Leadership Insights: Digital Business Opportunities

Transcript

Mike Vizard: Hey guys, welcome to the latest edition of the Digital CxO Leadership Insight Series. I’m here today with Scott Sellers who’s CEO for Azul Systems. They are specialists in the land of Java. But we’re talking about more than Java today; we’re talking about digital transformation and the pursuit of the great application that’s going to drive the next multi-billion-dollar opportunity. Scott, welcome to the show.

Scott Sellers: Thanks very much, Mike. Thank you for having me.

Mike Vizard: We have been talking about digital transformation now in earnest for, I don’t know, four or five years let’s say. And yet, it seems like enterprises are struggling to find that killer app, that magical thing that’s going to drive the next big revenue stream. So what’s your sense of where are we, and what are the challenges that we’re encountering?

Scott Sellers: Well, I think some of the biggest challenges right at the heart of digital transformation itself are really for enterprises to be able to effectively accomplish a digital transformation initiative. And as you know, there’s a wide spectrum of capabilities within enterprises; enterprises that have been founded and started in the last several of years have been right from the beginning highly digitized, cloud-native in terms of how they built out their infrastructure and how they’ve gone about their thinking. Inherently data driven, built-in analytics in everything they do, that’s not the majority of enterprises. Of course, most of enterprises have been around a lot longer than that. And many enterprises are struggling just for the most basic aspects of digital transformation.

And it’s really slowing down their businesses because they’re spending an enormous amount of time trying to get their initiatives accomplished, really struggling with the one of the most powerful weapons that enterprises have in their digital transformation arsenal, of course, is cloud. And being able to effectively take advantage of cloud resources to be able to accomplish your digital transformation initiatives. And one of the things that we’re seeing with our customers is as enterprises do more and more work with pushing into the cloud, they wrestle with a paradox in terms of, to some degree, becoming a victim of their own success and then suddenly struggling with the massive costs that can accompany a successful cloud transformation.

Mike Vizard: And what drives all that? Because initially, we all believed that the cloud would make things less expensive, and it seems like maybe that’s not always the case and organizations are struggling with that as well within the context of these digital transformation initiatives. So we’ve been at it now for ten years, do you think that at some point maybe we will advance? Or what is our challenge, what’s the fundamental issue?

Scott Sellers: Well, I think there’s no question about the inherent advantages of cloud. And those that are familiar with cloud know that the benefits of the agility, the flexibility, the elasticity, the availability, kind of inherent automation that’s built into cloud. Of course, then there’s all the cloud services that instead of having to spin up in your own databases, you can just tap into a database that’s provided by our cloud provider. So the inherent advantages are obvious. But I think one of the things that really has kept people, or that people don’t recognize, is that there are costs to pay for these types of things. So none of this is free; agility costs money, flexibility, et cetera.

And especially in the main cloud providers, the big three being Amazon, Google, and Microsoft, they achieve somewhere north of 30 percent gross margin just for their cloud business. And so someone is paying that 30 percent, and ultimately, it’s the users, the cloud that are actually paying that amount of margin. Which is very steep in the world of IT, which is basically – the cloud at the end of the day is a commodity product, right? You’re buying computer memory storage resources, networking resources, et cetera. And these are the types of things that you can really buy from anyone. There is very little differentiation between the cloud offerings from the major cloud providers. They all have their niches and various features, functions, et cetera.

But at the end of the day, you’re buying infrastructure. So that’s a commodity and when you’re being asked to pay 30 percent extra for commodity, what it suddenly can become is how much is it worth to an organization to get the benefits of flexibility, agility, et cetera? It comes with the cloud, are you willing to pay 30 percent for that? And when it really comes down to it, what happens is for very good reasons, people begin their cloud journeys, they start to see some success. And then it almost spreads like wildfire in an organization. And before you know it, suddenly, the CFO becomes aware of a real spending problem in the cloud. And that’s when kind of the wheels start to come off and some serious work has to be done in terms of trying to find a balance between the benefits of the cloud about then how you wrestle with the inherent costs of it.

