Perspective on application delivery in private and public clouds

Joint Project TechAlpha Partners August 17, 2009

Scope of this report on the future of application delivery in private and public clouds
..which jointly shape cloud opportunities for Company X

We evaluated five forces

IT service provider cloud strategies

Competing platforms (PaaS)

Cloud scenarios & industry economics

End customer demand

Customers

New

Existing

N/A

Legacy Management software vendor capabilities

Next Gen

SAP solutions

Scope of this report on the future of application delivery in private and public clouds detailed view
Focus in scope 70% Infrastructure as a Service (IaaS)

Profile of end customer demand for running business

applications in hybrid (i.e., private) and external (i.e., public) clouds Assessment of IT service provider cloud strategies to deliver hybrid deployments - Focus on Wipro, Infosys, IBM, Accenture, Unisys, Perot Systems, EDS, Telefnica Review of management software vendor capabilities to enable hybrid application delivery - Focus on Microsoft, BMC, HP, VMware and emerging players platforms for corporate and ISV application developers - Focus on Oracle, Salesforce, Workday, Netsuite, Intuit, Microsoft and IBM

25%

Platform as a Service (PaaS)

Evaluation of the technical and commercial merits of competing

Out of scope 5% Software as a Service (SaaS)

Evaluation only to the extent that their application strategy

influences their PaaS strategy
2

Contents

Key takeaways Cloud scenarios and implications for

technology industry economics

Profile of end customer demand for running

business applications in internal and external clouds

Assessment of IT service provider cloud

strategies

Review of enabling technologies for

application delivery from a cloud

Evaluation of competing business

applications platforms (PaaS)

How cloud computing is impacting market dynamics

New

Enables different delivery models (virtual appliances, efficient hosting/managed services) for current-gen products that promise dramatically lower TCO and rapid TTV (mimicking SaaS).

SaaS likely to continue to expand footprint and penetration in large enterprise PaaS - key to enabling mega ISVs to leverage ecosystem to fill gaps, vertical niches ; will rapidly enable corporate developers to deploy internally or externally (Public) IaaS limited adoption for enterprise class applications. But Iaas likely to become the defacto standard for behind the firewall deployments

Customers Enables customers to achieve drastic TCO reduction in existing landscapes testing, development & (some) productive systems

Existing

Over time cloud-relevant TCO, TTV improvements lowers the barrier for customers to replace current-gen systems with next-gen systems, but no major impact in the next 5-7 years

Legacy* Vendor solutions

* In case of SAP - R/3 and current generation products Source: TechAlpha interviews and analysis

Next Gen

Summary recommendations for SAP

New

Explore different delivery models for current-gen products 1. OP virtual appliances with or without remote management 2. Hosted SAP with fewer degrees of freedom for configuration (vendor X OD offering) Should be possible without major re-architecture of current products Offer pre-packaged bundle of vendor mgmt tools and best practices to help customers migrate their current deployments to a cloud-like deployment jointly with SI vendors and cloud ISVs Should be possible without major rearchitecture of current products Legacy

SaaS not a focus for this exercise. Vendor X already has a well defined strategy. PaaS enable partner ISVs to fill in cracks, vertical edges with consistent platform across LE OD, ByD IaaS - attempt to influence management standards (via DMTF or others) but be prepared to live with non-standard world

Customers

Existing

N/A

Next Gen Vendor solutions

Source: TechAlpha interviews and analysis

Recommendations for SAP: legacy products, existing customers

Market Dynamics

Vendor X has a great opportunity to drive the expansion of its product footprint
within existing customers with current products that are functionally very competitive with more modern architectures by driving down prohibitive TCO/TTV 25K installed base stuck on Product X plus those on earlier releases of face crowd out of budget for new software plus Oracle surround strategy 20-40% TCO savings possible via new deployment and management techniques

Provide best practices for customers trying to move to T-Systems class

Implication admin and opex benchmarks - running customer OP and SPs running OP or private OD and managing multiple instances by leveraging improved management products (ACC, Soln Mngr) and processes (i.e. ITIL-like), not by rearchitecting Start with your mess for less typical of SP industry Standardize hardware infrastructure, make admin tasks repeatable and automated As much as possible, change the management model from managing discrete elements of the stack to remotely automating performance, availability, security, and change & problem management

