Business & Network Consulting. SME Cloud. Operators' next growth engine. A Huawei White Paper by Dhruv Dayal, Tony Ma, Don Low.

Transcription

1 SME Cloud Operators' next growth engine Business & Network Consulting A Huawei White Paper by Dhruv Dayal, Tony Ma, Don Low July, 2014

2 CONTENTS... 1 Executive Summary Strategic Importance of SME Market for Telecom Operators SME Market Importance of Cloud Services for SMEs for Telecom Operators Cloud Service Model SMEs' needs from Cloud Services Drivers and Hurdles for SMEs in Adopting Clould Service Drivers for SMEs to move to cloud services Hurdles SMEs face while moving to cloud services Opportunities and Chanllenges for Telecom Operators Opportunities Challenges Recommendations Positioning Focus of Service Offering Build Customer Centric Service Realign Selling tactics Case Study StarHub s Argonar Cloud Operator Z, a Hong Kong Operator s Cloud Experience Conclusion Glossary References About the Authors...19

3 1 Executive Summary In this paper, Huawei Business and Networking Consulting (BNC) presents a unique view on cloud services and how telecom operators need to make a radical shift from a communications provider to an ICT provider. We would like to explore the new areas of revenue for telecom operators to combine traditional businesses with cloud services. The needs of SMEs are analyzed with questions on how big this opportunity is and how this demand is driving cloud providers to come up with new offerings. The challenges and benefits are explored that SMEs would face while moving to the cloud services. Finally, why telecom operators should be aiming to get a larger share of this growing pie and what are some of the key steps to follow. Over the course of the paper, it was noticed that SME needs are moving beyond the basic Saas and IaaS offering. Instead they are demanding more value added services in terms of a steady platform for development and a marketplace where they can find different applications to use. Telecom operators can leverage their existing relationship, platform and support structure to capture a market share of the local cloud services market. Hence, it is critical that telecom operators move into this market quickly by developing their CSB platform where they can collaborate with various application providers to offer a single one stop solution to SMEs. Huawei BNC has vast experiences in providing consulting services for datacenter consolidation, cloud services development, creation of marketplace and application partners aggregation, helping telecom operators to build up their capabilities to tackle the new challenges of offering public cloud services to SMEs. 1

4 2 Strategic Importance of SME Market for Telecom Operators 2.1 SME Market Small and medium enterprises (SMEs) or small and medium-sized businesses (SMBs) are companies whose number of personnel/ asset size/turnover fall below a certain limit. In a typical country the numbers of small enterprises are far greater than large companies and they usually employ a larger percentage of the workforce in the economy. SMEs are also said to be responsible for driving innovation and competition in many economic sectors. The definition of SME/SMB differs from country to country. Some countries base it on the number of company employees, whereas others consider the total assets or the annual turnover of the company. As per Micro, Small and Medium Enterprise (MSME) country indicator report [1] by International Finance Center (IFC) and World Bank, there are 125 million SMEs in 132 countries with 89 million of them operating in emerging markets. SMEs are a major driver of local employment, like in China 80% of the total employment is employed under the SME sector. Kindly refer to Exhibit 1 for definition of SME in major markets. Exhibit 1: Definition of SME in major markets [2] 2

