Hyperscale on the horizon

The local channel is about to get disrupted as hyperscale cloud providers start to land their datacentres on local shores, but that’s not necessarily a bad thing, as long as you plan your journey and act now.

Zoaib Hoosen, Microsoft
The news broke in May 2017 that Microsoft is bringing hyperscale infrastructure to South Africa, having committed to open two local datacentre regions by 2019. “Spanning multiple datacentre sites, these will be Microsoft-owned, operated and run, except for the land and buildings that house them,” says Zoaib Hoosen, MD, Microsoft South Africa.

Revealing only that they will launch before the end of 2018, he says he wanted to create some sort of North Star for the local market to aim for. The buildout project is being handled by Microsoft’s global team, with which Hoosen has ‘an arm's length relationship’. He says he will act as a sales and marketing arm lead when the time comes. “It’s not my date, it’s an offering that the product divisions are building and I'll get notified of the launch date by them,” he says.

Local adoption of hyperscale cloud services is currently quite high, but relatively shallow, says Jon Tullett, research manager: IT services, IDC Sub-Saharan Africa.

“There aren't many companies going all-in on cloud. We're seeing a lot of point solutions, application extensions where on-premise applications leverage some sort of cloud functions, which add value, but don't rely on it,” he says.

The commitment of Microsoft, and announcements by other hyperscale vendors, has helped to counter local concerns on issues such as latency, infrastructure stability, data governance and sovereignty.

“We definitely saw an uptake in both Azure and Amazon Web Services (AWS) use after Microsoft’s announcement. There's a halo effect, whereby they all benefit from each other’s uptake. Microsoft is doing a lot of  groundwork by getting companies used to cloud and the business practices in place,” Tullett says.

Market makeup

According to data published in July by Synergy Research Group, AWS accounts for 34% of the global cloud infrastructure market, while Azure represents 14% and Google’s Cloud Platform holds 6%.

With such a strong lead, what are AWS’ plans for the local market?

AWS has had a presence in South Africa since 2004 with its development centre. Within the past year, it has announced regional investments with network points of presence. Undoubtedly, it’s increasing support for cloud in the country and the wider region. At this point, however, there's no confirmed announcement of a local datacentre, says Tullett.

“The company sees a lot of strategic value in where it’s located and doesn't want to show its hand too soon. AWS doesn't like to co-locate. Almost without exception, AWS builds its own datacentres from the ground up. when it comes into this country, it will start with buying a plot of land.”

That’s at odds with Google’s expected entry strategy. “Google’s not going to build a full datacentre like it has in other regions; those are billions of dollars in investment. It will drop clusters into other people's datacentres,” says Brett St Clair, CEO of Siatik, a premier Google Cloud partner.

Like Amazon, Google has been keeping its cards close to its chest. “Google won't announce anything beforehand, and will only do so when it’s ready and delivered. However, it has promised Africa will have a datacentre before Antarctica (the other continent where it currently has no datacentre presence). That's all the detail the company is willing to commit,” says St Clair.

Google already has some infrastructure in place locally, as it currently manages services, across its various platforms including search, Gmail and YouTube, for tens of millions of South Africa users, St Clair says. “That's how much infrastructure Google has been running in this country for the past 10 years. But they don't tell people.”

If Google is to increase its market share, that’s part of the cultural uphill battle the search giant faces. “Google doesn't know how to speak to the enterprise,” St Clair admits.  

“Corporates aren’t used to engaging Google and paying for it. For a CIO, it's been free search, free Gmail, and so on. But now they have to pay and they don't understand why or how. But go to the CMO, they see Google like Microsoft, except the CMO is spending money on Adwords.”

Challenges to overcome

St Clair also recognises that the conversation, mindset and pricing around hyperscale cloud are very different to what’s come before.

“It's a new language. My job is to explain it to customers in a language they understand. For example, Google has created and uses its own tensor processing units (TPUs), which offer the equivalent of a million servers in a datacentre, but on one motherboard, and ready to use at $7 per query. That kind of compute power available so cheaply just breaks traditional thinking,” he says.  

Although Google is some way behind Microsoft and AWS, in terms of market share, it’s well positioned for the future, says Tullett. “If you look at the sophistication of the services Google’s building out, there are some tremendous capabilities that it’s right at the forefront of, such as big data and cognitive computing. As time goes by, the relative value of Infrastructure as a Service will start to diminish as more and more services become Software as a Service (SaaS) and we move to an SaaS environment. The announcement from Google, Facebook, Microsoft and Twitter to jointly conduct a data transfer project, which will allow API-level integration to exchange data between services, shows the direction we're taking – base infrastructure is becoming commoditised.”
The new gold

While cloud is becoming commoditised, AI isn’t. “It's very high value, very sticky value and Google has ample capability there and can add a tremendous amount of value. It's not that Google is quiet, it's well known, but don't underestimate it because Microsoft and Amazon are getting more of the headlines,” Tullett says.

