Our previous post on how the value added reseller (VAR) business is intersecting with cloud services focused on why we think now is the time to figure out how you fit into the ecosystem as a VAR.

As a follow-up to that post, here are some ideas and guidelines for building out a business around cloud services.

What does a cloud VAR business look like?

It is a recurring revenue business. The hard part of building a recurring revenue stream is the very beginning. There is a lot of up-front work and effort but the compensation is spread over time.

As a service provider that started with connectivity products (DSL, Fiber, Private Networking), added traditional dedicated and managed hosting and then launched one of Canada’s first cloud hosting services, we know the recurring revenue business well.

The upside of a recurring revenue based business is that once you have hit your stride, it can be much more predictable and profitable in the long run.

But isn’t the cloud self-service? What services can a VAR provide?

One of the advantages of cloud services, whether we’re talking infrastructure like cloud servers or applications like Microsoft Exchange, is that they can be turned up on demand. For a VAR, the value provided to the customer isn’t going to be in knowing how to configure or operate the hardware anymore. With this in mind, here are some ideas for value added services categorized according to the two types of VARs we commonly see:

1. Small to mid-sized Focused

These VARs may look like an IT consulting shop that takes on the role of running IT for businesses not large enough to have their own in-house IT department. They may also have built up an expertise around specific business solutions like accounting software for small business. Many have also dabbled in hosting for their customers, buying co-location space and reselling it to their customers.

Moving forward, some of the cloud opportunities for these VARs will be:

1. Matching the customer with the right cloud service: Understanding that it is likely cheaper to move your email to a cloud service from running it in-house makes sense to most customers. That doesn’t mean they can easily decipher which service is best for them. Here are the types of questions around which a VAR can provide initial value to the customer.
   • Do they work with large attachments (e.g. CAD drawings in an engineering firm)?
   • Is their internet connection going to support moving email off site?
   • Is a mainstream service provider with servers thousands of miles away going to provide the performance and service levels they need or is a niche local provider a better choice?
   • Does their business require that they think about where their email data will be stored?
   • Do they need an archiving service for compliance?
   • Do they have mobile users and will the cloud vendor support the mobile platforms they use?
2. Bundling cloud services: You know your customers. Do you usually set them up with and manage their email, accounting, file storage and mobile devices? If so, look at which cloud services you can pull together to create a seamless bundle for the customer.
   • Larger customers: Hosted exchange + Sharepoint + Blackberry BES + Microsoft Dynamics for CRM and Accounting
   • Smaller customers: Hosted Exchange Web Access + Sharepoint + Quickbooks Online
3. Migration Support: A significant hurdle in moving a customer to the cloud is alleviating their concerns regarding data migration. Email is a good example. Customers are concerned they will loose archived email from their desktops or that the mail servers will be down for several days during the transition. There are great tools out there to manage migrations so that it is completely seamless for the customer.
4. Custom Hosting: Do some of your customers have dedicated servers running some legacy applications or custom apps? Instead of hosting them yourself, find a cloud provider that you can white-label. They can provide you a private cloud hosted under your brand. You can support the custom apps and leave the 24×7 monitoring to someone else who doesn’t mind getting up in the middle of the night.

2. Mid-market to Enterprise focused

These VARs have typically built a business around supplying, installing and customizing bigger software solutions like ERP solutions from SAP, Oracle and Microsoft. They may also have a hardware resale business supplying the servers and network gear needed to operate these solutions.

We’ve written about some of the recent cloud outages this year. Microsoft experienced another outage last week. This is not a reason to retrench and bash the cloud services. It’s a great opportunity to build a service around Cloud best practices.

1. Cloud Outsourcing Planning: Develop some services around identifying the return on investment of moving customer servers and applications to the cloud.
   • Help them understand the right time to do it. Do they have a major license upgrade coming or have they just done one?
   • Do they have seasonal spikes in online business or staffing like retail stores or tax consultants.
   • What type of SLAs should they be looking for?
2. Disaster Recovery Planning: The customers that suffered outages to their business critical systems because Amazon or Microsoft was down need to understand that the flexibility and cost savings you realize from the cloud needs to be tempered with recovery plans. Netflix understood this better than most. This is no different than if something was hosted in-house.
   • What is the risk of moving an application or server to the cloud?
   • Does it need to be online 24x7x365?
   • For mission critical applications, what is the disaster recovery plan? Does your cloud provider have another site they can bring you up in or should you look for a 2nd provider and identify and test the recovery process?
3. Integration: Most larger customers will have a mix of applications they want hosted on-premise and many they want moved to the cloud. Finding a cloud provider that can integrate the hosted environments with on-premise IT services like user directories for single sign on will be a valuable service.
4. Technical Infrastructure Planning: For many organizations, the move to cloud services should be part of a bigger infrastructure plan. Moving in-house services to virtualized environments based on technologies from VMware is a first step toward being able to choose which applications and services you want to move to a more elastic environment. Help your customers with a long term on-premise and cloud plan that works together.

