Cloud: The Commercial Silver Lining for Partners

Cloud: The Commercial Silver Lining For
Partners
Conor McNamara
Cloud Economics & Enterprise Strategy
Amazon Web Services

• Industry Trends
• AWS Services – Disruptive Pricing
• What Does This Mean for the Channel?
• Tactical Margin Enhancement Levers
• Takeaways
Agenda

“The Cloud is the biggest
technology shift in our lifetime.”  
Andy Jassy

The Changing Face of the Application Hosting Landscape
Changing face of Enterprise IT
0
25
50
75
100
2012 2013 2014 2015 2016 2017 2018 2019 2020
SaaS
Public Cloud
Private Cloud
On Prem/Co-Lo
Indicative Only
By 2020 the distinction between public and private cloud disappears as self-built
private clouds become extinct #idcgrac”  
Crawford Del Prete; EVP, Products and Chief Research Officer

Gartner – Virtual Machine Statistics
The
overall
number
of
active
VMs
has
tripled.

The
number
of
VMs
in
true
on-‐premises
private
clouds
has
also
tripled.

But
the
number
of
active
VMs
in
the
public
cloud
has
increased
by
a
factor
of
twenty.

Gartner – Virtual Machine Statistics
2017?
The
overall
number
of
active
VMs
has
tripled.

The
number
of
VMs
in
true
on-‐premises
private
clouds
has
also
tripled.

But
the
number
of
active
VMs
in
the
public
cloud
has
increased
by
a
factor
of
twenty.

A Digitizing World is Driving Cloud Adoption
• Australia's so-called digital economy contributes $79 billion or 5.1
per cent of gross domestic product in 2015
• If the digital economy was an industry it would be larger than
Australia's agriculture, transport or retail industries and will grow to
$139 billion or 7.3 per cent of GDP by 2020.
• The study estimated that the Australian economy was about $45
billion bigger in 2013 than it otherwise would have been because
of the positive impact of digital technologies on productivity.

Build or Buy?
“By 2020 the distinction between public and private cloud disappears as self-built
private clouds become extinct #idcgrac”
Crawford Del Prete; EVP, Products and Chief Research Officer, IDC Group
“Tech
providers
in
the
Private
Cloud
are
not
operating
at
the
pace
of
innovation
of
the

public
cloud
vendors
–

they
are
typically
three
years
behind”

Lydia
Leong;
VP Distinguished Analyst, Gartner
“We
think
it’s
[the
internal
cloud]
a
temporary
solution.
Frankly,
we
think
even
the
hybrid

cloud
is
really
a
temporary
solution.
we
see
no
reason
why
everything
except
the
rarest
of

apps
should
not
end
up
in
a
multitenanted
environment”

Chris Drumgoole; GE, COO of IT

IT Budget Movements (2011-2014)*
2011 2012 2013 2014
33323031
67687069
#REF!
Maintenance
Innovation and Business Enablement
*CEB Analyst Report covering 200 organizations globally and $46Bn in IT spending
IT Budgets are Still Largely Maintenance Focused
56
44

IT Budget Movements (2011-2014)*
2011 2012 2013 2014
33323031
67687069
#REF!
Maintenance
Innovation and Business Enablement
*CEB Analyst Report covering 200 organizations globally and $46Bn in IT spending
17% of companies interviewed had reduced Maintenance spending to 44% of
overall IT Budget – “This cohort is aggressively using the cloud to drive
down maintenance costs, coupled with “flexible budgeting,”
Cloud adopters are
already seeing big
savings
IT Budgets are Still Largely Maintenance Focused
56
44

The Opportunity
Reduction in IT Cost Base
Consumption Based Pricing & Automation
Elimination of upfront CAPEX requirements
Real-time access to declining prices

The Opportunity
Increasing profitability of existing
products and services
Increased Business Process Automation
Incremental Innovation
Reduction in Rework

The Opportunity
Increasing profitability of existing
Business Growth
Increased Business Process Automation
Incremental Innovation
Reduction in Rework
Organic and Inorganic Growth
Reduced cost of entry
Global Reach
Reduction in time to market for new

What does it mean  
at a service level?

