Thursday, 24th June 2021

Four fundamental shifts in IT investment creating new opportunities for resellers

By David Devine, Partner Program Manager - Northern Europe, OVHcloud.

The disruption caused by the pandemic has increased the demand for digital services and highlighted a need for business continuity solutions. Whilst we are seeing companies of all sizes and industries switching to cloud solutions, current economic uncertainty means IT budgets reflect risk reduction and investment in the correct IT infrastructure is more important than ever.

Switching to a cloud solution offers a strong business case for moving from a CapEx to an OpEx model. There are various hybrid and multi-cloud services available on the market each with their own merits and Hosted Private Cloud is an ideal solution for many enterprises.

1. Switch from a CapEx to OpEx model

As companies put greater focus on preserving cashflow, many are considering whether there is scope to downsize their office space and facilities to a lower capacity. Either way, IT investments will still need to be made and a key question, therefore, is whether to switch investment to the cloud or stick with on-premises. It’s well documented that moving IT infrastructure investments to the cloud is a smart move but cost and complexity have held back organisations wishing to update legacy applications that were originally designed for on-premises. Moving legacy applications is difficult and costly due to the work required for cloud suitability but private cloud offers a faster and less complex alternative route at lower cost.

The business case is made more compelling for many companies who’s on-premises datacentre resources (not just racks and servers but power, connectivity, cooling and resilient design) aren’t really fit for purpose when it comes to business-critical applications. Underinvestment and asset sweating has put many companies’ IT at risk of outages and capacity issues can easily compromise performance. The challenge goes deeper than simply a modernisation and capacity issue. Many companies are at a critical IT investment crossroads: do they invest in upgrading legacy on-premises infrastructure for applications that have been kept there out of necessity rather than choice or do they invest in moving workloads to the cloud instead? The current economic uncertainty combined with home working becoming a more permanent working reality have made the latter option more appealing and is accelerating organisations’ digital transformation strategy. As the barriers such as migration costs and complexity diminish thanks to private cloud and opensource, switching to the cloud is a genuine and compelling alternative that will help improve performance, efficiency and reduce business costs.

Furthermore, witnessing countless “born in the cloud” organisations grow at a rapid rate and dominate many industries has switched the balance of risk versus reward. Companies have a much greater desire to emulate this agile, digitalised business model that can adapt and scale up or down at enviable speed to meet changing market demands. This combined with the lowered cost, complexity and risk of migrating to cloud has tipped the balance in

favour of moving legacy applications to private cloud and enjoying the business benefits of moving to an OpEx model.

2. Focus on reducing and controlling business costs

Traditionally the focus of an IT leader has been to bring technological competitive advantages to the business but cutting unnecessary costs is now just as important. According to The Flexera 2020 State of the Cloud Report, optimising the existing use of cloud to save costs was the top cloud initiative for 73 percent of participants. There are certain steps that can be taken such as cutting software licencing costs, reducing storage complexity, virtualising databases and integrating applications and workflows with operational and inventory management systems. End customers are becoming more reliant upon Managed Service Providers to streamline spending.

Whilst this is creating many new revenue opportunities for IT resellers, customers are without question putting the channel under increasing pressure to reduce costs. To mitigate this downward pressure on margins, partners are successfully creating differentiated services through their expertise in employing best practice across areas such as cloud migration audits and roadmaps, technical design, reducing the costs of exiting cloud services, process automation and support contracts.

An additional dimension is customers’ desire to control future costs by having greater transparency and predictability. For example, many customers have had their IT budgets stripped by the relatively high costs for ingress and egress charges. As more data intensive workloads move to the cloud, this issue becomes even more paramount. In fact, it becomes a deterrent to move more applications to the cloud. MSPs who offer cloud services that do not charge ingress and egress, such as OVHcloud are therefore important to consider.

3. Increased agility and speed of time to market

One of the many benefits of cloud is that it provides businesses with agility and shortens the time to take applications to market. While a physical server could take days or weeks to procure and provision, a cloud server takes minutes.

The events of this past year have inevitability led businesses to focus on having a stronger online presence. Being able to address fluctuating demands from peak periods and seasonality is a key component in adapting to this new landscape. Companies have become more efficient through up-to-the-minute billing for their cloud services. Whilst the use of data and applications has increased significantly, so has the need for more computer power. Given the size and connectivity limitations of most on-premises datacentre resources, they wouldn’t be able to cope with this type of demand.

Many customers are combining public cloud for customer-facing applications such as customer portals and ecommerce sites and have seen the agility benefits this delivers such as the ability to burst and contract application resources effectively based upon seasonal demand.

On the other hand, many business-critical systems such as ERPs have been kept in private cloud, hosted on-premises which comes with its own drawbacks such as fixed infrastructure, storage and compute capacity. Typically, it takes longer to increase capacity due to hardware lead-times and many on-prem businesses have finite capacity with limited growth options. Moving these applications to a third party hosted private cloud that provides the capacity and cost flexibility benefits of public cloud is being seen as a credible option. Plus, it outsources infrastructure management to free up often limited IT resources to focus on other strategic initiatives.

We have reached an inflection point where companies can clearly see an achievable roadmap to continue their digital transformation strategy. They can move legacy applications hosted on-prem to private cloud as the legacy barriers such as the technical and cost resources have been removed.

4. Adherence to data security and compliance

Data security and compliance are themes that have been widely recognised in Europe for a while now and are starting to gain more traction. Following the introduction of GDPR in 2016, the CLOUD Act was passed in 2018 which enables US law enforcement to access any data owned by U.S. domestic companies that is stored overseas.

In July 2020, the Privacy Shield ruling was overturned in the European Court of Justice. Privacy Shield is an EU-US agreement which provides companies on both sides of the Atlantic with a mechanism to comply with data protection requirements in support of transatlantic commerce. Once you factor in the Brexit-related data compliance issues, we have a very complicated landscape. UK businesses moving data-sensitive applications to cloud are looking for guarantees their data remains in the UK or within a UK datacentre. In a Freeform Dynamics survey we commissioned, 50% of end-users wanted to source cloud services from non-US based hyperscalers to enable them to address their concerns around security, compliance and GDPR. Respondents raised concerns over where cloud providers are headquartered and want guarantees their data will always reside locally. Customers want to be able to choose whether their applications fall within the CLOUD Act or GDPR and this issue is fast becoming a new critical buying criteria.

What can we expect in 2021?

Businesses will undoubtedly continue to experience uncertainty and prioritise essential short-term IT projects with minimum exposure to risk and capital costs, at least for the first half of 2021. But most IT leaders will view this uncertainty as an opportunity to adapt and strengthen their business models.

One thing that we can say for certain is that resellers who adapt their business models quickly to address these changing customer dynamics – by accelerating their multi-cloud managed services offering for example – will find new ways to differentiate, add customer value and boost sales.

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