BUSINESS WHITE PAPER

Cloud 101: Considerations for enterprise IT buyers

TABLE OF CONTENTS 1 Introduction 2 What is “cloud”? 3 Seven reasons to use the cloud 4 Cautions: What keeps companies from the cloud 5 Embracing the pay-as-you-grow economic model 6 Next steps 8 About the author

The IT industry goes through innovation shifts on a frequent basis. From mainframes to client-server architectures to the Internet explosion, the pace of change is relentless. Currently the industry is going through yet another paradigm shift. This time the driver is a five-headed hydra: cloud, social, mobile, big data and consumerization. Analyst group IDC calls these dynamics “the third platform 1 ” and Gartner refers to them as the “nexus of forces.2 ” The cloud offers the promise of unlimited and ondemand computing power. Social networking provides the ability to collaborate across borders through hierarchies and via suppliers. Mobile computing embodies the anywhere, anytime information society. Big data stands for additional insight from new information footprints. Consumerization is the penetration of the consumer experience into the enterprise and into business application design.

1 www.idc.com/getdoc.jsp?containerId=prUS23814112#.UN34_IfAfQ0 2 www.gartner.com/technology/research/nexus-of-forces/

This white paper is presented in the context of these dynamics. By reading it, you’ll learn more about the cloud proposition and gain a business perspective of what it means to consume software in the cloud. Get There Faster

Business White Paper | Cloud 101: Considerations for Enterprise IT Buyers

What is “cloud”? Cloud is probably one of the most popularized IT terms over the past three years. For enterprises, it is essentially a different economic model to consume software. Instead of purchasing the right to perpetually use software, a user or company rents it for a pre-determined amount of time, functionality, volume, transactions or subscribers. As not all on-demand software is equal, three categories (which can roughly be described as delivery modes) have emerged that focus on different elements in the IT value stack: • Infrastructure-as-a-Service (IaaS 3) combines a variety of infrastructure elements needed to run IT. They include servers, connectivity, storage and other services representing computing utility. These elements are usually sponsored by the operational side of an IT department. • Platform-as-a-Service (PaaS 4) is the layer that allows actual design, management and development of systems led by system architects. • Software-as-a-Service (SaaS 5) is what most IT users are exposed to—actual applications that allow for employee productivity, among other things. In addition to these high-level categories, one needs to further distinguish between deployment type or control levels, e.g., who controls the underlying data, processes and business logic. A private cloud 6 is fully controlled by the consumer with system access pre-defined and restricted. A public cloud 7 operates on the basis of control and ownership at the service-provider level. Finally, there is the hybrid cloud 8, where some elements are controlled by a third party and others are controlled by in-house IT. The trade-off between these three is about cost versus control.

Figure 1: How software is offered in the cloud—adapted from NIST

A company will naturally want to oversee data and applications that are critical to its business success. However, with the decision to perpetually license software comes the obligation to maintain and manage it in the form of purchasing hardware, training staff or upgrading to the latest version. This comes at a cost, which is cheaper when done by an outside party that handles it for a multitude of clients. Herein lies the challenge. A company has to feel comfortable that an outside party applies sufficient diligence in looking after its intellectual property, especially when the same service is provided to the competition. There is no single truth and the answer is subject to every company’s strategy, culture and preference. There are, however, several criteria that drive a company to adopt the cloud. 3 www.networkcomputing.com/buyers-guide/iaas/ 4 www.forbes.com/sites/reuvencohen/2012/09/26/debating-thedefinition-of-cloud-platforms/ 5 www.salesforce.com/saas/ 6 www.infoworld.com/d/cloud-computing/download-the-privatecloud-deep-dive-204685 7 www.onlinetech.com/resources/wiki/cloud-computing/publicvs-private-cloud-computing 8 www.networkworld.com/supp/2012/enterprise6/120312-ecshybrid-cloud-264443.html?page=1

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Business White Paper | Cloud 101: Considerations for Enterprise IT Buyers

Seven reasons to use the cloud Here are seven key drivers for adopting a cloud infrastructure: 1. CAPEX to OPEX Cloud computing is consumed on the basis of a subscription. Instead of buying software outright (capital expenditure), which can be added to the balance sheet, a company rents the software (operational expenditure), which constitutes an expense. From an accounting perspective, purchased software impacts Return on Capital Employed (ROCE) and other financial metrics that take a longer-term planning perspective. A subscription, meanwhile, impacts the income statement that is subject to shorter-term operational adjustments. In other words, the buying cycle can be completed by IT or the line of business without getting finance involved, assuming the budgets is allocated.

