By Sanchit Vir Gogia, Chief Analyst & CEO, Greyhound Research & Anshoo Nandwaani, Vice President and Principal Analyst, Greyhound Research
On Tuesday, 28 June 2016, Amazon Web Services (AWS) announced the launch of its sixth Asia Pacific (APAC) Region in Mumbai, India.
The new AWS Mumbai Region consists of two separate Availability Zones at launch. This news is part of the company’s plan to expand its Asia Pacific footprint wherein it announced the launch of its South Korea (Seoul) Region barely six months ago. It is important to see this announcement in light of other investments that AWS is making broadly in India including technical support centres, investments in partner network among others. Of all key investments, one that is important to note is the 3rd AWS Point of Presence (PoP) in Delhi (after Mumbai and Chennai) for its Content Delivery Network (Amazon CloudFront) and DNS service (Amazon Route 53).
With this announcement, the company now has a total of 35 Availability Zones across 13 geographic regions.
It is important to know that Availability Zones are not the same as Data Centres, a detail which many miss. Per AWS, “Availability Zones consist of one or more discrete data centres, each with redundant power, networking and connectivity, housed in separate facilities. These Availability Zones offer the ability to operate production applications and databases which are more highly available, fault tolerant and scalable than would be possible from a single data centre”. Between 2016-17, the company plans to expand its global Infrastructure with (at least) 9 new Availability Zones in the following geographic regions: Montreal in Canada, Ningxia in China, Ohio in the United States, and the United Kingdom.
The latest AWS announcement concurs with the outcomes of a recent Greyhound Research Global, Independent study titled, Cloud Adoption Index 2016.
As part of this Global, Independent study, we reached out to over 2,500 respondents including Independent Software Vendors (ISVs), System Integrators (SIs), Start-ups, Enterprises and Government. Of these, 1,000 were from the Asia Pacific including Japan (APJ) region. While there were multiple findings from this extensive study, particularly two stood out.
95% respondents in APJ confirmed their plans to use Public Cloud in some manner between 2016-17.
Separately, 70% ISVs and Start-ups in APJ stated their intent to use (or continue using) AWS because of its strong ecosystem base which lends them more opportunities for monetisation.
Albeit multiple vectors can be used to infer the outcomes from this announcement, we at Greyhound Research have bucketed these in three:
Access To Technology & Skills – Known for its many firsts, this launch will allow AWS to offer local instances of some of its home-grown technologies like Lambda, Aurora and other Open Source initiatives that have been well received by developers globally. Other key technology benefits that the company can now offer include lower latency, data sovereignty and localised support. Greyhound Research believes this new region will lend AWS customers and partners the ability to migrate apps and workloads currently located in other regions.
The company also stressed on how this announcement will help address Narendra Modi government’s focus on Indian Start-ups and driving country’s growth on back of Digital initiatives. During his trip, AWS CEO Andy Jassy met with senior Indian bureaucrats and Communications and IT Minister Ravi Shankar Prasad to discuss how AWS can help train people on latest technologies and ways in which various government departments can leverage AWS. The company announced its intent to train 25,000 students of National Institute of Electronics & Information Technology (NIELT) in the next two years and also signed a Memorandum of Understanding (MoU) with NITI Aayog (National Institute for Transforming India).
The Ecosystem Advantage & Opportunity for ISVs – Over and beyond technology reasons, AWS offers its customers an impressive base of ecosystem partners including ISVs and SIs. While Indian customers will now be able to access Global ISVs (with local instances) like Salesforce.com, Adobe, Autodesk, Brocade, CA Technologies, Fortinet among others, they will also be able to use local ISVs like Druva, Manthan, Freshdesk, Indusface, Newgen, Ramco and others who now can potentially host on AWS in India.
Greyhound Research believes this launch will act as a shot in the arm for India-based developers and ISVs allowing them to service India opportunities by offering local instances. This announcement could also lead to heightened competition between Indian ISVs like Ramco, Greytip Software among others that have chosen to host on AWS and Global ISVs like Oracle and SAP who are yet to announce India-hosted SaaS options for their ERP, HCM and other software solutions. The former can now potentially take on the latter on CIO concerns of data sovereignty.