We have spoken with many VARs over the last couple of years, both big and small, and we are starting to see more and more of them embracing the cloud opportunity. In fact, it has come to the point where we would strongly suggest that every technology VAR needs a clearly defined cloud strategy. What’s yours?

The Cloud VAR Dilemma

1. Commissions on the sale of software and hardware: The up-front revenue source from reselling on-premise hardware and software has always been a big boost to the bottom line. In many of the pay-as-you-go cloud models, there is no up-front sale so the commissions or residuals are smaller and are paid over time.
2. Installation, customization and day-to-day management of the software: This has always been the bread and butter in the VAR world. On-premise software and hardware often required as much or more in the way of service contracts as the initial purchase amount. In the cloud world, there is no installation. Customization and day-to-day management are also minimized.

The time is now

1. Amazon Outage: This outage has made it abundantly clear that businesses need help with their cloud strategies. What cloud services are best for them? What are the risks and how can they be managed? How can cloud services be integrated with the business? There is a clear opportunity for expertise to be offered around the adoption and integration of cloud services.
2. Consumer Cloud Message gets Stronger: In 2011, the Microsoft cloud message is turning up everywhere and even aimed at the consumer market. In June 2011, Apple launched their iCloud consumer service jumping on the cloud message bandwagon. These consumer cloud messages matter in the business cloud computing world because customers are now asking their VARs and consultants about cloud computing. How can we make use of cloud computing? Is it cheaper? Is it right for us? How can we start?

The underlying problem is that Murphy’s Law reigns supreme. No matter who you are, or how hard you try, things WILL go wrong.

If you’re operating at a reasonable scale, the triggering incident is easily manageable and the problem is quickly contained.  Once you get too big, the triggering incident cascades, and a full scale disaster results.

We saw this at Fukushima; the initial problem was only at one reactor.  If it had been on a site by itself, the problem would have been ugly but containable.  But because there were six reactors all at the same site – explicitly for economies of scale – the explosion of one reactor caused problems to the adjacent reactors and infrastructure, and now we have a Level 7 nuclear incident.

Although the cause of the Amazon outage is not yet known, I’m sure it will have a similar pattern. The triggering incident was probably minor, and in a smaller scale operation would have caused only a brief outage for a few customers. Because of the scale and interconnectedness of Amazon’s operation, this minor problem cascaded into a major outage for many customers.

There ain’t such thing as a free lunch.  Bigger does bring economies of scale, but these economies come at an inevitable cost: bigger, messier, much more expensive disasters. 

What’s the lesson for those of us toiling away in IT? 

The Amazon’s incident should not be taken as an indictment of the entire Cloud Computing concept.  It’s not as though you can guarantee 100% uptime by running everything in your own datacentre. Nothing we humans do is 100%.

The trick is finding the right scale for your particular situation. If you’re creating a Web2.0 consumer-facing web service, a true computing-utility vendor like Amazon is definitely the right answer.  Just be sure to have your own separate limp-along solution and data backup.

But if you’re a typical mid-size industrial or financial company looking for greater reliability and more IT flexibility, a private cloud service that can be tailored to match your own disaster recovery plans is the right option.

At Radiant we operate at this mid-scale level.  Instead of a huge farm with 1000’s of machines, we deploy small independent pods of machines and associated storage. Data backup is done in a traditional way, using the same enterprise backup software you probably already use.  Because of the smaller scale we can craft the appropriate solution for each customer’s specific budget and reliability requirements, from a few virtual servers in a single datacentre, to dual virtual datacentres in geographically dispersed datacentres.

When we have an issue with a pod, and despite our best efforts we are not immune, only a few dozen customers are typically affected. Our techs have the time to restore services quickly and thoroughly and respond to each customer directly.