The quicker one can make the system available, the sooner that business value is obtained.

2. System upgrades Whenever a software vendor releases a new version, the installed base needs to go through a painful upgrade cycle. Often previous configurations and customizations need to be re-engineered. Consultants and other temporary staff get on-boarded. End-users go through another adoption cycle. In theory, systems are backward-compatible and have been tested against the ecosystem. But too many accounts tell a different tale 9. With the cloud, all this goes away. The vendor manages the system, and upgrades are immediate and pain-free. 3. Time to availability An IT system is there to deliver a defined business value. The quicker one can make the system available, the sooner that business value is obtained. A cloud-based system is instantly available. As soon as users get access and are trained and set up, they can garner the benefits of use. This argument is especially powerful with business users who feel that IT doesn’t move fast enough. 4. Different cost footprint Despite popular belief, cloud offerings are not necessarily cheaper than on-premise deployments. During the first and second years, cloud has a lower ticket price. Between years three and five, cost dynamics vary heavily. On the one hand, a company needs to purchase, maintain, operate, support, upgrade and train staff on the hardware, software and communications infrastructure. On the other hand, with a subscription, a company needs to make provisions for price structure changes, new and incremental usage and risk exposure need to be managed. A reduced total cost of ownership is likely; what is guaranteed is a different allocation of costs. 5. Computing on tap One of the most appealing features of cloud offerings is its on-demand nature. This means companies pay only for what they use or need. If a system doesn’t deliver value—however that is defined—it gets turned off or replaced. This is ideal for enterprises that need to justify IT investment and spend. With the cloud, there is a direct correlation between growth and spend. 6. Ease-of-use and deployment Cloud products benefit from modern user interfaces, mobile-screen sizing and consumertype usage expectations. The offerings are designed to be easy and intuitive. This means enterprises don’t need to spend months deploying systems and educating their users on how to use the software. Rather, they are up-and-running in a short time. 7. IT independence One reason the cloud is so popular is that it can be delivered independently of the IT department. Business users work to different timeframes and budgets. As cloud products are consumed via a browser on the service provider’s servers, the IT department is often not involved in the purchasing decisions. Enterprise IT should embrace this reality and facilitate interactions with SaaS providers in particular. Thus, the IT mission becomes fine-tuned around being a facilitator of IT solutions to support the business rather than the enabler of business decisions. Not all is as glorious as articulated with the cloud, and any investment consideration needs to be juxtaposed against a variety of inhibitors.

With the cloud, IT becomes a facilitator of solutions to support the business rather than the enabler of business decisions.

9 www.cio.com.au/article/444255/scariest_us_software_ project_horror_stories_2012/

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Business White Paper | Cloud 101: Considerations for Enterprise IT Buyers

Cautions: What keeps companies from the cloud Each enterprise needs to consider how much or how little of the cloud to consume. Here are key reasons enterprises remain cautious about the cloud.

There’s an increasing body of evidence that the cloud is more secure than on-premise.