Potential Financial Benefits – With this launch, the AWS ecosystem can potentially avail two-fold financial benefits – one, cheaper cost of compute, storage, databases and networking and two, higher chances of monetisation. Also, with this launch AWS is providing Indian customers local invoices and payment options, thereby allowing payment in INR via credit cards or bank transfers through Amazon’s local selling entity. Greyhound Research believes AWS partners will also have to now make provisions to bill in INR (if not done already). This is a critical success factor especially in the enterprise market and has to be a cause AWS champions themselves.
Expect this announcement to accentuate the India Public Cloud war.
Just the day after the AWS announcement, Microsoft launched extensive online and offline campaigns to promote its Cloud delivered products (Azure, Office365 and Dynamics CRM Online). The adverts specifically highlight Microsoft’s depth of investments by way of showcasing its three data centres in the country. Some other noteworthy developments which will add fuel to this fire include IBM hiring Karan Bajwa (ex Microsoft India MD) who was instrumental in the success of Microsoft’s India Enterprise business, AWS roping in experts (Anantharaman Balakrishnan) from other enterprise technology vendors like EMC to beef up their India Enterprise Sales team and NTT announcing significant investments to increase Data Centre capacities in India. At Greyhound Research we believe this is the beginning of the Public Cloud war in India and expect it to become more intense in FY17 and FY18. We expect these announcements to add pressure on the likes of Google, VMware, CtrlS, ESDS and RackSpace among others.
Enterprises & IT Decision Makers can expect to hear more often from Public Cloud vendors.
Given the investment from key vendors, CIOs can expect heavy sales push coming their way. This push will be specifically targeted towards regulated industries like the Government & Banking, Financial Services, Insurance (BFSI) vertical that have traditionally steered clear of Public Cloud. Greyhound Research advises its CIO clients to look beyond the sales pitch and double-click on aspects like security, availability and compliance that may seem obvious and a given. To identify the best suited Cloud solution for their enterprises CIOs must benchmark and compare vendors and not base their decision only on price.
CIOs must carry out their independent audits. While Public Cloud vendors of repute conduct yearly audits including ISO 27001, SOC 1 (Formerly SAS 70), SOC 2 Security & Availability, PCI-DSS Level 1 and others, Greyhound Research advises its CIO customers to look beyond these once-in-a-year self-certifications. CIOs must conduct their own audits on a regular basis to ensure sustained delivery and compliance. This audit must go beyond the traditional Quality of Service (QoS) measures and be comprehensive in nature. To be more precise, CIOs must get their Public Cloud vendors to offer access to data centres and co-invest in these periodical audits (quarterly or six monthly) that check for depth and quality across three key parameters – People, Processes and Technology.
Cloud vendors often use sub-contracting and co-ownership mechanisms while announcing such large-ticket investments. While this works well for the vendor to help keep their costs intact, it can well lead to situations where sub-contracted workforce has access to Data Centres. Greyhound Research urges its CIO clients to question Cloud vendors (specifically Global) on such ownership issues to ensure compliance and data protection at all times.
CIOs must look beyond the vendor hype of a ‘single-vendor, all-in’ approach. At Greyhound Research we strongly oppose this approach and believe it’s imminent for CIOs to use a ‘multi-vendor, select-workload’ approach to Public Cloud. Using a single-vendor approach can increase risks associated with Digital Transformation projects and lead to vendor lock-in issues that can be both time consuming and an expensive affair to manage. Across the 5000 Global enquiries that we handle yearly at Greyhound Research, we advise CIOs to start their Public Cloud journey with non-mission-critical workloads (like Email, DevOps among others), gain expertise, learn from mistakes and only then move mission-critical workloads (like ERP, Supply Chain among others) on Public Cloud.
This announcement will considerably impact vendors like Microsoft and IBM.
Greyhound Research believes Global vendors (like Microsoft and IBM) and regional and local vendors (like NTT’s Netmagic, CtrlS, NxtGen and ESDS) have already made their presence felt in the country over the past year by either announcing India Data Centres or their intent to invest increasingly. The most notable of these have been by IBM and Microsoft who have spent considerable resources trying to outdo each other on back of their local and regional investments. Critical to highlight here that while Google has been actively selling its offerings locally, it’s yet to make any news on its intent to invest in India to cater to the growing Public Cloud opportunity.
Regional and local Public Cloud vendors will face the impact more intensely.
