During Huawei Connect 2016 in Shanghai, Ian Charles Kahan, managing director of infrastructure services communication media and technology at Accenture, gave an overview of the changing landscape for cloud services, both internally and externally, for communications service providers.
Kahan, who joined Accenture in 2007, is focused on compute and core function virtualization and their operational implications in the context of legacy transformations to 4G, 5G and software-defined networks. Here is what he had to say...
Thank you very much. I'm delighted to be here. Thanks for the invitation. I'm very happy to have the opportunity to speak to such a big group of industry leaders today about probably the most significant topic that will occupy most of our energy over the next years. I think we heard it in the opening speech: Cloud is probably the biggest transformation that we will embark on in this industry. We have already started. We've had various first waves. But by far, we have not finished.
Today, I want to take a bit broader look at what cloud does to the carrier business. What are the new business opportunities behind it, internally, but most significantly, externally?
What we believe is: Everybody in the industry has realized now that we need to get the change right. There is a big opportunity behind cloud. How will we engage with our customers? How will we transform our internal operations to deliver the services to our customers?
If you talk about public cloud, we still believe there is a window of opportunity for new business. I'll not scare you in this 15-minute speech with big statistics on how big the market is and what the opportunities are. I'm sure you know that already. The opportunity is there. It's just about how we seize it and how we can get to compete with the big web-scale players.
I also want to shed some light on what cloud means internally to rotate to the new and how it supports our internal service delivery.
Impact of Bezos' Law on Public Cloud
Let's jump right into the first complex. That is how we actually approach our customers in a B2B model. So I think it was two or three years back. I read an interesting article in some online industry news feed. So the term, Bezos' Law is nothing I created. I don't claim it, but I find this is pretty right. Everybody knows [Amazon's] Jeff Bezos. I'm not sure whether he's here today or not. Just translating a modified version of Moore's Law we see that year on year there's a massive annual savings if we compare computing performance against cost. This is the translation of Moore's Law.
Bezos' Law is price for performance in public cloud services. You might look at this and say, "Well, that's a great thing." If my cost for performance is falling much faster than the price level that I am to achieve, that's a great thing. Right? Indeed it is. The tricky thing here is that there are a lot of challenges and risks, and how do we seize the opportunity? The challenge that you will have in every investment is that speed is the king. The moment you invest, a year later, your assets are down 35%. If you have not managed to capture the market share by then, it's a tough time. The reality on clouds is how do we actually get our clients to adopt public cloud services?
I want to talk about the observations from what we do every day in the market with our clients, and with you.
So from a communications service provider's perspective, there are certain demands out there with our customers, which is of utmost importance. Public cloud is brutal. Either we meet the customer demands exactly, one by one, or our customers just will not consume our services. We've seen the first communications service providers pull back and retreat from the market. We've seen even renowned hardware vendors pull back and retreat from the public cloud business. I see some gentlemen getting nervous here. Don't worry. I will not name anyone.
The customer demands are pretty simple things, public cloud services, whether infrastructure-as-a-service, platform-as-a-service, or software-as-a-service. Any packaged services you deliver; they need to be usable. They need to be transparent in the way they are priced and are delivered. They can be consumed. They can ramp up capacity and ramp down capacity. They need ease of integration. Any customer demands, "I need to integrate it into my systems." It is great that they can access web portals and online portals. But if there is limited ability, how do you allow or we allow our big enterprise clients -- and let's face it, this is a big segment of our target market -- to integrate those services into their IT services and processes to have it automated, to have it ordered, to have it tracked, to have it inventoried, to have it metered, by the minute, in real time? Then you have a challenge.
Next page: Enterprise cloud offering requires an ecosystem
Enterprise cloud offering requires an ecosystem
But the reality of cloud is also we are not alone. We need to accept this is as a whole ecosystem. Very few players have managed to be a single player and ignore what's left and right. The ecosystem is a whole bunch of things. It is your competitor. But it is also your partner, probably. The ecosystem can be or should be your channel. How do we sell to, sell with, and sell through the market? And it is probably also your client.
