Cloud services

De-mystifying Cloud Computing: the Pros and Cons of Cloud Services

2022, Laura's Articles, Laura's Insights ITIC Blog / By

 

Cloud computing has been a part of the corporate and consumer lexicon for the past 15 years. Despite this, many organizations and their users are still fuzzy on the finer points of cloud usage and terminology.

De-mystifying the cloud

So what exactly is a cloud computing environment?

The simplest and most straightforward definition is that a cloud is a grid or utility style pay-as-you-go computing model that uses the web to deliver applications and services in real-time.

Organizations can opt to deploy a private cloud infrastructure where they host their services on-premise from behind the safety of the corporate firewall. The advantage here is that the IT department always knows what’s going on with all aspects of the corporate data from bandwidth and CPU utilization to all-important security issues.

Alternatively, organizations can choose a public cloud deployment in which a third party vendor like Amazon Web Services (AWS), Microsoft Azure, Google Cloud, IBM Cloud, Oracle Cloud and other third parties host the services at an off-premises remote location. This scenario saves businesses money and manpower hours by utilizing the host provider’s equipment and management. All that’s needed is a web browser and a high-speed internet connection to connect to the host to access applications, services and data.

However, the public cloud infrastructure is also a shared model in which corporate customers share bandwidth and space on the host’s servers. Enterprises that prioritize privacy and require near impenetrable security and those that require more data control and oversight, typically opt for a private cloud infrastructure in which the hosted services are delivered to the corporation’s end users from behind the safe confines of an internal corporate firewall. However, a private cloud is more than just a hosted services model that exists behind the confines of a firewall. Any discussion of private and/or public cloud infrastructure must also include virtualization. While most virtualized desktop, server, storage and network environments are not yet part of a cloud infrastructure, just about every private and public cloud will feature a virtualized environment.

Organizations contemplating a private cloud also need to ensure that they feature very high (near fault tolerant) availability with at least “five nines” or “six nines – 99.999% or 99.9999% and even true fault tolerant “seven nines” – 99.99999% uptime to ensure uninterrupted operations.

Private clouds should also be able to scale dynamically to accommodate the needs and demands of the users. And unlike most existing, traditional datacenters, the private cloud model should also incorporate a high degree of user-based resource provisioning. Ideally, the IT department should also be able to track resource usage in the private cloud by user, department or groups of users working on specific projects for chargeback purposes. Private clouds will also make extensive use of AI, analytics, business intelligence and business process automation to guarantee that resources are available to the users on demand.

All but the most cash-rich organizations (and there are very few of those) will almost certainly have to upgrade their network infrastructure in advance of migrating to a private cloud environment. Organizations considering outsourcing any of their datacenter needs to a public cloud will also have to perform due diligence to determine the bona fides of their potential cloud service providers.

In 2022 and beyond, a hybrid cloud environment is the most popular model, chosen by over 75% of corporate enterprises. The hybrid cloud theoretically gives businesses the best of both worlds: with some services and applications being hosted on a public cloud while other specific, crucial business applications and services in a private or on-premises cloud behind a firewall.

Types of Cloud Computing Services

There are several types of cloud computing models. They include:

  • Software as a Service (SaaS) which utilizes the Internet to deliver software applications to customers. Examples of this are Salesforce.com, which has one of the most popular, widely deployed, and the earliest cloud-based CRM application and Google Apps, which is among the market leaders. Google Apps comes in three editions—Standard, Education and Premier (the first two are free). It provides consumers and corporations with customizable versions of the company’s applications like Google Mail, Google Docs and Calendar.
  • Platform as a Service (PaaS) offerings; examples of this include the above-mentioned Amazon Web Services and Microsoft’s top tier Azure Platform. The Microsoft Azure offering contains all the elements of a traditional application stack from the operating system up to the applications and the development framework. It includes the Windows Azure Platform AppFabric (formerly .NET Services for Azure) as well as the SQL Azure Database service. Customers that build applications for Azure will host it in the cloud. However, it is not a multi-tenant architecture meant to host your entire infrastructure. With Azure, businesses rent resources that will reside in Microsoft datacenters. The costs are based on a per usage model. This gives customers the flexibility to rent fewer or more resources depending on their business needs.
  • Infrastructure as a Service (IaaS) is exactly what its name implies: the entire infrastructure becomes a multi-tiered hosted cloud model and delivery mechanism. Public, private and hybrid should all be flexible and agile. The resources should be available on demand and should be able to scale up or scale back as business needs dictate.
  • Serverless This is a more recent technology innovation. And it can be a bit confusing to the uninitiated. A Serverless cloud is a cloud-native development model that enables cloud   developers to build and run applications without having to manage servers. The developers do not manage, provision or maintain the servers when deploying code. The actual code execution is fully managed by the cloud provider, in contrast to the traditional method of writing and developing applications and then deploying them on a servers. To be clear, there are still servers in a serverless model, but they are abstracted away from application development.

Cloud computing—pros and cons

Cloud computing like any technology is not a panacea. It offers both potential benefits as well possible pratfalls. Before beginning any infrastructure upgrade or migration, organizations are well advised to gather all interested parties and stakeholders and construct a business plan that best suits their organization’s needs and budget. When it comes to the cloud, there are no absolutes. Many organizations will have hybrid clouds that include public and private cloud networks. Additionally, many businesses may have multiple cloud hosting providers present in their networks. Whatever your firm’s specific implementation it’s crucial to create a realistic set of goals, a budget and a deployment timetable.

Prior to beginning any technology migration organizations should first perform a thorough inventory and review of their existing legacy infrastructure and make the necessary upgrades, revisions and modifications. All stakeholders within the enterprise should identify the company’s current tactical business goals and map out a two-to-five year cloud infrastructure and services business plan. This should incorporate an annual operational and capital expenditure budget. The migration timetable should include server hardware, server OS and software application interoperability and security vulnerability testing; performance and capacity evaluation and final provisioning and deployment.

Public clouds—advantages and disadvantages

The biggest allure of a public cloud infrastructure over traditional premises-based network infrastructures is the ability to offload the tedious and time consuming management chores to a third party. This in turn can help businesses:

 Shave precious capital expenditure monies because they avoid the expensive investment in new equipment including hardware, software and applications as well as the attendant configuration planning and provisioning that accompanies any new technology rollout.

Accelerated deployment timetable. Having an experienced third party cloud services provider do all the work also accelerates the deployment timetable and most likely means less time spent on trial and error.