5 2.2 Importance of Cloud Services for SMEs for Telecom Operators It is estimated that public cloud market in 2014 would be worth USD 156 billion dollars and would be growing by 17% CAGR till 2016 [3]. Majority of this growth would be contributed by the SMEs who are looking at cloud based services like computing, storage, Big Data, business applications and disaster recovery solutions. As SME users are getting more tech savvy, they are increasingly demanding and adopting more cloud services. According to a recent cloud readiness study [4], the SME cloud market in 2012 was $45 Billion and is expected to grow to $95 billion by 2015 at a compounded rate of 28% which is much higher than the growth rate of public cloud market. Hence the future engine of growth for public cloud services would be driven by the SMEs. Prime drivers for this growth are due to emergence of smart devices, the BYOD (bring your own device) trend, affordable connectivity traffic, availability of services and applications, easy of accessibility and adoption of new technology. SME cloud service is a huge market where telecom operators should focus more especially as they are in a good position to tap on to this growing market space. Telecom operators currently have an existing relationship with SME customers and therefore they can provide better support and utilize their existing platform to provide bundle offering of cloud services. Telecom operators can achieve higher infrastructure utilization as existing network can be used for offering new cloud solutions and bundled offers to enterprises and SMEs. SMEs can be the early adopters of some new technology like cloud desktop which can later be offered to enterprise customers. 2.3 Cloud Service Model Cloud services refer to the delivery of on-demand resources such as software, application platforms and IT infrastructure services through a shared network. It enables remote access of resources such as hosted software and applications via the internet. Cloud services can be provided to the end user (both internal and external) through various deployment models, which depends upon the need of cloud services and level of security required. 3

6 Figure 1: Cloud Service Model [5] 2.4 SMEs' needs from Cloud Services SMEs have reasons to move to cloud computing, including: flexibility, scalability, better management of usage, lower capital expense, lower IT staff cost, better uptime and security. All these benefits are brought by the availability of services like online storage and backup, on demand applications like , payroll, CRM, conferencing, helpdesk, accounting, file sharing, virtual desktop and industry specific solutions. One of the key challenges a SME faces is the issue of cash flow and having to earn sufficient daily operational funds. Hence SMEs will benefit from a cost effective pay as per use model for infrastructure, services and application, which is more affordable and can provide scalability and better uptime. More SMEs are now open to the idea of having their data stored externally so that their users can access the information as and when needed. Figure 2: SMEs cloud services needs [6] 4

7 Figure 3: Industry specific needs [7] 3 Drivers and Hurdles for SMEs in Adopting Cloud Services 3.1 Drivers for SMEs to move to cloud services Reduction in capital expenditure is one of the key benefits that SMEs derive by moving to cloud infrastructure, as SMEs struggle to get initial funding it would be easier for more SME to start their IT in cloud platform and avoid making huge investments. Also, SMEs incur a lower human resource cost, as by adopting cloud solutions, SMEs do not need to maintain an internal IT team to manage their in-house infrastructure. The existing team can be utilized for doing more value added activities like planning/services management. Hence, services for SMEs can attain higher level of availability and reliability as cloud providers have automated tools which manage reliability, redundancy and customer SLA. Cloud computing provides SME a level of flexibility and scalability that they have never experienced before, SME users can on demand increase or decrease their compute requirements on the fly. Cloud platform scalability helps in ensuring optimized utilization of SMEs resources at hand. SMEs can offer better mobility to its users and customers by shifting its day to day activities to cloud infrastructure as the SaaS solutions are made available over the internet and can be accessible anywhere with a smart device, therefore extremely beneficial for employees on the move. 5

8 Figure 4: Reasons for Moving Apps to Cloud platform for SMEs [6] 3.2 Hurdles SMEs face while moving to cloud services SMEs face some of the usual challenges that other larger organizations face while moving to cloud computing, but also face some unique constraints which are specific to them. These challenges mainly include cost, infrastructure issues, reliability and security concerns. Cost is the prime driving factor for SMEs for moving to cloud services; it is also a challenge at the same time. Some SMEs who are adopting cloud services for the first time, still struggle to adapt the new payment model of pay as per use, as they cannot have a clear visibility on their monthly operational cost. Also in many developing countries, cost of labor is still low enough that outsourcing of infrastructure does not necessarily reduce their operational cost. In such scenarios SMEs prefer to hire someone onsite to manage their IT infrastructure. As SMEs have limited resources, their IT staffs are pressed on daily operational demands and often SMEs want to focus only on their core business, hence they sometimes are not able to keep up with the latest technological development. Cloud readiness is low on a macro level in some countries, for example in Cambodia [9] the bandwidth speed is so slow that business critical applications cannot be migrated to the public cloud platform. Similarly 6