Mike Vizard: And a big part of that is I feel we’ve gone through this kind of first iteration of the cloud where it was basically lift and shift. And we just took the stuff that was running monolithic on a VM and moved it up into the cloud. Then we built some additional applications, but I also feel we’re on the cusp of the second wave of so-called cloud-native applications where things will scale up and down more easily. And will that make it easier to accomplish our goals? Or is that in some ways harder but there are benefits, but like everything else, it doesn’t come easy.

Scott Sellers: I think the way you phrased the question is spot on in the sense that it is more challenging in terms of taking existing applications and kind of doing a lift and shift to put them in a cloud. I’ll talk about some of the ways that people can mitigate those in a minute. But certainly, the strong trend is really adopting cloud-native philosophies and DevOps methodologies right from the get-go. And there’s no doubt that given an opportunity to develop a new application knowing that it’s going to be in the cloud and that’s really what cloud-native is all about is not worrying about a non-cloud deployment. Being able to think about right from the beginning all of the services and all the capabilities that exist in a cloud, everything from services, like I mentioned, such as database services, such as authentication services, such as search services, all these types of things that in the old days you literally had to come up with solutions for each of those bits of infrastructure that an application may need.

Now, when you’re cloud-native, you already know that you can tap into those services simply by API calls that exist in all the major cloud providers. And so that’s orders of magnitude more efficient in terms of thinking about how an application gets designed and architected. So being cloud-native right from the beginning inherently is more efficient, requires less development and resources, et cetera. Now, there’s all sorts of new technologies, whether it’s containers and Kubernetes clusters and these types of things that are also serverless technologies and other examples in that ilk where not having to think as much about infrastructure and being able to use some of the more modern provisioning and orchestration capabilities allow for applications to be provisioned much more readily, to be able to scale much more easily, and then in a more automated fashion.

And that creates an ultimately much more nimble set of applications. Taking advantage of all these things, and really, the key thing comes down to fundamentally right sizing the infrastructure for the needs of today combined with sound monitoring and management that really allows an organization to have deep visibility in terms of where their resources are being spent. And at the end of the day how much money there’s being spent on a given application.

Mike Vizard: Of course, most of the legacy applications that people are running both on-premise and in the cloud are all written in Java. There’s a lot of people talking about whether or not Java is still relevant in this age. So where are we with Java at the moment, what’s going on with that? And why should people maybe continue those investments, or should they be looking at other options? What’s going on?

Scott Sellers: I think one of the most inherent advantages of Java is the rich set of frameworks and open-source technologies that allow for application development to be significantly accelerated because of all the Java-based technologies that can be used to develop applications. And that’s really been the advantage of Java for decades, it continues to be the inherent advantage using Java. Other languages certainly people can debate all day long in terms of syntax and languages and ease of coding and these types of things. But when you really look at it at the end of the day and specifically when I’m talking about is infrastructure and transaction applications, they’re running the business if you will.

Different languages in other pockets of an enterprise have different use cases, as an example, front end type of applications, web facing type of infrastructure, that’s often times going to be based in Java Script or the service side of that which is called Node. Other machine learning or data analytics often times might be written in Python. But that’s both of those still represent a small portion of the overall infrastructure in terms of actually running a business. The applications that run the business and have transactions flowing through them that actually are processing what – whether it’s a revenue e-commerce type of platform, whether it’s in the case of payments, it’s actually the processing and the payments. In the case of trading, it’s actually accomplishing the very complex nature of all the things required to be able to process trades.

On advertising, logistics, manufacturing, on and on. This is data being marshaled around, being processed, having intelligence, have business intelligence actions being taken upon it. These very heavy transactions, require a large amount of compute infrastructure and associated networking. And at the end of the day, that’s probably going to be Java. The reason it’s Java is because the robustness of Java, the sheer scale and performance of Java, and the rich frameworks and libraries that they can be tapped into. So one of the things that really accelerated the, if you want to call it, a reemergence in Java really has been several years ago where the open ___ community and the Java community in general changed the way that Java was being developed.