Historic Performance Improvements and Cost Reductions  
Are Likely to Continue
Performance
• Processing: Processing speed doubling every 18 months
• Storage: Growing significantly faster than processing speed
• Network: Connection speeds doubling every 21 months
Cost
• Processing: Costs declining 33% annually, 1990-2013
• Storage: Costs declining 38% annually, 1992-2013
• Network: Costs declining 27% annually, 1999-2013

The Enterprise IT Map  
The AWS Take on IT in the Enterprise
END USER
COMPUTING
BUSINESS
APPLICATIONS
CORPORATE
APPLICATIONS
INFRASTRUCTURE /
SHARED SERVICES
INFORMATION
SECURITY
• WorkDocs
• Workspaces
• Workmail
• Analytics (Redshift)
• App Services (SNS, SOS)
• Deployment & Management
• Mobile Services
• AWS Marketplace
• BYOL
• Licensing Partnerships 
with SaaS vendors
• VMs, Auto Scaling, Load Balancing
• Storage: Object, Block, Archival
• DB: Relational, NoSQL, Caching
• Networking: VPC, DX, DNS
• Identity and Access Management
• Key storage
• Usage Auditing
• Monitoring and logs
• ERP
• CRM
• HRM
• Non-differentiated
• Firewalls
• Encryption services
• Threat monitoring
• Virtual Desktop Infrastructure
• Collaboration tools
• Digital/ industry specific
applications
• Customer facing applications
• Compute
• Storage
• Database
• Networking
Category Description AWS Offering

Commercial Implications of AWS
END USER
COMPUTING
BUSINESS
APPLICATIONS
CORPORATE
APPLICATIONS
INFRASTRUCTURE /
SHARED SERVICES
INFORMATION
SECURITY
Workspaces - $33-$90/month. Workspaces can be deleted at any time
Redshift – Less than 10% of the cost of traditional data warehouse offerings
Aurora - 5x performance at a 10th of the cost
Hosting - “IDC Business Value of AWS” 5 year TCO savings of 72%
No upfront commitment required…

AWS Migration Pay-Back Graph - Indicative Only
0
4
7
11
14
Mth 1 Mth 2 Mth 3 Mth 4 Mth 5 Mth 6 Mth 7 Mth 8 Mth 9 Mth 10 Mth 11 Mth 12
Current/Do Nothing AWS Environment
Pay-Back Period
Migration Cost
AWS environment cost base
will continue to reduce over
time
Traditional ROI - AWS Payback

Commercial Optimization Levers

• Instance Rightsizing

• Scaling (Seasonal and Daily)

• Reserved Instances

• Capacity Pooling

• The RI Marketplace

• Tech Refresh (m2.XL to m3.XL, 77% more ECU/$)

• Price Cuts

• Price Cuts
• Innovation Platform

Lift and Shift Savings Potential
0
25
50
75
100
Base Price Rightsized Seasonal Daily Scaling Reserved Tech Refresh Price Cuts
25
3030
707070
100
Traditional
application
using AWS
reservations
Base price is for capacity bought up-front

Conservative Savings Potential
0
25
50
75
100
15
20
25
35
50
70
100
Cloud-native
application
partially optimized
light use of RIs

Savings Potential – Optimized Workload
0
25
50
75
100
46812
25
50
100

Savings Potential – Optimized Workload
0
25
50
75
100
46812
25
50
100
Cloud-native application
fully optimized autoscaling
mixed reservation use
costs 4% of base price
over three years!

What does this mean  
for the Channel?

A Changing Commercial Landscape

Customer View
Pricing elasticity
Consumption Based Pricing
Highly Automated Stacks
Elimination of IT CAPEX focused
outsourcing

Customer View
Pricing elasticity
Consumption Based Pricing
Highly Automated Stacks
Elimination of IT CAPEX focused
outsourcing
Partner View
Inability to forecast revenue
Pressure to reduce contract terms
Disruption to existing Business Models
Traditional Reseller Model under
pressure

The Partner Value Chain
Consul
t
Design
Build
Operat
e

Revenue Generation (Year One)
Revenue Profit (%)

AWS Usage
Revenue Profit (%)
AWS Margin Enhancement Levers (100k) $30k

AWS Usage
Software Licensing
Revenue Profit (%)
Software Charges ($50k)
$15k

AWS Usage
Software Licensing
Strategy Consulting/
Architecture 2-5x Uplift on AWS Charges ($400k)
Revenue Profit (%)
$15k
$160k(40%)

AWS Usage
Software Licensing
Architecture
App Dev/Integration Application Build ($150k)
2-5x Uplift on AWS Charges ($400k)
Revenue Profit (%)
$15k
$160k(40%)
$45k (30%)

