Discussing Cloud with Appirio
Most cloud vendors promise to cut cost. But cloud-based solutions provider Appirio has gone a step ahead and guarantees to save at least $ 1 million a year when its customers migrate to cloud.
The offer comes with two caveats: Customers should be already spending over $ 5 million on IT infrastructure. They should switchover to public not private cloud.
Arun Mysore interviewed Ryan Nichols, Appiro's vice president of cloudsourcing and cloud strategy, to find out more about the million dollar deal.
Ryan has over 10 years of experience in brining together business and technology. He has previously worked with SAP, McKinsey and Intuit, and is an MBA from Stanford's Graduate School of Business.
1) There is no consensus on the cost savings achieved by migrating to cloud. Analysts have made various divergent projections. Mckinsey even said cloud was more expensive when compared to alternatives. What explains this divergence?
There are a lot of factors behind these divergent options. One of the biggest factors though is everyone has a different definition of cloud computing. People will have different answers on ROI depending on what you’re asking them to measure. We did a blog post on this very issue when the McKinsey study first came out.
2) In this context, it is a bold statement for Appirio to make that it will assure $ 1 million savings when its customers migrate to public cloud. You say your assurance is backed by the experience of migrating nearly 200 customers to cloud. Can you give an idea of your experience of working with 200 customers and the sort of internal analysis you did to arrive at the million dollar assurance?
Our experience moving nearly 200 enterprises to the cloud and our own experience operating as a serverless enterprise, gives us confidence that a million dollars in savings is just the tip of the iceberg. As a serverless enterprise, we ourselves spend around 3% of revenue on IT - that's half what industry benchmarks say a company our size should spend. Our work with customers show that when they move 100% to the cloud, entire categories of spend just drop away (things like VPN, hardware and cooling costs, etc.), lowering IT costs by 30-50%. That doesn't even touch the top line business benefits of cloudsourcing – business agility, the ability to enter new markets and work in a totally different way.
4) Have you seen million dollar savings in all your customers who migrated to public cloud and have an annual budget of over $ 5 million? Have there been exceptions? If so, what explains?
The vast majority of our large enterprise customers are not yet ready to commit cloudsourcing 100% of their IT infrastructure. That’s partly why we’re offering this guarantee – to encourage companies to be more aggressive in their move to the public cloud. For those companies who we are working with in this capacity, they do expect to save much more than $1M. We’ve also seen this in our own business, which runs completely in the cloud.
5) Many vendors pitch their cloud solutions around several value propositions: agility, cost savings, scale, provisioning, capx etc. With the million dollar offer Appirio seems to emphasizing on cost? How important is cost on cloud vis a vis other value propositions? What are customers saying on this?
Cost savings is simply the easiest thing to quantify for this type of guarantee. But as we’ve said, that’s really just the beginning. When we work with customers on their cloud roadmap, cost is only one of the elements. In fact, business agility and time to market for new solutions is probably the number one business driver for companies to move to the cloud.
6) Would cost become the biggest growth driver for cloud the way it is in the offshoring industry, which assures a cost saving of 30%? As things stand now, what percentage of cost can shaved off by migrating to cloud?
Cost is one driver but not necessarily the biggest driver for cloud adoption. In fact, we believe that TCO savings is just table stakes in terms of benefits. The bigger driver is the business agility - ability to quickly respond to the changes in the business. This will result in better time to market, increased ability to capture new revenue streams from new business models, etc.
In terms of percentage savings from cloud - most studies show that companies can save between 30 and 50% in Total Cost of Ownership. Of course, this varies based on the vendors and company specific environment. Here is a study from IDC that shows 54% TCO reduction per app. From Appirio's own experience as well as studies we have done with our customers, we believe that 30 - 50% of TCO cost savings is achievable.
7) How does your million dollar assurance play out? Can you give a walk through of where the savings kick in?
If a customer is interested in pursuing this, here is the process:
- Customer engages Appirio's Cloud Strategy team to assess the current IT environment in detail and size the business benefits of moving to the cloud.
- Appirio will develop a business case-driven Cloud Roadmap. The business case will articulate the annual TCO savings and identify areas of savings across software, hardware, personnel and other IT cost areas.
- Customer will review and approve the business case and roadmap, and decide whether to engage Appirio Professional Services and purchase Appirio Products to execute the roadmap.
The TCO Savings will be across multiple categories: 1) Hardware savings: Multiple categories of cost will go away when companies move 100% to the cloud - VPN, DMZ, power, cooling, rackspace costs to name a few. 2) Personnel costs: Leveraging cloud applications and platforms can lead to leaner application development and management teams focused on innovation. 3) Software and Outsourcing costs: Moving to the cloud can potentially decrease upfront license costs on planned projects and outsourcing costs. All of this depends on the current infrastructure and we will spend significant time to understand the current state as well as where exactly the savings will come for each customer.
8) What do customers do with their IT infrastructure when they migrate to a public cloud? Is legacy infrastructure making customers go slow towards the cloud? What is the way out here?
We recommend they turn their servers into art pieces, like we did for our office. Seriously, legacy infrastructure can be a challenge for some customers – but the maturation of the various SaaS, PaaS and IaaS layers is making this less of an issue moving forward. We always advise customers to start their journey where the most critical business need lies and go from there. This is why every cloudsourcing engagement starts with a business-case driven roadmap that we put together with IT and business leaders.
9) How does economics play out when an enterprise moves to private cloud from traditional infrastructure? Is it expensive given that there is an upfront cost to be met? How does cost, savings and ROI play out in short run and long run?
Just to clarify - this guarantee is associated with moving the companies infrastructure to the PUBLIC cloud, not private cloud.
We recommend a phased business case driven roadmap to migrate to the cloud. With this approach, most phases are self-funding, with a 1-2 year pay back period depending on the customer situation. Typical costs associated with the migration are subscription costs for the cloud applications and platforms selected, implementation costs and training/change management costs associated with the change. The savings are primarily the TCO savings (articulated in question 7) and business benefits.
10) A Yankee Group report has slammed cloud providers for shoddy SLAs and poor customer service? Given that you are trying to get companies to migrate to public cloud, what is your advise to customers?
The industry is maturing and as it does this will become less of an issue. We obviously do not agree with Yankee’s take that cloud risks outweigh the benefits – otherwise we couldn’t offer a guarantee like this. And we’re not the only ones. Gartner Group states that cloud computing is the #1 strategic technology for IT organizations in 2010. That said, it is hard to argue with Yankee’s advice that “companies should read the fine print and be proactive in managing cloud engagements.” That’s good advice for the adoption of any technology, and another good reason for companies to look to an experienced partner like Appirio.