Improve Adaptive Computing Controller, Solution Manager to add more

Product X awareness to IT management tools (HP, BMC, IBM, CA, Microsoft) and eventual data center OS, for example application-level high availability - Help IT mgt vendors integrate ACCs OS and storage virtualization to their IaaS mgt tools - IT mgt products, data center OS can be enabled to control SAP server mobility/ scalability to meet SLAs, mass operations for maintenance/Enhancement Packs, monitoring
Source: TechAlpha interviews and analysis 6

Recommendations for SAP: legacy products, new customers

Market Dynamics

SAP has a great opportunity to drive greater market share of current products
that are functionally mature against competitors with more modern architectures by driving down prohibitive SAP on-premise TCO/TTV
20-40% TCO savings possible (like prior page) via new deployment and management techniques Lower TCO and faster TTV would make SAP more competitive with current Oracle ability to deploy on premise or remotely as well as their surrounding products

All of the recommendations from preceding page, plus: Implication

Enable management of internal enterprise (IaaS) using virtual appliances

New way to develop, distribute, deploy, manage software: pre-built, pre-configured, ready to run application packaged to run on an optimized OS - Pre-tested best practice configurations relieve need for - Extensive app / middleware / DBMS / patch / driver compatibility testing - Testing deployment scenarios such as high availability (HA) Solution Manager and ACC should be able to feed application management data to data center OS to enable dynamic provisioning via appliances, elastic resource consumption, and metering. Simplify ACC, Solution Manager integration with custom SP management tools which represent their differentiation

Provide SAP-hosted solution featuring virtual appliances followed by best

practices for SPs to manage multiple hosted or customer-based instances by leveraging new management products and processes, not by re-architecting
Offer SAP products with few degrees of freedom for configuration knobs vs. customization to enable more automated management As much as possible, change the management model from managing discrete elements of the stack to remotely automating performance, availability, security, and change & problem management

Source: TechAlpha interviews and analysis

Recommendations for Vendor X: next generation products implications of PaaS

Market Dynamics

Despite noise, market still nascent. Success will be either 1. Based on JEE/Spring, Windows .NET or LAMP optional extensions for storage at 2. o o
cloud scale built-in app aware instrumentation for service provider. Integrated to edge of SaaS app - Salesforce.com, Workday, NetSuite, eventually Oracle and SAP to exchange data such as recruiting with HCM Traditional frameworks JEE/Spring, .NET, LAMP will hire all/most management overhead of IaaS With Spring, VMware is one of 4 contendors with Microsoft, Oracle, IBM

Limitations technical and business model SaaS platforms unlikely to be mainstream for general purpose apps:
NetSuite, SalesForce, Workday only getting edge apps (i.e. recruiting) or integration with existing apps Oracle highly likely only to support edge apps for starters in Fusion suite because of API backward compatibility overhead Standalone PaaS platforms run by SPs built JEE/Spring, .NET, LAMP more likely: ISVs resisting giving up future control of their platform over concerns about performance, availability, security Though if they do, it will be to build on security, regulatory compliance, geo distribution (HA, latency) benefits that come with choice of SP

Build one lightweight platform but across both LE OD and ByD in order to avoid
Implication confusing or fragmenting ecosystem and slowing adoption consider Vmware/Spring Fill in the cracks apps for LE and vertical edges for SME Investigate offering data synchronization with master data objects as a service for SaaS products but appliance may be necessary for on-premise products
8

Source: TechAlpha interviews and analysis

Recommendations for SAP: next generation products implications of IaaS

Market Dynamics

SAP customers as IaaS consumers: infrastructure should appear as a pool of

services (compute, storage, network) to applications - standards wars may fragment the infrastructure
IaaS will be another hardware abstraction like an OS that needs to be designed for, tested, and certified, but now across servers, storage, networks, with both local and remote deployment options Without mature management specification standards (performance, availability, security), SAP will have to code to new management tools for each IaaS platform (i.e. Amazon, Microsoft Azure plus System Center, VMware-based, big 4, etc) Virtual appliances with richer management specifications will be able to package certified configurations for full lifecycle management (develop, package/distribute, deploy, manage, retire), support both OP and OD, and make OP software TCO more competitive with OD

