Business Impact of Cloud Computing

www.pwc.com

David Lemphers Director, Cloud Computing @ PwC

e: david.lemphers@us.pwc.com t: http://twitter.com/davidlem

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Sorry In Advance!

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What’s Going On?

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Customer’s Want On-Demand Services

Cost

•  Lower upfront costs and start-up capital makes launching new services easier and less risky

Choice

•  Consuming, composing and churning services is easier in the on-demand world

Agility

•  Subscribing to and consuming services as soon as required assists organizations adapt to rapidly changing market/customer requirements

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BUT: Traditional Business Is Not Currently Optimized

Build Sell Run

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Provider Customer

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Becoming On-Demand Requires Transformation

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And Great Tech!

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Manage

Provision

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So Where Do We Start?

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At a High Level

Business

•  Build -> Sell -> Deliver -> Support

Service

•  Provision -> Run -> Manage -> Deprovision

Infrastructure

•  Plan -> Procure -> Deploy -> Commission -> Maintain

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Step 1. Costs

Start-Up

•  Facilities (Capital)

•  Infrastructure (Hardware, Software)

•  Business Support (Legal, Consulting, etc.)

Ongoing

•  Variable

•  Utilities (Power, water, network)

•  Sustained Engineering

•  Fixed

•  Facilities (Operational)

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COGS

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Cost of Goods Sold (COGS)

•  Understanding and managing COGS is critical to a successful on-demand business

•  Consumption based pricing translates directly to variable on-going costs

•  What do you do with fixed/start-up costs?

•  Perhaps a blended model? (Subscription + Consumption)

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Step 2. Business Model

•  What are you going to be selling?

•  Compute

•  Storage

•  Value-Add Services

•  How will you charge customers?

•  Subscription Plan

•  Consumption Based Pricing

•  Blended Model

•  What are your “promises”?

•  Service Level

•  Quality of Service

•  Compliance 13

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Relationship between Costs and Revenue

•  Ensure your costs are closely aligned to revenue

•  Revenue Recognition (Upfront Spend versus Trailing Revenue)

•  Managing variable costs is easy

•  You just pass these directly onto the customer

•  Managing start-up/fixed costs is harder

•  Why?

•  Because it’s hard to predict your total customer base up-front when preparing your rate card

•  Front-loading fixed costs can make your initial price point too high

•  Back-loading fixed costs can result in aggressive losses early if you’re wildly successful at the start

•  Churning your rate card can severely impact customer satisfaction, retention and adoption

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Step 3. Integrate Business Model into Technology Platform

Sign-Up

•  Pricing model and rate card

•  Discounts and incentives

Provisioning

•  COGS

Metering

•  Compliance

Billing

•  Revenue

Customer Support

•  SLA

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Major Areas of Business Transformation

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Billing

•  Billing is the most important part of an on-demand environment

•  It is also the most frequent and critical interface to the customer

•  Bill payment

•  Usage Review

•  Key focus areas

•  Accuracy: This requires a massive investment of engineering effort early in the process

•  Pricing: Applying SLA credits, discounts, peak/off-peak pricing, is non-trivial

•  Compliance: With Federal, State and Local Tax regulations

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Integration

Supply Chain

•  Capacity planning and management

Sales and Order Fulfillment

•  Provisioning, Deprovisioning

Operations and Support

•  SLA, QoS (Dashboards, etc)

CRM

•  Customer Satisfaction

•  Purchasing Behavior

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Capacity Planning

•  One of the biggest challenges to running an on-demand cloud service

•  Balancing under utilization and resource exhaustion is tricky

•  Key focus areas

•  Deterministic factors

•  Current resources (# of servers, total ingress/egress bandwidth)

•  Non-deterministic factors

•  System load

•  Impact of SLA

•  When factoring deterministic and non-deterministic factors into your capacity planning, always remember to account for SLA targets

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Compliance

Tax

•  Sales Tax

•  Income Tax

•  Varies greatly from state to state, and even at the municipality level

Legal

•  Horizontal Standards (SAS 70, ISO 27001)

•  Vertical Standards (HIPAA, FISMA)

•  Location Concerns (Patriot Act and Non-US Customers)

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And the list goes on…

Business Model

Pricing Model

Capacity Planning

Facilities Management

Procurement and Asset Management

Business Process Integration

Finance

Risk Analysis

Security Assessment

BCP/DRP

Support and Operations

Policies and Governance

Cross-Group Collaboration

Change Management

People and Change

Maintenance and Warranty

Compliance

Tax

Legal

Technology

Billing

Application Migration and Compatibility

Hybrid Environments (On-premise + Cloud)

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Summary

•  Cloud Computing and On-Demand Services are exciting and customers want it

•  Identify key business areas to transform and integrate with

•  Focus on the go to market blockers first

•  Develop skills and capabilities around new core competencies like billing, support and operations, compliance

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Let’s Talk!

Thoughts?

Questions?

Comments?

Insights?

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