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Driving adoption of Project BlueSky in the Retail Industry: A Vertical Market Approach

Driving adoption of Project BlueSky in the Retail Industry: A Vertical Market Approach. Cloud Computing Market Analysis. May 4 th , 2011. Agenda. Provide recommendations on most attractive industry verticals which will allow the client to double its cloud computing revenue over the next decade.

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Driving adoption of Project BlueSky in the Retail Industry: A Vertical Market Approach

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  1. Driving adoption of Project BlueSky in the Retail Industry: A Vertical Market Approach Cloud Computing Market Analysis May 4th, 2011

  2. Agenda Provide recommendations on most attractive industry verticals which will allow the client to double its cloud computing revenue over the next decade

  3. AARK Group Adoption of technology only occurs if it adds value to business processes Cloud computing based applications have steadily gained acceptance over the past few years and are poised to become an integral part of the future. Offers scalability, cost efficiency, customization, and flexibility. Users payonly for amount used, reducing the need for substantial capital expenditure to meet just a single period’s demand. Some majorhurdles hinder the adoption of cloud technology: security concerns and the need to integrate with existing architecture. In essence, though the cloud holds much potential, moving to the cloud is not necessarily better in every situation. The Situation Benefits of Cloud Computing Challenges Drive adoption of Project BlueSky within the retail industry by offering more than just computing power, but support and customized cloud recommendations as well

  4. Industry Potential Current Cloud Applications Potential Cost Savings Risks Cost of Migration Needs of Retailers AARK Group Analysis: retail industry & cloud computing is not a matter of “if”, but “when” Huge need for additional computing power for analytics, product and service innovation. Needed for core business. • Used to run web sites, mobile apps, social media platforms • Product and service innovation • Analysis of customer, operational, R&D data Huge cost savings due to retail’s highly variable nature. • Typically using antiquated legacy systems • Enormous potential savings in storing and maintaining data The basis of the retail industry has been contingent upon anticipating and fulfilling customer needs. Need agility and speed to get products and services to market. • Changing need: With the economic recession, customers have become more cautious about spending. Also have higher expectations about service: whether it be faster and more efficient, or more personalized • Cloud computing offers the low costs, speed and flexibility needed Retail demand highly dependent upon economy. Concerns with security of data. • Industry manages large amounts of data Retailers typically using antiquated systems already in need of upgrading: looking for low cost opportunities. • Struggles with efficiency highlighted during economic recession: emphasis on becoming leaner Retail industry driven by constantly changing customer demands, tastes, and preferences—profitability is contingent upon meeting demand. • $4 trillion in revenue, steady growth • Studies show retailers are more interested in adopting cloud services Source: “Industry Profile: Retail Sector.” 21 Mar. 2011: n. pag. First Research. Web. 30 Apr. 2011; “Retail IT Spending to Exceed $20B.” ABIresearch (2010): n. pag. Web. 2 May 2011.

  5. Changing Customer Preference Transaction Flexibility High Customer Service Expectations AARK Group Problems faced by the retail industry and BlueSky’s PaaS solutions Often experiences single high volume days. Meeting a single period’s demand typically requires large capital investments, which are then under used during the rest of the year. With cloud computing, retailers can temporarily scale transaction capacity without being locked into their expensive capital investment. Industry is driven by customer and demographic trends: must identify customer preferences and provide sufficient supply for demand. Gather customer data and behavior to guide decision-making. Increased computing power allows companies to process and analyze data quickly, thus providing greater agility in adjusting supply to match the customer demand. Improper identification of consumer preference trends lead to incorrect merchandise ordering decisions, forcing retailers into either a shortage or markdowns. Both situations are major sources of cost for the retail industry. Inexpensive additional computing power allows companies to increase their speed and agility to market for new products and services. Expectations of customer service have risen across the past few years. Customers are expecting better, personalized service. Retailers have found that personalizing a customer’s experience cultivates a stronger likelihood for repeat business: storing customer data has allowed retailers to more easily personalize a customer’s experience. Massive amounts of data storage are accessible in the cloud, and companies are able to devote more resources to customer service rather than managing data/server costs. Inventory Shortages & Markdowns Source: “Industry Profile: Retail Sector.” 21 Mar. 2011: n. pag. First Research. Web. 30 Apr. 2011.

