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July 5, 2010

Cloud is History: The Sum of Trust

Scott Clark

To continue where we left off with the last blog, this time we are focusing the discussion around trust. In considering cloud, this is probably the largest barrier we will encounter.

If we look at history, the issues associated with trusting someone else to perform what we view as a critical element of our business has been faced and successfully addressed in the past. Semiconductor companies had to have the entire process of manufacturing under their direct oversight and control because portions of that process were considered business differentiating and proprietary, and close coupling between design process and manufacturing process were required for successful ASIC development (lots of iterative, back and forth process). As time marched on, capacity needs increased, complexity climbed, the cost increased with each of those dynamics, creating an ever higher barrier to entry for maintaining existing or creating new fabrication facilities. In the mid 1980’s, we witnessed the birth of the first foundry, with TSMC coming onto the scene to create a differentiated business model (Fabless Semiconductor), where engineering companies could focus on just the process of design, and then hand off their designs off to TSMC to be manufactured. The Fabless Semiconductor Industry is a $50B market today, and growing.

So, are the issues we face with datacenters today any different? Not really, just a slight different view of the same picture. The dynamics are the same: a non-linear cost increase due to capacity and complexity increases is the driver for re-evaluating the current position. The function is considered critical, and sometimes differentiating and/or proprietary to the business, and is therefore internally maintained at present. And finally, the function deals directly with the core product of the company, therefore security is a paramount concern. What we witnessed with the fabrication facilities is that many companies were able to realize the cost benefits of outsourcing that function without damaging the business, so we should be able to follow that model to realize the cost benefits that cloud computing offers with respect to the datacenter. And we even have a recipe for success to look and use as a template for what to do and how to do it.

 What customers of cloud will be looking for from service providers is multi-faceted:

  • Budget control – making sure they can continue to do the right thing for their company from a cost perspective and continue to come up with creative ways to keep budgets under control. This includes making sure they do not get locked into exclusive relationships, so they need to make sure that there are multiple vendor options so that there can be competition. In the same light, they need to make sure that the solution they consume is standards based, so that moving to another provider is simple, straight forward, and not costly.
  • Do it my way – points to customer intimacy. The consumer company must understand the solution they are leveraging and the supplier must provide the solution in such a way that it makes sense to the customer. This sounds obvious, but in many cases, companies have been held hostage even by their own internal IT organizations through confusing terminology, overly complex descriptions of solutions, and territorial behavior. The customer should understand the solution on their terms, which implies that the service provider must intimately understand the customer’s core business. Customers should get the services and solution they need, which is something specific to their business, not something bootstrapped from another industry or something built for a different or generic purpose. And it is not sufficient to have really smart technology people on staff, and have the customer tell the service provider exactly what they need so the supplier can do the right thing – many times the customer doesn’t know what they need, they just want it to work right. That is why this needs to be domain specific, performed by domain experts in the customer’s space.
  • Honesty – do I believe you? The customer needs to have faith and confidence that the supplier has the best interest of the consumer as a driver. Understanding intent and understanding positive behavioral characteristics as compared to negative ones. Any competitive or adversarial behavior will be the tip that trust should be called into question.
  • Focus on my business, not yours (counter-intuitive concept). This is really the crux of the issue. If the customer can really believe that the supplier is looking out for customer interests first, and not only trying to tell the customer whatever they think they want to hear, only then will the customer allow the supplier to absorb responsibility from them for their infrastructure to help make them successful. This is key because if the customer has to continue to drive success and own all the responsibility, then nothing has really changed, and it is probably easier for the customer to continue keeping all the resource in-house where they have much more direct control over hire/fire, retention, resource caliber, etc.

