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Riding the Cloud with Third Generation Outsourcing

Cloud Expo General Session Speaker Marty Gauvin believes that 3G-SaaS will drive the use of IT for a significant period of time

Virtual Ark General Session at Cloud Expo

Cloud Expo General SessionSpeaker Marty Gauvin believes that 3G-SaaS – the combined effect of Cloud Computing and outsourcing with application management – will drive the use of IT for a significant period of time. "The capacity for well-executed 3G-SaaS to revolutionize IT sourcing is profound," he writes. Here he sets out the Virtual Ark vision in detail.

Outsourcing is entering its third generation with the advent of the Cloud.

The first iteration of outsourcing was “your mess for less”, followed by second generation strategic or selective sourcing, which included hosting and early Software-as-a-Service (SaaS) offerings.

The adoption of these second generation SaaS services was constrained by their high fixed costs and rigid contract terms. So much of what customers and vendors take for granted in their sourcing frameworks has its roots in the assumption that infrastructure is expensive and fixed.

It is extraordinary how far and how fast things can change when these constraints are removed!

Due to the emergence of Cloud Computing, Third Generation Outsourcing stands to materially revolutionize and challenge traditional outsourcing models in a way that no previous models have.

Third Generation Software-as-a-Service (3G-SaaS) uses the on-demand flexibility of Cloud infrastructure services from companies such as Amazon, Rackspace and Microsoft to deliver existing enterprise applications more flexibly and more affordably than ever before. Widely used by smaller businesses, the 3G-SaaS model offers substantial competitive advantages to enterprises through a “pay-as-you-use” system that reduces fixed costs for IT and increases flexibility for rapidly responding to market demands.

To date, there has been a significant gap between the Cloud vendors such as Amazon, Rackspace or Microsoft and the customer, such as an enterprise prepared to SaaS-enable a core business application or an Independent Software Vendor (ISV) seeking to deploy its application in the Cloud.

This provides opportunity for value-added service providers as Cloud technology has reached a point of maturity where objections to its use by enterprise organizations are more perceptual than actual.

Virtual Ark is evidence of that fact.

Rather than being a “cloud vendor”, Virtual Ark is a Cloud and Application Management expert that already uses Cloud services on behalf of enterprise customers to deliver core business applications utilizing a 3G-SaaS model with consumption-based pricing similar to that delivered on Public Clouds.

Virtual Ark commenced operation in July 2009. The company is backed by private shareholding and the investment bank, Baron Partners. Its key shareholders and management team – which has worked together for a decade – sold their previous company to the Macquarie Communications Infrastructure Group for US$64m. Current Virtual Ark partners include Grid Dynamics, Ingres, TechnologyOne, Amazon Web Services, Microsoft Azure and Rackspace. As a result, customers can choose their preferred application as a 3G-SaaS solution. Because of our expertise and use of Public Cloud infrastructure services, Virtual Ark has virtually instant international reach, enabling customers to use their applications globally, quickly and easily.

The name Virtual Ark draws on the concept that the ‘ark’ is the place where a civilization secures its most precious resources. The ‘virtual ark’ is the ideal metaphor for how enterprises must view their information and its migration to this new generation of services. The Virtual Ark platform supports a range of existing enterprise applications including Enterprise Resource Planning (ERP), Customer Relationship Management (CRM), Financial, Web, Content Management Systems and line-of-business applications across a wide range of industries.

When I started putting Virtual Ark together with a team that had worked firstly in ‘conventional’ IT outsourcing and then in the selective sourcing world of the past 10 years, I recognized that the capacity for well-executed 3G-SaaS to revolutionize IT sourcing is profound.

The Public Cloud infrastructure that enables enterprises to benefit from the 3G-SaaS opportunity is already widely available in North America and Europe. Also, Amazon, Rackspace and Microsoft Azure all plan to build out their Asian Cloud presence during 2010.

While Virtual Ark’s initial focus is on North America and Europe, it is actively engaging with partners in other regions, including Asia. Some applications will perform acceptably in Asia today, so we are already working with ISVs in this region.

Because most Cloud vendors are focused on the small to medium enterprise market, this sector is hotly contested for commoditized SaaS and Cloud services.

By contrast, the top end of the enterprise market has been slow to adopt SaaS and Public Clouds. This is primarily because it is a much more complex market and thus more difficult to address. Likewise, Independent Software Vendors have been slow to bring SaaS versions of their products to this market because of the perceived cost and complexity of doing so. Virtual Ark works with ISV partners to SaaS-enable their applications. There is typically very little coding required by our ISV partners of their original applications and Virtual Ark does almost all of the work necessary to SaaS-enable these applications. Significantly for the enterprise, multi-tenancy is not a requirement in order for Virtual Ark to SaaS-enable core business applications.