  6. Positioning Plan Differentiation Diagnose customer needs and offer specific cloud solutions and recommendations. Additional support available for follow-up and guidance if needed Price Promotion Place Create offers and prices comparable to major competitors Educate decision makers on cloud computing Advertise to retail vertical, but tailor message to individual retail segments Free Trials Rates Workshops Org Partnerships Representation Advertisements Free amount of monthly usage & features, standard rates charged if over threshold Option to establish cost ceiling, rates charged if user surpasses free monthly allocation Offer online classes in cloud computing & BlueSky Advertisements of BlueSky’s Iaas & Paas, emphasize service support Partners such as Association for Retail Technology Standards Send BlueSky representatives to offer Paas services to existing clients; gain referrals AARK Group Differentiate by ensuring BlueSky’s services are more than just a commodity

  7. Market Share Growth Operating Income AARK Group Projected NPV of $6.61B, begin earning operating profits in 2013 By entering into the retail market, BlueSky will increase its PaaS market share by 15% over the next ten years. • The PaaS market is projected to surpass $15 billion by 2016 • IT spending in retail is expected to exceed $20 billion by 2014 • The importance of technical innovation in the face of customer demand will make cloud computing a priority in IT spending After the first two years of operating losses, 2013 will see a positive net income and profits will continue to rise. • BlueSky revenue is projected to increase over the ten years as the PaaS market grows • A high initial capital investment is necessary to set up data centers across the country Source: Source:

  8. Economic Downturn Control and Security Consumer Confidence Competitors Regulation User Based Pitfalls AARK Group Risks and challenges that may hinder BlueSky’s adoption The economic downturn can reduce willingness of industry to invest in new projects. • Has reduced consumer spending and retail revenues available for investment • Higher interest rates and greater difficulty obtain financing could make it more difficult to fund cloud transition • Mitigate by emphasizing potential cost savings Two major concerns of cloud computing that have resonated across all industries are control and security. • Back-up servers in different physical locations will minimize potential effect of server failure • Continuously monitoring the status of the servers, much like Amazon’s CloudWatch, will prevent hacking before it occurs Recent events concerning the failure of major cloud computing service providers have significantly shaken consumer confidence in the security and reliability of cloud computing. • Recommend encrypting data • Emphasize that unlike traditional physical servers, cloud applications need redundant virtual resources: “design for failure” In order to compete with other large players in the market BlueSky must differentiate itself. • The PaaS market is not yet saturated, but as the market expands more players will enter, driving down prices • Wide availability of cloud computing power could cause PaaS to become commoditized, instigating a price war Government regulation and standardization are necessary to inspire consumer confidence and sustain long term adoption. • Establishment of security regulations and certification will help mitigate the concerns about cloud computing • Lack of industry standards may created difficulties transferring data between cloud providers Due to lack of training and guidance, improper development of PaaS applications can tarnish customer experience. • Proper application development can help users avoid these pitfalls • Mitigate by offering training and support—teach users how to properly develop their applications Source: Harris, Jeanne G. and Alter, Allan E. “Cloudrise: Rewards and Risks at the Dawn of Cloud Computing.” Accenture. Nov 2010; York, Joel. “To Cloud or Not to Cloud in Financial Services.” Cloud Ave. 17 Sep. 2010.

  9. 1 2 3 4 5 6 7 8 9 10 AARK Group Timeline to implementation of BlueSky in the retail industry Major Goals & Strategic Promotion Plan General Awareness • Classes providing general education about cloud computing • Product reviews in trade magazines, Association for Retail Technology Standards • Press releases Introduction of Product: Customer Trial • Online classes and tutorials introducing customer to BlueSky • Comprehensive trials for existing customers • Basic free trials for general public Targeted Segment Advertising • Small: reach out through social media • Medium: send representatives to IT managers • Large: reach out to IT decision makers Customer Adoption • Feedback outlets (i.e. focus groups, surveys) • Periodic evaluation & adjustment of product BlueSky PaaS Offering Timeline Evaluation Points

  10. Questions?

  11. AARK Group Appendix Analysis Implementation Financials • Evaluation Criteria • Potential Cloud Computing Verticals • Retail • Automotive • Financial Services • Government • Health Services Retail Industry Vertical Analysis • Retail Vertical: Sub-sections and Functions • Basic core functions • Top to Bottom Needs • Attitude towards cloud computing Proposed Project BlueSky Usage Rates Proposed Project BlueSky Free Trial Offer Differentiation Strategy: offering services & support • Financial Analysis • Net Income and NPV • Forecast of PaaS Market • Operating Income • Sensitivity Analysis

  12. Industries with Most Cloud Computing Potential AARK Group Evaluative analysis of potential cloud computing industry verticals Source: Harris, Jeanne G. and Alter, Allan E. “Cloudrise: Rewards and Risks at the Dawn of Cloud Computing.” Accenture. Nov 2010.

