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Emerging Enterprise Cloud Adoption Paths

April 18, 2012

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Proprietary & Confidential. 2012, Everest Global, Inc.

ITO and the Enterprise Cloud Opportunity

Over $500 billion in infrastructure-related outsourcing contracts are coming to term in the next three years
Global Infrastructure-related Outsourcing Contracts by Expiration Year
Estimated ACV, US$ billions

Global Infrastructure-related Outsourcing Contracts

Announced TCV, US$ billions

Contract Volume Breakdown

# of contracts IO AO & IO Total Total ACV (US$) Average d ti A duration Total TCV (US$) Latin America 28 14 42 $1 billion 5.9 5 9 years $7 billion Asia Pacific 113 66 179 $5 billion 6.3 6 3 years $29 billion EMEA 512 251 763 $28 billion 5.9 5 9 years $168 billion North America 513 290 803 $49 billion 6.2 6 2 years $306 billion Total 1,166 621 1,787 $84 billion 6.1 6 1 years $510 billion

Source: Everest Group Transaction Intelligence Database

Proprietary & Confidential. 2012, Everest Global, Inc.

Global IT Services Market Forces

Enterprises face pressure to respond to extreme market demands for efficiency and flexibility Demand for Efficiency
Increasing Value Focus

Demand for Flexibility

Increasing Pace of Innovation Consumerization of IT Device proliferation Compressed cycle ti C d l time Strategic focus

Ongoing budget pressure Demand for business value Vendor i i V d pricing Security and regulatory compliance

Drive to Improve Utilization

Need for Responsiveness

High cost single-tenant models Underutilization f U d tili ti of dedicated hardware Suboptimal skill mixes Underachievement of economies of scale

Extreme Demands on IT and Business Functions

Rapid volume growth; high variability; explosion of data / complexity l it Anytime / anywhere access Speed / on-demand service Configurability

Proprietary & Confidential. 2012, Everest Global, Inc.

Impact of Next Generation IT Components

Disruptive Next Generation IT models are positioned to meet the demanding market needs, needs creating game changing opportunities game-changing
Efficiency Impact Next Generation Data Centers
Designed to take advantage of modular, hyper-scale and highdensity principles

Flexibility Impact

Dramatically lowered cost Reduced latency Simplified management Highly scalable

Standardization equals speed Right-sized capacity Just-in-time capacity

Nex Generation Models xt s

Talent Factories
High talent, low cost resources organized by an optimized workforce pyramid

Optimized staffing pyramid leading to improved resource utilization Remote support from low cost locations Dynamic workload shift to achieve 4-5X efficiency gain Pooled resources/multitenancy Cost linked to C t li k d t consumption ti Lower device end-user TCO (for certain segments) Productivity improvements y p Location and motion information utility

Improved access to specialized skills and technical expertise Enhanced resource scalability On-demand processing and storage capacity Self-service provisioning Capital avoidance

Cloud Services
IT delivered as a service through private, public, and/or hybrid cloud models

Smartphones, tablets, sensors and other mobile end point end-point technologies.

Simplified AppStore delivery of capabilities Always on connectivity y y Ubiquitous user access

Proprietary & Confidential. 2012, Everest Global, Inc.

Enterprise Cloud Business Value Drivers

Cloud delivery models are creating enterprise-class value across several operational and financial levers
Operational Levers Server consolidation/ virtualization i t li ti Multi-tenant service models
Efficiency Effi i Benefits

Key Financial Levers Observations Capex avoidance

Reduced operations and mgmt costs Outsourced maintenance and support

Management Automation Standardization

Cloud Impact

Active workload management Increased Agility g y Extended Reach

Flexibility Benefits

Levers and impact differ by delivery model BPaaS SaaS PaaS IaaS Private / hybrid cloud Economics sensitive to contextspecific factors Refresh cycle Migration approaches and cost Significant variations in value impact across vendors / CSPs

Revenue growth Reduced operating costs

New Capabilities p Consumption-based billinge

Proprietary & Confidential. 2012, Everest Global, Inc.

Theres No Such Thing as Enterprise Cloud

The Cloud is comprised of several different delivery models, each with different attributes and characteristics
Description Common Services

Business Process as a Service

(BPaaS) BPaaS)

End-to-end business process delivered as a service

Payroll Order-to-cash Procure-to-pay P t Hire-to-retire CRM HCM Email Collaboration F&A Dev Only Dev + Runtime

Software as a Service S i Public Cloud Services

(SaaS) SaaS)

Multi-tenant applications and business services

Platform as a Service
(PaaS) PaaS)

Multi-tenant application development and hosting p g environments Shared data center, infrastructure hardware and software resources

Infrastructure as a Se ce Service
(IaaS) IaaS)

Compute (Server / OS) Storage Database Networking Content Delivery Compute (Server / OS) Storage Database

Private / Hybrid Clouds (On-Premise or Hosted)

Internally shared data center, infrastructure hardware and software resources

Proprietary & Confidential. 2012, Everest Global, Inc.