1. Security concerns There is a distinction being made between on-premise and off-premise applications and content with the dividing line in architectural diagrams represented by the firewall. What is behind the firewall is perceived as more secure. However, there is increasing evidence 10 that cloud providers are equally if not more secure due the expertise they have in this mission-critical aspect of their business. Irrespectively, perception is what matters and the internal sell behind what is perceived to be less secure is demanding. 2. Privacy Information that is stored in a public environment, such as the cloud, is by nature not private. Most countries already have or are in the process of introducing legislation that protects this data. The challenge is different countries have different rules, inviting privacy arbitrage 11. As a user of cloud services, it is not always clear which jurisdiction one is subject to. Furthermore, different procedural standards and evidence levels make the picture “cloudy.” 3. Control A move to the cloud is not only a technical and financial decision; cloud adoption is also a change-management decision. A user of cloud services is not in control of the system, its availability, future development, redundancy or performance levels, to name a few concerns. End-user support, change requests, integration and back-up procedures all need to be re designed and re-communicated with this new reality in mind. Giving up control changes the Key Performance Indicators (KPIs) and performance levels that are incentives for IT management, moving the model from pay-for-availability to pay-for-adoption. Working against this backdrop is simply too challenging for many organizations. 4. (Un)availability Typically a cloud Service Level Agreement (SLA) states at minimum 99.8 percent availability. That translates into an approximate downtime of one hour, 30 minutes per month. At the premium end, 99.95 percent is delivered against extra pay, still resulting in eight hours, 46 minutes of unavailability per year. Businesses should focus on managing the inevitability of such downtime. Not even heavyweights such as Google ® 12 , Facebook ® 13 and Amazon Web Services © 14 are immune to downtime as outages in December 2012 showed. 5. Changing role of IT An underlying association with the cloud is outsourcing. Inevitably that also means IT functions supporting the capabilities being put into the cloud are at risk of being farmed 15 out. The roles that remain in the enterprise will require a new skill set. The business analyst will need to consider the implications of different SLAs. The IT architect will have to work with solutions operating a different latency levels. The security lead will have to work with outside the firewall threats. Naturally, professionals whose livelihood is threatened will drag their feet and invent reasons why cloud cannot be adopted. 6. Customization There is a fine line between configuring a product to suit a client’s specific needs based on user rights, taxonomy, KPIs or brand versus building specific modules around unique business processes, data sets, workflows or security needs. Bringing this point home, cloud offerings cannot be customized (some very expensive exceptions permitting). Unless a company can get comfortable renting an offering developed for a lowest-common-denominator customer base, they will be challenged by cloud deployments.

10 www.forbes.com/sites/joemckendrick/2012/09/19/cloudapps-somewhat-more-secure-than-on-premises-apps-survey/ 11 www.msnbc.msn.com/id/15221111/ns/technology_and_ science-privacy_lost/t/la-difference-stark-eu-us-privacy laws/#.UN4SL4fAfQ0

7. Integration With millions invested in legacy Information and Communications Technology (ICT), any newcomer must fit in. This means it will be critical to find an integration solution that allows on-premise applications to talk to cloud applications. [Thankfully for any reader of this white paper, integration is Software AG’s business. Software AG specializes in providing the underlying glue that allows cloud data and applications to work together.]

12 www.neowin.net/news/mondays-gmail-and-chrome-down time-explained 13 http://news.cnet.com/8301-1023_3-57558347-93/facebook suffers-major-outage-knocked-offline/?part=rss&subj=news&tag =2547-1_3-0-20 14 http://status.aws.amazon.com/ 15 www.ft.com/intl/cms /s/0/3669c6e6-840a-11e1-9d54 00144feab49a.html#axzz2Gr61dspd

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Business White Paper | Cloud 101: Considerations for Enterprise IT Buyers

Embracing the pay-as-you-grow model So we’ve looked at what the cloud is, its benefits and why enterprises may not want to embrace it. Now let’s look at what consuming software in the cloud means for Global 2000 corporations, starting with the motivational drivers for acquiring software. Companies buy software because they want to reduce costs, improve efficiency and/or increase revenues. This holds true whether a deployment is on-premise or off-premise. By using the cloud, the way a company accounts for its money changes. In the license-consumption model, a typical engagement is made up of three cost factors that are purchased separately: the right to indefinitely use the software; a customization element delivered via professional services; and support incorporating maintenance, training and access to a helpdesk.