SAP should try to influence manageability standards for customers and SPs
Implication running on IaaS to reduce development requirements but be prepared for heterogeneity
Work with standards bodies (i.e. DMTF) to accelerate maturation of such standards as Open Virtualization Format virtual appliances and System Virtualization Management However, higher level standards needed for administrators to specify application Service Level Agreements (SLAs) such as performance, availability, security, etc. Be prepared to build monitoring and management of these SLAs for combination of each data center OS or management tool (from the big 4 or MSFT) and infrastructure stack vendor (IBM, HP, Dell, Cisco, Oracle )

Source: TechAlpha interviews and analysis

Contents

Key takeaways for SAP Cloud scenarios and implications for

technology industry economics

Profile of end customer demand for running

business applications in internal and external clouds

Assessment of IT service provider cloud

strategies

Review of enabling technologies for

application delivery from a cloud

Evaluation of competing business

applications platforms (PaaS)

10

Questions answered in this chapter: Cloud scenarios and industry economics

What are likely scenarios for application delivery from internal and external clouds
in 2014? In particular, What are strategic control points? To what extent will private and public clouds converge?

What are the implications for Vendor X? Opportunities and threats across
Product portfolio? Ecosystem partnering?

How might customer budgets and vendor profit pools shift across
Business applications? Business service management? Infrastructure management? Infrastructure? IT services?

Source: TechAlpha interviews and analysis

11

 There are three potential strategic control points related to application delivery from internal and
external clouds. In decreasing order of probability for 2014, these are: Unified Computing System that reduces customer opex by integrating HW (servers, storage and networking) around virtual machines (VMs) to manage lifecycle, thus providing unprecedented integration across software and hardware from app to spindle (90% probability) Infrastructure-as-a-Service thru virtualization of business critical applications enables simpler provisioning, elastic capacity, metering (80% probability) PaaS likely to be ISVs building core app on JEE/Spring/.NET OP/OD with edge integration with SaaSbased PaaS (SAP, Oracle, Workday, SFDC). Few, if any, will build solely on SaaS-based platform (70%) Data Center Operating System that enables business apps to be run at much lower operating cost, with increased flexibility (e.g., performance, availability, security), across internal and external clouds, without endangering QoS (40% probability)

Chapter summary: Cloud scenarios and industry economics

Each control point has implications for Vendor X product and partnering strategy. In decreasing
order of relevance:

Platform-as-a-Service: Vendor X can focus on edge apps first

Non-SaaS-based PaaS: JEE/Spring/.NET likely to be widespread as anchor OP/OD of deployment for edge apps SaaS-based PaaS edge apps are only viable approach to extend anchor to OD edge: SAP ISV ecosystem unlikely to defect to competing PaaS platforms by 2014 unless SaaS competitor makes big inroads into installed base Oracle only potential vendor that could support green field apps in next several years, though API compatibility constraints make that unlikely
* Described in more detail in the chapter Evaluation of competing business applications platforms (PaaS) Source: TechAlpha interviews and analysis

12

 Data Center Operating System: holds the promise of reduced TCO for the R/3 installed base.
Immature products from big 4 (CA, HP, IBM, BMC) may stall wholesale adoption though Hybrid OP/OD* deployments of apps and management systems will become mainstream by 2014. Challenges to realizing the promised TCO reductions though include heterogeneity in the enterprise and the fractured nature of existing systems management tools If Microsoft succeeds with an end-to-end solution that slowly gets traction even in Linux and to a lesser extent Unix environments, Vendor X might have to step up its efforts to optimize Vendor X for hybrid delivery in Systems Center OP and Azure OD environments If no vendor succeeds with an end-to-end solution, Vendor X might need to further evolve Adaptive Computing Controller and NetWeaver Solution Manager to ensure Vendor X workloads can take full advantage of provisioning, performance, availability, security automation

Chapter summary (contd): Cloud scenarios and industry economics

Unified Computing System: Oracles optimized on-premise stack, from app to spindle, if
well executed, may reflect unfavorably on Vendor X TCO We believe unified computing will be widely adopted for newly deployed apps and capacity expansions in the enterprise. Legacy apps though do not migrate except as required by hardware refreshes. Service Providers have their own version of UCS: the 40 foot container Vendor X should ensure new OP apps work well in unified environments (e.g., workload mobility with QoS), especially in conjunction with management systems (e.g. self-service provisioning, elastic capacity, metering/chargeback) . Much of that will be handled at the Data Center OS laaS level but Vendor X will have to instrument systems for it We expect the OEM infrastructure landscape though to further consolidate around integrated majors (HP, IBM, Dell, Cisco + EMC?), which implies a new set of best practices