AWS has been successful with developers, he adds, and it has taken a sensible initial step into the local cloud space, while Microsoft has significant traction through Office365, which gives it a big foothold into many organisations.

Hoosen elaborates: “If you look at our presence in customers today, Microsoft has deep relationships with customers that go back many years.”

He says the company’s established partner base will also give it a big chance at success. “Our secret sauce, honestly, is the channel.”
Microsoft’s partner ecosystem was providing 227 000 jobs in 2017, said the IDC. In the coming five years, IDC expects 119 000 new jobs to be added across the whole ecosystem, due to hyperscale cloud and digital transformation. Of those, 53 000 are expected to be within Microsoft’s ecosystem.

The IDC research, commissioned by Microsoft, forecasts that, during that period, for every R1 of Microsoft cloud revenue generated, R8.84 will be made by the ecosystem. There's plenty of opportunity for the channel.

Local channel disruption

Hoosen acknowledges, however, that the arrival of hyperscale cloud does mean disruption for the channel.

“Partners need to think about ‘how do I make money today?’ and ‘how will I make money in this new moving world?’. They need to move to where the action is, or where it’s going to be. There's some pain that comes with change, and partners need to evaluate that and decide what their capabilities are and what bets to place.” Partners focused on reselling hardware will be among those needing to consider their future path. There will definitely be a slowdown in server sales over time, he says. “A lot of customers talk to me about upcoming capex spending being deferred or shifted. It doesn't happen overnight; that's why understanding the timeline and how to make money in the future is important. There’s still some opportunity to do some legacy stuff while moving to the new world.”

Tullett says those local channel players already offering cloud need to accept they can’t compete head-to-head with hyperscale cloud providers. “Locally, we have to look at ways to add value and find the right model,” he says.

Tough talks

Hoosen says there have been some difficult and pragmatic conversations held with some of the larger systems integrators, especially those with their own cloud datacentre plays, many of whom have been long-time microsoft partners.

One possible focus area for channel players is around cloud orchestration – ensuring cloud services are running correctly, optimised and compliant. “That's an area that starts to touch on data governance; there's a lot of opportunity in helping companies to draft and manage their data governance policies. That potentially feeds into a security role, so there's a lot of opportunity for those players in the security space too,” says Tullett.

Another area is around integration and migration opportunities, and local systems integrators are already aligning themselves for that, he adds.

“There’s a huge opportunity, and they're starting to get their heads around what it means for them. It comes down to business models and understanding the journeys. It also comes at a cost, with the skills investments required. And there could be a crunch there, so we're looking to our partners and want to collaborate with them on the skills agenda,” Hoosen says.

Channel opportunities

St Clair also identifies skills as a key issue. “When you go cloud, you need to be certified, so you keep a level of standard and quality. google is an academic organisation and its standards are quite high. We argue the certifications are too difficult, but they're high because Google wants the right skills working in its environments.”

If your business has, or can develop, the right skills, there’s definitely opportunity within the local Google ecosystem, says StClair. “Currently, there are three core resellers on Google, there need to be 200. That's the opportunity. It’s important for the ecosystem that there are more of us, it's good for everyone.”

Another aspect around business model, opportunities and skills is the focus of particular hyperscale providers and the number of products they launch.

“If you look at AWS, it launched between 1 200 to 1 400 products last year; it's hard for an internal IT manager to stay on top of that. Cloud brokerage is really important and I think we underestimate the need for local context here. Having a specialist who can help the CIO make the right decision, across multiple cloud platforms, can become very valuable,” says Tullett.

“There might be 1 400 new products for Amazon, but what are the comparable ones in Azure and which are better? It's a big, complicated question and there's a lot of value in it. The complexity will probably go away as the services come into better alignment over time; right now, there's a ton of value and a lot of margin to be had,” he adds.

But juggling multiple clouds isn’t an easy game. Siatik used to offer cloud services from Azure, AWS and Google Cloud. “Given the product release frequency, it's very difficult as a broker to be an expert on all of them, you end up being a billing relationship. We stopped doing Azure and AWS, because we wanted to focus on becoming experts. Even now, we struggle to keep up with the state-of-the-art stuff, just on one choice,” says StClair.

Final words of wisdom

Hoosen says that the launch of hyperscale locally will trigger a whole range of new products and opportunities. “Short-term, the opportunities could be in migrations, traditional infrastructure, but the real secret sauce will be in the other things that it enables. That's where people have to become more innovative,” he says.

St Clair advises that channel companies need to change their mindsets and business models, as scale and efficiency become the order of the day. “Siatik is 20 people, and there are 34 million end-users that we're managing, and we've got spare capacity. We do a lot more, with fewer people.”

Tullett concludes: “This is a market that changes fast. plant your flag and make your margin right now, but your organisation must be able to change quickly, because what you thought was high-value, high-margin stuff today might be a complete commodity tomorrow.”

*An earlier version of this article said Google had about 100 million users in South Africa. This is now estimated to be 'tens of millions' of users.

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