And moved away from a design methodology where new versions of java would come out every three to four years into more of a release train methodology. Which, frankly, is much more in line with more today’s modern DevOps methodologies where every six months now a new version of Java comes out. And so instead of taking sort of bigger steps every three to four years, taking more incremental steps every six months. The big benefit for this has been, frankly, that a lot more new features, new capabilities of both Java the platform and Java the language have been able to come out, and that’s really kind of brought a reemergence of Java. And frankly, many would argue now that Java as a language and as a platform is moving faster than any other language out there.

Mike Vizard: Do you think that we have gone through a first phase of digital transformation and maybe through the school of hard knocks a little bit, but then maybe we are on the cusp of getting this right. And a lot of people are starting to move forward because of advances in Java, we have cloud-native, we have a lot of technologies that kind of feel like a primordial soup that are awaiting a catalyst of some sort?

Scott Sellers: I think there’s no doubt about it. There’s a long, long trail of applications that are still waiting for digital transformation and those types of initiatives. I think the inevitable trend though is that the word transformation eventually gets replaced, right, because instead of transforming applications and capabilities and processes to be digital, it becomes inherently, right. And that’s where things are moving, of course. It’s that as time goes on and more and more applications have been transformed, there’s no transformation left, right? It always is about being inherently digital and digital native if you will. And certainly, that is where things are today in terms of as enterprises and DevOps teams think about the new requirements of their business.

It is inherently digital, it is inherently cloud-based, and it is these things are being architected so that it doesn’t require all of this work to be able to rapidly adopt change. Because in today’s day and age, the life of set features and capabilities of an application is very fleeting. Applications need to be constantly evolved and updated, applications need to be maintained and evolve from a constantly changing set of developers and architects, right. You have different people coming and going in organizations, and so these things are very, very challenging. Taking advantage of inherently digital cloud-native technologies allowed for that train to continue to move even with all these different changing requirements along the way.

Mike Vizard: So what’s your best advice to digital CXOs at the moment is to kind of they look at all that, what should they be focused on today? The economy is changing, of course, and with that priorities, but what should be top of mind?

Scott Sellers: Top of mind really which we now see in almost as a board level discussion is really getting your head around your inherent cloud costs. And cloud costs today are truly sucking margin out of most enterprises that have any sort of reasonable cloud adoption. And being – every dollar that’s being spent unnecessarily in cloud spend is sucking away dollars that could be used on new initiatives, could be used on innovation, could be used on additional headcount personnel, further investment in the future, these types of things. And it’s truly dollars wasted.

And so one of the things that we work with our customers on is be able to advise them on ways of really getting their head around cloud spend and overall cloud costs. And there’s been some great papers on this, there’s the venture capitalists recent _____ were a great blog that really coined the term cloud paradox. And what the cloud paradox really is all about is the hundreds of billions if not trillions of dollars of market cap, public company market cap that is lost simply due to gross margins that are being consumed by spending in the cloud as opposed to being able to get those under control and actually improve even a group profitability by reducing their cloud spend. And so it sounds like a very simple thing in terms of, well, yeah, spend less in the cloud, that all sounds good.

It’s a much more complicated aspect and it involves everything from inherent and built-in dashboard and built-in monitoring, being able to directly tie the use of a cloud resources back to the application and the application owners. It has to do with building cultures inside DevOps teams in terms of being able to not only educate them on the cost of cloud. But also rewarding them for finding clever ways of reducing cloud infrastructure. And so this getting – an organization getting their head around the paradox itself, really having firm conviction that where their spending cost is fully – or where they’re spending in the cloud is fully understand, they’re fully aware of it. They’re fully able to directly map a cloud spend back to the application owners.

These are challenging things to do in retrospect; much easier to do as cloud adoption is actually happening. And that is the key. Because unless you have that strong foundation, it’s like building the engine before you get the foundation of the car laid in place. You have to get the foundation laid in place before you can really start to build upon that and be able to have much more efficient application development, really have a cost-effective cloud-native design methodology, and ultimately, be a much more efficient organization.

Mike Vizard: All right, great. Hey, Scott, thanks for being on the show.

Scott Sellers: Thank you very much, Mike. I appreciate the opportunity.

Mike Vizard: All right, folks, thank you for watching the latest episode of the Digital CxO Leadership Insight Series. I’m your host, Mike Vizard, and please join us again and check out all our other episodes on the digitalcxo.com website. See you next time.