Construct a flexible, scalable cloud infrastructure that is tailored to their business needs. A company that has performed its due diligence and is working with an experienced cloud provider can architect a cloud infrastructure that will scale up or down according to the organization’s business and technical needs and budget.

 

Public Cloud Downsides

Shared Tenancy: The potential downside of a public cloud is that the business is essentially “renting” or sharing common virtualized servers and infrastructure tenancy with other customers. This is much like being a tenant in a large apartment building. Depending on the resources of the particular cloud model, there exists the potential for performance, latency and security issues as well as acceptable response, and service and support from the cloud provider.

Risk: Risk is another potential pitfall associated with outsourcing any of your firm’s resources and services to a third party. To mitigate risk and lower it to an acceptable level, it’s essential that organizations choose a reputable, experienced third party cloud services provider very carefully. Ask for customer references. Cloud services providers must work closely and transparently with the corporation to build a cloud infrastructure that best suits the business’ budget, technology and business goals. To ensure that the expectations of both parties are met, organizations should create a checklist of items and issues that are of crucial importance to their business and incorporate them into service level agreements (SLAs). Be as specific as possible. These should include but are not limited to:

  • What types of equipment do they use?
  • How old is the server hardware? Is the configuration powerful enough?
  • How often is the data center equipment/infrastructure upgraded?
  • How much bandwidth does the provider have?
  • Does the service provider use open standards or is it a proprietary datacenter?
  • How many customers will you be sharing data/resources with?
  • Where is the cloud services provider’s datacenter physically located?
  • What specific guarantees, if any, will it provide for securing sensitive data?
  • What level of guaranteed response time will it provide for service and support?
  • What is the minimum acceptable latency/response time for its cloud services?
  • Will it provide multiple access points to and from the cloud infrastructure?
  • What specific provisions will apply to Service Level Agreements (SLAs)?
  • How will financial remuneration for SLA violations be determined?
  • What are the capacity ceilings for the service infrastructure?
  • What provisions will there be for service failures and disruptions?
  • How are upgrade and maintenance provisions defined?
  • What are the costs over the term of the contract agreement?
  • How much will the costs rise over the term of the contract?
  • Does the cloud service provider use the Secure Sockets Layer (SSL) and state of the art AES encryption to transmit data?
  • Does the cloud services provider encrypt the resting data to prohibit and restrict access?
  • How often does the cloud services provider perform audits?
  • What mechanisms will it use to quickly shut down a hack, and can it track a hacker?
  • If your cloud services provider is located outside your country of origin, what are the privacy and security rules of that country and what impact will that have on your firm’s privacy and security issues?

Finally, the corporation should appoint a liaison who meets regularly with the designated counterpart at the cloud services provider. While a public cloud does provide managed hosting services,  that does not mean the company should forget about it as though their data assets really did reside in an amorphous cloud! Regular meetings between the company and its cloud services provider will ensure that the company attains its immediate goals and that it is always aware and working on future technology and business goals. It will also help the corporation to understand usage and capacity issues and ensure that its cloud services provider(s) meets SLAs. Outsourcing any part of your infrastructure to a public cloud does not mean forgetting and abandoning it.

Private clouds—advantages and disadvantages

The biggest advantage of a private cloud infrastructure is that your organization retains control of its corporate assets and can safeguard and preserve its privacy and security. Your organization is in command of its own destiny. That can be a double-edged sword.

Before committing to build a private cloud model the organization must do a thorough assessment of its current infrastructure, its budget, and the expertise and preparedness of its IT department. Is your firm ready to assume the responsibility for such a large burden from both a technical and ongoing operational standpoint? Only you can answer that. Remember that the private cloud should be highly reliable and highly available—at least 99.999% uptime with built-in redundancy and failover capabilities. Many organizations struggle to attain and maintain 99.99% uptime and reliability which is the equivalent of 8.76 hours of per server, per annum downtime. When your private cloud is down for any length of time, your employees, business partners, customers and suppliers will be unable to access resources.

Private Cloud Downsides

The biggest potential upside of a private cloud is also potentially it’s biggest disadvantage. Namely: that the onus falls entirely on the corporation to achieve the company’s performance, reliability and security goals. To do so, the organization must ensure that its IT administrators and security professionals are up to date on training and certification. To ensure optimal performance, the company must regularly upgrade and rightsize its servers and stay current on all versions of mission critical applications – particularly with respect to licensing, compliance and installing the latest patches and fixes. Security must be a priority! Hackers are professionals. And hacking is big business. The hacks themselves — ransomware, Email phishing scams, CEO fraud etc. are more pervasive and more pernicious. And the cost of hourly downtime is more expensive than ever. ITIC’s latest survey data shows that 91% of midsize and large enterprises estimate that the average cost of a single hour of downtime is $300,000 or more. These statistics are just industry averages. They do not include any additional costs a company may incur due to penalties associated with civil or criminal litigation or compliance penalties. In other words: in a private cloud, the buck stops with the corporation.

Realistically, in order for an organization to successfully implement and maintain a private  cloud, it needs the following:

  • Robust equipment that can handle the workloads efficiently during peak usage times.
  • An experienced, trained IT staff that is familiar with all aspects of virtualization, virtualization management, grid, utility and chargeback computing models.
  • An adequate capital expenditure and operational expenditure budget.
  • The right set of private cloud product offerings and service agreements.
  • Appropriate third party virtualization and management tools to support the private cloud.
  • Specific SLA agreements with vendors, suppliers and business partners.
  • Operational level agreements (OLAs) to ensure that each person in the organization is responsible for specific routine tasks and in the event of an outage.
  • A disaster recovery and backup strategy.
  • Strong security products and policies.
  • Efficient chargeback utilities, policies and procedures.

Other potential private cloud pitfalls include; deciding which applications to virtualize, vendor lock-in and integration, and interoperability issues. Businesses grapple with these same issues today in their existing environments.

Conclusions

Hybrid, public and private cloud infrastructure deployments will continue to experience double digit growth for the foreseeable future. The benefits of cloud computing will vary according to individual organization’s implementation. Preparedness and prior to deployment are crucial. Cloud vendors are responsible for maintaining performance, reliability and security. However, corporate enterprises cannot simply cede total responsibility to their vendor partners because the data assets are housed off-premises. Businesses must continue to perform their due diligence. All appropriate corporate enterprise stakeholder must regularly review and monitor performance and capacity; security; compliance and SLA results – preferably on a quarterly or semi-annual basis. This will ensure your organization achieves the optimal business and technical benefits. Keeping a watchful eye on security is imperative. Cloud vendors and businesses must work in concert as true business partners to achieve optimal TCO and ROI and mitigate risk.

