INDUSTRY DEVELOPMENTS AND MODELS Cloud Connectivity Services in Europe Jan Hein Bakkers James Eibisch IN THIS EXCERPT The content for this excerpt was taken directly from IDC Industry Developments and Models: Cloud Connectivity Services in Europe Cloud Connectivity Services in Europe (Doc #I01X). All or parts of the following sections are included in this excerpt: IDC Opinion, In This Study, Situation Overview, Service Provider Profile, Future Outlook, Essential Guidance, and Learn More. Also included is Figures 1,2,3,6. IDC OPINION This IDC study provides an overview of the options available for European enterprises to connect to public cloud providers without using the public Internet, thereby enabling private, secure, performant, and compliant cloud connectivity. It profiles leading providers and presents IDC's forecast of spending on cloud connectivity services in Europe. Key findings of this study include: The vast majority of multisite companies use IP VPN or Ethernet services for their corporate WANs. However, until recently, they mostly relied on public Internet to connect to their public cloud providers. Yet the Internet does not provide the levels of security, performance predictability, latency, or end-to-end management needed to support the more demanding or critical workloads that companies want to move into the cloud. As a result, the network has become a bottleneck, holding companies back from getting the most out of public and hybrid cloud. A growing number of cloud, datacenter, and network service providers are launching initiatives to bridge this gap, typically taking one or more of three approaches: direct connect, cloud exchange, and VPN-cloud interconnect. IDC foresees strong growth for cloud connectivity services in the coming years, as accelerating supply and demand for dedicated connectivity to cloud providers fuel market development. IDC expects this market segment in Western Europe to grow from less than $100 million in 2013 to almost $1 billion by 2019. IN THIS STUDY This IDC study provides an overview of the options available in Europe to connect enterprise customers to cloud providers without using the public Internet, thereby enabling private, secure, performant, and compliant connectivity to public cloud providers. It also profiles leading providers and presents IDC's forecast of spending on cloud connectivity services in Europe until 2019. May 2015, IDC #I01Xe
SITUATION OVERVIEW Cloud Connectivity Overview The vast majority of multisite companies use IP or Ethernet VPNs for routine voice, video, and data traffic, as well as critical enterprise applications and data that need high levels of security, performance, and governance. According to IDC's European Enterprise Communications Survey in 2014, 85% of multisite companies with over 50 employees use a network provider's multiprotocol label switching (MPLS) IP VPN service, 28% use a wide area Ethernet service, and 81% operate their own VPN over the public Internet. Some use combinations of these services as well as others, hence the sum is over 100%. At the same time, they are increasingly using cloud-based infrastructure and applications. According to IDC's European CloudView Survey in 2014/2015, 58% of companies with over 50 employees (singlesite or multisite) use public cloud (IaaS, PaaS, and/or SaaS), and 57% use private cloud (hosted and/or on-premises), and those figures are growing fast. Essentially, all companies will use cloud services to some extent in the near future. However, two problems exist with the current situation. Despite its unique benefits, public cloud is often not considered secure or reliable enough for serious applications (as Figure 1 shows), and similarly, Internet-based access to public cloud services does not provide the security, reliability, or performance that companies are used to on their private networks. For public cloud to become a viable option for critical or demanding enterprise workloads, whether on its own or as part of a hybrid cloud environment, these problems must be addressed. FIGURE 1 Top Inhibitors of Public Cloud Q. Which of the following best describe your organization's main concerns about cloud and are important inhibitors for your organization in considering services or technologies? Source: IDC's European CloudView Survey, 2014/2015 Solutions predicated on customers buying network providers' own cloud services exclusively are obviously unrealistic. Network providers are able to offer some compelling cloud services of their own 2015 IDC #I01Xe 1
such as unified communications as a service (UCaaS), but in most cases they are not the final destination. Companies want to access tier 1 public cloud providers as well as specialist and/or local cloud providers. Telcos are not in direct competition with most of these cloud providers, but they do play a critical role in connecting customers to them, direct from their own headquarters, datacenters, or colocation sites, or indirectly via their VPNs. For much of the history of cloud, however, WAN/VPN services have not kept pace with developments that would let companies connect to and consume cloud services in ways characteristic of cloud itself. Many VPN services have not featured rapid and flexible provisioning, flexible bandwidth, and usage-based charging, often for good reasons. But as cloud becomes significantly more important to companies' IT operations, this growing disconnect has become more apparent. As seen in Figure 2, enterprise users are feeling