Enterprise Cloud Adoption Patterns

A set of common adoption paths and strategies are beginning to emerge for how enterprises are capturing value from cloud services
A Observer
Cloud a low priority due to risk and / or perceived adoption constraints (e.g., regulatory requirements)

B Opportunists
Cloud adoption opportunistic; primarily driven by business unit / departmental initiatives

C Solutioners
Cloud adoption intentionally driven by business / functional use cases and needs

D Transformers
Cloud models leveraged broadly across the enterprise, integrated with traditional models, often driving wide-scale IT transformation

E Provider
Cloud models providing foundation for new, integrated service delivery business model based on services market principles

Cloud Penetration SaaS IaaS Private / Hybrid None / limited Individual buyers None None Business High None None / Limited None Limited / Modest Ind. / dept buyers Individual use Private POCs Business Limited None None / Limited None Modest LOB buyers POC / pilots Limited Business / IT Modest Project basis None / limited Policy only Modest / Ext Enterprise buyer Limited Modest IT High Architect Emerging Emerging Modest / Ext Enterprise buyers Limited Extensive Business / IT High Broker Extensive Extensive

Primary Buyers IT Influence I fl Cloud strategy Integration Management Governance

Proprietary & Confidential. 2012, Everest Global, Inc.

Enterprise Cloud Infrastructure Economics

Improving utilization and eliminating excess capacity are the key to realizing cost efficiencies from cloud infrastructure models
Eliminate Excess Capacity Private Cloud Server Utilization

Eliminate spend on unused peak capacity

Move Peak Load to Public

Shift peak loads to public cloud(s) Leverage on-demand L d d pay-as-you-go flexibility

Keep Base Load in Private

Shift loads to fill valleys (where possible) Maximize private cloud utilization

Proprietary & Confidential. 2012, Everest Global, Inc.

Cloud Infrastructure Services Impact

Infrastructure delivery based on the cloud has the potential to unlock extraordinary workload level economics and flexibility benefits workload-level
Enterprise Workload Cost by Platform1
$ / GHz hrs, Indexed vs Dedicated

Hybrid models can drive truly disruptive economics Applicable at individual workload and portfolio level Dynamic bursting not required to capture initial benefits p


65 60-65

Peak Load
Public Cloud
Shift spike compute hours to public cloud Pay only for consumption


Base Load Base

Physical Server Utilization: 7%

Virtualized/ Private Cloud


Public Cloud
( (service provider) p )

Hybrid Model

Private Cloud
Keep base compute hours in private cloud Maximize utilization

1 Assumes average workload mix and profile; 15% of total peak workload hours shifted to public cloud in an on-demand model; does not include application migration costs Source: Everest Group Cloud Value Assessment Model

Proprietary & Confidential. 2012, Everest Global, Inc.


Enterprise Cloud Impact

Recent engagements illustrate the value creation potential of cloud solutions for th f the enterprise t i
Case Example I Fortune 200 Global Energy Co pa y o tu e 00 G oba e gy Company

Case Example II Fortune 250 Consumer Goods Company o tu e 50 Co su e Co pa y

Formulated sourcing strategy for corporate IT infrastructure supporting operations in 28 countries on 5 continents Reduce asset ownership Outsource commodity skills Secure variable pricing Explored Next Generation cloud solutions with 4 global providers Strong cloud capabilities SAP expertise and global reach Ability to transition quickly Assessed proposals for broad managed services solutions with different cloud mixes Range of savings potential Variety of cloud intensiveness

Consolidated IT Outsourcing agreements for 12 operating companies into a single service provider Build a solution that has high availability during and after transition Reduce cost of IT Evaluated proposals for comprehensive IT infrastructure outsourcing Traditional IT outsourcing solutions Cloud-based solution Awarded contract to provider that proposed cloud-based solution, albeit with a more conservative transformation timeline than original cloud proposal

Proprietary & Confidential. 2012, Everest Global, Inc.


Case Example I Global Energy Company

Service providers proposed a diverse set of solutions to meet the clients Next Generation IT solution design objectives
Solution Overview


Solution Description
Solution leverages true public cloud (via partner) ~80% of workloads to cloud-based services; includes DR SLAs reflect standard (public) offering, not customized to client situation 82% of workloads to private cloud, includes DR SAP resides fully in cloud environment No minimum commitments required SLAs reflect shared environment

Provider A

Physical SAP

Private Cloud

Virtual Private Cloud

Public Cloud

Provider B


Dedicated Private Cloud SAP

Virtual Private Cloud

Provider C

Physical SAP

Dedicated Private Cloud

Solution aggressively virtualizes (20:1 ratio) and transitions to a dedicated, single-tenant environment; excludes DR Client-specific SLA s met Status quo does not transform infrastructure No formal service levels; no self-service portal; no consumption-based service model; no service catalog; no ability to track application usage Incomplete DR provided for select business applications


Physical SAP







Proprietary & Confidential. 2012, Everest Global, Inc.

