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Slim pickings as virtualisation gold rush ends

Virtualisation has gone from gold rush to slim pickings in just a year. But as Heather Wright discovers, there are still opportunities to be found.

Just one year ago, when The Channel last put the spotlight on virtualisation, all was good in the market.

One major distributor was bubbling with excitement, proclaiming virtualisation as 'ground breaking' and a big potential opportunity for New Zealand resellers.

Data centre virtualisation was taking off, as was desktop virtualisation.

It was, it seemed, easy money, ripe for the picking.

Fast forward 12 months to the present day, and things are very different.

Michael Warrilow, Gartner research director for the infrastructure software team, has a stark message.

“The virtualisation gold rush is over in New Zealand.

“We're getting to slim pickings. Virtualisation has run its course in New Zealand and resellers are running out of options for virtualisation infrastructure.

“Now it's about what value add a channel partner can offer into customers who are virtually 100% virtualised.”

New Zealand, he notes, is the most virtualised market in the world – despite Australia also claiming that title.

“The vast majority of enterprises are virtualised or getting there. The question now is how to adjust management for a virtualised environment.”

And that he says, is where the potential market now lies for resellers.

“It's all about the adjacencies – converged infrastructure hardware and software to better manage the virtual environment.”

He says that software can take the form of monitoring or security, but there are also new forms of software required and hitting the market.

“If for example an enterprise is going from virtualisation to public cloud, and not all will, but for those making the transition or transformation to the cloud, they need self-service portals.

“Virtualisation management or administration is normally done by specialist teams, but public cloud, with the likes of Amazon, changes things. Anyone can get up and running with a few clicks.

“Self-service and service catalogues are two key opportunities for the channel in helping clients transform some of their systems into private cloud.”

Warrilow says most enterprises want their incumbent virtualisation provider's management systems – meaning VMware is top of the list for the majority, with Microsoft still playing second fiddle.

Offerings from the likes of BMC, HP and IBM are also getting a look in.

And speaking of VMware, Warrilow says virtualisation remains largely a one-horse race, with VMware continuing to dominate over Microsoft's Hyper-V.

“Hyper-V is being a little more competitive but it's still a significant gap and VMware's lead is not materially diminishing.

“Globally we see in the low double digits using Microsoft,” he says. In New Zealand, he expects that figure to be even lower – 'high single figures probably'.

“There is everything for VMware to lose, for on-premise at least.”

He says the vendor is playing a strong game, adding offerings such as Fault Tolerance which 'will keep the faithful, faithful'.

But that's on-premise. Warrilow says a bigger problem for VMware is the cloud spectre, and challenges from the likes of Azure and Amazon.

Building a bridge

Warrilow says there are also big opportunities for resellers who have co-location capabilities, or are able to source some, and who can provide a bridge to cloud offerings such as Microsoft Azure or Amazon Web Services.

He highlights Microsoft Azure's ExpressRoute and Amazon Direct Connect private network connections, both of which enable private connections between the cloud provider and the customer's data centre, office or co-location environment, potentially reducing network costs, increasing bandwidth throughput and providing a more consistent network experience than standard internet-based connections.

Having a local co-location partner in New Zealand helps smooth over issues of data residency and provides the local expertise, while enabling companies to leverage the scale of a global organisation.

Providing a cloud exchange offering enables fast connections from clients into the cloud provider, with resellers able to manage systems on behalf of their clients.

“There's the option to offer co-location with services such as Microsoft and provide fast network connections.

“Some clients don't want to put everything in the public cloud – they may not want their database in the public cloud for example, but want it to stay in New Zealand.

Warrilow warns that snapping at the heels of resellers are the new 'born in the cloud' channel companies, who aren'tassuming their money will come from margins on the resale of hardware or software and offering value-added services on top for additional revenue.

Born in the cloud resellers, as noted by Gartner's Tiffany Bova in May 2013’s Tech Go-to-Market: Providers must adjust their channel programs as partners take to the Cloud, are instead offering 'outcome-based' business solutions built on the back of cloud service providers, focused on software and application development and business process consulting, and offering unique solutions tothe market.

“Although this may sound similar to the existing system integrator role that has been around for decades, the main difference is that they are predominantly oriented around cloud-based services and have no legacy business models or large outsourcing contracts to protect along the way,” Bova says.

“The assumption that there is enough margin to get by reselling hardware and software is gone. It's a dangerous assumption already,” says Warrilow.

All roads converging

Warrilow says the opportunity on the hardware side lies with converged infrastructure, consolidating the computer and storage – and sometimes the network layer – into a single integrated appliance.

“The cost of storage has been a bug bear for a lot of enterprises and over the last few years we've seen a lot of innovation in the converged infrastructure space, helping reduce costs.”

Leading the way, he says are players such as Nutanix and SimpliVity.

“It's a short to medium term opportunity for the channel, and they need to make hay while the sun shines and while they build a more consulting-lead partnership with clients,” Warrilow says.

“There's money to be made there.”

Warrilow is cautious about the road ahead, saying the current opportunities around virtualisation are 'discrete bubbles'. “None will be as big as virtualisation was.

“But they are there to be had and the time to take advantage is now as you build a more cloud-centric model over the next few years.”