* OP = on premise. OD = on demand. Source: TechAlpha interviews and analysis

13

Potential strategic control points for 2014

Market` Business Apps
SaaS, PaaS, OP packaged & custom apps

Control point Platform-as-a-Service that would find broad endorsement by business applications developers

Prob. 70%

Rationale / Comments

No vendor is anywhere close to this today

Technically, Workday is possibly closest, though with a design point that is limited to apps using the same master objects, and has hardly any commercial traction even for its own ERP module Commercially, none has gotten real traction with sizable ISVs Windows Azure and Google App Engine are the dark horses in this race, though real traction will not be evident for 3+ years (the length of an ISV development cycle) possibly the biggest hurdle for moving business critical workloads into even internal clouds External clouds have even further to go, lacking key security functionality Technical hurdles for vendors are considerable Microsoft is best positioned, if it can integrate and evolve its various relevant assets (notably System Center) HP and BMC are also contenders VMware is part of a solution but lacks app-awareness

Business Service Mgt.

Middleware, systems mgt.

Data Center Operating System that enables business apps to be run at much lower operating cost, with increased flexibility (e.g., workload mobility, scalability), across internal and external clouds, without endangering QoS (e.g., availability, security, performance) Unified Computing System that reduces customer opex in favor of capex by offering unprecedented levels of integration, flexibility and scalability across servers, storage and networking

40%

Lack of a proven data center operating system as described is

Infrastructure Mgt.
Virtualization

80-90%

Vendors are incented to capture more customer capex by reducing

ever-increasing operational complexity . Technical hurdles for vendors seem only moderate The vast majority of enterprises will retain significant IT in-house yet are eventually faced with IT talent shortages Unified computing will appeal once competing solutions become available (2010) and TCO claims become credible (2012+) Oracles ability to offer optimized on-premise stack from app to middleware to integrated hardware, if well executed, may reflect unfavorably on Vendor X TCO

Infrastructure
Servers, storage, networking

IT services
Dev. & integr., IT operations outsourcing

None

N/A

Market is highly fragmented overall Sub-markets that may experience high concentration notably IaaS
are scale-driven commodity markets that are not strategic to Vendor X

Note: Prob. = Probability that the control point materializes by 2014 in the form described Source: TechAlpha interviews and analysis

14

Scenarios relevant to application delivery from internal and external clouds for 2014 (1/3)
Trend
Platform-as-a-Service Driver: ISV focusing R&D on customer innovation Obstacle: Platform and business model lock-in; predatory practices by PaaS vendor; uncertainty over platform evolution

Scenario and description

Prob. Implications for Vendor X

80%

PaaS traction limited to niche ISVs,

SaaS extensions and custom apps Common to these use cases is the developer expectation of insufficient volume to justify development from scratch PaaS held back by parent vendor SaaS struggling in the core; benefits of suite prevail Development and integration shops suffer only moderately, have time to adjust to PaaS threats

ISV ecosystem not defecting to

PaaS, by and large Largely business as usual with SIs VMware/Spring one of the more modern platforms Required: On-demand needs to be a deployment option for all new Vendor X edge apps Required: TCO-reducing innovation for R3 installed base, as Workday and to a lesser extent NetSuite will make inroads into R3 and A1/B1 customer base, respectively

PaaS broadly endorsed by business

apps ISVs and corporate developers Even several ISVs with $100m+ in revenue are building some future solutions on top of the 4-5 predominant platforms Most established SIs suffer, unable to transition to an IP-based product model, unwilling to follow the structurally lower economics of PaaS / platform-based development & integration, and possibly unable to find sufficient new high complexity custom work (which now gets programmed on PaaS) Source: TechAlpha interviews and analysis

20%

Vendor X has the opportunity to

direct SIs towards TCO innovation on the R3 installed base VMware/Spring one of the more modern platforms Required: a platform of your own, partnering is not enough Required: On-demand needs to be a deployment option for all new Vendor X apps, both edge and core

15

Scenarios relevant to application delivery from internal and external clouds for 2014 (2/3)
Trend
Data Center Operating System Driver: enable business critical apps to take advantage of internal and external clouds (e.g., lower opex, more flexibility) Obstacle: vendors stitch together point solutions, lack incentive to cooperate for fear of being managed by another vendor Full Virtualization in x86 Driver: consolidation, business continuity, foundation for automation Obstacle: comfort with HA, DR and security for business critical apps