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The Cloud Gets Crowded and more Competitive

2022, Laura's Insights ITIC Blog / By

The cloud is getting crowded.

In 2022 the cloud computing market – particularly the hybrid cloud – is hotter and more competitive than ever.

Corporate enterprises are flocking to the cloud as a way to offload onerous IT administrative tasks and more easily and efficiently manage increasingly complex infrastructure, storage and security. Migrating operations from the data center to the cloud can also greatly reduce their operational and capital expenditure costs.

Cloud vendors led by market leaders like Amazon Web Services (AWS), Microsoft Azure, Google Cloud, IBM Cloud, Oracle Cloud Infrastructure, SAP, Salesforce, Rackspace Cloud, and VMware, as well as China’s Alibaba and Huawei Cloud, are all racing to meet demand. The current accelerated shift to the cloud was fueled by the COVID-19 global pandemic which created supply chain disruptions and upended many aspects of traditional work life. Since 2020, government agencies, commercial businesses and schools shifted to remote working and learning. Although COVID is generally waning (albeit with continuing flare-ups), a hybrid work environment is the new normal. This in turn, makes a compelling business case for furthering cloud migrations.

In 2022, more than $1.3 trillion in enterprise IT spending is at stake from the shift to cloud, and that revenue will increase to nearly $1.8 trillion by 2025 according to the February 2022 report “Market Impact: Cloud Shift – 2022 Through 2025” by Gartner, Inc. in Stamford, Conn.  Furthermore, Gartner’s latest research forecasts that enterprise IT spending on public cloud computing, within addressable market segments, will outpace traditional IT spending in 2025.

Hottest cloud trends in 2022

Hybrid Clouds

Hybrid cloud is exactly what its name implies: it’s a combination of public, private and dedicated on-premises datacenter infrastructure and applications. Companies can adopt a hybrid approach for specific use cases and applications – outsourcing some portions of their operations to a hosted cloud environment, while keeping others onsite. This approach lets companies continue to leverage and maintain their legacy data infrastructure as they migrate to the cloud.

Cloud security and compliance: There is no such thing as too much security. ITIC’s 2022 Global Server Hardware Security survey indicates that businesses experienced an 84% surge in security incidents like ransomware, email phishing scams and targeted data breaches over the last two years that were especially prevalent and commonplace. The hackers are extremely sophisticated; they choose their targets with great precision with the intent to inflict maximum damage and net the biggest payback. This trend shows no signs of abating. In 2021, the average cost of a successful data breach increased to $4.24 million (USD); this is a 10% increase from $3.86 million in 2020 according to the 2021 Cost of a Data Breach Study, jointly conducted by IBM and the Ponemon Institute. The $4.24 million average cost of a single data breach is the highest number in the 17 years since IBM and Ponemon began conducting the survey. It represents an increase of 10% in the last 12 months and 20% over the last two years. Not surprisingly, in 2021, 61% of malware directed at enterprises targeted remote employees via cloud applications. Any security breach will have a domino effect on regulatory compliance. In response, cloud vendors are doubling down on security capabilities and compliance certifications. There is now a groundswell of demand for Secure Access Service Edge (SASE) cloud security architecture designed to safeguard, monitor and access connectivity among myriad cloud applications services, as well as datacenter IT infrastructure and end user devices. SASE gives users a single sign-on capability across multiple cloud applications while ensuring compliance.

Cloud-based disaster recovery (DR): The ongoing concerns around security and compliance issues has also shone the spotlight on the importance of cloud-based disaster recovery. DR uses cloud computing to back up data and continue to run the necessary business processes in case of disaster. Organizations can utilize cloud-based DR for load balancing and to replicate cloud services across multiple cloud environments and providers. The result: enterprise transactions will continue uninterrupted if they lose access to their physical infrastructure in the event of an outage.

Cloud-based Artificial Intelligence (AI) and Machine Learning (ML): Another hot cloud trend is the use of Artificial Intelligence (AI) and Machine Learning (ML). Both AI and ML allow organizations to cut through the data deluge and process and analyze the data to make informed business decisions and quickly respond to current and future market trends.

Top cloud vendors diversify, differentiate their offerings

There are dozens of cloud providers with more entering this lucrative market arena all the time. However, the top four vendors: Amazon AWS, Microsoft Azure, Google Cloud and IBM Cloud currently account for over 70% of the installed base.

Amazon AWS: Amazon AWS has been the undisputed cloud market leader for the past decade. And it remains the number one vendor in 2022. Simply put, Amazon is everywhere and it has amazing brand recognition. Amazon AWS offers a wide array of services that appeal to companies of all sizes. The AWS cloud-based platform enables companies to build customized business solutions using integrated Web services. AWS also offers a broad portfolio of Infrastructure-as-a-Service (IaaS) and Platform-as-a-Service (PaaS).  These include Elastic Cloud Compute (EC2), Elastic Beanstalk, Simple Storage Service (S3) and Relational Database Service (RDS). AWS also enables organizations to customize their infrastructure requirements and it provides them with a wide variety of administrative controls via its secure Web-based client. Other key features include: data backup and long-term storage; Service Level Agreement (SLA) of “four nines” – 99.99% – guaranteed SLA uptime;  AI and ML capabilities; automatic capacity scaling; support for virtual private clouds and free migration tools.

As with all of the cloud vendors, the devil is in the details when it comes to pricing and cost. On the surface, the pricing model appears straightforward. AWS offers three different pricing options. They are “Pay as you Go,” “Save when you reserve” and “Pay less using more.”  AWS also offers a free 12-month plan. Once the trial period has expired, the customer must either choose a paid plan or cancel its AWS subscription. While Amazon does provide a price calculator to estimate potential cloud costs, the many variables make it confusing to discern.

