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Photo shows Ken Hu, Huawei rotating CEO

Two years ago Huawei, a Chinese maker of telecommunications systems, said it wanted to be the world’s leading information technology company.

This year, at the three-day Huawei Connect event held in a giant arena on the banks of Shanghai’s Huangpu River, the company outlined a plan for getting there.

In a keynote speech, Ken Hu, one of Huawei’s three rotating CEOs, said the company aims to position itself as the enabler and driver of an intelligent world.

Over the next three days the meaning of these words became clear: Huawei will sell the hardware and software other companies need to build their own clouds.

Ambitious

Becoming the leading IT company was, and remains, an ambitious goal. It means taking on the likes of HP, Cisco and IBM. These US technology giants are long-established, well-known global brands. They have long-standing customers and deep relationships.

Every technology company likes to talk about disruption as if they invented the term. For some of the dinosaurs it is just an idea they pay lip-service to. At Huawei, disruption is a way of life.

Over the last decade and a half Huawei pulled off an audacious, disruptive take-over of the telecommunications equipment sector.

A decade earlier that industry was dominated by its own set of secure, long-established western giants. Now most of those names have disappeared.

Phone disruption

More recently Huawei disrupted the mobile phone market. Its first handsets were low-cost models. Huawei sold then to telecommunications carriers who in turn sold the phones to customers using their own brands. Huawei realised these devices were good enough to sell in their own right.

Today Huawei is the third biggest phone maker behind Samsung and Apple.

Now it’s the turn of the information technology incumbents to face disruptive Huawei.

These are already difficult times for traditional information technology companies. For year they sold high margin products and services to a world hungry for computers and software. Those high margins were under pressure for a generation, but that was nothing compared to the threat from cloud computing.

Infrastructure-as-a-service

Many organisations have stopped or slowed down their IT capital expenditure purchases. Instead they spend operational expenditure money buying infrastructure-as-a-service cloud services from companies like Amazon, Microsoft and Google.

Where they once installed expensive and complex applications, they now buy software-as-a-service from the likes of Salesforce, Netsuite and SAP by design.

This shift in spending, from traditional IT equipment to cloud services is the key to Huawei’s ambition.

Extend the brand

In some ways it is a classic brand extension exercise. Huawei’s most important customers have always been the telecommunications carriers. Huawei sells them wireless and fixed line network equipment. In New Zealand it does business with Spark, Vodafone, 2degrees and Chorus.

Now many of these companies are embracing cloud computing. Spark New Zealand has made huge cloud investments. It is one of the largest local cloud service providers. Many other telecommunication service providers in countries like China and Germany are starting their own cloud offerings.

Huawei already has the relationships in place with these telecommunications firms. It also has a track record of delivering. So it makes perfect sense for telecommunications companies to buy the hardware they need to operate cloud services from the same company that sells them network equipment.

And that’s the key to Huawei’s strategy. Another of the company’s three rotating CEOs, Eric Xu, says the company isn’t going after Amazon Web Services or Microsoft Azure, at least not on a global scale and not at this stage.

No public clouds…yet

He says Huawei will work with service providers for public clouds; “We don’t plan to provide public clouds outside of China.” In the rest of the world Huawei provides the infrastructure other companies need to build their clouds.

Huawei also says it doesn’t plan to operate at the higher levels of, say, software-as-a-service, it wants to build the pipes, although it stresses these are intelligent pipes.

Telecommunications carriers building cloud projects are the low-hanging fruit for Huawei, but they are just the start, the company intends to sell its cloud products to every company.

Xu says there are plans to help organisations in sectors such as finance build clouds, but there’s an even bigger opportunity with manufacturing and industrial companies. He sees room for thousands of new specialist industry-specific clouds.

Huawei cloud product firehose

There are a lot of cloud products. At Huawei Connect the company announced a slew including 31 FusionCloud Services, FusionStorage 6.0 and the FusionStage PaaS Platform. There are faster switches and faster processors.

To get this moving Huawei is looking to forming partnerships and to stick with open source software. Partners were visible at Huawei Connect, executives from Infosys, SAP, Intel and China Telecom among others gave keynote presentations. In a cavernous building next door, expo space was given over to others including Toshiba and SuSE.

Outside the Huawei Connect arena, massive industrial barges chug slowly up the river under yellow, smoggy clouds. There’s a powerful metaphor in the contrast between the old face of Chinese industry and the new one.

Huawei has a proven track record and a willingness to do the hard work needed to make ambitious plans succeed. It knows how to deliver customer value. There’s every reason to believe it can disrupt the information technology business.

Bill Bennett travelled to Shanghai for Huawei Connect as Huawei’s guest.

