South Africa Cloud Services

SMEs are the early adopters

Reference Code: TE007-000690 Publication Date: 24 Jul 2013 ut!or: Ric!ard "ur#t

SUMMARY
In a nutshell
The South African market for cloud services is currently at an early stage of development, with uptake slower than in more developed parts of the world such as North America and Europe. Ovum forecasts that the total revenues for cloud services in South Africa will rise to $ !"m in #$%! from $%&$m in #$% . This forecast is 'ased on Ovum(s regional pu'lic cloud forecasts )*u'lic +loud +omputing Services ,lo'al -arket .orecast -odel/, as well as interviews with e0isting service providers in South Africa. 1owever, despite the wait2and2see approach from enterprises, a num'er of service providers have ramped up their investments in infrastructure such as data centers and transmission capacity in anticipation of the em'race of cloud. Some enterprises have taken the tentative steps towards cloud, after some hesitation surrounding facets such as privacy and security. The charge has 'een led 'y small to medium2si3ed enterprises )S-Es/, which tend to adopt new technologies faster than larger enterprises and are su'4ect to fewer restrictions in terms of internal procurement and compliance. S-Es also carry less in the way of legacy infrastructure and typically approach cloud services from a more 5greenfield5 scenario.

Ovum view
+loud services in South Africa are finding traction and appeal in the small to medium2si3ed enterprise )S-E/ sector. The reason 'ehind this has 'een that cloud services lower the 'arrier to entry for these cash2conscious entities, allowing them to reali3e savings 'y outsourcing services and shifting funds from cape0 to ope0. 6arge enterprises are e0pected to 'egin taking up cloud services using hy'rid pu'lic7private cloud models. 8ey concerns for larger enterprises have included security and the perception that sharing of infrastructure compromises data confidentiality.

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Key messa es
+loud services will attain a +A,= of %>? in revenue terms over the ne0t five years, rising to $ !"m in #$%!. New entrants are e0pected to appear in the South African cloud environment. 1owever, Ovum anticipates that this will 'e followed closely 'y an increase in merger and ac@uisition activity as the market consolidates over the ne0t two to three years. An increase in international and local long2distance and metropolitan 'andwidth will 'oost uptake of cloud services among enterprises as the services 'ecome increasingly competitive and cost2effective. An certain metropolitan areas there is an oversupply of data center space. South African enterprises are e0pected to move to an ope0 model, with outsourcing gaining as costs and regulatory pressure increase. Over the ne0t three years Ovum estimates that companies will shed #BC $? of their A+T assets as cloud services 'egin to gain traction. South African S-Es are looking to third2party providers, most nota'ly systems integrators, to provide their cloud services.

Recommendations for players

!or networ" operators Network operators have 'een looking at their architecture and services and will need to 'egin developing solutions which take a revitali3ed approach to enterprise DAN. =ecently they have 'een adapting to growing demand in South Africa 'y increasing 'andwidth capacity and relying on over provisioning to ensure network performance. Network operators have considered other ways to meet these needs such as software2defined networking )SEN/ and integrating data centers and cloud services on the provisioning and monitoring side. On the provisioning side, Neotel has launched an on2demand 'andwidth service designed for enterprise users that need to increase their 'andwidth for 'atch processing. !or cloud service providers +loud service providers looking to tap into the South African market should work on alleviating enterprise concerns surrounding security and confidentiality. These issues can and have 'een addressed via close partnerships with security software and hardware vendors. +loud providers should also focus on the S-E sector to win new 'usiness and mindshare. An approaching the S-E market, providers should highlight cost reduction and increased efficiency in their sales and marketing campaigns. The go2to2market challenge for service providers is to effectively position their services for the S-E segment, which might re@uire partnerships with entities that have e0posure to and a track record with S-Es. An e0ample would 'e local hardware value2added resellers )FA=s/ looking to move up the stack of services and e0tend into cloud.

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C#OU$ E%&IRO%ME%'
#ocal (usinesses (ein s)uee*ed
South African enterprises are 'eing s@uee3ed as they struggle to meet demands for increased colla'oration and faster access to applications and information while maintaining compliance in an increasingly stringent regulatory environment. .urther restraints arise from facets such as high power costs, environmental awareness, and growing security concerns as well as 'usiness continuity and disaster recovery issues. South African enterprises are influenced 'y the glo'al trend for customer, partner, and employee relationships 'ecoming increasingly open and colla'orative. *articular attention is given toG De'2'ased 'usinesses such as Ama3on, eHay, and ,oogle that are glo'al in scale and have a smaller infrastructure footprint than more traditional approaches to 'usiness The glo'ali3ation of the marketplace and the need to effectively compete in new markets and against new competitors.

