|Issue:||Africa and the Middle East 2014|
|Topic:||The virtual future: Challenge or opportunity?|
|Organisation:||Frost & Sullivan|
Lehlohonolo Mokenela is an industry analyst for the Information and Communications Technology (ICT) unit at Frost & Sullivan South Africa. His industry expertise covers smart technology trends, including smart grid, smart cities and machine-to-machine (M2M) solutions. His expertise also covers broadband and converged services markets across Africa.
Lehlohonolo holds a B.Com Honours in Financial Analysis and an M.Com in Business Management from Stellenbosch University.
Enterprises are increasingly adopting hosted and virtual solutions not only to reduce the total cost of ownership (TCO) of technology, but also create greater flexibility in their operations.
Enterprise investment in data centre services show a gradual shift from traditional managed services to server and desktop virtualisation. Server virtualization, in particular, has been widely adopted by enterprises and is seen as an important enabler of cloud computing services.
Both large and small enterprises can leverage virtualization and hosting solutions to reduce their IT spend. In order to boost the uptake of these solutions, service providers will need to demonstrate the security and cost-effectiveness of the hosting model.
Enterprises are increasingly shifting to the use of hosted and virtual solutions to not only reduce the total cost of ownership (TCO) of technology, but also create greater flexibility in their operations’ writes Lehlohonolo Mokenela, ICT Industry Analyst at Frost & Sullivan. This is the consequential result of the rising cost of technology, coupled with the current uncertain macroeconomic environment. Emerging trends among enterprises in the market now include the virtualization of resources, such as servers and desktop services, the hosting of unified communications and collaboration (UCC), and contact centres.
Hosting, virtualization and finance
Enterprises are increasingly leveraging the use of Information Technology (IT) across an ever increasing number of business functions, such as enterprise communication, human resources and production processes. The growing reliance on technology has seen IT budgets grow considerably over recent years, as enterprises look to maximize the efficiency of their operations and become more competitive.
However, there are still lingering doubts over the short and medium-term stability of the general economy, doubts that are affecting the ability of enterprises and the willingness to risk investing heavily into long-term IT resources. This has been especially prevalent among small enterprises, the majority of whom still have limited access to credit facilities and funding. This is generally forcing enterprises to adopt a more cautious approach in their IT investment strategies.
Hosting and virtualization technologies have subsequently grown in prominence, offering enterprises the opportunity to de-risk their investments in IT resources by lowering the initial capital outlay.
Virtualisation enables enterprises to create and distribute company resources on an as-needed basis through the internet. The technology effectively separates the server or desktop and application software from the physical machine. Components of computing resources can be provided as a ‘thin client’ and deployed as an application on a personal computer, smartphone or tablet. Virtualization is becoming increasingly critical in the optimization of technology throughout enterprises’ data centres, with uses in servers, routers and switches.
Enterprise investment in data centre services, according to Frost & Sullivan analysis, shows a gradual shift from traditional managed services to server and desktop virtualisation. Server virtualization, in particular, has been widely adopted by enterprises and is seen as an important enabler of cloud computing services. Desktop virtualization on the other hand, is becoming prevalent, but is expected to be a key enabler of other applications such as bring-your-own-device (BYOD). Because it allows enterprises to manage the environment from a central location, it makes it easier to support BYOD deployments, in terms of provisioning and security.
Hosting these services allows enterprises to outsource some components of their IT resources, where they would then purchase the capacity they need from a service provider. A key feature of third party hosting is that it allows enterprises to move away from a Capital Expenditure (CAPEX) intensive model and more towards an Operational Expenditure (OPEX) model. Leaving the ownership, control and maintenance of these assets to a third party frees up resources such as capital, allowing the organisation to invest in other areas of the business. Moreover, it gives enterprises the chance to redeploy IT staff to support its core functions to assist in driving the business. There are a number of enterprise resources that can be left to third parties to host. These include business applications, communication solutions and data centres.
In recent years, the hosting of contact centres and communications solutions such as IP telephony and UCC have become especially more prominent. Companies are moving towards hosting these services in response to changing organization dynamics and end-user demographics. As enterprise communication tools continue to expand to include telephony, email, instant messaging, video conferencing and file sharing, communications infrastructure is increasing in complexity.
Leveraging virtualization technologies, IP telephony and UCC can be accessed in a hosted environment to offer enterprises the following benefits:
A. Outsourced maintenance – Hosting allows for cost-effective access to technology resources and expertise, despite limited budgets. The outsourcing model affords enterprises access to a larger pool of technology expertise, which smaller companies in particular, would otherwise not have.
B. Lower TCO – Outsourcing the communications and contact centre resources from a third party allows enterprises to reduce IT staff costs, while gaining access to a broader and larger knowledge pool of technology expertise.
C. Quick to deploy – Using Hosted UCC, enterprises are able to quickly and cost-effectively connect their newly established operations in remote areas. This is especially important for large enterprises with a number of sparsely distributed operations.
D. Flexibility – Hosted UCC solutions are in essence designed as a ‘pay-as-you-go’ offering. As a result, instead of implicitly funding the excess capacity inherent in owning the resources, enterprises only pay for what they use. This makes it easier to up-scale or down-scale operations in response to demand without the need to invest in additional capacity.
However, as the services are accessed via the internet, the quality and cost of bandwidth play a central role in determining the viability of opting for a hosting model. Reliable connectivity is taking on greater importance as service providers are incorporating mobility into their solutions. This is in response to the growing demand for enterprises to maximise the productivity of their workforce on the move.
Key challenges: What is the way forward?
Although hosting and virtualization hold the promise of enhanced enterprise operational and cost efficiencies, service providers need to overcome a number of challenges inherent in the model. Some of the key challenges affecting the development of market, particularly those relevant to the South African market, revolve around security and cost of bandwidth.
Security – Hosting essentially entails enterprises ceding some of the control over the management and deployment of their ICT infrastructure. This can prove to be a challenge in the more tightly regulated sectors such as financial services, healthcare and education.
These sectors tend to have fairly strict requirements on the security of data, requirements that can be compromised by introducing a third party-managed platform such as cloud. However, some financial institutions, locally and abroad, are found to be using virtualization to eliminate the cost of excess capacity. They are, however, predominantly adopting a hybrid approach to hosting by having only some of their assets, mostly non-critical, housed in a third-party data centre.
Service providers will need to demonstrate the security of their hosted solutions in order to gain the trust of a sceptical client base. There have, however, been indications that efforts to achieve this are beginning to bear fruit. For example, while in 2012, CIOs had rated security concerns as the number one hurdle to adopting cloud services, a year on, security had been relegated to third position. This is a testament to some semblance of trust in hosted solutions.
Bandwidth cost – A key challenge the South African market is facing is not only the availability of bandwidth across networks but also the cost of connectivity. While the cost of bandwidth has declined somewhat in South Africa over recent years, prices are still high, which continues to affect the cloud computing value proposition. Companies typically evaluate the viability of a hosted or cloud-based model based on the TCO, which also takes into account bandwidth costs.
On-premise UC solutions deployments have matured in South Africa. Frost & Sullivan analysis; however, points to the emergence of hosted models. While this shift has been partly driven by the growing availability of bandwidth, the cost of bandwidth needs to decline further in order to justify enterprises investing in the cloud-based model.
Both large and small enterprises can leverage virtualization and hosting solutions to reduce their IT spend. In order to boost the uptake of these solutions, service providers will need to demonstrate the security and cost-effectiveness of the hosting model. Frost & Sullivan concludes that while there are signs of growing trust in hosting solutions, the high cost of connectivity still remains a constraint.