Microsoft Azure Servers

Microsoft opened Azure data centres in Sydney and Melbourne this week. In theory Australia’s East Coast is just a 14ms ping from Auckland. Realistically most traffic will take longer. It isn’t like having a server in the next room, but close enough.

Australian Azure data centres come at a price. Lifehacker reports many Australian services are more expensive than buying them from Microsoft’s US or Singapore data centres.

If ping times and latency are important, the extra cost is worth it. If not, then send your data elsewhere.

Azure cloud scale

When it comes to large-scale, multinational cloud services, Microsoft is now second only to Amazon. There are other players, but the mainstream market will almost certainly consolidate around these two players.

IBM is a likely distant third. It will play at a different level with an offering based on managed services. The others will trail in the dust.

For those of us who don’t have computer science qualifications, Azure is much easier to deal with. When I tried AWS it took ages to get a simple site working, with Azure my test site was running in minutes.

I’m more impressed by Azure than any other cloud service I’ve seen. Microsoft wraps Azure’s complexity in easy walk-throughs. Some geeks may sneer but many users are more interested in productivity than being clever.

Microsoft’s infrastructure as a service cloud service poses a serious challenge to Amazon’s cloud leadership. In part that’s because it brings the lessons learnt from years of serving up operating systems and software like Microsoft Office to the great unwashed.

Microsoft learns, loves Open Source

Yet there’s something more profound going on. Microsoft has learnt the most important lessons from its rise and fall. There’s no proprietary lock-in at Azure. Open source is as welcome as any other software. The company recognises it no longer has a software monopoly.

It goes further. Microsoft has learnt not locking customers in can be more profitable. And ironically given Microsoft’s woeful track record during the monopoly years, it has learnt to value security. Azure feels more secure than any other cloud service I’ve played with.

Microsoft still has a powerful brand with computer professionals. It knows how to nurture the breed. Microsoft has also built links with developers. The company talks their language — look at TechEd for evidence of just how close Microsoft is to CIOs and developers.

Azure already paying dividends

Last week Microsoft announced its first quarter results. Earnings were up 25 percent year-on-year to US$23 billion. Profits looked good at US$4.5 billion — and that’s after taking a US$1.1 billion charge from the Nokia deal.

Cloud services, which includes Azure and Office 365, were the high point. Sales jumped a massive 128 percent to US$1.2 billion. That’s about five percent of total revenue, but it’s growing fast. Office 365 now has seven million subscribers.

Microsoft Surface sold US$900 million for the quarter — not bad for a product some critics say is dead. Surface is a great device. In truth, Microsoft remains a money-making machine and Azure is an important cog.

Oracle

Oracle posted a fourth quarter result which missed market expectations on Thursday. Investors dumped the tech giant’s stock on the news with the share price falling almost nine percent.

Net income for the quarter was US$3.65 billion, down four percent on US$3.8 billion in the same quarter a year ago.

While Oracle didn’t drop the ball in any department, the result shows younger, nimbler competitors are squeezing the company on several fronts.

Keep calm statement from the bosses

Management moved to calm investors with a prepared statement talking of the company’s relatively successful move to subscription-based sales. It mentioned strong growth in software-as-a-service which is up 25 percent and growth in infrastructure-as-a-service.

The statement quotes CEO Larry Ellison saying: “Oracle is now the second largest SaaS company in the world. In SaaS, we’re in front of everybody but salesforce.com. In IaaS we’re larger and more profitable than Rackspace.”

While the company is doing fine in these new business areas, they are small compared to Oracle’s core business which appears stagnant. Like other old school technology companies, Oracle‘s challenge is that the new growth areas have margins far lower than in its traditional business. The company has yet to refine its business model to cope with that shift.

What do IBM, Dell, HP, Oracle and SAP have in common? All are mature technology companies – the youngest is Dell formed in 1984 – and they all bank on cloud computing getting them out of the doldrums.

There are a few things wrong with that idea.

First, it was cloud computing that got them into trouble in the first place. Hardware sales, particularly servers, fell as companies switched applications and processing to the cloud.

Cloud-hosted applications disrupt high-end software. It challenges high-margins, undermines the need for infrastructure and support that allows software giants to get away with huge costs.

Oracle, originally a software company but since buying Sun Microsystems with a large hardware business, is in a more nuanced position. It lost server sales to cloud computing while its software business is challenged by nimble, commoditised cloud-based apps. SAP faces just the app challenge.

Second, the old school companies have enjoyed relatively high margins in at least parts of their businesses. Even Dell’s commodity hardware margins were higher than the wafer-thin margins Amazon squeezes from its IaaS – infrastructure as a service – business.

