Channel leaps into the data centre as NZ organisations become more “digitally aware”
- 27 May, 2015 09:57
As software-defined networking continues to rise the New Zealand channel is well-positioned to capitalise on the need for data centre innovation as Kiwi organisations become more “digitally aware.”
That’s the view of Adam Dodds, Research Manager for IT Services, IDC New Zealand, who when speaking at Westcon’s LEAP into the Data Centre event in Auckland today, believes the channel market is “right on point” when capitalising on the growing momentum within the data centre network space.
“At present, 75 percent of New Zealand businesses believe they are underway with their digital transformation,” says Dodds, addressing a room full of vendors, resellers and service providers in Auckland.
“That could be as simple as having a website but it doesn’t matter, it’s that sense of belief that makes it real. Subsequently this gives the channel the opportunity to talk to the wider organisation about what is possible.”
In arrowing down into the crux of the New Zealand ICT industry, Dodds admits that in 2015, CXOs are challenged, as organisations undergo “massive amounts of change” both locally and globally.
“Don’t be surprised if your project is stop start, stop start,” he explains. “Data centre and applications still offer the largest opportunity for on scale for anyone in the marketplace today and the real budget lies within that continuum of hybrid.”
The key insight for the market to know, according to Dodds, is that crucially, New Zealand organisations “are open to innovation”, placing the onus on the channel to maximise upcoming opportunities to ride the crest of the software-defined networking wave approaching the industry.
“There’s lots of money to be had but you’ve got to come with the right language,” says Dodds, speaking as a local analyst and industry veteran. “Software-defined networking, automation for the data centre network is right on point and for the channel, a lot more awareness and interest will be coming within the next 18 months.
“And perhaps crucially, people are now willing to listen.”
While biomodal management means that different parts of the business are going to be running at different speeds, meaning the decision ultimately comes back to the CIO, Dodds believes the channel can offer the most amount of value by “sticking close to the CIO” as organisations seek new ways to innovate in the modern-day.
Yes there’s lots of change within the industry, Dodds explains, but in keeping with the country’s reputation as early adopters and trend setters, New Zealand is “doing okay.”
A lukewarm sentiment maybe, but for Dodds, organisations nationwide are now “thinking about the right things and are tackling the right problems.”
In adopting a customer orientated approach, coupled with the influx of tools such as cloud, mobile and the like, Dodds believes the industry has now reached a point where the opportunity to leverage technology within companies is increasing.
“You have lines of business and stakeholders all wanting to look at how to evolve applications that allow them to be more insightful about their customers and equally retain IP about their business,” he explains.
“For example, CIOs are challenged by the fact that they are now trying to understand what they are.
"Are they now just a service that is like every other input service that comes into the business, or are they a gatekeeper, an enabler or in fact the thought leader and the new seat at the table from a CXO point of view?
For Dodds, these are the big problems to tackle.
“If lines of business are trying to tackle a whole ranges of problems, and CIOs are trying to define what they do from a transformational perspective and if Human Resources are trying to figure out how they can connect better with their employees, not forgetting the finance people trying to understand how they are trying to manage the business, it is clear that inside an organisation right now there is a lot of challenges going on,” he explains, providing a macro view of the industry.
New Zealand boards
Yet Dodds accepts that for Kiwi resellers, it can at times be a frustrating experience trying to sell into service providers and likewise, service providers are no doubt struggling to sell into customers on occasions.
But contextually, and by drilling down into the New Zealand specifics, here’s why that is.
“Firstly, there are very few boards in New Zealand,” he explains. “There are only around five percent of boards across the country that I would argue are ‘digitally aware’, i.e. they have set-up a governance model to be able to manage the concept of the value of information inside their business and they understand how technology is changing the way in which they value their business.
“Why is this important? Because the goal of a board is to obviously maximise the value of the business and the return to shareholders.
“So if they are not ready, how is it that the rest of the business can execute well when it is the board who holds the final say?”
Equally, when examining the current state of the C-suite in New Zealand, Dodds examines the new relationships that have started to form between all of the collectives parties in terms of how they adopt technology.
And of importance to the channel, how do you have the right conversations about what the right investments look like and crucially, what do the correct timings of such investments look like?
For Dodds, the old model of providing a business case that is balance sheet orientated, encouraging the discussion of the pros and cons of the proposal before embarking on a 12-14 month process is in reality, “dead and buried.”
“Everybody realises that now,” he claims. “In the new world, the average project timeframe is reducing considerably.”