Microsoft Azure: Microsoft Azure ranks close behind Amazon AWS and the platform has been the catalyst for the Redmond, Washington software giant’s resurgence over the last 12 years. As Microsoft transitioned away from its core Windows-based business model, it used a tried and true success strategy: that is, the integration and interoperability of its various software offerings.  Microsoft also moved its popular and well-entrenched legacy on-premises software application suites like Microsoft Office, SharePoint, SQL Server and others to the cloud. This gave customers a sense of confidence and familiarity when it came to adoption. Microsoft also boasts one of the tech industry’s largest partner ecosystem. Microsoft regularly refreshes and updates its cloud portfolio. In February, Microsoft unveiled three industry-specific cloud offerings: Microsoft Cloud for Financial Services, Microsoft Cloud for Manufacturing and Microsoft Cloud for Nonprofit. All of these services leverage the company’s security and AI functions. For example,  new feature in Microsoft Cloud for Financial Services, called Loan Manager will enable lenders to close loans faster by streamlining workflows and increasing transparency through automation and collaboration.  Microsoft Azure offers all the basic and advanced cloud features and functions including: data backup and storage; business continuity and DR solutions; capacity planning; business analytics; AI and ML; single sign-on (SSO) and multifactor authentication as well as serverless computing. Ease of configuration and management are among its biggest advantages, and Microsoft does an excellent job of regularly updating the platform, but documentation and patches may lag a bit. Azure also offers a 99.95% SLA uptime guarantee which is a bit less than “four nines.”  Again, the biggest business challenge for existing and prospective Azure customers is figuring out the licensing and pricing model to get the best deal.

Google Cloud Platform (GCP): Like Amazon, Google is a ubiquitous entity with strong brand name recognition. Google touts its ability to enable customers to scale their business as needed using flexible, open technology. Google Cloud consists of over 150 products and developer tools. GCP is a suite of cloud computing services provided by Google. It is a public cloud computing platform consisting of a variety of IaaS and PaaS services like compute, storage, networking, application development and Big Data analytics. The GCP services all run on the same cloud infrastructure that Google uses internally for its end-user products, such as Google Search, Photos, Gmail and YouTube, etc. The GCP services can be accessed by software developers, cloud administrators and IT professionals over the internet or through a dedicated network connection. Notably, Google developed Kubernetes, an open source container standard that automates software deployment, scaling and management. GCP offers a wide array of cloud services including: storage and backup, application development, API management, virtual private clouds, monitoring and management services, migration tools, AI and ML. In order to woo customers, Google does offer very steep discounts and flexible contracts.

IBM: It’s no secret that IBM Cloud lagged behind market leaders AWS and Microsoft Azure, but Big Blue shifted into overdrive to close the gap. Most notably, IBM’s 2019 acquisition of Red Hat for $34 billion gave IBM much needed momentum, solidifying its hybrid cloud foundation and expanding its global cloud reach to 175 countries with over 3,500 hybrid cloud customers. And it shows. On April 19, IBM told Wall Street it expects to hit the top end of its revenue growth forecast for 2022. IBM’s Cloud & Data Platforms unit is the growth driver Cloud revenue grew 14% to $5 billion during the just ended March 31 quarter. Software and consulting sales which represent over 70% of IBM’s business were up 12% and 13%, respectively. IBM Cloud incorporates a host of cloud computing services that run on IaaS or PaaS.  And the Red Hat Open Shift platform further fortifies IBM’s hybrid cloud initiatives. Open Shift is an enterprise-ready Kubernetes container platform built for an open hybrid cloud strategy. It provides a consistent application platform to manage hybrid cloud, multicloud, and edge deployments. According to IBM, 47 of the Fortune 50 companies use IBM as their private cloud provider.  IBM has upped its cloud game with several key technologies. They include advanced quantum safe cryptography which safeguards applications running on the IBM z16 mainframe which is popular with high end IBM enterprise customers. Quantum-safe cryptography is as close to unbreakable or impenetrable encryption as a system can get. It uses quantum mechanics to secure and transmit data in a way that currently makes it near-impossible to hack. Another advanced feature is the AI on-chip inferencing, available on the newly announced IBM z16 mainframe. It can deliver up to 300 billion deep learning inference operations per day with 1ms response time. This will enable even non-data scientist customers to cut through the data deluge and predict and automate for “increased decision velocity.”  AI on-chip inferencing can help customers prevent fraud before it happens by scoring up to 100% of transactions in real-time without impacting Service Level Agreements (SLAs). AI on-chip inferencing can also assist companies with compliance; automating the process to allow firms to cut audit preparation time from one month to one week to maintain compliance and avoid fines and penalties. The IBM Cloud also incorporates the Keep Your Own Key (KYOK) which uses z Hyperprotect in the IBM public cloud.  Another key security differentiator is IBM’s Confidential Computing which protects sensitive data by performing computation in a hardware-based trusted execution environment (TEE). IBM Cloud goes beyond confidential computing by protecting data across the entire compute lifecycle. This provides customers with a higher level of privacy assurance – giving them complete authority over data at rest, data in transit and data in use. IBM further distinguishes its IBM Cloud from competitors via its extensive work in supporting and securing regulated workloads, particularly for Financial Services companies. The company’s Power Systems enterprise servers are supported in the IBM Cloud as well. IBM Cloud also offers full server customization; everything included in the server is handpicked by the customer so they don’t have to pay for features they may never use. IBM is targeting its Cloud offering at customers that want a hybrid, highly secure, open, multi-cloud and manageable environment.

Conclusions

Cloud computing adoption – most especially the hybrid cloud model – will continue to accelerate throughout 2022 and beyond. At the same time, vendors will continue to promote AI, machine learning and analytics as advanced mechanisms to help enterprises derive immediate, greater value and actionable insights to drive revenue and profitability.

Security and compliance issues will also be must-have crucial elements of every cloud deployment. Organizations now demand a minimum of four nines of uptime – and preferably, five and six nines of availability – 99.999% and 99.9999% to ensure uninterrupted business continuity. Vendors, particularly IBM with its newly Quantum-safe cryptography capabilities for its infrastructure and IBM Z mainframe, will continue to fortify cloud security and deploy AI.

 

 

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High Tech R&D in the COVID-19 Era is Crucial

Laura's Insights ITIC Blog / By

https://www.technewsworld.com/story/86977.html

Maintaining and increasing research and development (R&D) spending in the COVID-19 era is critical for high technology vendors to deliver new solutions and services, continue to innovate and position their businesses to rebound from the negative effects of the global pandemic.

