Ethan Group

Cloud and the IT Industry

EthanGroup Cloud

Digital technologies like cloud computing have peeled back cost of entry for new market participants, leading to a significant upheaval across many industries. Cloud services, for instance, offer enterprise grade IT platforms often at peppercorn rents, at least when compared with the capital outlays technology projects attracted in the past.

But while the impact of digital technologies on business is increasingly well documented and understood, the impact of the industry that spawned them is less often discussed.

To an outsider it looks like modern tech companies, particularly global dotcoms, have an infinite capacity for reinvention. Certainly Capgemini's research has the IT industry placed clearly in the digital leadership quadrant when it comes to its own digital transformation.

Indeed, global giants like Facebook, Yahoo, Google and Apple all faced a potentially killer crunch when internet usage shifted rapidly and en masse from the desktop to mobile. Yet they sailed through this profoundly disruptive moment with ease, barely pausing to draw breath.

But for the local tech sector the story is far more nuanced. At ground level in Australia, IT business owners have had to reframe their operations and models dramatically to adjust to the impact of trends like the rise of cloud computing.

Take the IT services sector. According to Telsyte senior analyst Rodney Gedda, companies in this space faced numerous challenges, including the difficulty of pivoting from project-centred to consumption-centred revenue models.

"Moving from high-value projects to lower-value, but higher-volume, annuity cloud revenue is a challenge for traditional services businesses because their cost structures, including sales incentives, dictate going after large enterprise and government contracts," Mr Gedda told The Australian Financial Review.

"In terms of partnerships, pivoting to cloud often means moving from 'shipping tin' and putting a margin on it (coupled with implementation services) to offering the features of the product as a managed service."

These are all issues that would be familiar to Ethan Group founder and executive director Tony Geagea.

Ethan Group is one of Australia's most successful indigenous IT service providers. It started life as a traditional IT service company with a business based on technology procurement, IT projects and managed services. The rapid rise of cloud computing could easily have been its undoing.

Instead, towards the end of the last decade, Mr Geagea and his team read the prevailing winds, (and the Gartner reports) and began a difficult but ultimately profitable transition into cloud services, while still holding on to their more traditional capabilities.

Over the last six years the company has invested $50 million in additional infrastructure, staffing and other capabilities. But the payoff has been a $70 million increase in revenues over that time.

More than that, success in the new business provided renewed impetus to its traditional lines. Mr Geagea said, "We have also seen in excess of 50 per cent growth in our traditional IT Systems Integration business due to the confidence clients have in our ability to deliver, and having recognised the investment we have made back into the business – our longevity."

According to Mr Geagea, "By 2009 the traditional separation between IT and telecommunications started breaking down. Now in reality, IT always relied on telco and telco couldn't exist without IT, but at last the two started coming together and IT as a service became a reality."

From an early start in hosted IP telephony, Ethan Group has built out into a wide variety of cloud services . "IPT was just the start, but our ongoing experience in that domain meant we could get into convergence much quicker. We moved into converged infrastructure and SAAS and we have now evolved into X as a service."

Still, the changes caused by the shift had a significant impact on Ethan Group's approach to its staffing, its partners and its customers.

"The kinds of business challenges for an organisation going through what we went through include the impact on staff, the change in things like sales compensation , changes in your sales engineering capabilities and of course most importantly your rate card. You have to address the economics behind how you go to market with these services."

According to Mr Geagea, "Your whole business changes dramatically."

To add to the complexity of the environment, Ethan Group's major partners, including leading technology brands like Microsoft, Cisco and EMC, were also adjusting to the changing nature of customer engagements wrought by cloud computing.

"It creates significant stresses. If you get too far ahead of their changes then your business no longer maps to theirs and you start to see cracks in your engagements with them. One of the benefits we had with some of our key vendors is that we went through it together, and we have changed our businesses together."

Now, as public cloud providers continue to gain traction in the market, and further commoditise IT, Mr Geagea is already enhancing the model.

"One of our biggest differentiators is as an aggregator for a whole range of cloud services. We have spent millions in orchestrating, aggregating and brokering services to customers.

"The goal is to improve the systems and the processes they have around cloud adoption, for instance by allowing them to financially track all their cloud services through one enterprise portal."

AFR Article Source: Click here for full article.

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