9 in some countries, end customers do not have the option to select redundant links as there is limited chooses of providers in the market. Recently SMEs are also facing challenges due to government policies on enhancing data privacy [10] by restricting the location of data stored within the country. SMEs depend heavily on freeware, open source or pirated software and applications which have integration issue while moving to public cloud environment. Public cloud operators provide limited choice of applications and software which are usually not customized for SMEs and hence non desirable. Lastly, SME lack the feel of ownership of infrastructure, assurance of end to end support and the reliability/ availability of the cloud solutions. 4 Opportunities and Challenges for Telecom Operators 4.1 Opportunities As can be seen from the hurdle and drivers of SME adopting cloud services, it can be observed that Telecom operators possess a natural advantage to serve this group of customer segment. Typically, Telecom operators have a large SME customer base that can be easily tapped using the current sales team. In this case, telecom operators can look for new or underserved customer with very little acquisition cost. Previously in the paper, it was observed that the spending of SMEs on public cloud service would be increasing tremendously in the coming years and telecom operators should be ready to grab this opportunity. Telecom operators can leverage their local presence, existing billing system, customer s trust and market knowledge to cater and support the need of local business. Telecom operators also have an opportunity to increase their ARPU by bundling their existing connectivity service offerings along with public cloud services. Telecom operators would also be able to up-sell higher bandwidth packages to SMEs for a higher demand for cloud services. 7

10 Telecom operators can further utilize their existing infrastructure by increasing their service catalog and using excess network capacity to service SMEs. Telecom operators can build their own marketplace, test services with the SME customers and once the offerings are mature then offer them to higher paying enterprise clients with more advance features. It can be observed that already some of the telecom operators without cloud services capabilities are losing their existing customers to rivals who offer cloud services. Hence, Telecom operators in order to defend their existing core business would need to provide cloud services. As can be seen from the example of NTT Communications [11], their global cloud services has become their defense to protect their core business and engine for future growth. 4.2 Challenges As SME public cloud market is already filled with a large number of players and hence a telecom operator planning their public cloud services would face a lot of challenges and resistance from the market. Telecom operators would typically face competition from global & local cloud providers, system integrators, communication system vendors, specialist hosting companies, application software vendors and local resellers or distributors. SMEs clients are less mature and require more hand holding to educate them the benefits of the solution, this would require additional resources/manpower with IT or cloud service experiences or knowledge at the telecom operator side. SMEs clients have a smaller budget and some SME might have requirement for custom solution design like industry specific solutions, migration services for existing application and data. Hence, telecom operators need know how to position their cloud services (pricing, packaging, bundling, etc) so that it is attractive to the SME segment. 8

11 5 Recommendations Based on prior experience and analysis it is very important for telecom operators to have a cloud service offering and at the same time they need to realign and fine-tune their strategy. To cater to the local SME needs and demands, the following recommendations may assist the telecom operators when they are planning for their cloud service strategy. 5.1 Positioning Telecom operators have to realign their positioning in the market from a CT provider to ICT provider. This includes having a change of thinking internally and then echoes the same to the public, including prospective customers. They would need to invest actively in the right people, from marketing, sales, product, strategy to operations by injection of people with cloud service experiences and training/orientation, who can then take the company in the right direction for rolling out cloud services. In today s Big Data Age, the limitations when analysing consumer behaviour begin to become apparent when compared with the 800k unique samples gleaned over the course of just five days see Case Study below. 5.2 Focus of Service Offering Design unique and vast services offering As telecom operators are facing a lot of competition from existing global and local cloud services providers, telecom operators need to conduct a gap analysis to check what offering are existing in the market and where they can provide unique value for the local market. Telecom operators have to have plans to cover the whole spectrum of market demand as well as create unique offering in order to create new type of demand which is non-existent in the local market. Telecom operators can target to expand their target customers by offering solutions to SME from the key sectors in the country. Plan the service catalogs and bundle offering We are living in a very fast paced time where the customer needs are dynamic and niche in each market, hence it is important that telecom 9