The COVID-19 global pandemic has been disastrous for business around the globe. The nouvel Corona virus has disrupted and continues to upend every aspect of corporate and personal daily life. Analysts and financial advisors/investors concur that wherever possible vendors should continue to aggressively invest in R&D. That is: spend money to make money. …

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IBM Bets Big on Cloud, Buys Red Hat for $34B

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IBM will acquire open source software and cloud services company Red Hat in a $34B all-cash deal – approximately $190 per share – executives for both firms announced during a joint Monday morning Webcast.

Once the acquisition is complete sometime in the latter half of 2019,Red Hat will become a standalone business unit within IBM’s Hybrid Cloud Team, both companies said in a joint press release. This will preserve the “independence and neutrality” of Red Hat’s open source development heritage and commitment, current product portfolio and go-to-market strategy, and unique development culture. Red Hat will continue to be led by current CEO and president Jim Whitehurst and its current management team. Whitehurst will join IBM’s senior management team and report to IBM chairman, president and chief executive Virginia “Ginni”Rometty. IBM executives said during the Webcast that it intends to maintain Red Hat’s current Research Triangle Park, N.C. headquarters, facilities, brands and practices.

Rometty heralded the Red Hat acquisition as a “game changer” and said it’s all about “resetting the cloud landscape.” IBM’s $34B purchase of Red Hat will be the biggest acquisition in the company’s 107-year history and the price tag equals one-third of IBM’s $105.38B total market valuation.

Rometty clearly feels Red Hat is worth the investment. On Monday’s Webcast she stated that the deal will make “IBM and Red Hat the undisputed Number One leader in hybrid cloud. Our IBM cloud platform is growing like crazy,” Rometty said, adding that “Hybrid cloud is an emerging $1 trillion market.”

The acquisition has been approved by the boards of directors of both IBM and Red Hat. It is subject to Red Hat shareholder approval. It also is subject to regulatory approvals and other customary closing conditions. Meanwhile, IBM intends to suspend its share repurchase program in 2020 and 2021.At signing, IBM has ample cash, credit and bridge lines to secure the transaction financing. The company intends to close the transaction through a combination of cash and debt.

During the Webcast, Rometty made the case for growth in the hybrid cloud market segment claiming that “most companies today are only 20 percent along” their cloud journey, renting compute power to cut costs. The next 80 percent is about unlocking real business value and driving growth. “This is the next chapter of the cloud. It requires shifting business applications to hybrid cloud, extracting more data and optimizing every part of the business, from supply chains to sales,” Rometty said.

Red Hat’s Whitehurst was equally enthusiastic about the forthcoming IBM acquisition. “Joining forces with IBM will provide us with a greater level of scale, resources and capabilities to accelerate the impact of open source as the basis for digital transformation and bring Red Hat to an even wider audience – all while preserving our unique culture and unwavering commitment to open source innovation.”

Throughout the webcast, IBM Senior Vice President of Hybrid Cloud Arvind Krishna and Red Hat Executive Vice President and President of Products and Technologies Paul Cormier emphasized that it would be business as usual with both IBM and Red Hat continuing to honor existing business commitments and partnerships with other firms.

The executives said all of Red Hat’s existing partnerships with other cloud providers including those with major cloud providers such as Amazon Web Services, Microsoft Azure, Google Cloud, Alibaba and more, in addition to the IBM Cloud will remain in place. At the same time, Red Hat will benefit from IBM’s hybrid cloud and enterprise IT scale in helping expand its open source technology portfolio to businesses globally.Red Hat will also continue its open source development projects such as Red Hat Enterprise Linux (RHEL), the OpenShift implementation of Kubernetes-based containers, and the OpenStack cloud computing platform. Similarly, Krishna said, IBM would continue its partnerships with other Linux distributions.

“IBM is committed to being an authentic multi-cloud provider, and we will prioritize the use of Red Hat technology across multiple clouds,” said Arvind Krishna, Senior Vice President, IBM Hybrid Cloud. “In doing so, IBM will support open source technology wherever it runs, allowing it to scale significantly within commercial settings around the world.”

Analysis

The synergies between IBM and Red Hat are obvious.

It’s very apparent the appeal that Red Hat holds for IBM and vice versa.

The two firms are starting from a strong, solid foundation. They’ve been doing business for over two decades. In recent years, Red Hat has expanded its Red Hat Enterprise Linux (RHEL) operating system distribution and services to run on IBM’s POWER servers and z System mainframes. It’s an alliance that has served both firms well.

“Red Hat is not an open source company. We’re an enterprise software company with an open source development model. Our secret sauce is putting those two things together,” Red Hat’s Cormier noted on Monday’s Webcast. “IBM,” he added, “also has a long history of enterprise-grade software and open source development. So, the two companies have a lot in common.”

IBM now wants to capitalize on that commonality in a very big way. It’s no secret that Big Blue’s cloud growth has lagged behind behemoths like Amazon, Google and Microsoft. A 2018 State of the Cloud Report by Rightscale, a cloud management firm, which surveyed 1,000 users, rated IBM as a number four cloud service provider behind Amazon, Microsoft and Google. The Rightscale study also showed that IBM cloud deployment was occurring at a slower pace than the other three market leaders. The Red Hat purchase could serve to accelerate IBM’s cloud deployments and close the gap between IBM, Amazon, Microsoft and Google.

Red Hat helps IBM to grow its cloud business on all fronts: private, public and hybrid clouds since Red Hat built its model on open source and open standards and a very active open source developer community. This stands in stark contrast to the proprietary offerings of Microsoft, Amazon, Google, Oracle and other players.Both IBM and Red Hat can leverage their core strengths in Linux, Kurbernetes, cloud management and service and support. Additionally, Red Hat will have access to IBM’s strong, deep ties to the channel which should enable it to close enterprise deals worldwide and give Red Hat’s product portfolio much greater exposure.

Another plus is IBM’s proven track record with open source. IBM has made numerous royalty-free patent contributions to the Open Invention Network to support development of the Linux platform as well as contributions to Java and the Eclipse development platform, so all of this should stand it in good stead as it moves to embrace and expand its hybrid cloud initiatives.

IBM and Red Hat By the Numbers: Betting Big on the Cloud

The biggest question from investors and analysts following the merger announcement: is whether Red Hat, a company with approximately one-fourth IBM’s valuation is worth the $34B purchase price?

Based on IBM’s perspective of gaining a competitive cloud advantage the answer is a resounding “Yes.”  