this disconnect and demanding solutions. It also shows that the need for VPN-to-cloud connectivity increases strongly with the level of investment in cloud overall. Companies making little investment in cloud are indifferent to the availability of cloud connectivity, but companies making the highest and critical levels of investment in cloud overwhelmingly regard connectivity from VPN to cloud as very important. FIGURE 2 Demand for Cloud Connectivity Matches Level of Cloud Investment Q. How actively will your organization invest in the following areas over the next 1 3 years? ["Cloud services"] Q. How important are the following criteria regarding your organization's use of IP VPN or Ethernet services? ["Connecting the corporate WAN directly to cloud services, rather than accessing cloud services over the public Internet"] Note: The horizontal axis shows companies according to their current level of investment in cloud overall, from little/no cloud investment to the left to critical cloud investment to the right. Values within each column show how important companies consider VPN-cloud connectivity, from not important (top bars) to extremely important (bottom bars). Source: IDC, 2015 2015 IDC #I01Xe 2
For on-premises private cloud, companies typically use their existing networks; but for hosted private cloud and public cloud in particular, the problem can be significant. Customers that buy hosted private cloud from a network service provider are very often existing VPN customers, and the cloud deployment is connected into the VPN, creating an end-to-end managed environment. Those that use an IT provider either already have a network in place to support an existing engagement with that provider, or are engaging for the first time and will either extend their networks or use point-to-point links to reach the provider, or will use the public Internet. For public cloud, though, the vast majority of companies use the public Internet. As a result, network providers have seen a proportion of customer traffic offloading from the VPN to the Internet (often without the IT department's knowledge) in order to access cloud services, primarily public cloud but also a proportion of private cloud. This represents a threat to the growth of their MPLS business, particularly as the proportion of total traffic destined for cloud providers will continue to increase, potentially to very high levels. Yet the Internet does not provide the levels of security, performance predictability, latency, or end-toend management needed to support the more demanding or critical workloads that companies want to move into the cloud. As a result, the network has become a bottleneck, holding companies back from making more use of cloud, particularly public and hybrid cloud. In response, service providers are taking several approaches to address the issue, and three models emerge as common offerings: Direct connect. This refers to point-to-point connectivity between a customer's site, colocated equipment, or VPN and a cloud provider's datacenter. The customer's network interconnects with the direct connect service at the cloud provider's meet-me point typically located at an exchange/colocation site, from which one of the cloud provider's network partners transits customer traffic to the cloud provider's datacenter. Examples include Amazon Web Services' Direct Connect and Microsoft's ExpressRoute. Cloud exchange. Cloud providers located in a datacenter company's facilities are accessed via a port into the datacenter company's exchange platform and orchestration layer, which manages traffic flows between the customer and the cloud provider, either within the building or possibly across the wider geographical footprint of the datacenter provider. The datacenter provider may also overlay a service catalog or marketplace platform. Examples include Equinix's Cloud Exchange and TelecityGroup's Cloud-IX. VPN-cloud interconnect. Cloud providers are connected to a network operator's MPLS backbone and can be added as a node on the customer's VPN, accessible across the network and visible in the customer's network service portal. Tier 1 cloud providers may be preintegrated into the network operator's backbone, in which case they may appear on the customer's network in near real time. Smaller cloud providers may be connected via traditional interconnect or a direct connect framework described above. Examples include AT&T's NetBond, BT's Cloud Connect, Orange's Business VPN Galerie, and Verizon's Secure Cloud Interconnect. Figure 3 summarizes these approaches and shows that network providers play an important role in all three models, particularly where customers are building hybrid cloud environments that connect onand off-premises IT, public and private clouds, and disparate cloud providers. In the enterprise WAN/VPN business, network providers are used to three-to-five-year contracts and fixed monthly fees. This will have to give somewhat as cloud and network converge customers will demand more flexibility in their networks to accommodate their cloud usage patterns. But the pendulum will not swing to the extreme of instant provisioning, unbounded scalability, and purely usage-based billing in all cases, at least in the foreseeable future. Most current enterprise workloads are stable, predictable, and long-term; only a minority are highly variable/seasonal, bursty, or short term. As the cost for fixed, 2015 IDC #I01Xe 3