12 operators spend considerable amount of time to conduct local market study to understand the target audience and their needs. Based on market study, telecom operators should create customized cloud service offering in order to gain the maximum market share. As telecom operators are facing a decline in traditional services revenues, hence they should look at cloud services more than an additional source of revenue, they should use cloud service to bundle their existing services especially connectivity services so that they can boost their overall portfolio and revenue. Telecom operators should provide a one stop shop to the SMEs by focusing on some key difference factors from the existing cloud service providers. Telecom operators should be careful while pricing these bundle offers and should consider their investment, ROI and breakeven period for cloud services, while considering all cost factors. Partnership with software, OTT providers and cloud aggregators As telecom operators plan to move into cloud services business, they will observe that revenue from IaaS offering is a small share of the cloud services pie. Hence it is critical that telecom operators plan value added services in the form of SaaS offering. As this is out of the core business of most telecom operators, they should partner with various software companies in the market to work on revenue sharing model in order to provide ready solutions to the end customer. Telecom operators can run joint marketing campaign in order to reach out to a wider but niche customers. Telecom operators need to ensure that the partner is able to provide a lite/mobile version of the application so that the users on the move can adopt cloud services, as observed as one of the drivers for SME to move to cloud service. Telecom operators need to have a clear strategy on identifying, recruiting and managing partners. Lately it has been observed that, telecom operators have also started to work alongside cloud aggregators in order create a marketplace and avoid the hassle of incorporating different ISVs themselves. 5.3 Build Customer Centric Service Simple licensing During the research phase, it has been observed that the licensing of 10

13 of global cloud service providers is very complex and difficult to understand because the usage based pricing is not transparent on how much the customer needs to pay. Hence telecom operators need to ensure that they have a very transparent and easy licensing where the customer knows exactly how much it would cost them for the cloud services including bandwidth utilization and other value added services. Telecom operators should provide a variety of payment models like pay-as-you-go and annual contract with fixed monthly payment for the customer to choose. Using trained staff (sales force, call centers executives, etc), telecom operators can differentiate from global cloud service providers by supporting SMEs in selecting the right bundle package as per their needs. End to End Support Telecom operators need to differentiate them from the global cloud service providers, who often are not able to provide enough professional services including local support to SME customers or customized solution. Telecom operators should focus on enabling the SME customers through hand holding by providing them with 24x7 one-stop-shop support services, where all their technical problems can be addressed. Telecom operators should focus on either providing professional services directly or through local channel partners. Professional services and local support would not only increase customer satisfaction but can also be an additional source of services revenue for the cloud business. 5.4 Realign Selling tactics Increase ARPU through service Cross-sell and Up-sell Telecom operators need to come up with innovative ideas about how to up-sell cloud services to their existing customers. Telecom operators should aim to minimize the customer acquisition cost by capturing the low hanging fruits by targeting segments of SME customers which are ignored by global providers and offer them free trial to buy limited period offers or adopt the freemium model, focus on migration of existing customer to premium packages and bundling more services to the end users. Re-organize and enhance the sales team Sales executives in telecom operators are used to and are comfortable 11

14 selling network solutions, the company needs to provide them with extensive training to let them understand the cloud solution. Proper hard targets and attractive incentive packages should be designed so that the sales team is able to achieve the required target. For example that the sales executive has to sell one cloud service package along with x number of network solutions, to complete his sales target and get their incentive. Develop new channels and offer free trial Telecom operators can offer niche and unique SaaS offering targeting a specific sector or domain. Hence they should work closely with the respective sector s trade association to enhance the awareness within the target audience. During our research we observed that SME prefer to test any new service before committing to it for long term. Hence during the business plan stage telecom operators should consider free trial period which would increase acceptance of their offering. Ultimately once the customer is satisfied with the free trail they would be willing to sign a long term contract with the telecom operators for that software usage. 6 Case Studies 6.1 StarHub s Argonar Cloud StarHub is Singapore's fully-integrated info-communications company, offering a full range of information, communications and entertainment services for both consumer and corporate markets. StarHub is facing the challenges of developing new innovative services in an increasing competitive market. Huawei assisted not only in building up the capabilities of StarHub s cloud computing infrastructure, but also forge ISV partnerships and cooperation so as to develop their cloud services. Project Summary Argonar, StarHub s flagship product in IaaS, was launched in It is the first trial on cloud computing not only for StarHub, but also for Huawei, which provided good learning experience for both partners. It was a huge challenge for StarHub to launch cloud services to compete 12