Consider that just 18 months ago, Red Hat CEO Whitehurst revealed in a quarterly analyst call that the firm’s biggest deal worth over $20M, came from Linux. But in the last year Red Hat’s top two dozen deals totaling $5M or more were attributable to its OpenShift offering. The OpenShift Container Platform (formerly known as OpenShift Enterprise) is Red Hat’s on-premises private platform as a service product, built around a core of application containers powered by Docker, with orchestration and management provided by Kubernetes, on a foundation of Red Hat Enterprise Linux.  IBM hopes that the combination of its own and Red Hat cloud open source offerings and services sold through its worldwide channel will enable it to expand its presence among enterprises seeking to move their datacenters to the cloud.

Ironically, in the immediate aftermath of the announcement IBM’s stock price declined by 3.54 percent and was trading at $115.40 at Tuesday’s market close, while Red Hat’s stock rose slightly to $170 at Tuesday’s market close. Now, a week later, IBM’s stock price rebounded to $120, but it is still trading well below its 52-week high of $171. Red Hat’s stock meanwhile, continues to climb and gained another three dollars closing at $173.31 after the bell on November 5.

As Exhibits 1 and 2 below illustrate, IBM and Red Hat’s financials each face challenges going forward – specifically in terms of jump starting quarterly revenue and income growth. IBM is also facing pressure to increase its stock price which is now trading at the lower end of its 52-week low of 114.

 

Exhibit 1. IBM by the Numbers

IBM Financials, R&D Spending and Patents 2017 – 2018
Current Stock Price as of 11/5/2018
 $120.06 (US)
Market Capitalization $109.11 Billion
Profit Margin 7.12%
Operating Margin 15.14%
Return on Assets 6.24%
Return on Equity 28.82%
Revenue $80.37B
Quarterly Revenue Growth -2.10%
Net Income $5.72B
Quarterly Earnings Growth -1.20%
Total Cash $14.49B
Total Debt $46.92B
Total Global Workforce 380,300
Research & Development Spending $5.6B
 

Number of Patents

 9,043 patents awarded in 2017 nearly half

in AI, cloud, blockchain, quantum & security.

Nearly 780,000 total Patents

Source: ITIC

Exhibit 2. Red Hat by the Numbers

Red Hat Financials, R&D Spending and Patents 2017 – 2018
Current Stock Price as of 11/5/2018
 $173.31 (US)
Market Capitalization $30.6 Billion
Profit Margin 9.08%
Operating Margin 15.73%
Return on Assets 6.57%
Return on Equity 21.30%
Revenue $3.16B
Quarterly Revenue Growth 13.70%
Net Income $286.44M
Quarterly Earnings Growth -10.50%
Total Cash $1.77B
Total Debt $516.53M
Total Global Workforce 12,600
Research & Development Spending $578.33M
Number of Patents >2,000 since 2002 but does not enforce if used in properly licensed open sourced software

Source: ITIC 

Skepticism: Will Other Suitors Emerge?

As with any merger or acquisition, there’s always the potential that a deal will get called off or that other suitors will emerge.

Several Wall Street analysts suggested that high technology rivals might decide to play the role of spoiler and top IBM’s bid of $190 per share for Red Hat. Some of the names being mentioned as possible suitors were: Cisco Systems, Inc., Google and Oracle Corp.

On Monday, Cowen analyst Gregg Moskowitz, was one of those Wall Street analysts who opined that other bidders may crop up. “The substantial premium that IBM is paying for Red Hat might on the surface seem to make it highly unlikely that a superior bid could occur,” Moskowitz said. “However, we believe there is a reasonable possibility that another suitor could emerge.” Moskowitz said if a breakup fee was not overly onerous, Cisco might be a likely contender to lure Red Hat away.

Brad Reback, a Senior Equity Research Analyst at Stifel Nicolaus & Company, Inc. said in a research note that he would “not be surprised if hyperscale cloud vendorslike Google, Amazon, Microsoft, or Oracle make a competing bid given Red Hat’s strategic position within on-premises datacenters (over 100K customers).”

Microsoft, however, might be a longshot since it recently announced its own open source initiative with its $7.5B acquisition of GitHub.

Michael Turits, Managing Director Equity Research Infrastructure at Raymond James & Associates, says a bidding war may occur in the near future and says IBM’s bid for Red Hat could set off a buying frenzy for software firms.

Turits said a stronger IBM cloud portfolio poses a threat to several of its rivals, including Microsoft and Oracle.

Conclusion

IBM has made a bold move to strengthen its position in hybrid clouds and close the gap between itself and Amazon, Google and Microsoft. Purchasing Red Hat also brings IBM more closely back to its core strengths in software, open source and services. The Red Hat Linux distribution should also serve to further solidify IBM’s already strong POWER and z Systems server hardware offerings.

What is not clear is how the merged entity will treat or de-emphasize its relationships/partnerships with other cloud vendors once the Red Hat acquisition is complete. Regardless of what IBM and Red Hat say now, changes are bound to occur in those relationships.

The more immediate issue is whether or not any other firms will decide to up the ante and start a bidding war for Red Hat. That could make things very interesting. For right now though, IBM has served notice that it will put its money and its marketing muscle behind its cloud ambitions.

IBM Bets Big on Cloud, Buys Red Hat for $34B Read More »

Contemplating a Hybrid Cloud Deployment? Why Infrastructure Matters

Laura's Insights ITIC Blog / By

The forecast for 2014 and beyond is cloud, cloud and more cloud – cloud computing, that is. For a majority of organizations – irrespective of size or vertical market – it’s a matter of “when” not “if” they will initiate a cloud computing deployment.

And ITIC survey data indicates that hybrid clouds will predominate and be the cloud architecture of choice for 64% of businesses. Hybrid cloud solutions offer organizations the best elements of public and private clouds when properly architected, tested, deployed and maintained. The benefits include reduced costs based on a utility-like pay-per-use model, greater scalability, flexibility and greater efficiencies in terms of manageability and business processes.

That said, in order to ensure optimal hybrid cloud performance and maximize Return on Investment (ROI), companies must start with a strong foundation. This includes a robust, reliable, flexible, scalable, manageable and secure infrastructure that provides integration and interoperability among legacy network components and the firm’s public and private clouds. Any hybrid cloud deployment lacking in these aforementioned elements is almost certainly doomed to failure. …

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Contemplating a Hybrid Cloud Deployment? Why Infrastructure Matters Read More »

nCrypted Cloud secures, stores BYOD, Cloud-based Information

Laura's Insights ITIC Blog / By

Cloud computing and Bring Your Own Device (BYOD) are inarguably two of the hottest trends in high tech today. These enabling technologies increase productivity but they also present corporations and consumers with significant security, privacy and manageability challenges.