.urthermore, if a company is sweating its current A+T assets and infrastructure, e0isting investments may 'e less responsive to overall 'usiness needs, turning the A+T department into a cost center rather than a source of competitive advantage. An order to remain relevant and competitive in the local and international conte0t, South African 'usinesses are slowly starting to e0amine the notion of cloud services as a means of lowering cost and increasingly efficiency. An line with this, South African companies are looking atG *rivate cloud C investing in their own infrastructure and providing cloud services themselves *u'lic cloud C using an e0ternal service provider 1y'rid )a mi0ture of 'oth private and pu'lic cloud/.

According to a recent survey conducted 'y Ovum, among #%$ S-Es in South Africa with B$CB$$ employees, >#? of S-Es in South Africa relied on cloud services for their hosted email, we'sites, and disaster recovery. +ommunications services such as A-, video conferencing, voice conferencing, and hosted *HI services were also popular, with B$? of respondents indicating that they currently had such a service, while #&? indicated that they would adopt such a service in the ne0t %# months. Anfrastructure2as2a2service )AaaS/ and software2as2a2service )SaaS/ are high on S-Es( radar at the moment, with "BC"&? of respondents indicating that they will 'e implementing such a service in the ne0t %# months. .igure % highlights South Africans S-Es( responses to the Ovum research.

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!i ure +, South African SMEs- adoption of hosted and cloud.(ased services

SourceG Ovum

.or AaaS, # ? of S-E respondents preferred to use system integrators )SAs/, while for unified communications2as2a2service )<+aaS/, $? preferred telecommunications service providers. The difference highlights the fact that South African S-Es are seeking 'est2of2'reed providers with a proven track record in each service. .igure # shows South African S-Es( preferences in terms of trusted suppliers for hosted and cloud services.

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!i ure /, South African SMEs- preferred providers for hosted and cloud.(ased services

SourceG Ovum

Cloud revenues poised for

rowth

According to Ovum(s research, cloud revenues in South Africa are currently $%&$m annually. The 'ulk of revenues are from software2as2a2service )SaaS/ with $&!m )B%? of the total/, followed 'y infrastructure2as2a2service )AaaS/ with $!"m ) &?/ and platform2as2a2service )*aaS/ with $%&m )%$?/. =evenues will grow at a +A,= of %>? to #$%!, reaching $ !"m. *aaS will increase to #%? of revenues while AaaS will e0perience a decline to around ? of revenues. These pro4ections are 'ased on Ovum forecasts )*u'lic +loud +omputing Services ,lo'al -arket .orecast -odel/, as well as interviews with e0isting service providers in South Africa. The focus on SaaS and *aaS will occur as South African enterprises move away from infrastructure investments to focus on services and the cost reductions offered 'y SaaS. .igure highlights anticipated cloud revenue growth in South Africa.

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!i ure 0, South Africa cloud revenue forecast1 /2+/3+4

SourceG Ovum

Cloud models 3 differin schools of thou ht

The current state of the cloud market in South Africa highlights two distinct schools of thought. At the heart of the matter is the pu'lic2versus2private cloud de'ate. *rivate cloud e0ponents hold that services and infrastructure must 'e owned and controlled 'y the enterprise to maintain security and the desired level of service 'eing delivered to the end users. *u'lic cloud e0ponents hold that pu'licly accessi'le services are secure and relia'le and that there is no need for a duplication of effort. 5rivate cloud on the rise A key facet of the private cloud in South Africa has 'een the need to 'ypass the Anternet and provide resilient connectivity to private cloud services. Network operators in South Africa have sought to 'ridge this gap via the ongoing deployment of enterprise2grade DAN services such as -*6S network technology and F*Ns. According to Ovum(s A* F*N .orecast for #$% C%>, the num'er of -*6S F*N connections in South Africa is e0pected to rise to "9,$$$ 'y the end of #$%> from ",$$$ in #$% .