  13. Industry Potential Current Cloud Applications Potential Cost Savings Risks Cost of Migration Importance of Data Security AARK Group Retail vertical industry analysis: cloud computing is not a matter of “if”, but “when” Retail industry driven by constantly changing customer demands, tastes, and preferences—profitability is contingent upon meeting demand. • Large pool of resources: • $4 trillion in revenue, steady growth • Expected to spend $20 billion in technology by 2014 • Over 1 million outlets in U.S. alone • Studies show retailers are more interested in adopting cloud services Huge need for additional computing power for analytics, product and service innovation. Needed for core business. • 4 in 10 companies see greatest potential in improved decision making • Used to run web sites, mobile apps, social media platforms • Product and service innovation • Analysis customer, operational, R&D data Huge cost savings due to retail’s highly variable nature. • No longer need to pay for additional hardware to meet just a single day’s forecasted demand • Enormous potential savings from storing and maintaining data • Typically using antiquated legacy systems Retail industry demand is highly dependent upon the economy. Consumer spending drastically decreases during times of economic distress. • However, US retail sales rose 8% in the first 3 months of 2011 • Retail industry expected to be slower to adopt cloud computing Retailers typically using antiquated systems already in need of upgrading: looking for low cost opportunities. • Struggles with efficiency highlighted during economic recession: emphasis on becoming leaner Industry manages large amounts of data from: customers, products, stores, sales, supply chain, marketing, etc. • With quantity of data being gathered (i.e. store credit cards, loyalty programs), need to ensure that data is secure and that customers can entrust their information to retailers Source: “Industry Profile: Retail Sector.” 21 Mar. 2011: n. pag. First Research. Web. 30 Apr. 2011; “Retail IT Spending to Exceed $20B.” ABIresearch (2010): n. pag. Web. 2 May 2011.

  14. Industry Potential Current Cloud Applications Potential Cost Savings Risks Cost of Migration Importance of Data Security AARK Group Automotive vertical industry analysis High cost savings and improved efficiency, but costs of migration, integration, security too high to immediately move to cloud Automotive OEMs need agility, reach, collaborative capacity. • Market power and revenues shifting to emerging markets (i.e. China, India); need to capitalize on changes in markets, customers and competition • U.S. annual car sales: 13.2 million, expected to rise to 15 million by 2020 • China annual car sales: 8.6 million, expected to triple to 30.2 million by 2020 Cloud applications used primarily to build private sites. Also being used to link consumers to vehicles. • 3 key fields of application: 1. Integration into vehicle2. Community clouds for supply chain coordination3. SAP operations Automotive OEMs still heavily reliant on traditional ERP-systems for management processes and applications. • Need low cost opportunities to upgrade capabilities, decrease operating costs • Industry runs a lot of analytics: high cost of servers, software licenses, maintenance, data center space, electricity, IT support The greatest hurdles to cloud adoption in the automotive industry are security and data privacy. • Major concerns about losing physical control and access to data: automotive industry built around reputation • Currently experiencing major loss of sales due to recession Automotive industry heavily relies upon its existing system for analytics, supply chain management, etc. • High integration costs: existing legacy systems will require a lot of custom development to integrate with the cloud • Intangibles: still major concerns of risks, hesitation to write off current IT investments Automotive companies and customers need assurance that their data is safe. • Access to extremely private customer information (i.e. salary, financial data, insurance information, etc) Source: Hoffman, Daniela. “Up in the air: cloud computing and the auto industry.” automotiveIT. 24 Nov. 2010. Web. 3 May 2011; Mentuccia, Luca. “Six Questions Every Automotive Executive Should Ask About Cloud Computing.” Accenture. 2010. Web. 3 May 2011.

  15. Industry Potential Current Cloud Applications Potential Cost Savings Risks Cost of Migration Importance of Data Security AARK Group Financial services vertical analysis Strong potential and movement of general data, still major doubts about security, performance, reliability Adopting cloud computing faster than any other industry. Eager for agility, flexibility, scalability. • Lack of specific government regulations • Highly saturated market Already widely used throughout financial services industry: primarily for analysis, scalability. • Analytics • Additional transaction capacity • Platforms for standardized, efficient business processes Major benefit from being able to scale up analytics or transaction capacity without heavy investment into physical servers. • Often random peaks of demand that must be met: from spikes in trading volume, credit card purchases • 72% of financial services executives surveyed say that cloud enables processes otherwise not cost-effective or feasible Many risks to consider: financial service institutions dependent upon reliability. • Financial risk, regulatory risk, security risk, performance risk, etc. • Potential loss of information when accessing data across applications • Dependence upon constant, seamless connection to cloud—cannot afford to experience outages Any data or system moved to cloud typically has a high degree of integration with other applications. • Custom coding will likely be required to integrate new cloud applications with custom applications Protection of customer, transactional financial information is crucial to the institution’s reputation. • Culture of keeping data close: lack of visibility typically associated with lack of security • Will need to build in data sensitivity tags and appropriate security Source: Harris, Jeanne G. and Alter, Allan E. “Cloudrise: Rewards and Risks at the Dawn of Cloud Computing.” Accenture. Nov 2010; York, Joel. “To Cloud or Not to Cloud in Financial Services.” Cloud Ave. 17 Sep. 2010.