A new software service from nCrypted Cloud, a Boston-based startup, secures and encrypts cloud-based data in a straightforward, easy-to-use and affordable manner.

nCrypted Cloud encrypts data from recognized cloud services like Dropbox, Google Drive and Microsoft’s SkyDrive. nCrypted Cloud comes in three versions: a basic Consumer version which is free; a Consumer Pro version and an Enterprise edition aimed at corporate users. …

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nCrypted Cloud secures, stores BYOD, Cloud-based Information Read More »

Microsoft Azure Platform, BPOS Cloud Vision Must Address Licensing

Laura's Insights ITIC Blog / By

Microsoft did a very credible job at its TechEd conference in New Orleans last week, laying out the technology roadmap and strategy for a smooth transition from premises-based networks/services to its emerging Azure cloud infrastructure and software + services model.

One of the biggest challenges facing Microsoft and its customers as it stands on the cusp of what Bob Muglia, president of Microsoft’s Server & Tools Business (STB) unit characterized as a “major transformation in the industry called cloud computing,” is how the Redmond, Wash. software giant will license its cloud offerings.

Licensing programs and plans—even those that involve seemingly straightforward and mature software, PC- and server-based product offerings—are challenging and complex in the best of circumstances. This is something Microsoft knows only too well from experience. Constructing an equitable, easy-to-understand licensing model for cloud-based services could prove to be one of the most daunting tasks on Microsoft’s Azure roadmap.

It is imperative that Microsoft proactively address the cloud licensing issues now, and Microsoft executives are well aware of this. During the Q&A portion of one cloud-related TechEd session, Robert Wahbe, corporate vice president, STB Marketing was asked, “What about licensing?” He took a sip from his water bottle and replied, “That’s a big question.”

That is an understatement.

Microsoft has continually grappled with simplifying and refining its licensing strategy since it made a major misstep with Licensing 6.0 in May, 2001, where the initial offering was complex, convoluted and potentially very expensive. It immediately met with a huge vocal outcry and backlash. The company was compelled to postpone the Licensing 6.0 launch while it re-tooled the program to make it more user-friendly from both a technical and cost perspective.

Over the last nine years, Microsoft’s licensing program and strategy has become one of the best in the high-technology industry. It offers simplified terms and conditions (T&Cs); greater discounts for even the smallest micro SMBs and a variety of add-on tools (e.g. licensing compliance and assessment utilities), as well as access to freebies, such as online and onsite technical service and training for customers who purchase the company’s Software Assurance (SA) maintenance and upgrade agreement along with their Volume Licensing deals.

Licensing from Premises to the Cloud
Microsoft’s cloud strategy is a multi-pronged approach that incorporates a wide array of offerings, including Windows Azure, SQL Azure and Microsoft Online Services (MOS). MOS consists of hosted versions of Microsoft’s most popular and widely deployed server applications, such as Exchange Server, PowerPoint and SharePoint. Microsoft’s cloud strategy also encompasses consumer products like Windows Live, Xbox Live and MSN.

Microsoft is also delivering a hybrid cloud infrastructure that will enable organizations to combine premises-based with hosted cloud solutions. This will indisputably provide Microsoft customers with flexibility and choice as they transition from a fixed-premises computing model to a hosted cloud model. In addition, it will allow them to migrate to the cloud at their own pace as their budgets and business needs dictate. However, the very flexibility, breadth and depth of offerings that make Microsoft products so appealing to customers, ironically, are the very issues that increase the complexity and challenges of creating an easily accessible, straightforward licensing model.

Dueling Microsoft Clouds: Azure vs. BPOS
Complicating matters is that Microsoft has dueling cloud offerings; the Business Productivity Online Suite (BPOS) and the Windows Azure Platform. As a result, Microsoft must also develop, delineate and differentiate its strategy, pricing and provisions for Azure and BPOS. It’s unclear (at least to this analyst) as to when and how a customer will choose one or mix and match BPOS and Azure offerings. Both are currently works in progress.

BPOS is a licensing suite and a set of collaborative end-user services that run on Windows Server, Exchange Server, and SQL Server. Microsoft offers the BPOS Standard Suite, which incorporates Exchange Online, SharePoint Online, Office Live Meeting, and Office Communications (OCS) Online. The availability of the latter two offerings is a key differentiator that distinguishes Microsoft’s BPOS and rival offerings from Google. Microsoft also sells the BPOS Business Productivity Online Deskless Worker Suite. It consists of Exchange Online Deskless Worker, SharePoint Online Deskless Worker and Outlook Web Access Light. This BPOS package is targeted at SMBs, small branch offices or companies that want basic, entry-level messaging and document collaboration functions.

By contrast, Azure is a cloud platform offering that contains all the elements of a traditional application stack from the operating system up to the applications and the development framework. It includes the Windows Azure Platform AppFabric (formerly .NET Services for Azure), as well as the SQL Azure Database service.

While BPOS is aimed squarely at end users and IT managers, Azure targets third-party ISVs and internal corporate developers. Customers that build applications for Azure will host it in the cloud. However, it is not a multi-tenant architecture meant to host your entire infrastructure. With Azure, businesses will rent resources that will reside in Microsoft datacenters. The costs are based on a per-usage model. This gives customers the flexibility to rent fewer or more resources, depending on their business needs.

Cloud Licensing Questions
Any cloud licensing or hybrid cloud licensing program that Microsoft develops must include all of the elements of its current fixed premises and virtualization models. This includes:

1. Volume Licensing: As the technology advances from fixed premises software and hardware offerings to private and public clouds, Microsoft must find ways to translate the elements of its current Open, Select and Enterprise agreements to address the broad spectrum of users from small and midsized (SMBs) companies to the largest enterprises with the associated discounts for volume purchases.
2. Term Length: The majority of volume license agreements are based on a three-year product lifecycle. During the protracted economic downturn, however, many companies could not afford to upgrade. A hosted cloud model, though, will be based on usage and consumption, so the terms should and most likely will vary.
3. Software Assurance: Organizations will still need upgrade and maintenance plans regardless of where their data resides and whether or not they have traditional subscription licensing or the newer consumption/usage model.
4. Service and Support: Provisions for after-market technical services, support and maintenance will be crucial for Microsoft, its users, resellers and OEM channel partners. ITIC survey data indicates that the breadth and depth of after-market technical service and support is among the top four items that make or break a purchasing deal.
5. Defined areas of responsibility and indemnification: This will require careful planning on Microsoft’s part. Existing premises-based licensing models differ according to whether or not the customer purchases their products directly from Microsoft, a reseller or an OEM hardware manufacturer. Organizations that adopt a hybrid premises/cloud offering and those that opt for an entirely hosted cloud offering will be looking more than ever before to Microsoft for guidance. Microsoft must be explicit as to what it will cover and what will be covered by OEM partners and/or host providers.