Scenario and description Microsoft succeeds with an endto-end solution that slowly gets traction even in Linux and to a lesser extent Unix environments HP and BMC (acquired by Cisco in 2011) offer credible alternatives

Prob.
50%

Implications for Vendor X Required: Need to partner more

closely with 2-3 of these likely winners

No vendor really succeeds with

an end-to-end solution, blaming increasing complexity and lack of cooperation

50%

Required: Need to adapt ACC and

Solution Manager to next gen DC realities

Business apps production

deployments widely virtualized, anything but the main data base as the default VMware and MSFT both hold about 45% share, though VMware maintains lead in business critical environments Unix continues to lose share of deployments

80%

Required: Dual partnering track,

acknowledging greater role of MSFT Desired: Continued active engagement to address barriers to SAP virtualization

Virtualization fails to penetrate

tier 1 workloads VMware maintains the lead with 40% share, MSFT struggles to catch up, newer virtualization platforms proliferate Source: TechAlpha interviews and analysis

20%

Required: Monitor if the situation

is likely to change

16

Scenarios relevant to application delivery from internal and external clouds for 2014 (3/3)
Trend
Unified Computing System Driver: lowering operational complexity Obstacle: at present (2009), only Cisco has a solution

Scenario and description Unified computing and unified

converged networking widely adopted for newly deployed apps and capacity expansions, notably in developed markets, leading to meaningful reduction in customer opex, shifting spending mix back to capex Existing applications though do not migrate to UCS, except as required by hardware refreshes Vendor landscape further consolidates around integrated majors (e.g., Cisco acquires EMC, IBM acquires NetApp before 2014)

Prob.
80%

Implications for Vendor X Required: An answer to

Oracle TCO claims enabled by app-to-spindle integration. Vendor X will have to work harder to bring down opex Required: Ensure Vendor X on premise solutions play well in unified environments (e.g., workload mobility without endangering QoS)

Unified computing and unified

converged networking adoption very limited Infrastructure-as-aService Driver: cost reductions, capex avoidance, time to market Obstacle: comfort with HA, DR and security for business critical apps

20%

Largely business as usual Required: Embrace those

handful of service providers that run Vendor X from the cloud, perhaps enabling coinnovation while the Vendor X product set is still in process of being made cloud-ready

Legacy IT outsourcers will make the

transition to shared hosting, but only a few of those will have the IP to run best in class TCO and push up the stack from IaaS. Some cloud hosters with fresh IP will do well, but for most it will be a low margin business. Can customers differentiate who has the IP?

80%

Legacy IT outsourcers are in no rush,

wield substantial account control, IP and TCO differences not game deciding

20%

Largely business as usual

Source: TechAlpha interviews and analysis

17

Likely economic impact of each trend on relevant vendors by 2014

Trend Platformas-a-Service Class / Players Oracle Microsoft Profit Impact Rationale / Comments

Likely economic impact:

Very favorable Moderately favorable Uncertain Moderately unfavorable Very unfavorable

So far has only been an arms supplier to SaaS and PaaS vendors Fusion apps expected to run both OD and OP Azure on-demand, complementing Systems Center on premise, are important strategic Trying to be a universal platform but lacking in master data objects, not a good system
of record, and a predatory partner bets as the traditional Windows fused to every box franchise comes under threat. Margins lower than traditional Windows though If Azure is well executed, likely to be embraced by large .NET ecosystem

SFDC NetSuite Workday Intuit

Partner business model particularly challenged: PS and edge app development Rich platform; desire and some track record attracting edge apps PaaS could play important role to re-enter international markets Intuit Partner Platform resource starved, scaled back to 30-40 employees Impression that Intuit is slow to embrace new business models. For instance, 90% of customers have less than 10 employees, hence an ideal early adopter demographic for SaaS in principle. However, concerns about security of online tax and accounting data are holding back adoption platforming reduces the need for low-level coding

SIs

Worst affected are those based primarily on back-end labor cost arbitrage, since Least affected are those with customer-facing product development expertise Azure on-demand, complementing Systems Center on premise, are important strategic If executed well, could extend server OS dominance into next gen internal / external Just announced support for heterogeneous environments (Unix, Linux) for its Systems
Center product line data center bets as the traditional Windows fused to every box franchise comes under threat