15 against leading global cloud service providers, such as Amazon, Microsoft, Savvis etc., especially in the highly competitive Singapore market. Not only does StarHub need a robust and quick-to-implement solution to provide its IaaS services, the solution had to be cost effective and be able to meet their enterprise and SME customers needs. The Pay as Use model was adopted between StarHub and Huawei and it was a new trial business model, which fulfilled StarHub s goal in launching a cost-effective and quick-to-market IaaS solution. Figure 5: StarHub Cloud Services roadmap [12] Customer Benefits As StarHub s Argonar services matured, it attracted SME enterprises and large-scale customers, such as global System Integrator and government agencies. This brought huge brand effects for StarHub, which provided the impetus to drive the uptake of StarHub s cloud computing resources further. To achieve profitability and customer stickiness, StarHub and Huawei implemented a flexible sales model: Unlike other cloud providers, which do not differentiate user experiences, StarHub classified the user trial accounts according to their trial experiences in the one-month trial period. Any issues are resolved (within the capabilities of Argonar) and extensions to the trial period are given to users with resolved issues. This not only enabled common users to fully utilize the cloud computing service but also provide VIP users with better user experiences for a longer trial period, thereby increasing user lock-in. StarHub Cloud is moving towards the Phase III period, with users being able to purchase required software application services from service vendors based on their own application requirements. Moreover, users can adjust the service contents to be used based on enterprise development, 13

16 which is of strong flexibility and extensibility. At the same time, the professional maintenance and technical support required by these application services are carried out by professional personnel of the vendors. Huawei provided a solution platform to manage virtual resources and application services. In addition, Huawei helped introduced many independent software vendors (ISVs) to promote a multi-application services environment. This not only enabled carriers to offer a SaaS marketplace of variety and choices to SME customers, but also help StarHub improve its IaaS and network utilizations. Figure 6: StarHub IaaS and SaaS Cloud Services Model [13] 6.2 Operator Z, a Hong Kong Operator s Cloud Experience Hong Kong is one of the most competitive telecom markets in the world with a high concentration of telecom operators competing for businesses (consumer, enterprise etc) in a country of 7 million people. Like many other Telecom operator(s) in the world, Operator Z has to diversify the incomes from traditional revenue from communications. Data Centre/Cloud services is developed to offset the decline in connectivity revenues. In addition, Operator Z needs to win back revenue from global services providers. Operator Z has a market leadership position in HK/China Enterprise and SME market. To address the diverse needs of market segments, Operator Z adopts a multi-vendor strategy towards cloud platform development. Huawei has been selected and is now in the stage of soft launch of cloud services for the SME market. These cloud services will be packaged and bundled with network services and will suit the needs 14

17 of testing and development, business functions systems as well as business critical and high performance applications. With a self-service portal, business users will be able to manage the virtual machines and their usage patterns remotely. Exhibit 2: Challenges for Operator Z in Hong Kong [14] At the same time, the SME cloud platform is enriched with a portfolio of software applications. Operator Z is generating a new stream of revenues by co-operating with a number of software partners. These SaaS applications are hosted on the cloud platforms and promoted by multiple sales channels. Mostly importantly, SMEs in Hong Kong would be able to subscribe the services through Operator Z s hotlines or account managers and pay the services in one consolidated bill (including mobile, internet and fixed line). In the future, these cloud services will be extended to other cities. With the same technologies by Huawei, SME/enterprises will be able to manage all services in different regions by automation tools and get superior support services offered by Huawei. 15