Complicating the cloud licensing models even further is the nature of the cloud itself. There is no singular cloud model. There may be multiple clouds, and they may be a mixture of public and private clouds that also link to fixed premises and mobile networks.

Among the cloud licensing questions that Microsoft must address and specifically answer in the coming months are:

• What specific pricing models and tiers for SMBs, midsize and enterprises will be based on a hybrid and full cloud infrastructures?
• What specific guarantees if any, will it provide for securing sensitive data?
• What level of guaranteed response time will it provide for service and support?
• What is the minimum acceptable latency/response time for its cloud services?
• Will it provide multiple access points to and from the cloud infrastructure?
• What specific provisions will apply to Service Level Agreements (SLAs)?
• How will financial remuneration for SLA violations be determined?
• What are the capacity ceilings for the service infrastructure?
• What provisions will there be for service failures and disruptions?
• How are upgrade and maintenance provisions defined?

From the keynote speeches and throughout the STB Summit and TechEd conference, Microsoft’s Muglia and Wahbe both emphasized and promoted the idea that there is no singular cloud. Instead, Microsoft’s vision is a world of multiple private, public and hybrid clouds that are built to individual organizations’ specific needs.

That’s all well and good. But in order for this strategy to succeed, Microsoft will have to take the lead on both the technology and the licensing fronts. The BPOS and Azure product managers and marketers should actively engage with the Worldwide Licensing Program (WWLP) managers and construct a simplified, straightforward licensing model. We recognize that this is much easier said than done. But customers need and will demand transparency in licensing pricing, models and T&Cs before committing to the Microsoft cloud.

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Corporations Prefer Terra Firma to the Cloud — For Now

Laura's Insights ITIC Blog, News / By

Concerns about cloud computing security and how fast cloud providers will respond in the event technical troubles should arise is making companies hesitant to embrace cloud computing — at least within the next 12 months. An 85% majority of the IT Performance Trends survey subjects say they will not implement a public or private cloud between June 2009 and June 2010. However, of that 85%, 31% say they are studying the issue but have made no decision yet and another 7% are “Unsure.”

Security topped the list of concerns and guarantees that companies would demand from a cloud services provider, if their firms were to implement a cloud model. An overwhelming 83% of respondents said they would need specific guarantees to safeguard their sensitive mission critical data before committing to a cloud. Additionally, almost three-quarters or 73% of respondents would require guaranteed fast response time for technical service and support. Nearly two thirds (63%) of respondents want minimum acceptable latency/response times and a nearly equal number (62%) say they would need multiple access paths to and from the cloud infrastructure.

It was clear from the customer interviews and essay responses that IT managers, especially those companies with fewer than 1,000 end users, will keep their corporate data and applications firmly planted behind the corporate firewall until they have ironclad assurances regarding the security of their data and their ability to access it.

“The idea that I would trust my email, financial transactions, or other day to day business operations to cloud computing is just asking for trouble,” observed an IT manager at a midsized corporation with 500 employees in the Midwest. “I do not even want to imagine my all my users being dead in the water because my link to the Internet was down,” he adds. Another manager at a retail firm with 250 employees expressed reservations about the ability of a cloud services vendor to deliver top notch service and support should the need arise.

“Downtime is the bane of an IT professional’s life,” says the network administrator at a retail firm with 250 employees. He noted that when an onsite and locally managed system fails, he and his IT team can take immediate action to replace parts, rebuild the operating system, restore data from tape backup or perform any other action required to restore services and applications. “Compare that to a failure in a cloud computing scenario, when all you can do is report the problem and hurry up and wait,” he says. “Most IT people are action oriented and they won’t respond well to being at the mercy of a cloud provider while listening to complaints and queries from users and management of ‘When will the system be back up?’ or ‘When can I get access to my data?'”

The director of IT at another midsized company with 400 users opined that he does not yet have confidence in the still-emerging cloud computing model. “We own our data, not the cloud provider, and we need to know it is movable if we need to leave the provider.”

Finally, the survey respondents indicated during first person customer interviews that they will continue to chart a conservative course that includes a very low tolerance for risk until the economy recovers and their companies can once again bolster IT staffs and provide more resources.

Analysis

Cloud computing is still in its nascent stages. It’s common for the hype among vendors, the press and analyst community to outpace current realities in IT, especially in the small and midsized businesses who have smaller budgets and are generally more conservative and risk averse than their enterprise counterparts.

The survey results also showed that there was much more of willingness on the part of larger enterprises to explore, test and deploy a cloud infrastructure. Among corporations with over 3,000 end users, a more convincing 57% percentage said they will either deploy or are considering a public or private cloud implementation over the next 12 to 18 months. Even this group though, is rightfully concerned about the uncertainties of trusting their sensitive data to a public cloud whose provider may be located in a foreign country.

Therefore, it is imperative that cloud computing vendors provide customers and prospective customers with transparency and full accountability with respect to crucial issues like: security, technical service and support, equipment and capacity of their data centers; an overview of the technology used (e.g. specific server equipment, virtualization, management, etc.). The vendors should also provide specific SLA levels and guarantees in the event those levels are not met.

Corporations should also perform due diligence. Get informed. Thoroughly investigate and compare the services and options of the various cloud providers. Know where and how your data will be stored, secured and managed. Ask for customer references. Consult with your in-house attorneys or obtain outside counsel to review proposed contracts. Don’t be afraid to insert out clauses and penalties in the event your cloud provider fails to meet SLAs. Also, at this early stage of development, don’t be afraid to ask for discounts and caps on prices hikes for the duration of your contract.

Corporations Prefer Terra Firma to the Cloud — For Now Read More »

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