Owing to their lack of scale and critical volume of customer base, regional and local Public Cloud vendors like CtrlS, NxtGen and ESDS face multiple challenges when competing with Global vendors:
Regional and local vendors have not been known to invest much muscle in R&D, hence are unable to offer many technology firsts. Given their current set of expertise and focus on Infrastructure as a Service (IaaS), regional and local vendors are unable to offer incremental value in Platform as a Service (PaaS) and Software as a Service (SaaS). At Greyhound Research we believe the cost of IaaS is rapidly going southwards Year-on-Year (YoY). Per our estimates, the global pricing of IaaS when compared for average monthly cost per GB RAM across various use-cases (including support costs) has witnessed a YoY decrease in the range of 10% – 30%. As a result, regional and local vendors will find it increasingly difficult to sustain themselves in midst of Global competitors.
Regional and local vendors have until now survived on the back of their relationships with CIOs and managed services which is people and cost intensive. As a result, their cost of delivery is higher compared to Global vendors. At Greyhound Research we believe higher delivery costs clubbed with the falling price of IaaS puts regional and local vendors (and their margins) in a tight spot. Owing to such pressures, these vendors have either already hived-off equity or are considering acquisition offers from Global vendors to become part of larger Global networks, attract Data Centre investments and remain competitive. To cite an example, Netmagic has been fully acquired by Japan’s NTT that has further announced an additional investment of INR 2,000 crore. This investment will more than double its Data Centre capacity in India (to 13 lakh Sq.Ft.) by 2018.
Given the lack of critical volume of customer base, regional and local vendors are unable to attract global ISVs to partner extensively with them. Hence, they are not able to offer a strong marketplace thereby reducing opportunities of monetisation for their ISV partners.
But before we decide the winner in this market, it’s important to separate the wheat from the chaff.
Not all vendors are equally strong across segments. Despite tall claims, not all vendors have strengths across all three segments of IaaS, PaaS and SaaS. CIOs must watch out for this overselling. While both Microsoft Azure and AWS serve opportunities across all three segments, the former continues to chiefly focus on its own SaaS offerings (Office365 & Dynamics CRM Online). The latter on the other hand has invested significantly to foster its ecosystem of ISVs. In fact, only recently AWS managed to pull Salesforce.com away from its arch rival Microsoft who had made a loud noise about the ISV planning to use Azure globally.
Not all vendors offer the ability to pick and choose applications spanning both Open Source and Proprietary platforms. At Greyhound Research we believe an area where Azure can be expected to do well (in theory) is its ability to link well with Microsoft On-Premise products such as Windows Server, Systems Centre and Active Directory. Enterprises currently deeply invested in Microsoft may find it easier to migrate to Azure for chosen set of applications. Having said that, while Microsoft touts this as a strength, AWS offers openness and supports other platforms as well. This is an area where Microsoft Azure is somewhat limited. Separately, while Microsoft has done fair justice to recognise the importance of Open Source platforms, its support for Linux Operating System is limited.
Greyhound Research advises its CIO customers to compare vendors on Platform configuration options, monitoring and policy features, security, reliability as well as overall service offerings. As a note of caution, with AWS offering services in thousands, CIOs can expect their teams to spend enough and more time to navigate through the complexity.
Not all vendors are equally equipped to cater to enterprise-grade complexities. Albeit AWS continues to enjoy the position of the vendor with highest scale and size of infrastructure availability, Microsoft has been ramping up capacity over time. However, an area where AWS takes a beating to Microsoft Azure and IBM is with its Hybrid Cloud strategy (or the lack of it!). AWS only subscribes to a Public Cloud strategy while many enterprises across the Globe, including India, treat Hybrid Cloud as key to their Cloud journey. This holds true particularly for large enterprises and Government. Having said that, AWS has proved their ability to handle enterprise-grade complexity on Public Cloud with use-cases like Transport for London.
Greyhound Research believes the ability to handle such enterprise-grade complexity is sometimes a question mark even with Global vendors like IBM. Their Cloud offering (SoftLayer) is seen primarily as an x86 server replacement and a service primarily useful for small and medium enterprises (SMEs). Reasons like these defer large enterprises and CIOs from using offerings like IBM SoftLayer for their mission-critical workloads.
Availability with acceptable levels of outages is a given, but then who defines what is acceptable? At Greyhound Research we believe while outages shouldn’t be acceptable on any accounts, but then no environment is faultless. Per our research, while Microsoft Azure, AWS, IBM SoftLayer, Rackspace among others have had their fair share of outages, some have more instances compared to others. Enterprises running critical workloads on Public Cloud will need to account for such outages and carry out their independent research and assessments despite claims from vendors.