  16. Industry Potential Current Cloud Applications Potential Cost Savings Risks Cost of Migration Importance of Data Security AARK Group Government vertical analysis Strong movement to the cloud, but intense competition and complex migration process Budgetary pressures on U.S. government has driven agencies to look into low cost alternatives. • U.S. plans to consolidate many of its websites, data centers and processes • Systems valued at $20 billion may move to cloud • Government mandate that certain agencies migrate services to cloud within next 2.5 years Primarily used to help federal government agencies reduce the cost, complexity, risk and time associated with modernizing legacy software applications. • Cloud-based email is most common application • Collaboration tools Many redundant data centers that the U.S. government is looking to consolidate. • U.S. General Services Administration switch to cloud-based email estimated to save $15 million over five years Complicated bureaucratic processes and regulations. High value information target for hackers. • Complex legacy system requires costly redesign for cloud • Struggle with inter/intra agency politics • Microsoft, Amazon & Google already intensely battling over government contracts Government agencies often complex and highly integrated with other agencies. • Difficult to isolate singular applications to move to the cloud, or integrate with interlinked government applications • Potential difficulties: must adhere to FISMA, ensure that they are following government regulations Government data and information is highly confidential. Protection of both citizen and government data is essential. • Hesitation about relinquishing physical possession and control over data • Very high security needed, especially for sensitive material • Need to ensure that cloud storage is appropriate for level of security (i.e. region/country of data center location) Source: “Google nips Microsoft as government agencies move to the cloud.” 7 Dec. 2010. Reuters. Web. 4 May 2011; Jamrisko, Michelle. “U.S. CIO Kundra Says Government is Shutting 137 Data Centers.” 27 Apr. 2011. Bloomberg. Web. 4 May 2011; Davies, Gwil, et al. “Six questions every government executive should ask about cloud computing.” 2010. Accenture. Web. 4 May 2011.

  17. Industry Potential Current Cloud Applications Potential Cost Savings Risks Cost of Migration Importance of Data Security AARK Group Health Services Vertical Analysis Greatest potential, but strong movement to cloud not likely within next 10 years Significant process and care of quality benefits. Existing desire for electronic records system. • Consumer-oriented cloud applications likely to be well-received, useful • Need to improve collaboration across organizations • Movement towards electronic health records system Limited usage in diagnostics, transfer of information between hospitals. • Sharing of radiology files at UC Sand Diego Health System • Top cloud usages: • Data storage and analysis • Backing up data • Storing & archiving large files • Analyzing data for R&D Savings in data storage, IT support, coordination between record transfers. • Massive amounts of data storage: patient history, appointments, lab results, etc. • Eliminates potential file redundancy • Lowers high capital & operating costs • Analysis needed for huge quantities of data Industry is most conscious of data security, privacy, confidentiality. • 78% of executives concerned / very concerned about these issues Industry leaders need to adopt before costs of migration are justified: greatest benefit is integration across institutions. • Costs of migrating to the cloud not only include recoding legacy systems, but converting physical records to electronic High level of data security needed: medical records are considered one of the most sensitive types of information. • Lack of trust that cloud technology can provide adequate data protection • Questions regarding legality of moving patient information to cloud Source: Harris, Jeanne G. and Alter, Allan E. “Cloudrise: Rewards and Risks at the Dawn of Cloud Computing.” Accenture. Nov 2010; York, Joel. “To Cloud or Not to Cloud in Financial Services.” Cloud Ave. 17 Sep. 2010.

  18. Retail Capability Map AARK Group Retail Vertical: Sub-sections and Functions Source: Fenwick, Nigel, et al. “Industry Innovation: Retail.” 28 July 2010: 3. Forrester. Web. 2 May 2011.

  19. AARK Group Core Functions of Retail Business Source: Mojica, Michael, et al. “Six Questions Every Retail Executive Should Ask About Cloud Computing.” 2010. Accenture. Web. 3 May 2011.