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!i ure 6, South Africa &5% connections forecast1 /2+/3+7

SourceG SourceG Ovum A* F*N .orecast, #$% C%>

Eirect data center connections are a further solution 'eing e0plored 'y network operators in South Africa with Telkom, Neotel, Fodacom, and -TN among others offering giga'it Ethernet access to their data centers. Network operators in South Africa are increasing their focus on partnerships with cloud providers as well as 'eing a'le to provide their own solutions via their own investments in data centers etc. 5u(lic cloud remains dependent on the Internet The ma4ority of the pu'lic cloud services on offer in South Africa today are provided over the pu'lic Anternet. The key issue here is that the service levels cannot 'e assured regardless of the reliance of the service providerJs network and cloud platforms. This implies that the solution is not ideal for the larger enterprise market. 1owever, S-Es are likely to use the pu'lic cloud and Anternet to access cloud services 'ased on cost and u'i@uity of connections. The pu'lic cloud is also e0pected to e0perience a 'oost due to the influ0 of international capacity, making access to international cloud resources easier and more cost2effective for the S-Es. Accenture has sought to overcome the limitations of local 'andwidth and has launched its Accenture +loud *latform in South Africa. The solution has 'een designed to allow companies to e0tract value from a shared platform and facilities. 8y(rid cloud solutions promise the (est of (oth worlds 1y'rid cloud solutions in South Africa offer enterprises and service providers an opportunity to offer performance and access with a degree of control in terms of security. Network operators are e0pected to focus their efforts on DAN optimi3ation and performance in the pu'lic clouds, allowing these resources to 'e shared across enterprises. An the near future enterprise

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customers are e0pected to 'egin seeking an increase in service2level agreements )S6As/ in their pu'lic cloud or hy'rid solutions.

$rivers
8ey drivers for cloud service uptake in South Africa includeG $reater fle%ibilit&: A ma4or selling point for cloud services has 'een their fle0i'ility and cost2effectiveness versus more traditional A+T approaches. Co#t reduction: -oving services to the cloud is akin to outsourcing and reduces cape0. :ust as it does on a glo'al 'asis, outsourcing also allows South African enterprises to increase redundancy. Data center ca'acit& re#triction#: South African enterprise A+T services and data centers )E+s/ are e0periencing pressure as many of the local enterprise E+s have reached their limit in terms of space, capacity, and power consumption. At the same time, these enterprise E+s are having trou'le keeping pace with the changing technology and 'usiness environments. Po(er co#t and reliabilit&: A growing concern among South African enterprises has 'een the growing unrelia'ility and high cost of power from the national provider Eskom. +ompanies running their own E+s have reported that as much as "$? of the overall cost of running the service goes towards power provisioning. This high cost and unrelia'ility of power has prompted more 'usinesses to consider cloud services as an alternative. )*ill# #!orta+e: +loud services also allow South African enterprises to @uickly close the skills shortage gap, as services 'ecome centrali3ed and key support functions are outsourced offshore. ,obile broadband: The massive growth of mo'ile 'road'and in South Africa, where smartphones are e0pected to out2ship feature phones 'y the end of #$% , has prompted a rapid increase in the uptake and use of mo'ile content, with users e0pected to look to pu'lic cloud solutions for storage of multimedia content and processing power that does not reside on the device. Thus enterprises in South Africa are e0pected to drive the uptake of cloud services as enterprise mo'ility 'egins to gain traction. -i+ Data: Eata growth and the need to manage large amounts of data, such as transactions records and multimedia, are also driving the uptake of cloud services, with the cost of storage decreasing rapidly. Often there is a misconception among enterprises that data storage and hosting are synonymous with cloud services. .o(er barrier to entr&: The annuity2'ased pricing and the ope0 model make it possi'le for more companies to afford cloud services that they may not have the resources to provide themselves. -any local service providers cite this as the reason the S-E sector is leading the market in terms of cloud uptakeG cloud services allow S-Es to cut their costs and gain an immediate competitive advantage.

Challen es
The slower2than2anticipated uptake of cloud services in South Africa has 'een due to a num'er of challenges such asG

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the high cost and availa'ility of 'andwidth the perceived lack of security and privacy of cloud services.

9andwidth (oom and (ust

An South Africa the issue of international 'andwidth has 'een largely addressed with more su'marine ca'les landing in the country. The challenge is now the local long distance and metropolitan 'andwidth. At the same time, cloud providers have mentioned the a'ility to interconnect at afforda'le rates as an ena'ler that will further unlock the local market potential.