What does it require, in reality, to launch a successful enterprise public cloud offering? It requires cloud competency, and this is one of the areas where many providers are traditionally challenged. I don't mean this in a bad way. It demands a high amount of cloud experts and innovation in the cloud area. And this is traditionally not something where the communications service providers come from. Actually, they come from vertical solutions, not from horizontal solutions. It requires delivery excellence. I gave a quick indication that speed is the king. It requires new approaches on how we go to market. Should we do it on our own? Should we resell it, go via channels? How do we engage with partners? And it also demands that we strategize. What are the services we push out? Is it basic infrastructure services? Is it PaaS? Is it integrated vertical services? Most important is the cloud management system. How do we connect our solutions to our customers so they are able to dynamically integrate it into their systems?
As I said in the beginning, we believe that new cloud solutions will be successful also in the future. However, we can't forget there are big web-scale players out there. They are leagues ahead. We believe we can be successful still in regionally segmented markets, where we have some specialties, regulations, and legislation. A local CSP, a local player, can really leverage a competitive advantage. It can be something like we had in Europe, where the safe harbor case in the European court, where the industry will not be legally allowed to push sensitive data into a public cloud.
Second, the road to cloud is expensive! You need to have the breadth to invest in it, big money, to make a sustainable investment over multiple years. The focus should be set beyond the pure technical solutions. It's great if I have a great web portal, I can offer infrastructure, and I can configure a virtual machine [VM] with my credit card. That's great. But it is not exactly what my enterprise client is asking for. I mean have you ever seen a single client ordering 7,000 VMs with a single credit card? I haven't. What we offer needs to precisely match the request.
I said I want to give a bit broader perspective on what cloud does. And what we must not forget is that the cloud itself plays a very distinguished role in the CSPs' own infrastructure, inside the core networks, and how we actually deliver those services. If you offer some sorts of services -- integrated services, virtual PBX, Internet services, e-mail, and collaboration services -- towards the customer. Traditionally, this has been delivered by the telco department or the IT department, and vice versa. You can be very arbitrary in the way you cut this. But still these basic systems and services are even today partially delivered using a virtualized infrastructure.
We also appreciate that there is a very big transformation on the horizon, already started, to renew and refresh the operators' core network architecture. I think we can safely say that the trend is to converge to a three-tier model, from the old legacy. We've seen the first generation of virtualized cloud infrastructure is supporting the core network functions. It may be focused on central functions. Now, we have started to realize that probably there is only a limited set of functions that are inherently able to be centralized. So what we have ahead is massive. It is a challenge: How can we get more virtualization out into the aggregation and towards the edge while also supporting us to more efficiently deliver customer services near to the customers? And that will eventually yield the following: We will see a massive amount of VNFI clouds, probably thousands of them -- micro edge clouds, I call them -- that are augmenting a central telco cloud united by a central VM. This is aligned to the ETSI model, but it also requires very mature integration services on top of that.
Consequently, what this drives is a change in the communication service providers' operating model. We will see a shift of your native functions, where all your IP sits, towards operating services and applications while the cloud operations are underneath. If cloud is not yet a commodity, it is already getting commoditized. That is the start for the telco IT convergence. Your IT and traditional telco departments are uniting forces to deliver the base cloud services that eventually your customers receive. So I think it is evident that the boundary between telco and IT in the cloud age is blurring already. And it will continue. We will see a converged cloud operations department in the future. They will have very specialized units, integrating services on top of that and delivering this to the end customers. Whether this is your enterprise segment delivering infrastructure-as-a-service; your small and medium business department delivering the virtual PBX; from your customers' point of view, it is the same. And the operations underneath will be restructured according to this.
With this, let me close. Let me thank you again. I think it is evident that the industry is challenged. There are a lot of new opportunities out there. It's up to us to seize them with the right strategy and with the right approach. The time is now. There is no more thrilling place to be in the industry than here. Thank you for your attention.