medium/long-term contracts where the purchased resources are well matched to requirements is lower than for all-cloud deployments as well as other factors such as the long timescales involved in migrating legacy IT to cloud companies will realistically use both according to necessity, creating the need for hybrid cloud. FIGURE 3 Approaches to Cloud Connectivity Colo site Cloud provider Participating network operator Colo provider's backbone Customer's network provider Cloud provider meet-me point Colo provider port MPLS VPN Customer equipment Colo site Customer equipment Colo site Colo site Customer's network provider Customer's network provider Customer's network provider Customer site Customer site Customer site Customer site Customer site Direct connect Cloud exchange VPN-cloud interconnect Source: IDC, 2015 Service Provider Profile This section profiles the cloud connectivity related offerings of a selection of leading network, cloud, and datacenter providers. As discussed above, for much of the history of public cloud, the Internet has been the dominant (if not the only viable) access method. The timeline in Figure 4 illustrates this and shows that customers now have a range of options that did not exist previously. 2015 IDC #I01Xe 4
FIGURE 4 Timeline of Cloud Connectivity Launches Interxion Cloud Connect BT Cloud Connect Microsoft ExpressRoute Level 3 Cloud Connect Verizon Secure Cloud Interconnect TelecityGroup Cloud-IX Telefónica Cloud Connect Equinix Cloud Exchange Launch of Amazon Web Services (AWS) Orange Business VPN Galerie AWS Direct Connect AT&T NetBond Colt Dedicated Cloud Access Vodafone IP-VPN Cloud Connect Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Source: IDC, 2015 AT&T AT&T's NetBond platform is the company's core cloud interconnect offering, and it plays a central role in its overall cloud strategy. It was one of the first cloud interconnect services to be launched, initially in 2012 and with general availability since September 2013. As a result of its early start, strategic focus, and heavy marketing, NetBond has become the standard reference point for cloud interconnect generally, with which equivalent offerings from competitors are routinely compared. NetBond extends AT&T's MPLS network to connect a customer's existing network to a range of public cloud providers, physically located in the U.S. and Europe. The cloud providers are pre-integrated and can appear as a node on the customer's network within minutes. AT&T currently has 12 NetBond partners: IBM, CSC, Microsoft, Equinix, Salesforce.com, HP, VMware, Box, SoftLayer, AWS, Sungard Availability Services, and Blue Jeans Network. It will continue to add partners over time. Like other cloud interconnects, the service targets companies wanting to put production workloads into a public cloud or hybrid cloud environment, without incurring the performance, security, and availability risks of the public Internet. Most users are existing AT&T VPN customers that have added NetBond to their networks mid-contract or at renewal time, although the company indicates that the appeal of NetBond has tipped the balance in AT&T's favor for some prospects and generated new business. AT&T uses an API framework to exchange provisioning information between the cloud service provider and AT&T, allowing customers to administer service orchestration and control which cloud services are connected to the network. Customers can also manage the service through AT&T's 2015 IDC #I01Xe 5
service portal. In time, AT&T plans to extend the NetBond APIs to include cloud management tools to allow customers to design and deploy cloud implementations via NetBond as well as the connectivity component. The customer signs up for a minimum monthly bandwidth commitment, and each month is billed for the committed bandwidth plus any sustained capacity over the commitment level on a 95th percentile basis. However, the monthly commitment is short term the customer can cancel any time and change the commitment level as needed on a short-term basis. NetBond is deployed in AT&T datacenters and partner datacenters such as Equinix in the U.S. and EMEA. In 2015, AT&T will expand NetBond's footprint in these regions and launch NetBond in Asia. NetBond has been a marketing win for AT&T. As mentioned, it is routinely used as a reference point for cloud interconnect in general, and it is possible that more companies are familiar with the NetBond brand and concept than with AT&T's own Synaptic Compute and Private Cloud services. This fits AT&T's current strategy of forging close partnerships with cloud and IT providers via NetBond and promoting its network-enabled cloud vision to enterprise customers, often in conjunction with the cloud providers. FUTURE OUTLOOK Public cloud has multiple attractive features for customers. There is no need to build their own datacenters, they pay only for what they use, and they can scale up and down quickly and without limits. The use of public cloud services across Western Europe will continue to grow significantly as a result of these factors. SaaS accounts for the majority of spending growth, followed by PaaS and IaaS. This strong growth in demand for public cloud services will be a key driver of demand for private connectivity to these services. At the same time, such connectivity will also be increasingly important as enablers of this growth in public cloud, addressing some of the main inhibitors for cloud demand in the form of perceived reliability, privacy, and security issues. This importance will only rise as cloud applications