Security concerns lin er

Security has 'een a ma4or concern for enterprises in South Africa, stemming from the concept of data 'eing shared, a lack of confidence in cloud providersJ security measures, and a lack of visi'ility and control over the data and infrastructure. One South African service provider said there e0ists a notion that the enterprise AT manager needs to 'e a'le to see the physical infrastructure where the organi3ationJs data resides. 1owever, cloud implementations such as E+# and A3ure are going a long way to show that the data and services can 'e secure in the cloud.

IS1 M'%1 and &odacom amon cloud first movers

As mentioned a'ove, the S-E segment is viewed 'y most cloud service providers as the early adopters of cloud services in the South African market, 'ecause they are a'le to 'alance the risks against the agility and cost savings promised 'y such services. An line with this growth and uptake, a num'er of service providers such as Anternet Solutions )AS/ are targeting smaller enterprises with their cloud offerings. =ecently AS announced that its pu'lic cloud computing services could 'e purchased on a pay2as2you2go 'asis. The AS pu'lic computing2as2a2service )+aaS/ platform is availa'le through a we'2'ased portal and ena'les developers, independent software vendors, S-Es, or large corporations to easily access enterprise2related cloud services with pro2rata pricing, paying only for what they use. -TN Husiness is also targeting the S-E sector with its cloud offerings. The service, du''ed -TN +loud, offers a variety of applications. *articipating companies have access to Office Eesktop email and colla'orative softwareK -o3y*ro, a 'ackup service for the management of files and serversK and Eialcom, an on2demand video conferencing service. Also on offer is -cAfee anti2virus and anti2spam software K Averiware, an 1=, accounting, finance and sales toolK and -icrosoft Share*oint. According to -TN, the most popular solutions have 'een Averiware, -o3y*ro Online Hackup, and -cAfee SaaS. Fodacom Husiness has partnered with SA* and Swicon 9$ to provide an 1= module called 1+Spectrum via the cloud. The service is accessi'le to 'oth large and small enterprises.

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Cloud and enterprise mo(ility

A key characteristic of the South African A+T landscape is the num'er of mo'ile phonesG with mo'ile penetration at over %9&? and the rise of the 'ring2your2own2device )HLOE/ phenomenon in the enterprise, the significance of cloud services in the mo'ile space is e0pected to grow as more mo'ile apps 'egin to connect to the cloud, with most SaaS applications carrying a mo'ile interface. Enterprises will look to the mo'ile cloud for 'enefits such as cost efficiency, processing power, and ease of management and use. S-Es in South Africa and other parts of su'2Saharan Africa are also more agile in their approach to mo'ility, and they will naturally consume cloud services over mo'ile devices, which are in effect the last mile in these emerging markets.

CASE S'U$IES
There have 'een a num'er of cloud services implementations across South Africa in 'oth the private and pu'lic cloud environments. The implementations have largely reflected the current leaning towards private cloud. Solutions have also revolved around systems integrators offering services to clients aimed at improving operational efficiency and reali3ing costs savings. The key thread that emerges from these case studies is that in all instances there is a reported increase in operational efficiency, 'ut cost savings tend to 'e elusive due to pro4ect scope creep and additional infrastructure investments.

Europcar South Africa

Europcar South Africa is a car rental company with %#$ offices across the country and a fleet of over %B,$$$ vehicles. The company(s 'usiness is e0tremely price2sensitive and thus re@uires tight cost control. The 'est way of controlling costs was to drive efficiency through the use of technology. The companyJs AT infrastructure provides services to the 'usiness, including file and print services, E0change, SM6 services, 'ackup facilities, and colla'oration services. An addition, &$? of EuropcarJs AT services are running on a virtuali3ed platform supplied 'y hardware vendor Eell and software vendor -icrosoft. Europcar wanted to 'uild a private cloud to create an AT infrastructure that was scala'le to its 'usiness needs, agile, and a'le to meet employee and customer re@uirements as and when needed. The re@uired cloud solution needed to 'e a'le toG shift the current virtuali3ation strategy to the ne0t level offer greater fle0i'ility and agility in terms of the 'usiness needs deliver a comprehensive disaster recovery platform 'e cost2effective and easy to maintain.