18 7 Conclusion The needs of SMEs and their drivers and hurdles in adopting cloud services were discussed in this paper. It has been observed that SMEs provide a huge cloud market opportunity for telecom operators, which should be tapped for future growth. Some SMEs are looking for a cloud solution that is scalable, reliable and can lower their capital expenses. Telecom operators are in an optimum position to fulfill these needs of the SME sector and can utilize their existing network and relationships to move into this new business. Telecom operators need to cater to customized solution requirements from SME and hence would need to bring onboard people with prior cloud services experience. Telecom operators should realign the culture of the organization where people have to be aware of the shift towards the ICT domain. As there is a lot of competition from global cloud service providers, telecom operators should ensure that while investing in this business, they do financial and strategic planning based on cloud services. Telecom Operators need to focus on local support, develop new channels and leverage on their large existing customer base to acquire new clients as well as increase revenue through bundling of more services. Telecom Operators should select a cloud computing partner who can enable them to plan, launch, operate and compete in the cloud market. 16

19 8 Glossary App Application ARPU Average Revenue per User B2B Business to Business BNC Business and Network Consulting BYOD Bring Your Own Device CAGR Compound Annual Growth Rate CRM Customer Relationship Management CSB Cloud Service Brokerage IaaS Infrastructure as a Service ICT Information and Communication Technology ISV Independent Software Vendors M2M Machine to Machine MNC Multinational Corporations OTT Over the top PoS Point of Sale ROI Return on Investment SaaS Software as a Service SLA Service Level Agreement SME Small and Medium Enterprise VDI Virtual Desktop Infrastructure VPN Virtual Private Network 17

20 9 References [1] Micro, Small and Medium Enterprise Around the World: How Many Are There, and What Affects the Count?, MSME Country Indicators by IFC/World Bank 2010 [2] European Commission 2005, USITC 2010, ABS, China MIIT 2011, India Development Commissioner MSME 2006 [3] Forecast by gartner: Public Cloud Services, Worldwide, [4] Parallels SMB Cloud Insight for 2013: Top trends you must consider to compete in the cloud [5] Huawei Analysis 2014 [6] Telco SME Cloud Computing Opportunity by Ovum Jan 2014 [7] Huawei Analysis 2014 [8] SMBs Run on Business Clouds Global Survey by Strategy Analytics [9] The Global Information Technology Report 2013, World Economic Forum [10] Global Data Privacy directory by Norton Rose Fulbright, June 2013 [11] NTT Communications website, Annual report FY [12] Huawei Analysis 2014 [13] Huawei Analysis 2014 [14] Huawei Analysis

21 10 About the Authors Managing Consultant, Global Business Consulting Dhruv has 8 years of technology and business experience in Managed Services, IT service consulting and cloud services. Since joining Huawei in 2013, Dhruv has been involved in a number of consulting projects covering cloud services and datacenter domain across Europe, Asia, Middle East and North Africa. Dhruv Dayal Prior to joining Huawei, Dhruv worked for System Integrators in India and Middle East and managed their NOC, Managed Services and Cloud Service business. He is a double master s holder in computer science and business administration. His core skills are market research, solution designing, enterprise GTM strategy, financial modeling and business strategy. Senior Managing Consultant, Global Business Consulting Since joining Huawei in Dec 2013, Tony led consulting projects in Middle East Countries and participated bidding for public cloud project in Latin America. Tony possessed 20 years of ICT business experience in Telecommunication and Global Software companies. Tony Ma In addition to consulting roles, Tony is passionate about mobile apps development and qualified as a Certified Data Centre Design Professional (CDCDP). Senior Managing Consultant, Global Business Consulting With over 12 years of experience in the ICT domain, Don has led business consulting projects and conducted workshops in for ICT/Cloud Computing domain for Telecom Operators in Europe, Central America, Asia and Middle East. In particular, his work concentrated on the study of the operator cloud market and development of business plans for customers in developing the Enterprise & SME markets for these regions. Don Low Don s working experiences are drawn from his global exposure in firms from different sectors within the ICT domain, including system integrator, government IT agency, the Youth Olympics as well as mobile technology vendor. 19

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