  20. Customer Fulfillment Merchandising Corporate Services AARK Group Retail Industry: Top to Bottom Needs In order to provide their customers with the best products and services retailers must be able to store and analyze information about the most current styles and trends. • Scalable space to accommodate seasonal sales data without spending a fortune on servers • Quick process and analysis to help meet customer demand • Trend analysis can guide price management to maximize profit Supply chain interaction can make or break a retailer. Improving inventory management and streamlining supply chain communication can save the company time and money. • Just-in-Time management will reduce excess inventory, shortages and storage cost • Open communication between retailers and manufacturers will help both make more accurate forecasts Cloud computing frees up corporate labor and capital and allows the company to focus on core business. • Only pay for the space needed instead of making high fixed payment for servers • Services provided by PaaS reduces the responsibilities of the IT department In retail, pleasing customers is the number one priority. Cloud computing lets retailers engage and communicate with their customers. • Store customer information and communication on the cloud • Create a space for customers to interact with the company • Host promotions without spending more on servers Supply Chain

  21. AARK Group Retail Industry Attitude Towards Cloud Computing Source: “Cloud Infrastructure-As-A-Service: Interest and Adoption By Industry.” Forrester Research, Inc., May 2009.

  22. Cloud Computing Industry Usage Rates AARK Group Competitively Pricing Project BlueSky’s Usage Rates Source: “Google App Engine.” Google App Engine. Google, n.d. Web. 1 May 2011; “AWS Free Usage Tier.” Amazon Web Services. Amazon, n.d. Web. 1 May 2011; “Free* Windows Azure Platform Trial.” Windows Azure. Microsoft, n.d. Web. 1 May 2011

  23. Cloud Computing Industry Free Trial Offers AARK Group Project BlueSky Free Trial Offer Source: “Google App Engine.” Google App Engine. Google, n.d. Web. 1 May 2011; “AWS Free Usage Tier.” Amazon Web Services. Amazon, n.d. Web. 1 May 2011; “Free* Windows Azure Platform Trial.” Windows Azure. Microsoft, n.d. Web. 1 May 2011

  24. AARK Group Basis of Differentiation Plan: Offer Support and Services Diagnose Cloud Needs Development Support Implementation Support Recommendations Have interested clients complete a survey in order to determine their specific, individual needs. Example: • Size of application(s) • Development needed to transition to cloud • Integration needs • Pattern of usage demand Recommend most helpful cloud solutions, PaaS tools and components, etc. Example: • Sample code • Toolkits for application • Public data sets • Tutorials, videos, workshops Provide recommendations for most optimal application development strategies. Example: • Virtual resource redundancy • “Design for failure” model • Establish cost ceilings • Tutorials, workshops Cloud computing’s motto has been, “In the cloud, anything is possible.” Cloud service providers often offer a wide array of abstract pieces that developers can choose from to help develop their cloud applications. However, as cloud computing is a relatively new technology, developers may struggle to determine which tools and components are best for their purpose. BlueSky will offer developers a starting point and support for application development based upon their specific needs. Support for developers who may need assistance making transition to cloud. Example: • Community forums • Free access to BlueSky IT consultant (via online help) • One-on-one support if monthly usage > $100 Differentiate by Pairing Commodity with Service

  25. Assumption AARK Group Basis for evaluation criteria weights Lack of any of these major factors will decrease the likelihood of cloud-computing adoption. Source: Harris, Jeanne G. and Alter, Allan E. “Cloudrise: Rewards and Risks at the Dawn of Cloud Computing.” Accenture Research Report. 2010 Nov.

  26. Projected Financials AARK Group Financial Analysis: Net Income and NPV Source: “Platform-As-A-Service Market Sizing.” Forrester Research, Inc., July 2009. "Dell to invest $1 billion in data centers." 7 Apr. 2011. Associated Press. 4 May 2011. “Maximize Your Energy Savings From Server Virtualization With Three Process Improvements.” Forrester Research, Inc. August 2010.

  27. Forecast: Global PaaS Spending By Segment Projected BlueSky PaaS Revenue Assumption AARK Group Forecast of PaaS Market As a major player we currently hold approximately 20% of the PaaS market as a whole (using SalesForce’s Force.com as an approximate equivalent). Source: “Platform-As-A-Service Market Sizing.” Forrester Research, Inc., July 2009.

  28. Projected PaaS Revenue AARK Group Operating Income, Revenues & Expenses Source: “Platform-As-A-Service Market Sizing.” Forrester Research, Inc., July 2009.

  29. Projected PaaS Revenue with 7% Growth Projected PaaS Revenue with 6% Growth Projected PaaS Revenue with 5% Growth AARK Group Sensitivity Analysis: Comparison of NPV

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