become increasingly mission-critical. The availability of cloud interconnect programs from network, cloud, and datacenter providers has risen rapidly in the past two years. IDC expects more service providers to launch similar concepts in the near future as they recognize the need among their customers for predictable, secure, private, and performant connectivity. At the same time, the different types of existing providers will be looking to expand their programs by signing up further partners and extend their coverage geographically by increasing the number of interconnections with existing partners to include datacenters across the world. From the cloud side, most of the activity until now has revolved around the major global providers of IaaS such as AWS, Microsoft Azure, and Google. Connectivity to SaaS providers is not yet as common (and where available is typically limited to major providers such as Salesforce.com). IDC expects SaaS and PaaS providers to become more commonly sought-after destinations for cloud interconnect services in the coming years, starting with the larger providers and growing over time. In practice it is likely to be economically unviable for network operators to deploy their own capacity to the long tail of public cloud providers, which consists many SaaS and PaaS providers. Therefore, IDC expects this cloud exchanges to play a key role in enabling connectivity to these providers, either directly or indirectly via operators that leverage cloud exchanges to extend the reach of their VPNcloud interconnect offers. IDC expects cloud connectivity to become a cornerstone of many WAN architecture as both cloud and WAN deployment models become increasingly hybrid, and as enterprises combine private IP and Ethernet networks with public Internet connectivity to connect their sites and employees to a mix of public and private cloud services with the most optimal combination of cost and performance. In 2015 IDC #I01Xe 6
combination with continued strong growth in demand for public cloud services, their growing mission criticality for organizations, and the increasing availability of solutions to address the resulting need for predictable performance, security, and privacy, this will lead to a rapid acceleration in spending on cloud connectivity services. Figure 6 shows IDC's forecast for spending on cloud connectivity services. It illustrates spending on direct connect and cloud-vpn interconnect and includes connectivity charges from a customer location or network until the cloud service demarcation point. It excludes data out and port charges by cloud provider. The chart shows accelerating growth in the coming years. Most of the spending in 2014 was on direct connect services as VPN-cloud interconnect was only a nascent service at that time. However, growth for VPN-cloud interconnect services will accelerate in the coming years as they are poised to become an integral component of many WAN contracts, and organizations increasingly value the integrated, managed, and relatively cost-effective nature of these solutions. Direct point-topoint connections to cloud providers, which some enterprises have already adopted in the past couple of years, will appeal particularly to organizations that manage and/or deploy their own networks, but they still require the characteristics of private connectivity to cloud or those that have needs for partners or bandwidths beyond what is offered by their WAN providers. This segment will also show strong growth, though the value of this segment will quickly be overtaken by that of the VPN-cloud interconnect segment. By 2019, VPN-cloud interconnect services will account for almost two-thirds of spending. FIGURE 6 Western Europe Cloud Connectivity Spending Forecast, 2013 2019 Notes: It includes spending on direct connect and VPN-cloud Interconnect services. Spending includes connectivity charges until the cloud service demarcation point; excludes data out and port charges by cloud provider. Source: IDC, 2015 Although IDC expects attractive growth for the VPN-cloud interconnect segment, it also foresees the risk that some of this growth will be cannibalistic in nature. VPN-cloud interconnects will likely become part of larger WAN/VPN contracts, and competitive pressure may mean that at renewal time, service 2015 IDC #I01Xe 7
providers (SPs) will not be able to completely pass on the incremental cost of cloud connects or will feel forced to accept some additional price erosion for the core VPN service. Currently, both demand and supply of cloud interconnect are mostly geared toward the largest corporate customers that have very high requirements in terms of bandwidth and performance (and are often multinational in nature). As a consequence, market development will be principally driven by this segment in the coming years. However, over time, IDC expects adoption will increasingly be driven down into company sizes below that as cloud services are also becoming more and more mission-critical for them. SPs will increasingly adapt their propositions so that they can meet the specific requirements of their domestic customers (SMEs and large enterprises) and most importantly, their budgets. In the near to medium term, IDC expects to see further improvements to service features such as increased automation, self-service capabilities, standardized and streamlined provisioning, and greater degrees of service integration/orchestration between networks and public cloud resources. Although current