Recent IDC New Zealand findings report that at present, NZ$300,000 is the average cost size of a project today from a technology investment perspective.
“So, think about your infrastructure and think about your approach, your costs and think about $300,000 - it’s a tough market,” Dodds acknowledges.
“This increases the pace of conversation within businesses but it also increases the number of issues that people encounter around the prioritisation of technology.”
Just think, asks Dodds, if everyone in the business is coming to the C-Suite with an opportunity to invest, what does that ultimately mean?
“Quite simply,” he answers, “from a CEO perspective it means a significant fear about the escalating costs of operations.”
Kiwi service providers
For service providers in New Zealand, Dodds predicts that this is commonplace, working off the belief that it’s easier to sell efficiency based IT which is largely about making costs cheaper.
“But it’s really hard to move into that effectiveness space which is actually how you can help organisations become more customer centric in their own way,” he adds.
“And the real challenge is how do you stay across of all of that and how do you help the CIO and how do you help the business move forward?”
When painting a picture of the new-look service provider in New Zealand, and indeed the world, Dodds believes such a provider looks like “somebody who is deeply immersed in business that they serve.”
“While you can take a cost-centric approach, ultimately the challenge to service providers is to walk into boardrooms and say ‘I know your business, I know your industry so let’s go’. Not, let’s respond really well to their RFP,” he adds.
“To get clarity to see where businesses are focusing today, they are focusing on everything and from a size perspective there is very little difference.”
In New Zealand, the way the market works from an adoption point of view is that banking, financial services and insurance adopt first, followed by telco and media followed by other organisations, with the Government usually close behind.
Equally, Dodds says enterprise businesses adopt first all the way down to small businesses so when examining the cloud market and its subsequent early adopters, “the moment you see small businesses showing high prioritisation around cloud, it means one thing alone and that is; that cloud is the norm.”
The normalisation of cloud, for the channel market in New Zealand, means that from a mixed perspective nine percent of businesses are moving towards a public cloud environment.
“This is a reasonable number given that money is going overseas and is provided either out of Australia, the Asia-Pacific region or even globally,” Dodds explains.
“From a local perspective, at least for the next two years, 55 percent of the compute workload will be sitting on-premise and the rest of it is the data centre opportunity for local New Zealand based providers.”
According to IDC research, 80 percent of Kiwi businesses, in that first step, want to utilise the local data centre market.
“This is where some fundamental shifts are beginning to happen in the market place,” Dodds claims.
“If you think about that philosophy of knowing where your information is and being able to protect that information, in a new digital landscape information is absolutely the new gold.
“So much so that boards are now trying to understand how they value information. So why do they value information? Because it means they can establish the right ratio around how much they spend to protect that information.”
Dodds speculates that in operating as a New Zealand business, who values information as a top business priority, “would you put your information right out in the middle of nowhere knowing that if something happened, you wouldn’t know how to get it back?”
In alluding to this line of thinking, Dodds believes this is now the mindset that Kiwi businesses are beginning to form.
“I’m not saying that local data centre providers are safe but I’m saying for at least the next two technology refresh cycle there is opportunity to be had in that market place,” he advises.
“But what’s the deal? I go and buy infrastructure from any of the vendors on show today, how can I be assured that I’m going to establish a form of return on it? Right now, you’ve got circa six years of investment.”
Data Centre landscape
At a global level, brokerage is gaining traction, which is the ability to dynamically choose and purchase compute relative to the capacity that a business requires over time.
“Basically it’s trading data,” adds Dodds, “and that is now underway.”
The knock-on effect is that companies overseas are working on new models to evaluate the value of compute over time so people can trade data.
“What this means for service providers is that firstly, you need to become more automated because that allows you to reflect that new model that is starting to emerge and secondly you need to be more elastic in the way you provide pricing to your customers,” Dodds explains.
“And that means you need to be more flexible and avoid locking customers in for long periods of time.
“The reality is, there are still organisations within New Zealand, large ones at that, that are having big agreements with their customers and the biggest risk to that is people who are more likely to go knee-jerk and move into the public cloud as a result of this lock-in style environment.”
Across the ICT market in New Zealand, Dodds claims that the “biggest money still lies in application and infrastructure.”
As a result, from a software perspective the market is still going to have compound annual growth of around nine to ten percent for at least the next five years, leading Dodds to cite the value in such a software style business.
“When you think about software-defined around the data centre or software-defined around networking, there are strong opportunities for the channel to take advantage,” he adds, citing security as another key revenue earner.
