I have recently been working with a large telecommunications customer defining their cloud offerings, go to market strategy and chargeback model here are some of my thoughts on the challenges and recommendations.
Divide and Conquer
There are many challenges when you are trying to take any new product to market and cloud offerings can be even more complex because of their range, customer knowledge, market understanding and complexity. If we categorise cloud services into 3 types, we have:
• Infrastructure as a Service (IaaS)
• Platform as a Service (PaaS)
• Software as a Service (SaaS)
Classifying the offerings into these sub categories is essential in my opinion, without this you are trying to find a model (pricing, business, support, product packaging, technical etc.) which fits too wide a subject matter. By subdividing the offerings into these categories you can take a divide and conquer approach which reduces the complexity and enables you to focus on the offerings whilst maintaining consistency across the services.
Customers
Customers pose a couple of challenges when we are looking to offer cloud services. The background and understanding of these concepts is relatively new and we have found customers are in one of two camps, especially for the more infrastructure (IaaS) based offerings: they either have a comprehensive understanding of the tools or have no knowledge. This makes positioning and marketing more difficult as you need to provide collateral which informs the prospective customer of the offerings and benefits whilst not alienating them by speaking at too high a level or too low. One way I have found to overcome this is to use language which enables your customers to understand the offerings through problem equivalence. The simplest way to perform this is to use some of the language which is now common through firms like Google, Amazon and Microsoft’s marketing strategy and also by linking this back to the traditional way of achieving the business or operational goals.
On the Software as a Service and also Platform as a Service approach this is slightly easier as the customer base is less disparate in the understanding stakes. SalesForce.com and DropBox as well as Google Apps have helped to bridge this gap and these concepts are more defined. Customers also understand the consequences of using these services and the benefits.
The concerns of the customers are common across the offerings and these must be comprehensively addressed. The balance that must be struck is the ability to offer the quality, security and availability whilst also maintaining the flexibility and cost benefits of essentially outsourcing your environments - infrastructure all the way up the value chain to your business problems. This can be achieved in a number of ways but the most success that we have found is based on facts, actually showing the operational SLA’s with stats to back them up. Access is obviously the critical factor and the availability of network will need to be clearly shown.
Service Level Agreements
The SLA’s that are offered should be tiered and should ensure that the support and infrastructure is capable of handling a large percentage of the customers per tier; this should be an obvious observation but is all too often missed and best case scenarios or anecdotal estimates are used - the reputation of the cloud and also future sales will be dependent on this. The usual cycle that we have seen is that a customer will outsource one business function and see how this goes before committing more services to the cloud, therefore the performance and delivery of the initial services will have a direct impact of the future sales and growing the accounts. The staffing considerations are also a major area of focus for this as the staff will need to be completely trained up and competent - if you are re-skilling existing staff members then adequate training must be delivered. The operational timings must also be considered here, for example it is unlikely that you will want all customers to have 24 hour support due to the impact of this on the team, the out of hours support should be offered to the highest tier and the price should reflect this premium offering.
Packages
On packaging the solutions you will get the best benefits for dividing up the offerings into IaaS, PaaS and SaaS because of the nature of how these offers will be sold. The critical elements here are to make the delivery of the offerings as simple as possible. You may not be able offer a single configuration or offering per service but it should be possible to limit this to a few scenarios - the aim for the packages is to provide an entry level right the way up to the intense use case. This should also take into account the requirements of the SME as well as the Enterprise Account. It will be impossible to create a controllable number of configurations to meet every customers need and ad hoc configurations should be considered at a premium price, taking into consideration the cost of deviating from the out of the box configurations and the opportunity cost from the other services.
Capex vs Opex
One of the big benefits of the Cloud is commercial, being able to spend from operational expenditure rather than capital expenditure and taking on an asset or assets which will devalue over time and require support etc. In terms of the price point this is a critical and often misunderstood element. Just because something is in the cloud does not necessarily mean it should be cheaper than the alternative of buying the solution through Capex. If you take a basic server as an example the life span of this may be 3 years - but you cannot simply take the cost of a server and divide it by 36 months to see how it compares to hosting the same box in the cloud. My view is that this totally misses the benefit of the cloud and is an unfair comparison. To purchase the server outright you will also have to add the costs of support, power, floor space and disposal as well as consider the depreciation of the hardware over the time period. The benefit of the cloud is that all of those headaches are outsourced with the extra benefits of flexibility - with the cloud you can scale up or down dependent on the business needs.
Business Model
Coming up with a competitive pricing model is a huge challenge and this will be determined by 2 critical factors - the amortisation period (period of time you want to make the investment back) and level of investment into the setup costs for the platform. We want to offer flexible solutions so that the customer can use the services as simply as possible but this does pose a problem in terms of estimating the use over the period. We recommend an approach which looks at a reasonable utilisation target over the amortisation period by year and then works out how this cost should be distributed across the costs of each offering or configuration based on a monthly bill cycle. This has the positive result that the estimates and revenue can be forecast however it does reduce some flexibility in terms of the customer’s purchasing options - as per the Amazon model, customers may want to purchase compute time on a more granular basis and this approach restricts this flexibility. The tradeoff between flexibility and forecast revenue control will be based on the investment in the platform, the higher this investment, then the more flexibility that can be offered. A hybrid model is also an option here, based on the monthly cost, the hourly cost can be worked out to come up with an hourly fee based on working hours (not hours in the day, if you do this you will be too cheap). With this you can then add a premium to this (maybe an additional 70%) and use the spare capacity based on the utilisation for the initial year, once you have this you can tweak your offerings as appropriate - this will need to be iterative. We have not looked into detail in terms of the change management processes and the PMO requirements of this project, if you would like more details on this please drop us a mail, info@5point9.com.
Conclusion
In summary taking cloud offerings to market is a complex, multifaceted challenge and we have only touched upon a couple of key concepts and challenges. As a first step we strongly recommend market research to find out what your potential customers know, what they are looking for and what barriers they will need to overcome to use the cloud offerings. The services will need to evolve and the offerings will have varying levels of uptake, to this end re-alignment should be possible so that the infrastructure distribution can change based on the market conditions. Bundling up offerings is also a great way to enable your customers to use the services and increase adoption through incentives. An initial period of testing or internal use is also critical for any innovative product offering especially if this is a shift in the organisational operation, by allowing internal users or “friendly” customers to use the service for free will allow you to test all of the internal operational and billing systems as well as the support network and technologies.
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