Data Center Operating System

Microsoft

IBM, HP, BMC, CA

Management product lines fractured, result of acquisitions Uncertain whether they can assemble a solution that really addresses the opportunity.
Currently far behind, may slow enterprise cloud adoption

Note: Profit impact measures how well each (class of) vendor is positioned to participate in the profits associated with each trend. Color coding does not reflect size of profit pools for each trend

18

Likely economic impact of each trend on relevant vendors by 2014 (contd)

Trend Full Virtualization in x86 Class / Players Microsoft Profit Impact Rationale / Comments

Likely economic impact:

Very favorable Moderately favorable Uncertain Moderately unfavorable Very unfavorable

Q4 2009 release of next gen Hyper-V offering, part of Windows Server, in conjunction
with Systems Center Virtual Machine Manager, largely neutralize the economic threat from VMwares early lead

VMware

Cloud OS unlikely to gain traction with large service providers, though initial reaction
moderately favorable. Continuing lead with enterprises / Vendor X relevant virtualization environments

Citrix Unified Computing System Integrated majors (IBM, HP, Dell, Cisco, Oracle) Pure plays Infrastructureas-a-Service IaaS pure plays (AWS, Zetta, etc.) Legacy IT outsourcers

Lost the battle for server virtualization, which will make it even more difficult to win the
upcoming battle for desktop virtualization

Mega-vendors such as HP, IBM, Cisco + EMC, Sun + Oracle, or potentially Dell + TBD
are hoping to justify high margins on a fully integrated solution that promises scale-out, ease of management and lower customer opex. Unprecedented integration across previously siloed storage, compute and networking resources may counter commoditization of point products unified computing and converged networking take off

Pure plays like EMC, NetApp, Juniper will be forced into tighter alliances or mergers as Sustainable profitability will depend on minimum efficient scale (e.g., even Amazon
Web Services at $75m revenue run rate not breaking even until $200-250m), developing the IP to run best in class TCO, and crucially ability to move up the administrative stack and become application-aware

Transition to shared hosting temporarily helps profitability, until competed away as Overall, account control in the enterprise incl. longer term contracts should afford
temporary protection Best positioned are those few who develop the IP to run best in class TCO and push up the stack from IaaS table-stakes

Note: Profit impact measures how well each (class of) vendor is positioned to participate in the profits associated with each trend. Color coding does not reflect size of profit pools for each trend Source: TechAlpha interviews and analysis

19

Contents

Key takeaways for Vendor X Cloud scenarios and implications for

technology industry economics

Profile of end customer demand for

running business applications in internal and external clouds

Assessment of IT service provider cloud

strategies

Review of enabling technologies for

application delivery from a cloud

Evaluation of competing business

applications platforms (PaaS)

20

 How does cloud change the application buying and delivery motion?
Stages of adoption and target use cases? Business case and TCO? Barriers to Vendor X-relevant adoption? Impact on customer organization?

Questions answered in this chapter: Demand for running apps in clouds

Source: TechAlpha interviews and analysis

21

 We predict widespread use of internal clouds in parallel with external clouds (i.e.,
hybrids). External clouds will specialize in classes of use cases (e.g., low cost, high security, industry compliance) The current wave of applications migrating to the cloud are those least demanding in terms of quality of service, service level agreements and business criticality Large enterprises particularly in financial services are deploying internal clouds to reduce costs and increase flexibility. As cloud technology standards are more widely adopted, organizations will federate their internal clouds with external clouds Most IT services providers we interviewed believe that (parts of) Vendor X should eventually be run from the cloud, though did not see that as a priority in the short term Big pockets of legacy applications running exotic OS flavors will not move to cloud environments anytime soon, since that would require re-platforming / application re-writes

Chapter summary: Customer demand Stages of adoption

We believe the market for on-premise software delivery may have peaked, with cloudbased delivery of applications becoming much more prevalent Both service providers and product vendors are working on enabling QoS for cloud delivery of more demanding applications, such as SAP and Oracle DBMS, who today depend on tightly fusing the hardware, operating system, middleware, and application to deliver on QoS commitments Commercial pressure and technical maturity have created robust virtual infrastructure options offering a real alternative to physical-only infrastructure models. Anecdotal evidence that more and more SAP application and presentation servers are being virtualized IT services providers are establish licensing arrangements and building the orchestration so as to support core business processes as a service. We believe this trend will continue and have a major impact on traditional ERP software vendors
Source: TechAlpha interviews and analysis 22