As a result, cloud service providers will need to demonstrate many things in order to establish trustworthiness. From an intent standpoint, make sure the focus is on the end customer. In the EDA space, that would be the engineer. Understand the customer’s business to the point that you can help them do their job. This implies an intimate understanding of the tools, what they do, how they work, and where they fit as well as business model, economic drivers, and a solid grasp of the industry dynamics. Also, the supplier should maintain a long term view (strategic) in addition to a short term perspective (tactical). Always do the right thing now, but how solutions are designed to scale into the future can have significant cost impacts over time. Finally, it should always be relationship focused. The ability to judge trustworthiness is measured over time, and your every action defines the integrity and character of your organization.

The behavior portion for the supplier is fairly straightforward. Deal with customers in a transparent, honest fashion. Don’t try to hide things, don’t try to play the poker game of masking your agenda, or worrying about what you’re leaving on the table, masking how much anyone is getting, trying to optimize one variable in the whole equation (profit/one sided benefit/etc.). Don’t create win / lose scenarios and don’t try to get some undeserved benefit. Exchanges should always be “appropriate” and fair, avoid adversarial relationship development. If relationship turns adversarial, be open to walking away. Customers need to be trained how to conduct themselves in a trustworthy manner as well as service providers, and have an equal hand in creating a trusting relationship. Make sure your relationships are cooperative, and not competitive. If you compete with your customers about who is smarter or who is the better negotiator, or only believing a deal is good if you win and the customer loses, you are building a bomb, not a partnership.

There is an equal amount of responsibility on the consumer side of the equation in order to get a partner. From an intent standpoint the customer should make sure the focus is on the business problem (not departmental issues, not policy issues, not contract issues, etc.), and help the service provider navigate the customer internal process in order to keep the focus on the business problem. The customer also needs to make sure there is strong communication with regard to intended future direction for the company to ensure that plans are strategic and not only focused only on the present. The concept of relationship implies a mutual dependence, and it is recognized that interdependence creates risk/exposure, but also accomplishes the desired efficiencies, economies of scale, superior solutions, and optimizes economic benefit.

Behaviorally, the customer should also demonstrate transparency and honesty, not hiding information from the provider. Create an environment where the supplier can feel safe being open and honest. The customer wants to understand that they are not being taken advantage of, and that can happen in good ways or bad ways. We will talk more about the good ways in our next blog on organization changes. The good way is to have done all the homework necessary to know roughly what the right answer looks like prior to getting that answer (whether price, technical solution, or technology direction). There is a tremendous amount of work that goes into the development of instincts. The wrong answer, adversarial behavior – just pounding vendors for a better price or a better discount or more resources so that you feel you got a deal, without any comprehension of what an appropriate price or solution looks like, will have fatal results for trust and your relationship with your vendors. Competitive or adversarial behavior will result in an adversarial response, which causes a lack of honesty leading to no trust.

You should not worry about “am I getting a better deal than anyone else in the world” or masking a lack of understanding by treating vendor brutally. Do your homework, know how much something is worth, and make sure you are getting an appropriate price and an appropriate solution. Don’t try to optimize one variable in the whole equation (overly custom for no benefit, only focus on cost, etc.) and don’t create a win / lose scenarios or expect to get something undeserved. Everyone needs to care about the health of the ecosystem. Lack of trust means that you will not get good deals or appropriate solutions for the long run.

In conclusion, businesses should focus on the core competency of the business. All non-core portions of the business should be considered for outsource provided good business practices. If there exists a trustworthy, cost effective, customer focused provider of non-core, non-strategically differentiated functions of the business, those providers should be patronized. If not, create them. Examples of this would be Global Foundries spin off from AMD, Jazz Semiconductor spin off from Conexant, etc. Outsource needs to be structured and contracted in such a way that it facilitates trustworthiness. Make sure the solutions can be moved to alternate provider without significant modification or cost. Avoid getting committed to vendor locked-in solutions (hardware, software, people, or process). Make sure the solution is standards based and non-proprietary. Make sure that the solution can take advantage of new innovations immediately. Ensure that you negotiate built in growth ramps for normal business evolution while maintaining flat (predictable) cost to the business (budget control). And make sure the solution scales with the business use case (up or down).

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