Cloud needs scale

Amazon makes money because of scale. Huge scale. According to Gartner, the company has five times the IaaS capacity of the next 14 competitors added together.

The economics of scale mean each additional customer is cheaper to serve and sheer market size cuts the cost of acquiring customers.

Amazon’s scale means it sits bestride the cloud market like a colossus.

Third, Amazon has a huge first-mover advantage. That’s always a problem when any new technology comes along. It’s a bigger problem than usual with the cloud where being first means being ready to meet demand while others are still building capacity.

It means learning how to make savings – Amazon has dropped cloud prices 40-odd times in eight years of operation.  Do IBM, Oracle and SAP want to follow Amazon down that path?

Legacy

It also scores because it doesn’t have any legacy. There are no existing business or customer contracts to protect. Apart from anything else, this means Amazon is quick to innovate, there’s nothing to lose from moving fast. And that’s scary for competitors.

None of the would-be cloud giants can move without pain. In many cases, the pain involves converting high-value, high-margin products and services into commodities. There’s no path around this, but it will make it harder for them to bite the bullet.

Fourth, Cloud computing leaves little room for differentiation.  IBM, Oracle, HP and SAP all think they can add value, perhaps they can do a little around the edges, but on the whole, customers aren’t willing to pay for it when the alternatives are almost as sophisticated, but an order of magnitude cheaper.

To sum up: The big IT companies have little alternative to head to the cloud, their customers are going there with or without them.

Whether they can maintain customer relationships, add value and continue to prosper is far from given. You’d have to pick that one or more of the brands, IBM, Dell, Oracle, HP and SAP, isn’t going to make the transition.

All Blacks website

Being based in New Zealand is something of a problem for the All Blacks. Not for the rugby team, nothing managed to get in the team’s way this year.

It’s another story for the allblacks.com website.

In the past the site has been hosted locally, but being at the end of a long thin pipe to the rest of the world’s rugby fans has caused problems.

Getting smashed

Brendon Ford, chief operating officer at Provoke Solutions says it doesn’t help that the site has massive traffic surges. “When a team is announced the site gets smashed. When a game is on the site gets smashed”.

He says an average month might see the site get two million page views. At peak times it can ramp up to 15 million pages views in a month.

Ford and Provoke moved the allblacks.com site from infrastructure which was creaking under the strain to the cloud.

Cloud, elastic computing

Brendon Ford, Provoke COO
Brendon Ford, Provoke COO

That’s a obvious choice these days where online utility computing models can switch capacity on and off like opening a hydro-dam’s gates. The demand for the site is elastic, cloud computing can make sure the supply of web capacity is just as elastic.

However, what’s less obvious is the choice of Microsoft Windows Azure.

Ford says Azure has characteristics that are just right for the All Blacks site. Like any cloud service it means NZ Rugby no longer needs to own hardware. But it also no longer matters where the traffic is coming from. Azure can be local to everyone. There are hosts everywhere.

Windows Azure helps meet overseas demand

And that’s important because Ford says there’s an increasing interest in the All Blacks from outside New Zealand. He says while New Zealand fans could get a decent response from the site, the experience for fans in Europe and elsewhere could be disappointing.

Ford describes Windows Azure as a great IaaS (infrastructure as a service). He says it has a great price and is elastic able to rapidly scale up and scale down. Best of all, the All Blacks only need to pay for what gets used. There’s no need to keep a lot of kit sitting idle for much of the time.

There’s also flexibility from the development side. As Microsoft New Zealand platform and developer group director Nigel Parker points out, the cloud service may be branded as Windows Azure, but that doesn’t restrict you to Microsoft’s software, systems and tools.

Cold Fusion

Ford says the All Blacks had a huge investment in a CMS that was built using Cold Fusion. He says: “They didn’t want to bin that, so we migrated it to Windows Azure. Then we build a layer on top with enough flexibility that we didn’t need to constantly fire-up new virtual machines.”

Although Azure does a good job of ramping up automatically depending on demand, Provoke built the system so that it triggers more capacity as certain levels are reached. Sometimes this is controlled by the various apps running on the site.

There are challenges designing for elastic systems. Ford says there was concern about moving Cold Fusion, but that went well in the event. He says there can be SQL issues and you have to be careful “reaching back into line-of-business apps. It’s possible to do a denial of service on yourself”.

Another challenge is the move from desktop computers to mobile devices. As Ford says, what do you think Telecom NZ users are going to do with the gigabyte a day they can now download from Wi-Fi hotspots?

Ford says mobile is the future of the site. “It’s already been built to be response to any size screen. We’re now running video and streaming live information.