First, let’s look at what hasn’t changed:

1. Cloud hosting service availability: For the most part, major cloud hosting providers still provide a much higher level of availability than most businesses can provide if they were to run everything in-house.
2. Cloud computing cost effectiveness: Adding up the hardware costs for servers and storage with the labour costs to run them in-house is much more expensive than using a cloud provider for your infrastructure needs. Factor in the flexibility to only pay for the computing power you need at any one-time and it’s not even close. In his latest post, Ray Wang over at Constellation Research, calls it a factor of 10 cheaper.
3. Outages will happen: Outages have always happened whether you run services in-house, use colocation providers, managed hosting providers or cloud providers. Most often they are very short. Sometimes they aren’t. The issue at hand is how your cloud provider handles the situation, communicates with you and helps you get running again.

That being said, as the number of mission critical applications that are running on cloud services grow, cloud computing providers, especially the public cloud variety, need to start fulfilling their end of the deal when it comes to enabling their customers to deal with outages. Here are the things we believe a cloud provider should be expected to do:

1. Be Transparent: Share the details with your customers on how you deliver your service. Do you use well known vendors and tools or have you built your own proprietary hosting solution? How do you guard against outages? How do the storage services and compute services affect each other if one is not available? We wrote a blog post earlier this year about the importance of understanding the details behind a cloud provider’s offering. This thinking is gaining traction these days. Gartner Analyst, Lydia Leong, just wrote a similar piece in the Amazon outage aftermath.
2. Communicate Risk: Be open with your customers about risk. If they are running their services in one zone or one datacenter, make sure they understand the risk they are accepting by doing so.
3. Communicate Disaster Recovery Options: Help your customers understand what options they have for implementing a disaster recovery solution. Do you provide a service to mirror their applications in a separate datacenter or zone? Is it up to them to figure it out on their own?
4. Support: Support really matters when things go sideways. Many public cloud providers, only offer online support options. They don’t offer dedicated customer support reps that enterprises tend to need when they are helpless to solve the problem themselves.

On the other hand, as a cloud computing customer, what can you do when selecting your cloud provider?

1. Understand the risks: Contrary to the advice of many pundits, you can’t treat your service provider like a black box. You need to understand the cloud provider’s architecture in order to plan recovery from significant outages.
2. Understand the impact: Are you using a cloud provider to run non-mission critical test and development systems or are you using a cloud to run internal or external mission critical applications. The impact of an outage on your business is much different in each case. Many of the high profile companies affected by the outage used Amazon to run mission critical services without a proper disaster recovery or contingency plan.
3. Plan for a significant outage: Whether you run your services in-house or with a cloud provider you need to do this.  For Amazon customers, having instances ready to run in a different region that weren’t affected and a plan to switch between the two regions may have worked. Radiant operates East and West coast cloud hosting centers and we help our customers create a recovery plan that will bring their services up in the secondary datacenter should the primary one be affected by a disaster (think earthquake).  If you don’t have the in- house IT skills to set this up, find a cloud provider that provides additional services and will help you with your plan.

Looks like it’s time to dust off the disaster recovery plan…

We introduced SureLink™ Business Ethernet  last October with 31central offices across the metro areas of Vancouver and Toronto. The demand for faster ‘symmetric’ bandwidth will continue to grow as applications involve richer content, higher-resolution digital images and increasing amounts of video content, video conferencing, and VoIP. These applications will continue to require more bandwidth and increase the importance of high-uptime, seamless network connectivity.

The big advantage of SureLink Ethernet is its upstream bandwidth and great reliability, important for businesses looking to leverage cloud computing resources. The trend toward moving large amounts of data over the Internet is straining traditional Internet connections.  Moving to a higher speed connection is becoming the best way to take advantage of cloud computing services, such as offsite backup and hosted email to ensure your data is protected regardless of hard disk failures, laptop thefts or even disasters such as fire and flood that can disable an entire office.

The move toward storing data, hosting, and Email in the cloud by businesses will continue to grow, driving the need for increased bandwidth requirements and secure networks. As smaller and more nimble players, like Primus and us, we are bringing competition and innovation into the Canadian telecom market, bringing small and mid-sized businesses services that deliver both higher speeds and better cost-effectiveness not available before.