Case Example I Global Energy Company

These solutions afforded very different value propositions for the client

IT Infrastructure Annual Cost

Indexed US$, Year 1 Baseline1 = 100 160 150 140 130 120 110 100 90 80 70 60 Year 1
Public cloudenabled Baseline Provider A Provider B Provider C

Nearly 30% improvement in cost provided by public cloud-enabled solution Even modest use of public cloud to drive utilization appears to have substantial benefit All provider solutions include enhanced scope (albeit with some SLA tradeoffs) Rapid changes in cloud service provider landscape make provider selection an important success factor

Year 2

Year 3

Year 4

Year 5

1 Transition costs are spread over 2 years; retained costs excluded. Proprietary & Confidential. 2012, Everest Global, Inc. 13

Case Example II North America Consumer Goods Company

Proposed provider solutions Client requirements q

Traditional infrastructure solution

Assets owned by service provider, delivered from provider facilities No offshore dedicated to client, only leveraged resources offshore 50%-90% of desired SLAs met Perceived risk of service disruption during transition was moderate

Solution must provide high availability infrastructure, with heightened sensitivity during transition Key decision criterion is magnitude and timing of cost savings Total scope included infrastructure and applications (this case example focuses on infrastructure) RFP guided service providers toward traditional solution

Cloud-based solution
Dedicated private cloud for most applications (including SAP) No movement of clients existing, owned equipment 90% of desired SLAs met Perceived risk of service disruption during transition was low

Proprietary & Confidential. 2012, Everest Global, Inc.

Case Example II North America Consumer Goods Company

IT Infrastructure Annual Cost
Indexed US$, Year 1 Baseline = 100 $, 250
Baseline Provider 1 Provider 2 Provider 3 Provider 4



38% cost improvement provided by cloud-enabled solution All provider solutions address p substantially same scope as Baseline
CloudEnabled solution



Represents initial pricing from all providers (expectation for p ( p substantial concessions from finalists were met) Year 4 Year 5 Year 6 Year 7 Provider 4s cloud-centric solution provided compelling economic advantages

0 Year 1

Year 2

Year 3

Footnote: Transition costs are included. Providers ramp-up services in first two years. Provider 1 is the incumbent. Client chose cloud provider. Analysis based on largest subsidiary of the parent company.
Proprietary & Confidential. 2012, Everest Global, Inc. 15

Cloud Business Value Drivers

Everest Group experience suggests that infrastructure-related cloud services provide the most attractive cost related opportunities Lower cost-related
Operational Levers Server consolidation/ virtualization Multi-tenant service models
Efficiency Benefits Infrastructure Private Hybrid IaaS PaaS
Value Impact Higher

Apps SaaS

Management Automation Standardization

Cloud Impact

Active workload management Increased Agility Extended Reach

Flexibility Benefits

New Capabilities Consumption-based billing

Proprietary & Confidential. 2012, Everest Global, Inc. 16

Cloud Service Provider Landscape

Different cloud service provider groups are adopting distinctive strategies and possess different biases and incentives that impact value capture
Legacy IT Services Talent Model Network Providers Cloud Pioneers

Strategic fit Business model Alignment Investment model Offerings Structure/packaging Delivery capability y p y Go-to-market Sales approach Pricing models Solutioning Example p p providers
Enterprise-focused Strongly influenced by legacy, risk-shifting frame of reference Strong enterprise-class skills Enterprise-focused Talent-based Underdeveloped for enterprise Advanced, consistent with legacy Limited enterprise solution focus Largely absent for enterprise Sophisticated, cloud-centric Legacy elements tend to appear in cloud offerings Cloud delivery capabilities often mixed with legacy Biases toward enabling rather than core solution Talent model focused Network-centric flavor often exists Building capabilities Highly standard cloud not always enterprise-friendly Most advanced cloud-focused Difficult balance of traditional and cloud models Conflicting goals, especially with existing revenue base Bias toward client funding of initiatives Focus remains on talent services to enable cloud Poor fit with infrastructure Little appetite for investment beyond talent factory y y Difficult balance of traditional and cloud models Good alignment with standard delivery; less go-to-market Strong alignment with historical approaches pp Built from start for cloud Sharp cloud focus Oriented to support rapid cloud growth g


Poor enterprise capability

Proprietary & Confidential. 2012, Everest Global, Inc.


Everest Group
Leading clients from insight to action

Scott Bil S Bils

Partner Next Generation IT Practice Leader Everest Group Twitter: @sbils, @everest_cloud 512-550-0207 (m) 214-341-3043 (o) | |

Proprietary & Confidential. 2012, Everest Global, Inc. 18