This Monday, August 2nd, 2010 I will be talking about how cloud computing is transforming the Systems Management industry at the Cloud Computing usergroup in Mountain View, CA. Here’s the abstract:

As SaaS and cloud matures and gets wider acceptance it starts affecting new markets and application areas. While more and more widely adopted in consumer space, collaboration, CRM and human resource management, cloud only recently started affecting IT professionals and systems management in general.

Dmitry Sotnikov heads Cloud efforts at one of the biggest IT management software vendors – Quest Software. In this session he will share his views on how cloud is changing enterprise IT and what threats and opportunities he sees for existing IT software vendors, as well as Value-Added Reseller (VAR), Managed Service Provider (MSP) and System Integrator (SI) companies.

Please stop by if you are in the Valley or close. See you on Monday!

That seemed to be the sentiment of Amazon’s Cloud for the Enterprise event which the company held in Sofitel Los Angeles last week. The pitch boiled down to:

• Amazon’s datacenters are the most reliable, secure, and cost-effective option you can find,
• Amazon Virtual Private Cloud (VPC) lets you securely connect an isolated subnet of Amazon Web Services (AWS) to your intranet,
• If you are already virtualizing your applications, why not then run them in AWS and not spend money and efforts on whatever datacenter expansion you might need on your end?

Why this makes sense?

Amazon went a long way to make their datacenters more reliable and secure, they have the technology for network connectivity, and they do get significant economies of scale. The latter is not just words. Amazon’s CTO – Werner Vogels – showed pie chart of the cost structure for their datacenters.

They have almost eliminated labor among the significant cost factors – which is great considering that labor is one of the top (if not the top) elements of typical on-premise IT environments.

However, they went further than that. In their current cost structure server hardware is by far the number one cost absorbing more than 50% of what they have to spend. This made them work hard on improving the utilization of these resources. What they did is sell these compute resources as a combination of:

• Reserved instances (when customers commit to resources for a long period of time to get 50%-70% discounts),
• On-demand instances (normal hourly pay as you go model), and
• Spot instances (when the remaining resources get automatically auctioned among bidders in a name-your-own-price scheme)

This means that they can get server utilization close to 100% – which is incredible considering that typical numbers in the industry are probably within 10-30% range.

Considering all this, why bother buying a new server when Amazon can deliver a potentially better service (with additional availability options, global datacenters and so on) at a lower rate?

What is in it for Amazon?

This also seems to be a natural adjacent market for Amazon (the IaaS company – not the online retailer). If they already successfully host web startups and are the most well-known compute platform for tasks such video transcoding or text recognition – why not use that same expertise and infrastructure to sell it to enterprises?

Enterprise IT is a huge market with great margins, and as corporate CIOs are looking for ways to use the cloud to cut costs and/or become more agile – Amazon has the brand recognition to be their number one choice.

This seems to be a high priority effort for the company considering that they have their CTO attending and delivering his keynote at events like the one in LA. And it should be if Amazon does not want to be squeezed between enterprise vendors like Microsoft and VMware getting the higher margin enterprise cloud segment, while initiatives like OpenStack commoditizing lower end cloud compute services.

With so many vendors going after them, Amazon needs to keep moving fast to stay relevant.

Are we there yet?

With all that being said, today Amazon’s pitch remains a great story rather than reality for both technology, business and perception issues.

Technological challenges include inability for IT today to easily (or better automatically) move workloads between their on-premise datacenters and Amazon’s cloud. Even the virtual machine images Amazon is using are not compatible with the VMware and Hyper-V hypervisors enterprises have.

Obviously most of the existing IT management and monitoring tools that companies are using are not yet Amazon aware either – meaning that administrators cannot just get Amazon added to what they have already but instead would have to learn new ways and find new tools.

From business perspective, Amazon is just not an enterprise vendor yet. Corporations have contracts with Microsoft, IBM and others – Amazon is brand new to these customers.