So, why would anyone buy computing resources without knowing who was providing it?

Why would you buy a hotel room without knowing which hotel was offering it? Anyone who’s used Hotwire or Priceline to buy hotel rooms knows exactly how it works. You know what you’re getting – a hotel room. You just don’t know who’s providing the room.

Another analogy would be comparing how we consume IT services (like computing) to how we consume electricity. The thinking has been that over time we’ll just buy it as we need it instead of building our own “computing power plants” within each company. Cloud computing has certainly moved things in this direction.

Enomoly is simply pushing the metaphor a little further. Power providers sell their excess power on spot marketplaces, so why not computing resources?

Would Radiant sell our spare cloud computing capacity on SpotCloud?

We generally sell cloud computing services to businesses that care about support, up-time and security. Those customers wouldn’t necessarily feel comfortable buying from a clearing house. However, there are many very short term, less critical needs that a clearing house can fulfill. Like any cloud provider, our spare capacity floats up and down over time. In periods of higher excess capacity, why not use a clearing house? Given how fast the cloud computing business is moving these days we have a few other things to take care of first…

The bigger question is, would you buy computing resources from a spot marketplace?

Let me be very clear and up front.  Usage Based Billing (UBB) as recommended by the CRTC does not impact Radiant financially – it only applies on the consumer side not business –yet.  And when it does eventually apply to business, then Radiant will simply have to collect the fees on behalf of the Telco’s.  So financially, there is not impact on Radiant.  But we’re passionate enough to fly to Ottawa and meet with the CRTC and Industry Canada.  Why ?

Because the CRTC legislation in its current form is bad for Canadian consumers and it will be devastating to Canadian businesses and our knowledge economy. Radiant and many other Internet service providers stated this in front of the CRTC on January 26, 2011 that while we don’t disagree with a UBB philosophy, we do disagree with  the CRTC’s recommended implementation.  

For two decades the CRTC used a cost plus approach, with telcos submitting detailed cost models and granted reasonable returns. For the first time, the recent CRTC rule uses a Retail minus approach, which means that consumers will pay significantly more (about 400%) for additional usage than the actual costs incurred. What many people don’t realize is how much that extra capacity costs…it’s nowhere near the inflated overage fees that the Telcos want to now charge.

The cost associated with transmission and switching on a modern network is a non-issue, less than $0.50 per GB and dropping fast.  Consumers will be paying in excess of $2.00 per GB on top of monthly fees that already are the highest in the developed world. Simply put, consumers are getting gouged and have little choice in the matter because Canada has little competition in the Internet service market.

Let’s take a simple example and extrapolate.  A photographer doing one wedding shoot will produce about 20GB  of digital photos.  Send those off to be developed at a lab and they are over the limit.  One wedding later and they’re now into extra billing. 

Now consider the film and animation industry that BC and Canada have made a target to attract and develop. The media rich content that needs to be worked on and moved digitally.  An EA or Pixar developer working from home or offsite during a creative project would be over the 20GB limit in a nano second! Want to move those images around from one studio to another graphic designer? Get out the big cheque book. Why would any company who is in a media rich business move to Vancouver or  to Canada and pay exorbitant rates?  

ISPs such as Radiant agree with the charge-for-usage, but believe that it should be based on a model that reflects the cost to deliver and that is fair and competitive.

With the recent CRTC decision, Canadian consumers and businesses that are already paying the highest costs for Internet in the developed world will now also be paying inflated usage rates. That translates into poor international competitiveness, poor productivity, reduced investment infrastructure, stifled innovation and consumer choice.

If you’d like your voice be heard, please sign the Stop the Meter petition.

As more businesses move much of their IT infrastructure to the cloud, the idea of location is getting a lot more attention. A recent Forrester study on cloud computing calls out two issues related to location that we’ve been talking about recently:

Location of your data: How does it affect the privacy of this data?

This is a hot topic for many of our customers. The reality is that different countries have very different rules about data privacy. Most European countries are well aligned with Canadian data privacy laws. Unfortunately, US privacy laws (specifically the Patriot Act implications) are of concern for many non-US companies. If your data is hosted in a country other than your own, it becomes subject to the privacy laws where it is hosted.

Sometimes this is fine. Sometimes it isn’t. For many companies e-mail conversations contain very confidential data. They need to be sure of the rules that govern its privacy.

