cover the administrative costs for having you as a customer, but beyond that, you pay for what you use.
From a consumer perspective therefore it becomes critical to also be aware of that your chances for customization are limited, extremely limited because you can only get what's on offer. And what's on offer is highly standardized.
There's an added benefit of this, namely the fact that you're required to standardize and therefore you can standardize on your support efforts for those systems that are 'in the Cloud'. Because the service you're subscribing to is IaaS, you will have to support the OS and everything on top of it yourself. By being limited to just a few options, provided by the provider, it will be relatively simple to move to an outsourcing model for your maintenance and support efforts.

The democratization of the infrastructure because of the Cloud is a problematic aspect of the Cloud in case you, as a consumer, are not yet mature enough to have the right governance in place.
To understand this and appreciate this to the fullest, you need to scroll back to the SaaS discussion. The democratization of the infrastructure through the Cloud initiatives all over the globe, means that everybody and their mother can just create a server in the Cloud, provided that they have a credit card. All Cloud providers will provide you with a basic server, limited resources and a default albeit fairly secure, OS installed on it.
Without the proper governance in place, your environment will become uncontrollable as servers will be added to it that are unknown to your support staff, running critical applications before you know it and integration requests will pop-up as you read this blog post. (Also refer to my post on this topic at: Is there a market for the Cloud in the world of Corporates?.) Complexity will not come from an ever increasing level of heterogenity, which shouldn't be an issue at all. This will be limited because of the limitations of the Cloud provider. The complexity will be a result of not knowing that there are servers in your environment. This can only be prevented when there is proper governance. This is where you should use governance to enable and defintitely not to restrict.

PaaS - Platform as a Service

Considering you've already exerted the effort to read until this point, I'm sure you'll appreciate that I'm concluding with the platform as a service by saying that it's just the same as IaaS. But then again, it's not.

PaaS, the platform as a service, is where the Cloud is starting to put some software on your server. True, IaaS did put an OS on the server, but the Cloud provider wouldn't support it. That was yours to do. With PaaS this is not the case at all. You subscribe to a platform so the provider will deliver it. This can be as simple as just the OS, so the service you'll subscribing to is a server with a managed OS on it, or it goes as far as a complete software stack, completely supported and maintained by your PaaS provider. An example of this is Amazon's Elastic Beanstalk (EBS) offering, an offering where you do some clicking and presto you get a server running completely configured for you an Apache Tomcat instance. Fully load-balanced and all.
And here again, you probably guessed it, the economies of scale are key. By controlling the full software stack, the PaaS provider controls what is to be supported, meaning that the PaaS provider dictates the standard. By complying to this standard, as a consumer you benefit from the scale the provider is managing. Thus lower cost. By this model, the platform is commoditized by the PaaS provider and because of the low cost, the platform is democratized.
Now what does this mean. Well for one, if you look at the example of Amazon's EBS offering, it means that a few standard platforms for web-based applications are provided by Amazon as a commodity to its customers. Where in the past, it wasn't really trivial for an enterprise to host a fully scaleable web application facing the public internet as setting up a fully load-balanced environment with all the security constraints in place, based on best practices not only required skilled staff to architect and later on operate, it also required significant investments in order to also be able to provide the necessary resilience. This has now become an almost trivial exercise. You just click on some buttons that you want a Tomcat based environment, or Microsoft IIS based for that matter, and if needed including a database and just a few minutes later you get your environment. All up and running, first year free of charge and ready to roll. With all the scaling out of the box, and totally restricted.

From a PaaS provider perspective it is clear why it is necessary to standardize and restrict. But the understand it is a double edged sword as standardized environments lead to lower TCO (Total Cost of Owndership), but that as a result leads to the ability to commoditize the platform and democratize it.
From a consumer perspective it should be obvious as well that these offerings can only lead to... well that actually depends on who the consumer is. Considering the individual, commoditization and democratization are huge benefits as they result in less effort and budget needed to get the same results faster. It has never been as simple and trivial to deploy a web based application on the internet with full resiliency and scaling capabilities, provided that the application can handle this. From a business perspective, i.e. the business user at the PaaS consumer side, the same holds true. But there's the issue of operationalizing the business services. That can become tricky, but this is where the PaaS part helps. Maintenance and support are handled by the PaaS provider.

There's actually something to be mentioned on this topic, that I will cover in another post, because maintenance and support are far from a given in a Cloud environment.

The serious issue here is with the CIO, or the IT department in general. The standardization is with the PaaS provider. This would be a nice time to read my post on heterogeneity and homogeneity. Basically, what it says is that it is virtually impossible to have a homogeneous environment and it is wasted time, effort and money to strive for this. And although the PaaS provider will only provide a limited set of options when it comes to the P(latform) as a service, the individual consumers can still run havoc with your standardization efforts, because of the commoditization and democratization.
The issue here is that from the perspective of the enterprise as the consumer it goes without question that it should be accepted that the PaaS offering is in fact a commodity and practically everybody can subscribe to it. From an IT department perspective, this should be embraced as that will mean that internal processes and procedures as well as policies are in place to support the virtually effortless integration of PaaS offerings in the 'legacy' environment.

Dare I say it? Yes! Once again, it all boils down to governance. And with a Cloud component in an IT landscape more so. Why? Because the Cloud makes the specialized tailored solutions of yesteryear a commodity of today. Accessible to all. literally all. And therefore, one can't control through restriction, through closing down, but through enablement, i.e. opening up.

What experience learns...

So here's the sad part, really. Most of the enterprises I've been. Most of my clients facing this situation are not yet ready to handle this. They so desperately want to 'do Cloud', but they just don't have the governance in place.
This is typically in the area of architecture (there's no architecture governance), maintenance and support (still focusing on traditional maintenance and support schemes) and running IT in a multi-dimensional silo'ed fashion (strict separation of network, infrastructure, application and business instead of seeing IT as a combination of man and machine solution, strict separation of a project organization and a operations organization resulting in an 'over the wall' mentallity, strict separation of analysis-design-implementation phased approach to new developments).

Well, as usual, I'm really delighted you've come this far and took the time to read this whole post. I understand that it's once again a very long post. Probably loosing coherence every now and then. It took me about a week or two to write it up. Which is never a good thing for a blog post.

As always, drop your comments in case you see things differently. It's the different points of view, from which we learn the most and from which we can complete our picture.

Iwan

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