Insert 2

Subscription Professional Service

Anatomy of a License & Subscription Software sale

Figure 2: Anatomy of a license & subspription software sale

On the other hand, in the subscription economy such as the cloud, a company gets the same capabilities but they are consumed differently. Support gets dissolved into the end-to-end user experience and product layer. Product updates are instantly available; no maintenance is required. Training occurs via self-learning tutorials, and no off-site training is needed. The hotline is commonly delivered via a community portal where the 90/9/1 rule 16 applies. Customization is usually not given and is somewhat substituted by configuration options and templates. In other words, the entire usage experience is more immediate and intimate.

Instead of negotiating availability, IT needs to manage downtime.

Vendors will attempt to compensate for flexible usage with longer-term contracts, which is by no means a necessity. Enterprises should make full use of the option of flexible term contracts and weigh up the downside of not being able to customize the system with the advantage of having an enterprise class tool instantly available. In the subscription economy, an enterprise agrees merely to the terms and conditions of system use, not a license to the underlying intellectual property. That means the vendor has to deliver ongoing value. With an on-demand system like the cloud, the consumer gets to evaluate adoption, use and long-term value given its own business objectives. The vendor meets this need with a customer success organization that ensures adoption beyond onboarding, through first use and onto organic expansion. It is this switch on/off opportunity that offers enterprises real options for accelerating/decelerating their business in good/challenging times. In short, consumers of cloud services need to decide what is best for their organization and every specific use case. Some companies are uncomfortable with a one-size-fits-all model or prefer the legal benefit of ownership. Others prefer the benefit of flexible use and direct correlation with business evolution.

16 http://en.wikipedia.org/wiki/1%25_rule_(Internet_culture)

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Business White Paper | Cloud 101: Considerations for Enterprise IT Buyers

Next steps Is your enterprise IT department pressured to bring efficiency to routine tasks and operations? Is IT increasingly considered as the hub for innovation? The cloud, in its various deployment guises and delivery scenarios, can help IT improve efficiency and increase innovation for the business. But every organization has to determine its own appropriate level of cloud use. Software AG can help you make that decision. As a company with a long-standing record of leadership in the middleware space 17, Software AG specializes in software that allows cloud data and applications to work together. Additionally, Software AG has offered various ondemand pricing options for years. Our flagship products, webMethods and ARIS, are certified to run in any cloud deployment mode. As part of our latest 9.5 release, innovations for the cloud include: • webMethods CloudStreams to facilitate the integration of cloud apps with on-premise data • webMethods Command Central for controlling of webMethods cloud implementations • ARIS.com for business process analysis in the cloud • ARIS Connect to facilitate cloud-based collaboration in process-related projects Learn more about our latest releases at: www.SoftwareAG.com/aris9 www.SoftwareAG.com/webMethods9 www.SoftwareAG.com/cloud

Talk to your Software AG representative to see how to make your company successful in the cloud. Ask how a pay-as-you-grow deployment can make a positive contribution to your company’s bottom line.

17 www.gartner.com/it/page.jsp?id=2001115

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Business White Paper | Cloud 101: Considerations for Enterprise IT Buyers

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Business White Paper | Cloud 101: Considerations for Enterprise IT Buyers

About the author

Axel Kirstetter is the Director of Cloud Solutions at Software AG. His responsibilities include marketing and managing of existing cloud products as well as defining the next generation of offerings on a global basis. Axel has been working in the cloud space since 2006.

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ABOUT SOFTWARE AG Software AG helps organizations achieve their business objectives faster. The company’s big data, integration and business process technologies enable customers to drive operational efficiency, modernize their systems and optimize processes for smarter decisions and better service. Building on over 40 years of customer-centric innovation, the company is ranked as a “leader” in 14 market categories, fueled by core product families Adabas-Natural, Alfabet, Apama, ARIS, Terracotta and webMethods. Learn more at www.SoftwareAG.com. © 2014 Software AG. All rights reserved. Software AG and all Software AG products are either trademarks or registered trademarks of Software AG. Other product and company names mentioned herein may be the trademarks of their respective owners. SAG_Cloud101_Enterprise_IT_WP_Feb14

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