On the journey to cloud, the Accenture-AWS deal is an important signpost

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1 REPORT REPRINT On the journey to cloud, the Accenture-AWS deal is an important signpost WILLIAM FELLOWS 22 OCT 2015 Last week s Accenture-AWS deal has become a touchstone for interest in how quickly public cloud is becoming mainstream. The question is how fast enterprises are moving to public cloud and how much they can ultimately shift over to it. SECTORS ALL / CLOUD Research, LLC

2 When it comes to the use of cloud in regulated markets, it seems some of the barriers are coming down and suppliers are actively working with industry regulators. Financial services firms appear to be beginning to turn toward cloud in a significant way CapitalOne s keynote at last week s AWS re:invent conference provided a good example of this. Banks and insurance firms are realizing they can operate more securely on cloud than they can in their own datacenters likewise for pharmaceutical and healthcare firms. It s a change in attitude as CIOs are mandating the inclusion of cloud responses to RFPs. Suppliers are responding with offerings that are pre- engineered for verticals and include some pre-baked processes. Here we examine some of the issues in cloud adoption through the lens of the Accenture-AWS deal. THE 451 TAKE Last week s Accenture-AWS deal has become a touchstone for interest in how quickly public cloud is becoming mainstream. The question is how fast enterprises are moving to public cloud and how much they can ultimately shift over to it. Enterprises should get started with cloud and aas deployments wherever possible instead of starting new datacenter builds or undifferentiated infrastructure management projects. Use everything that s available as a service then seek out and demand hybrid cloud management from suppliers. DEAL DETAILS The Accenture-AWS agreement will mean the companies train an additional 1,000 Accenture professionals and certify 500 of them on the AWS Cloud in the first year, and support go-to-market activities. There s no legal entity here, although there could be IP, as their commitment is to offer integrated consulting and technology, and develop a suite of services that unify business process re-engineering, application migration services, architecture design and application development for the AWS Cloud. The group will introduce new cloud transformation services optimized for AWS to move customers existing applications to AWS and develop new applications on AWS. The services include cloud strategy, organizational design, architecture design, application migration, refactoring and new application development services. A dedicated AWS application development and migration factory will automate processes to help businesses run more efficiently. It will also offer analytics and big- data services, powered by AWS. Enterprise customers in regulated industries such as healthcare and financial services will be the focus. Also, the Accenture Insights Platform will be expanded to integrate more AWS data and analytics capabilities. The group will also explore the creation of new services in Internet of Things (IoT) and security on the AWS Cloud. Selling services, principally integration, is Accenture s key opportunity. For AWS, it s usage capacity. WHERE AWS IS AT For reference, AWS now has more than 1 million active customers (that s businesses) and TTM revenue of $7.3bn, which is growing at 81% year over year. Compute is growing 95%, storage at 120%, and database at 127% (the latter on a $1bn annual revenue run rate). There are some 800 ISVs that integrate with AWS. AWS has 11 regions there are multiple sites and datacenters in each and it estimates its user capacity is 10 times the size of the next 14 cloud providers combined. AWS accounts for some 8% of Amazon s revenue, but it continues to suggest that AWS could one day be the firm s biggest revenue stream a cloud company with an interesting retail business. The key number is that 70% of current IT spending is by enterprises and today AWS doesn t do 70% of its revenue with enterprises.

3 PROPAGANDA AND REALITY Now we ll take a look at some of the trends associated with cloud adoption. ALL-IN All-in means different things to different people. AWS has long trumpeted a growing trend for companies going all in on its cloud companies that are moving their entire IT requirement lock, stock and barrel into AWS. Specifically, this means the customer has to have moved all of their on-premises or hosted/outsourced infrastructure onto AWS or have a commitment to move all-in, have work under way to become all-in, and have a clear timeline for when they expect to complete the effort. Departmental implementations don t count as all-in. For a partner, the partner has to deliver all of its offerings (its SaaS, PaaS, application, etc.) to customers via AWS or, again, have a commitment, have work under way, and have a clear timeline for completing the effort. An all in ISV could deliver all of its software solutions to customers via AWS, but still run their corporate assets on premises. AWS has identified a growing number of all-in customers and partners. In our research, we find that there are many firms which have implemented AWS in a department or for a project but wouldn t count as all-in in this sense. Moreover, we find many firms are using AWS in conjunction with other cloud services (a growing number with Microsoft Azure). In any case, no single vendor is offering end-to-end deployments that can satisfy all of a customer s IaaS, PaaS, SaaS and BPaaS needs. This is precisely the opportunity that integrators such as Accenture are picking up. Indeed, for Accenture, all in is less a conversion to one vendor than it is a conversion to the operating model of cloud the cultural changes required to support the new style of IT. If a customer still has network, storage and server managers, it is not on the cloud. MULTI-CLOUD (AKA HYBRID CLOUD) To clear up any confusion, we are not seeing any significant use cases of enterprises moving workloads between clouds based on minute-by-minute or penny-by-penny changes in price and neither does AWS. Enterprises are, however, using different cloud services to meet their different application or workload needs or service requests. This may mean using multiple cloud entities to satisfy a common business purpose, but by and large it means using cloud in a one-time deployment for a specific requirement. Multi-cloud/hybrid cloud includes hosted and on-premises clouds, but predominantly the former. Enterprises are using multiple kinds of services to meet different needs. 451 Research s Voice of The Enterprise data shows this in the figures below.