Location of the cloud service: How does it affect the end user experience?

This is a big topic for us as well. It’s one of the big reasons we opened our Toronto cloud datacenter this week.

It’s also a topic we discuss with all of our customers because we also deliver high speed business internet services (from adsl to fiber based services).

When bundling these services, we talk about our value proposition in terms of allowing customers to get the benefits of a cloud computing service (up-time, pay as you go)  without sacrificing the end user experience.

For example, we talk about delivering a Microsoft Exchange service from the cloud that performs just as though it was sitting on their premise, behind their own firewall. By integrating Exchange with our connectivity and private networking services, we can offer a low latency and highly secure private cloud experience – without the capital investment and operational headaches.

With two datacenters, we can now provide more low latency services to more customers across the country.

When choosing your cloud provider, make sure you consider geography!

Cloud computing vendors have made a leap in their marketing to say the details behind the service don’t matter. Only the service matters. “Trust us”. The only thing this type of message does is hinder adoption. It brings up technical objections from IT like security and integration.

In a  recent interview, Mark Hurd, the ex HP CEO and new Oracle co-president noted:

Enterprises seem unconcerned about the equipment being used to deliver cloud services, he said, even though they want to know all about the hardware and software they purchase to run applications in-house.

We’ve trained people to talk about these detailed levels of components, but for some reason in the cloud it doesn’t matter,” Hurd said.

While this position obviously favors Oracle, the point is a good one. When IT buys hardware and software to deliver services in house, the details matter. Who is the vendor? How long have they been around? Will the new hardware work well with my existing infrastructure?

Why wouldn’t this be important when choosing a cloud provider. Especially one delivering infrastructure services. The details matter when you want to integrate your cloud services with those you run in-house. They matter when you want to know how your cloud provider ensures your data is secured from their other customers. Details certainly matter when you want to figure out where your data is located and how you can bring it back in house if needed.

If you want to speed adoption of your cloud service, make the business value clear but provide the details so the IT decision makers can have their concerns answered.

Netapp just released the case study on Radiant’s AlwaysThere cloud computing platform. It’s posted up on the Netapp/Cisco/VMWare site dedicated to the 3 vendor’s joint solution for cloud computing infrastructure. There’s some great information in there about Radiant cloud services and why we selected these vendors.

What you don’t see in the case study is why Radiant customers should care. Isn’t cloud computing all about NOT knowing what’s under the hood and just leaving that to the service provider to sort out?

We don’t necessarily think so. While our customers come in all sizes, Radiant cloud computing customers generally all have a couple of things in common:

1) They are concerned about the security model of moving important data “into the cloud”.

It doesn’t matter if this is a small customer buying one Virtual Server or a larger enterprise moving an entire segment of their infrastructure to a Virtual Datacentre they can slice as they wish. They like that there is virtually no difference security wise between this infrastructure residing at Radiant versus having it inside their walls.

This is especially true when you use Radiant’s connectivity products to connect your office(s) with your Radiant Virtual Datacentre.

For the really technical readers, check out the Netapp video below about secure multi-tenancy. This is how we ensure our customers’ data is completely isolated from each other.

2) They need to understand the guaranteed service levels

They expect the infrastructure to be more available than running it in house and they want that in the form of an SLA. Any service provider can give you an SLA (amazingly most still don’t). It helps when you know the SLA is backed by the 3 biggest cloud infrastructure vendors out there.

3) They want to be self-sufficient but also want someone to pick up the phone when they have a question.

Giving your customers tools they are already familiar with makes them much more productive. How better to do that than providing tools from the vendors with the largest install base?

By showing our customers and prospects what we use under the hood, that it’s the best solution money can buy, it feels less like a hazy cloud and more like a cloud they can trust.

Another way to look at it is this:

What infrastructure would you WANT if you were building a private cloud computing platform in-house? VMWare/Cisco/Netapp would more often than not show up at the top of the list. Depending on your size, after the budgeting discussion was over it may or may not still be at the top.

The main benefit of cloud computing shouldn’t always be the “cheaper” argument. If that’s the message your service provider is pitching, they are missing the point.

The real promise of cloud computing is providing the customer with the best service available (usually better than they could deliver in-house), delivered cost effectively (alright, cheaper). Better service for less money!

By the way. Our Microsoft Hosted Exchange service is also delivered on top of this infrastructure….