!
Wave Examples Comments

Chapter summary: Customer demand Target use cases

1 IT opex
Infrastructure workloads, application testing and development

2 Edge applications
Cross-enterprise collaboration and integration, batch workloads

3 Core applications
Transactional apps, high end Unix apps

Lower-cost high
availability, disaster recovery, fault tolerance Less disruptive planned maintenance, migrations and upgrades Application scale-out to accommodate fluctuating demand Consolidation of multiple instances onto a single physical server (less likely for Vendor X) Rapid deployment of new services

A use case that is seen as viable today

Source: TechAlpha interviews and analysis

Eventually, cloud will enable customers to access business is to deliver parts of Vendor X with edge characteristics from an processes as a service, enterprise cloud drawing on components provided by Vendor X and Virtualize just some Vendor X other ISVs presentation and light-weight application servers but leave out Challenges with heavy-weight application servers, transactional apps may start satellite database servers, and the to be addressed, e.g., high master database server data transfer rates, latency Modules that might be suitable include sensitive, tightly integrated with other apps, stateful, CRM, HCM, Data Analytics subject to compliance, not Organizations within an industry or based on modern SOA business network will begin to share architectures infrastructure and may share non core There might be use cases applications specific to Frictionless Specific clouds in public sector, Commerce financial services, retail/SCM 23

 Customers have been trying to reduce TCO for years, mostly without success. Automation,
standardization, and volume concentration inherent in clouds could change that Running shared Vendor X configurations , based on best practices, would make more of the installed base addressable via automation Smaller customers would also benefit from the commercial and technical leverage that SPs bring Adoption will grow through the recession and may experience a hockey stick in a recovery Benefits in a recession: Avoid long-term commitments, preserve cash Benefits in a recovery: Launch new services faster, scale up and down with demand Vendors are demonstrating increased capabilities today, perhaps 9-18 months away from adoption When the economy turns, IT may have huge pent up demand because it was starved of resources Best business case for Greenfield initiatives with tight budgets Business processes with fluctuating, cyclical or unpredictable demand, e.g., marketing or e-commerce with traffic fluctuating by season, time of day, event Non-core systems that are not differentiating Systems with high operations or management costs Opinions on the business case differ widely Wipro and McKinsey argue that if an IT organization is highly centralized, professionally run, and well virtualized, additional savings from private cloud are not that large IBM argues 70% of benefits come from automation and standardization, beyond just virtualization Customers seem to value flexibility and time to market as highly as cost benefits
24

Chapter summary: Customer demand Business case and TCO

Source: TechAlpha interviews and analysis

 With cloud, expectations for the role of the CIO will change from a focus on
operational excellence in IT delivery to orchestrating alignment of internal and external resource pools with business needs CIOs will spend more time defining capabilities that can deliver business value (incl. innovation), and selecting, monitoring and managing multiple vendors Standard implementations for multiple customers will increase customer willingness to use an out-of-the-box solution vs. expensive, time consuming customized solutions Service providers will offer standardized solutions to multiple clients based on cloud technology (virtualization, web services, SaaS, SOA), blurring the line between IT and business process outsourcing Organizations will becoming increasingly comfortable with hybrid on-demand / on-premise deployments for their corporate applications One of the biggest barriers will be resistance from IT staff who will want clouds to fail since their silo would be losing power . Other barriers, notably security and end-to-end systems management tools, are slowly being addressed For now, internal clouds will drive further talent specialization and talent upgrades rather than integration of functional silos Specialization of labor will continue, with a new higher cost labor pool emerging dedicated to virtualization and cloud, and silos collaborating more closely Anecdotal evidence from companies that tried to merge their functional IT silos has not been encouraging
25

Chapter summary: Customer demand Barriers and organizational impact

Source: TechAlpha interviews and analysis

Definition of a private cloud for business apps: service management on top of a virtualized, managed infrastructure
Emerging private cloud stack
Service Packaged apps (OD / OP) Custom apps (OD / OP) Platform-as-aService (PaaS)