4 Indeed, we expect that customers will be using more than one cloud, if only for fiduciary responsibility. Accenture says clients are asking for multi-cloud strategies to meet IaaS, PaaS, SaaS and BPaaS needs. Accenture supports a multi-cloud view of the world and has a significant investment in the Accenture Hybrid Cloud Solution for Microsoft Azure (customers include Freeport-McMoRan) delivered by its 25,000- strong Avanade unit, which is dedicated to implementing Microsoft-based systems. Its Cloud Sherpas acquisition has brought it arguably the most Google cloud experience out there besides Google itself. Meanwhile, the Accenture Insight Platform, which was AWS-only, is now on Azure as well. The ability to use multiple cloud services to meet different application needs has been slower to emerge than it might have been. It s not about technology. It s not in the self- interest of any of the providers to enable their services to interact with others. That s not to say some aren t trying, but as in any industry, the old guard is fighting back and defending its base which is why integration is a key opportunity in this market. This all adds up to a perfect opportunity for systems integrators; indeed, it is described by Accenture as the perfect storm of conditions for it.

5 MIGRATION TO CLOUD Given the investments being made, success for cloud service providers will depend on their services being destinations not only for new application deployments, but for existing applications (or parts of them), and the re-platforming of applications and servers. This is the opportunity that migration and integration companies with transformation engine services are targeting. It s true that today s migrations are expensive and difficult. Just imagine if they were free and easy there s certainly an innovation opportunity. We expect this type of technology to become a more valuable tool for managed services providers as they seek to operationalize cloud transformation. We believe that every application has a best execution venue. Some are mature, others are evolving, but much of it is headed toward the cloud. We believe a transformation engine can help customers plan for moving from a current state to a desired state with integration and migration services. Accenture for one says that 18 months ago all of the interest was in new application deployment. Now it s also about migration. The fact remains that getting onto the cloud is not for the technology fainthearted, with its intrinsic WSYIWYG model; however, it s as much about organizational change as technology. This all adds up to a perfect opportunity for systems integrators indeed, it s described by these firms as the perfect storm of conditions. Transformation and migration were key themes for AWS at re:invent this year. In particular, AWS is offering new database migration tools in the form of the AWS Database Migration Service (like-to-like migration) and AWS Schema Conversion Tool (migration between database engines with automated schema and code migration). For AWS s professional services team, migration is a growing opportunity. One-third of its activity is foundational work, onethird is new deployments, and one-third is migrations. OUTCOME-BASED SERVICE DELIVERY What s clear is that there is an emerging sweet spot between gain/share and time/materials in terms of service delivery, and that desired outcomes are expected from cloud engagements. It remains the case from what we can gather that enterprises are wholly uninterested in sharing gains with suppliers (also known as risk/reward). However, they are seeking a relationship based on more than manpower and materials. Enterprises are seeking vendors that not only host solutions on behalf of the enterprise; they also take part in managing the tool to ensure business goals are met. In this way, the customer not only receives a hosted business service, but also gains access to the process knowledge and real-world experience of the service provider. This is outcomes-based service delivery and is what enterprises are telling 451 Research they want. We believe that managed services are as much as 70% of the opportunity in the infrastructure services market and are becoming the primary differentiator as cloud commoditizes. Enterprises are therefore seeking suppliers that can bring expertise in running specific workloads or application tasks, whether as SaaS or hosted business process. They are seeking application modernization and transformation such as moving enterprise applications onto public cloud. The means suppliers will have to raise their IQs to crack the next wave of buyer opportunity. But what does this really mean? The supply-side narrative from cloud service providers, integrators and SaaS vendors is that outcomes become the starting point of enterprise engagements: what you want to achieve, and how you want to achieve it, rather than WYSIWYG. For Accenture this is reflected in contracts that specify outcomes to be delivered on an aas basis with increased revenue or decreased costs as the SLA, rather than products or services as the inputs to them and public cloud as the starting point. Customers are seeking providers that can guarantee a pricing model to guard against future upgrade costs. From AWS professional services group s point of view, outcome-based service delivery is somewhat different. Outcome here is mostly an IT outcome so further toward time/materials, but not entirely WYSIWYG. Get all my apps on AWS with this kind of compliance or move x number of apps by this time are usual desired outcomes. The challenge will be getting outcome-based approaches endorsed by the rest of the AWS team.

6 CH-CH-CHANGES... AWS is establishing the kind of relationship with Accenture that is enjoyed by Dell, HP, Microsoft, Oracle and others. The key challenge for the incumbent vendors like Dell, HP and IBM moving to cloud is less about technology and more an organizational issue. Can they change their compensation models from relying on sales of boxes and licenses to consumption-based models and aas delivery with revenue recorded over time? Most are trying initially to create compensation-neutral models that can satisfy sales of both types at the same rate. We are also seeing the reentry of the Big Four consultancies Accenture, Capgemini, Atos and CSC into the tech space. They are building technology practices and buying point-technology assets. These companies are responding to a market requirement for IT-strategy and digital-transformation consulting triggered by cloud delivery, as organizations begin to redesign business processes and migrate their infrastructure. The old business models of IT services landing and expanding, with an expectation that contract value will increase over time are being replaced by an expectation that technology costs will reduce over time and that higher value will be delivered during the lifetime of the contract via outcome-based contracts. They ll need to scoop up many smaller deals to make up the shortfall. Accenture, for one, has hundreds if not thousands of projects on cloud, not just a handful of massive ones. Moreover, cloud business is moving to an entirely consumption-based compensation model to reflect its aas delivery.