Perception-wise, Amazon needs to find early adopters of that enterprise IT scenario to showcase at events like this. The 4 customers presenting at the event in LA were using AWS to:

1. Offload computation tasks,
2. Do image processing,
3. Host web sites, and
4. Host their SaaS electronic medical records application in the cloud.

Needless to say, these are not the scenarios Amazon was trying to pitch.

Summary

With the enterprises starting to evaluate their cloud options, the fight for the cloud for the enterprise is only going to become hotter. It is going to be interesting to see if Amazon finds a way to “descend” from the public cloud to the on-premise and hybrid scenarios with smart partnering and acquisition strategy, or traditional enterprise and virtualization players add public cloud to their solution sets and squeeze Amazon out.

To re-cap, this week at its Worldwide Partner Conference (WPC) Microsoft announced that together with their hardware partners they will start offering (some time later this year as a limited release for folks like Dell, HP, Fujitsu and eBay) Azure containers basically giving others the ability to run pretty much what Microsoft is running in their own public Windows Azure cloud datacenters.

This is an important move from Microsoft which they kind of hinted in the past and something we expected them to do back in 2009. Microsoft is not the only hosting company in the world, and there are governments and enterprises who – for security and other reasons – are continuing to invest in their own datacenters – these are big markets which Microsoft wants to address and not let go to VMware and other competitors.

However, the biggest drawback which all observers seem to be missing is that while Azure technology stack is similar to regular Microsoft Windows/IIS/SQL/.NET stack, it is not completely identical. You just cannot take an existing Windows Server application and point it to Azure. Even Microsoft’s own flagship server applications such as Exchange, SharePoint and Dynamics CRM and ERP systems do not run on Azure. Applications actually have to be ported to Azure which is certainly doable but does require R&D efforts on the side of application creators.

Today the set of applications available for Azure is so limited that I can probably count them with my fingers: Microsoft ported their SQL database, SugarCRM just released an Azure version of their tool, Quest Software has a set of cloud-based management services for administrators, and FullArmor has a beta of their endpoint management tool.

Maybe there is one or two other application that I missed – but you get the story. As of today, even if you get an Azure container (and you actually have to buy one – you will not be able to re-purpose the servers you already have) – there is not much you will be able to run on it.

For eBay this maybe worth it – they have their own custom-developed application and big budgets for developing and improving it. For most other folks out there – applications need to come first and make private Azure valuable enough. I am not saying that this will not happen – folks in Redmond are doing their best to recruit their partners to form the Microsoft cloud ecosystem – but we are definitely not there yet.

1. All you need to do to enable it, is download and install a small event collection agent and select which event logs you want to collect,

2.  The agent then runs, collects, compresses, encrypts and sends the event log data to the OnDemand service in the clouds.

3. Whenever you need to search the event log data, you simply go to the web UI, and have dashboards, reports, and keyword search across all the audit trails collected from all your systems.

And all of this is available for a low $30 per server per month subscription fee.

Check out this video on how the service works:

Read more about the service and start your free 30 day trial here.

Changes are good, and Active Directory – as the identity core of most companies’ IT – is always changes. However, sometimes wrong changes happen: accounts or whole containers can get accidentally deleted, or a script can go wild and wipe out a bunch of attributes across a set of accounts (I personally once got affected by such an incident a few years ago).

Quest OnDemand Recovery for AD works as a time machine for your Active Directory:

1. A small local agent in your network on the schedule you select detects changes in AD, compresses and encrypts them and sends them to a remote datacenter.
2. Whenever you need to roll back any change, you log on to the web site, browse and search your backups, pick the change you want to undo and click Restore.
3. The agents gets the changes back and applies them to the local AD.

Watch the quick video here:

There is a free 30 day trial of the service, after which you can keep using it for a small monthly fee (which when I am writing this is just 60 cents per AD user account per month).

You can learn more about this service and sign-up for it here.

Full disclosure: I am personally involved in Quest OnDemand efforts. And very excited about it, I must say.

He shows how SaaS to on-premise software is classical disruptive innovation from Clayton Christensen‘s “The Innovator’s Dilemma“.