The opportunity for Virtual Ark is to enable these large enterprise customers to continue using applications they are comfortable with while gaining the benefits of the Cloud. Virtual Ark removes almost all of the barriers I’ve outlined! As such, we expect to be at the forefront of 3G-SaaS and Cloud take-up by the top end of the enterprise market. Virtual Ark challenges traditional views of outsourcing, Cloud security, SaaS and the likely adoption of Public Cloud services by large enterprise customers globally.

Although major enterprises have been reluctant to run core business applications in the Cloud due to concerns about security, these questions are now answered by Virtual Ark. Of course, enterprises require a risk analysis process to systematically identify and assess the relevant aspects of their chosen computing model or service. This equips them to analyze risk by examining the technical and process dimensions of a specific implementation rather than trying to second-guess the security needs of a generic service identified as “Cloud Computing”.

Security in the Cloud isn’t bad, it’s just different. It is essential to take a measured, careful approach to security issues. This approach should apply whether you protect a person, a physical asset or your data. What changes are the risks and threats to which you respond.

In the case of Cloud-enabled applications, techniques such as encryption and overlay tools are available to achieve significant security accreditation when implemented correctly. Against that evaluated risk are the substantial competitive advantages offered by 3G-SaaS – managed application services in the Cloud – which include the significant reduction of fixed IT costs by enabling “pay-as-you-go” usage.

With no underlying fixed cost of infrastructure, Virtual Ark 3G-SaaS applications in the Cloud offer very flexible billing models. While billing may vary between applications, all are aligned as closely as possible to a sensible consumption-based pricing model. Some use “number of users per hour”; others use “by transaction”. This flexibility is in stark contrast to traditional 2G SaaS options, such as Salesforce.com, which are typically billed on a minimum number of user licenses over contract terms of two years or more.

By leveraging existing Cloud service providers, the pay-as-you-go model of 3G-SaaS enables ISVs to align licensing as closely as possible to how the customer consumes the application. This is the central tenet of Virtual Ark’s approach to delivering 3G-SaaS because it equips our ISV partners with a strategic advantage over their competitors.

Customers can choose to have no minimum contract term obligation. This could apply where a customer converts an existing on-premise solution to our 3G-SaaS model. Customers can license the Virtual Ark Platform in the Cloud and simply “take over the keys” to drive the application themselves without any migration. The flexibility of 3G-SaaS means customers are free to leave at any time. But they won’t!

If the application is new to the customer, implementation service costs will depend on their specific needs. However, implementation timetables are massively reduced by using Virtual Ark’s templated solutions and because our 3G-SaaS software can be deployed instantly. Accordingly, at Virtual Ark, we “eat our own dog food” by maintaining all our business systems in the Cloud. That gives us both the flexibility and the focus to meet our customers’ emerging needs for SaaS-enabled applications in the Cloud.

Another enterprise concern about utilizing the Cloud has arisen from the SME Cloud vendor emphasis on the primacy of multi-tenancy applications. That concern is no longer valid. In our view, the security, integration and performance requirements of large enterprise customers are ill-suited to multi-tenant solutions. This is a key reason why SaaS has not been taken up more strongly by this market segment and why many ISVs have not modified their applications to be multi-tenant.

Today, the Virtual Ark 3G-SaaS Application Management Platform can manage dedicated instances of the application for specific customer needs as if they were “one” application instance.

Virtual Ark sees this as an important differentiator in its value proposition. The powerful business driver for enterprise adoption of the Cloud for core business applications is the need to build flexibility into an organization, so it can rapidly respond to both opportunities and threats. The Global Financial Crisis has demonstrated to businesses globally that we face an unpredictable future with a greater rate of change. In that environment, winners will be those that can best adapt to new circumstances.

Virtual Ark believes that 3G-SaaS – the combined effect of Cloud Computing and outsourcing with application management – will drive the use of IT for a significant period of time. Enterprise customers will depend upon successfully leveraging this confluence of trends to secure their business operations, IP, data and future.

Cloud Expo, Cloud Expo East, Cloud Expo West, Cloud Expo Silicon Valley, Cloud Expo Europe, Cloud Expo Tokyo, Cloud Expo Prague, Cloud Expo Hong Kong, Cloud Expo Sao Paolo are trademarks and /or registered trademarks (USPTO serial number 85009040) of Cloud Expo, Inc.

More Stories By Marty Gauvin

Marty Gauvin is the Founder, President & CEO of Virtual Ark. He is also Founder and Chairman of Tier 5, a company that designs, builds and operates data center parks and a Director of Playford Capital. Prior to Virtual Ark, Gauvin founded and led the publicly listed company, Hostworks, as CEO for over 10 years to its successful sale in 2008 for $68.9M to the Macquarie Group. He is also a member of the Microsoft Service Provider Partner Advisory Council, the Dell Asia-Pacific Platinum Advisory Council, and various government innovation committees established to invest Government capital into selected venture capital funds.

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