Defining functionality Business apps-ready IaaS

Service Management enables business

apps to be run at much lower operating cost, with increased flexibility (e.g., workload mobility, scalability), across internal and external clouds, without endangering QoS (e.g., availability, security, performance) Service Management (sometimes called a Data Center Operating System) provides metadata on the business relevance of a workload

Service Management
Performance Availability Security

Infrastructure Management across virtualized servers, storage, networks Server Storage Network On Premise Server Storage Network Off Premise

Infrastructure-as-a-Service

Self-service provisioning, governed by

pre-determined approval workflow Scale up / scale down on demand, incl. optimized placement of workloads against resources Utility chargeback or metering

Source: TechAlpha interviews and analysis

26

Definition of a private cloud for business apps: Detail on defining functionality for IaaS
Self-service provisioning Cloud computing is about providing services to any authorized user,
anywhere, from any device. For this reason, cloud computing must be built on a service-oriented architecture and deployed with industry best practices for service management . A self-service portal that allows users to request infrastructure and applications from an online catalog with a focus on ease of use. A highly standardized environment with common software stacks and operational policies facilitates simultaneous service deployment and upgrades for all users, no matter where they reside

Scale up / scale down on demand through a shared, highly scalable, networked infrastructure
Standardized, highly efficient, shared, virtualized compute resources (servers, storage, network, data, middleware, application and business processes) can be rapidly scaled up and down with elasticity through automated workload management in a secure way to deliver high-quality service without interruption. Request-driven service management relies on systems that enable capacity, provisioning and other IT service management decisions to be made dynamically, without human intervention or increased administrative costs. It can also dynamically move and optimize workloads and data across the shared infrastructure as well as add resources to scale with very little, if any, intervention by the cloud service provider personnel. Resources are returned to the cloud environment and immediately made available to others when no longer needed.

Utility chargeback or metering is possible because usage is tracked via the automated
provisioning and service delivery engine

Source: TechAlpha interviews and analysis

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Enterprise IT strategy alternatives with respect to cloud

Private cloud
Driver

Public cloud

Capex avoidance Fast time to value Not bound by central IT Little management overhead for simply, standardized workloads

Higher utilization Fast response once internal cloud is

deployed, within capacity constraints Minimally disruptive to adopt App compatibility Not dis-intermediating internal IT Choice of physical infrastructure Full corporate control Security on-premise, dedicated facilities Roll-out of chargeback as appropriate Problems with alternatives Lock-in to proprietary platforms Commodity focused offerings Rewrite of apps required

Obstacle Heterogeneity drives complexity drives cost No track record and disclosure on Lack of expertise to leverage patchwork of data protection and compliance automation solutions for lower TCO Insufficient commitment to Interoperability with public clouds not business app-grade SLAs ready Lack of standards to ensure
compatibility across clouds Server software licensing

Alternatives: Develop your own internal cloud Have a systems integrator design and build one for you Buy a cloud in a box once the major virtualization vendors are ready

Not all business apps in use by companies can be transferred into a cloud
Standard workload or service description not widely accepted, i.e., Alternatives language to express management requirements such as security and SLAs Few public clouds are based on the same infrastructure as private clouds Many other technical restrictions derived from a world where applications are written to assume end-to-end sole control of the underlying stack Source: TechAlpha interviews and analysis 28

A roadmap for application delivery from private clouds

Virtualization & Standardization

Automation

Service Management

Specialization

A server/ storage farm populated with both scale-up and scale-out servers COST

Fully virtualize server, storage and network resources to enable flexibility, scalability, standardization and consolidation

Fully automate provisioning, configuration and compliance management of virtual software and profiles

Implement robust ITILbased service management through automation.

Serve users and workloads with varying needs (e.g., high security, high performance)

Provide selfservice access to application and infrastructure services

BUSINESS VALUE
Source: TechAlpha interviews and analysis 29

Business case Cloud architectures can dramatically reduce cost of IT operations and application delivery
Operations Cost $/User/Mo. Traditional ERP On Premise $500-1,500

Drivers of cost decline Automation / systems

management (20-40%) Application architecture Lightweight edge vs. heavyweight core app Private clouds democratize access to operations-based price/ performance improvements as IT operations finally rides the cost curve

ERP Single Tenant On Demand $50-150

CRM Multi-Tenant On Demand $10

Source: Cloud Seven Clear Business Models by Timothy Chou

Degree of Optimization for Operations

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