“But let’s be really clear, the aspects of security from a monetisation point of view are very broad. We’re seeing that 70 percent of the market around security do it themselves so when you think about that from simple a resale point of view, there are great opportunities within that space.”
From a market point of view, Dodds reports that New Zealand as a country, compared to Australia, has a higher proportion of ‘do it yourself.’
“While this isn’t a surprise,” he adds, “the reason this becomes important is because that is still the way people want to transact.
‘I’m seeing so many service providers going after these standardised and repeatable products which is fine from an economics point of view but they are forgetting the way in which a customer actually wants to operate themselves.”
Crucially however, when searching for the piece that underlies all of this, the importance of the network comes to mind.
“The realities are right now that you can’t have any of this stuff without a great network and what we’ve found, and this is an interesting consideration for the market, is that those that invest in an ongoing way around network optimisation are more likely to get one cost, two time and three expectations being met with regards to their projects,” Dodds advises.
“So if you’re looking to add value, think about having a conversation around what businesses are doing to modernise their network to accommodate this new infrastructure.”
From an infrastructure perspective looking at cloud, 65 percent of the market are still looking at some form of converged or private cloud infrastructure.
For Dodds, this should again be a great sentiment for service providers but the real question is, especially from a vendor perspective, how do you stay in touch with the customer?
“Don’t be afraid when you’re talking to your customer to talk about their customer and to talk about their volumes of customers and how they might aspire to add more value in a digital space for them,” he adds.
“They could be the channel that they didn’t see coming but if you don’t help them they will just go directly to a vendor and do it themselves and this is the reality. If everybody is willing to disrupt then naturally, they will.
“And as such, if businesses are under threat then they behave in an unnatural way because they are forced to do so which has caused a real flattening of the market place.”
Open to innovation
While New Zealand organisations are open to being innovative, from a bold statement perspective, Dodds believes enterprise organisations are struggling in this new world.
“They are struggling because the concept of technology and automation coming through, and the ability to use systems and tools instead of people to execute, makes it clear that they are facing a huge movement to shift away from people heavy orientation to technology heavy orientation,” he adds.
“Enterprise organisations are forming separate businesses outside of the organisation to reframe the business to become what it could be.
“That means the organisations that are unwilling to canabilise themselves and reframe themselves in that way are all going to take guidance and advice from the service providers.”
But for service providers this isn’t enough to win business, with Dodds advising them to “come with the right business outcomes in mind.”
“The biggest failing that we see in service providers today goes back to the key questions of, ‘do you know my business?’, ‘do you know my industry?’ and ‘how can you transform me into what my industry is actually going to become?’ he adds.
When quizzing New Zealand organisations on how they perceived new and innovative technology and the focus areas they are honing in on, IDC reports that “bar none”, converged infrastructure services and software-defined infrastructure top the list.
“You’re right on point,” Dodds adds. “Look at Google Glass, wearables, smartphones etc, they are all nice to have but there is a real problem statement around this space right now and the real problem statement is around the HR function within a business.
“The reason why is because when you think about say, an Apple Watch, a watch might be about extending information to the user but ultimately the value of a watch is actually being able to track stuff.
“In thinking that through, it’s about contextual based identity management and security but the reality is that until HR comes on board, we are going to be wondering aimlessly in this space because at present, the Lion’s share of information still sits within that software-defined space.”
But to be clear about software-defined, the aspiration of software-defined is that the application can mandate and influence.
“We’re not there yet and we won’t be there for some time,” Dodds qualifies, “but what we are seeing is the high levels of automation available through these new technologies where you can actually shape traffic well and can compartmentalise different approaches to different field offices.
“When thinking of off-premise, on-premise and public cloud and SaaS adoption, you begin to have an incredibly high dependancy of running an elastic network.”
The current state of play in the industry sees software-defined moving into an awareness space, which then leads to interest and then a buying cycle.
At present, Dodds reports that organisations are “aware of software-defined” but they are still in the process of figuring out a use for it so fundamentally, technology expansion is the biggest driver for investment.
“If you think that it’s a matter of just wait until people have gone through a refresh cycle, that is not the case,” he adds.
“In reality, the opportunities are there to almost double and triple. If you can articulate how it can improve the business, then there is money to be had.”
While accepting that such advice is not necessarily new, Dodds was quick to hammer home the importance of ensuring the information registered.
And in a room housing top performing data centre providers across the country, at Westcon New Zealand’s one day technology event, that message was heard loud and clear.