cloud connectivity services are predominantly offered with fixed monthly fees, typically based on port speeds, IDC foresees more flexible ways of charging, including volume and seat based models, to gain popularity over time, as cloud connectivity billing models will increasingly mimic the flexible nature of the cloud service to which they connect. ESSENTIAL GUIDANCE IDC offers the following advice to service providers and end-user organizations: Network service providers must realize (if they haven't yet) that their primary role in cloud is to connect customers to the cloud services they want to consume in a private, secure, performant, and compliant way. This is at odds with some network operators' cloud strategies that are looking to retain control and be the customer's primary cloud provider, or at second best to house cloud providers in their own datacenters. They need to understand that customers have a growing range of non-internet choices such as interconnecting at exchange sites, and therefore they should be part of the ecosystem and not react against it. MPLS providers should leverage the performance and security features of VPN-cloud interconnect services to strengthen the positioning of their VPN propositions as a whole against low-cost and typically Internet-based alternatives. VPN-cloud interconnect services are a perfect fit with hybrid network strategies that aim to provide the optimal mix of cost and performance for the needs of different locations, users, and applications. Service providers that currently do not have a cloud interconnect proposition network, datacenter, and cloud providers alike need to urgently consider their position. Providing end users with the increasingly needed option of private connectivity will be in the best interest of each of these service provider types, and IDC believes each of them will need to make sure to become part of the ecosystem either by developing an own proposition or joining a partner program. End-user organizations should consider the connectivity options available today in relation to their current cloud usage, but more importantly to bring the network into future cloud deployment planning. The assumption that private cloud services will be accessed via the incumbent network provider and public cloud services will be accessed via the Internet is no longer automatic. Particularly for tier 1 IaaS providers, but increasingly also for smaller and/or local cloud providers and PaaS and SaaS providers, the range of options based on Internet, direct connect, exchange, and VPN connectivity is growing and covers most use cases. 2015 IDC #I01Xe 8
LEARN MORE Related Research EMEA Enterprise Communications Survey, 2015: Attitudes Toward the WAN (forthcoming) EMEA Enterprise Communications Survey, 2015: Attitudes Toward Cloud (forthcoming) European CloudView Survey, 2014/2015: Impact on Telcos (IDC #ET51X, April 2015) EMEA Enterprise Communications and Collaboration Market 2015 Top 10 Predictions IDC Predictions: European Cloud in 2015 (IDC #CL51X, February 2015) Private Cloud Connectivity: Foundation for the Hybrid Multicloud Era (IDC #253088, December 2014) Western Europe Enterprise Communications Survey, 2014: Attitudes Toward Cloud and Hosting (IDC #ET03W, September 2014) Synopsis This IDC study provides an overview of the options available in Europe to connect enterprise customers to cloud providers without using the public Internet, thereby enabling private, secure, performant, and compliant connectivity to public cloud providers. It also profiles leading providers and presents IDC's forecast of spending on cloud connectivity services in Europe until 2019. "Cloud connectivity will become a cornerstone of many WAN architectures as both cloud and WAN deployment models become increasingly hybrid," said Jan Hein Bakkers, senior research manager, IDC European Telecom and Networking Group. "Private network access to public cloud services is a good proposition for customers and an example of the unique role telcos can play in the cloud ecosystem," said James Eibisch, research director, IDC European Telecom and Networking Group. 2015 IDC #I01Xe 9
About IDC International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications and consumer technology markets. IDC helps IT professionals, business executives, and the investment community make factbased decisions on technology purchases and business strategy. More than 1,100 IDC analysts provide global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries worldwide. For 50 years, IDC has provided strategic insights to help our clients achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology media, research, and events company. IDC U.K. Chiswick Tower 389 Chiswick High Road London W4 4AE, United Kingdom 44.208.987.7100 Twitter: @IDC idc-insights-community.com www.idc.com Copyright Notice This IDC research document was published as part of an IDC continuous intelligence service, providing written research, analyst interactions, telebriefings, and conferences. Visit www.idc.com to learn more about IDC subscription and consulting services. To view a list of IDC offices worldwide, visit www.idc.com/offices. Please contact the IDC Hotline at 800.343.4952, ext. 7988 (or +1.508.988.7988) or sales@idc.com for information on applying the price of this document toward the purchase of an IDC service or for information on additional copies or Web rights. Copyright 2015 IDC. Reproduction is forbidden unless authorized. All rights reserved.