AWS Usage
Software Licensing
Architecture
App Dev/Integration
Managed Services 15%-40% Uplift on AWS Charges ($20k)
Application Build ($150k)
Revenue Profit (%)
$15k
$160k(40%)
$45k (30%)
$5k (25%)

AWS Usage
Software Licensing
Architecture
App Dev/Integration
Revenue Profit (%)
$15k
$160k(40%)
$45k (30%)
$5k (25%)
$255k$720k

AWS Usage
Software Licensing
Architecture
App Dev/Integration
Revenue Profit (%)
$15k
$160k(40%)
$45k (30%)
$5k (25%)
$255k$720k
…….we expect a 6 to 11x+ multiplier uplift over AWS spend

Local Partners are Already Seeing the Benefits…
ARPU Rising
– Moving to
higher value
services
(20% Uplift in
EBITDA)

Managed Services – Variable Pricing Models

• Fixed Price Managed Services

• Fixed Price Management + Pass Through Infrastructure

• Variable Management + Pass Through Infrastructure

• Variable Management + Pass Through Infrastructure
• Outcome Based Billing

Managed Services – Commercial Pricing Models
0%
25%
50%
75%
100%
Fixed Price Managed Services •Variable Management + Pass Through Infrastructure
Fixed Variable Outcome Based

Partner Example - Ultraserve
Customer requirement • Customers need a way of aligning costs to revenue.
• CMO's and digital teams just want their site to be running quickly, always
available and secure. Outcomes focused
Pricing Model • Customer fees paid are then based on either page views or transaction count
Customer Benefits • Aligns costs to revenue
• Cost per transaction/revenue/page view decreases in a tiered model
• Shared risk model
• Guaranteed RTO/RPO's due to the redundancy and resiliency of the
architecture.
• UltraServe can utilise the best of breed products and technology to deliver the
outcomes
Partner Benefits • Flexible Delivery Model
• Speeds up sales cycle
IT moves from Overhead to COGS….

Managed Services – Margin Enhancement Opportunity
Traditional Hosting
Managed Services
Margin
...Automation + Commercial Levers Enhance Profit

Traditional Hosting
AWS On Demand
Managed Services
Managed Services
Margin
Margin

Traditional Hosting
AWS On Demand
AWS Optimized
(Profitability Levers)
Managed Services
Managed Services
Managed Services
Margin
Margin
Margin

TCO Improvements Provide Benefits Across the Board

TCO Improvements Provide Benefits Across the Board
Don’t be
afraid to take
some of this
back!

Positive Cash Flow Implications……
Bill
Now
Next
Month
Ages
Ago
Lease
Building
Install
AC etc.
Rack and
Stack
Private
Cloud SW
Customer
PaymentData Center Up-Front Costs
And Reduced Risk…

Levers for Partner Profit
• Aggregation of storage and networking

• Compute capacity aggregation
– Reserved Instances
– Reserved Instance volume discounts

• Reseller discounts

• Cost reduction through funding (eg, POC)

• Partner Referral program

• Partner Referral program
• RI Marketplace

Tools and Resources
AWS Economics
Centre
http://
aws.amazon.com/
economics
TCO Whitepapers
Calculator tools
Links to case
studies
TCO Calculator
http://
aws.amazon.com/
tco-calculator
Quickly estimate
TCO for an
opportunity
Recent Whitepaper
How
to
Build
Your

Business
on
AWS

APN Portal
http://www.apn-
portal.com
This will become a
key place for partner
content and
enablement
materials!!

Training & Webinars
• AWS Partner Educate training

Training & Webinars
– Business Professional

Training & Webinars
– AWS TCO and Cloud Economics Professional Course
(NEW)

Training & Webinars
(NEW)
• Optimizing Total Cost of Ownership for AWS

Training & Webinars
(NEW)
• Optimizing Total Cost of Ownership for AWS
• AWS Summit NYC 2012: AWS Cloud vs. Data
Center – A Cost Comparison

Key takeaways
• Go Deep on TCO & Commercial Optimization

Key takeaways
• Understand the tactical profitability levers available

Key takeaways
• Factor in Price Reductions

Key takeaways
• Develop your Point of Difference (UVP)

Key takeaways
• Develop your Point of Difference (UVP)
• Develop a Business Model that is aligned to the opportunity
that Cloud presents

Cloud: The Commercial Silver Lining for Partners

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