Don's diagram of the disruptive innovation cycle applied to SaaS

While I don’t have much doubt in the argument as a whole, I would be very interested to see whether it plays evenly across all software markets or only apply to some of them.

I have little doubt that vendors with huge on-premise platforms and corresponding on-premise platform-dependent revenue streams – such as Microsoft and Oracle – will find this SaaS transition challenging. Just look at Microsoft’s operating income by division: the vast majority of their profits come from Windows client and Office. If SaaS transition would mean that users just need a browser running on iPad, WebOS or Chrome OS device – this would mean that Microsoft’s profits evaporate and go to the corresponding device and service vendors. If they try to go full speed into SaaS world to compete effectively against Apple, HP and Google – they can hurt their own existing revenue streams without necessarily succeeding in establishing new ones. That’s classical Innovator’s Dilemma.

Now, if you look at IT Management/Systems Management sector, the situation is somewhat similar but also quite different. I will use my own company – Quest Software – as an example. We provide a big set of software tools which IT professionals in enterprises use to better manage the platforms they get from Microsoft, Oracle and others.

On the one hand, we are somewhat susceptible to the disruption: SaaS may help competition release products faster and if platform transitions starts happening fast we can potentially see our addressable market shrinking.

On the other hand, the opportunities SaaS gives us, are way bigger than risks:

• New platforms: Platform fragmentation is great for us. We love heterogeneous environments and transitions. Quest is helping tens of thousand customers make sure that their Unix/SAP/Blackberry systems integrate seamlessly with Microsoft Active Directory, their Notes/Sametime communication systems co-exist with Exchange/OCS, and so on. This is the gap which platform vendors such as Microsoft cannot bridge, and as SaaS platforms start getting added to the mix our solutions become more important rather than less important.We are already switching gears and using this opportunity to expand the range of services which we support, provisioning identities and access to Google Apps,  providing monitoring and management and enabling development for SQL Azure, and so on.
• New way to reach customers: We are starting to offer our own IT Management technology as SaaS solutions, so customers can just point their browsers to our Quest OnDemand web site, subscribe to our service and start managing their local IT using our remote infrastructure. This means that not just big enterprises but small and medium businesses can start enjoying services such as secure offsite-stored Active Directory backup with granular recovery, or event log collection and management. This lets us expand, rather than cannibalize our market. We have a lot of great technology and can now repackage it for easier consumption by bigger audience.See this video for detailed discussion of Quest OnDemand and IT Management as a Service.

I think these are the reasons, why at the moment it looks like IT management companies will probably – with proper execution – find themselves benefiting from the very same disruption hurting their platform partners.

Judging by the recent Cloud Computing Explained: Knowing the Best Cloud Computing Vendors article published by The Latest Tech News – which included Quest in the short list of the vendors gaining from the SaaS transition, I am not alone who thinks that way.

The demo below shows how this works for Google Apps. User tries to access Google Apps but does not have an account. The system detects that and allows to user to request the account from her manager. After the approval, she can goes to the exact same Google Apps site and gets to the service with no issues. This all is integrated with corporate Active Directory so no usernames or passwords are ever being asked:

This is pretty cool because it lets each company save money by not over-provisioning accounts for SaaS services, yet keep everyone productive by letting the users request access and get approved without necessarily having IT involved.

Read more about the system in Bob’s post here.

Check out the video here.

It is short but hopefully provides look into why we are using Azure and building our Quest OnDemand Systems-Management-as-a-Service offering.

This is a great free service which provides some pretty neat reports on your intranet SharePoint environment. You go to the site and it launches a nice Silverlight client. Then all you need to do is provide a URL of your site collection (e.g. http://myserver.mydomain.corp/sites/super) and get insight on what is posted at the site:

What is neat is that no data actually leaves your environment. All stats are calculated and displayed locally. Quest web server only supplies the client and Silverlight UI which then run locally on your premised. Thus, it is kind of the best of both worlds: data never leaves the building, but you don’t have to maintain the tool and always run the latest version from any computer you want:

You can read more about this service from this post by Joel.

Give it a try and let us know what you think!