Europcar chose Eell as its cloud provider running -icrosoft Dindows Server #$%#. Hy raising the role of automation in the creation of virtual servers, Europcar has cut the time re@uired for launching a virtual machine 'y roughly "B?.

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The cloud service has also seen disaster recovery go from two hours prior to the implementation to %B minutes. The service also allows for live migrations of the clustered sites for 'etter 'usiness continuity. +onnectivity to the cloud and data center was delivered via a mi0ture of Neotel F*N and Fodacom F*N services.

Consol :lass
+onsol ,lass is Africa(s largest glass manufacturer. =ecently the company contracted with T2Systems for the delivery and migration of its SA* system to the cloud in a deal valued at $ .#m. +AO :ohan Eu *lessis said that in addressing the issue of cloud services the organi3ation looked at its own 'usiness processes and asked whether these were really suited to the cloud, considering issues such asG on2demand delivery of AT resources cost savings and how these could actually 'e reali3ed.

The company turned to T2Systems, which had 'een its AT services provider since #$$B. The initial deal covered the entire AT landscape, including SA* and all other applications. +onsol ,lass then wanted to see that if its 'usiness was suited to a cloud service and, if so, how the migration would take place and what disruption to the enterprise might occur. .urther @uestions revolved around the issues of technology selection, service provider selection, and the possi'ility of changing providers. +onsol ,lass had a free hand in its choice given that it had its own on2site data center. T2Systems conducted a 'usiness, A+T, and service )HAS/ assessment. The standardi3ed HAS methodology ena'led the glass manufacturer to find out if the cloud was suited to its 'usiness and, if so, which route was 'est. At would also deliver visi'ility into the AT environment, 4ustifying decision2making 'ased on the 'usiness case. The first step of the assessment is to take the measure of the current A+T architecture and application landscape in order to develop a tailor2made cloud strategy and roadmap for implementation. A key role is played 'y the simulation of possi'le future modes of operation. Analysis is performed on the 'usiness strategy and processes as well as the customerJs A+T architecture, including compliance and security imperatives. The second step looked at ensuring a @uick and seamless switch to standardi3ed cloud services, delivered via data centers situated around the world. Email services, unified communications solutions, and applications 'ased on popular software products are migrated to the new platform. The assessment gave +onsol ,lass a clear picture of whether its 'usiness and cloud services were a good fit offering visi'ility of systems and anticipated costs. The analysis convinced +onsol ,lass to select T2Systems as its cloud service provider 'ased on the technical and 'usiness skills offered 'y the integrator.

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Outcome +onsol ,lass has indicated that it is pleased with the result, saying that the current mode of operations has 'ecome 5e0tremely5 efficient. Some cost savings were achieved when the company reali3ed that the hardware it had 'een designed for a peak load of %#$,$$$ SA* users 'ut that the average demand was roughly half of this figure. +onsol has indicated that in the near future, it will focus on maintaining varia'le ope0 as opposed to cape0. An e0ample of this has 'een the esta'lishment of a disaster recovery solution for the legacy systems that would have cost the company millions of rands 'ut is now covered under a follow2up contact with T2Systems, which has also seen the company(s E=* and HA services moved to the cloud.

A55E%$I;
Methodolo y
This report was written 'ased on interviews conducted with cloud service providers, network operators, and data center providers active in the South African market. The report also drew upon secondary sources such as media and operators( annual reports as well as OvumJs ongoing research into the enterprise markets of South Africa. The forecasts were 'ased on the e0isting Ovum forecasts such as the *u'lic +loud +omputing Services ,lo'al -arket .orecast -odel, and validated via interviews with e0isting service providers in South Africa. An addition, data from the Ovum S-E AnsightsG ,lo'al Analy3er drew on a structured survey of #%$ S-Es in South Africa employing B$CB$$ people.

!urther readin
2013 Trends to Watch: ICT in South Africa, AT$%>2$$%"$> )-arch #$% / 2013 Trends to Watch: Private and Public Clouds, AT$%!2$$"$BB )Novem'er #$%#/

Author
=ichard 1urst, Senior Analyst, Enterprise richard.hurstNovum.com

Ovum Consultin
De hope that this analysis will help you make informed and imaginative 'usiness decisions. Af you have further re@uirements, OvumJs consulting team may 'e a'le to help you. .or more information a'out OvumJs consulting capa'ilities, please contact us directly at consultingNovum.com.

$isclaimer
All =ights =eserved.

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