Energy costs, tight budgets and supply chains shaping LatAm cloud spending

Despite forecasts of continued strong corporate spending on the public cloud, a “perfect storm” of global and local factors is already affecting the investment plans of some companies to migrate to the technology.

There are three major factors undermining these investments: the high cost of energy, which is a critical issue in the selection of data storage projects; reduced or frozen IT budgets due to macroeconomic uncertainties; and longer time-frames for the delivery of some products, due to the disruptions in supply chains.

“In times of crisis like this, as happened in 2001 and 2008-2009, companies, as well as consumers, put their feet on the brakes. That goes for IT too. In general, these departments have to deliver more with the same resources or even with budgets that are 10%, 15%, 20% smaller,” Andrés Hurtado, Latin America VP of US enterprise cloud firm Nutanix, told BNamericas.

According to Hurtado, an executive from an important regional client who he met this week reported a 40% reduction in his IT budget. The executive also said that, in most of his meetings with clients, one of the first things they ask is how long will it take for the project to go live.

As a software company, Nutanix is feeling the bite of the supply chain disruptions more "indirectly" through hardware providers whose equipment is used for projects for its clients, said Hurtado.

Another top executive in the cloud services integration industry, who asked not to be named, also confirmed that some of his customers are having to deal with tighter technology budgets. 

That source, however, said that this issue would likely become more prominent in negotiations later in the year, when companies begin to close their budgets for the following annual cycle.

“The negotiation around prices and terms has become more and more constant. We see some companies rethinking the timing of certain cloud migration projects, given the upfront costs involved, despite the broad advantages in terms of efficiency and management of operations,” the executive said.

Hurtado at Nutanix believes that companies offering solutions for hyperconvergence in a hybrid concept, that is, for both private and public clouds, may be better positioned to address issues such as cost, delivery and energy at this time.

Hyperconvergence refers to the consolidation of hardware and technological structures that make it possible to reduce the infrastructure in a conventional datacenter by up to 60%.

Hurtado said that Nutanix’s on-premise solutions are at least 30% cheaper, on average, than traditional cloud infrastructure. From an energy point of view, hyperconvergence allows power consumption to be reduced by at least 50% compared with legacy data equipment, he added.

But Nutanix is not alone in this market, as it competes with big players such as Red Hat, Vmware, Dell and Cisco.

One of Nutanix's hyperconvergence customers is Brazilian energy group Neoenergia, for whom hyperconvergence led to opex savings of approximately 40%.

“The customer knows that cloud has advantages. It’s a more comfortable and flexible approach, like choosing to stay in a hotel and be served there versus building a house and having to deal with the domestic management. But all of that comes at a cost, which isn’t small,” said Hurtado.

According to the company, its solutions are present in over 15,000 datacenter projects around the world. 

Hyperconvergence solutions in Latin America have so far mainly been applied to private cloud and on-premise datacenters.

Nutanix’s regional partners and clients include service providers Equinix, Alestra, Softtek, GlobeNet, Sencinet and Tivit.

“With the service provider, the [end] customer feels more comfortable sitting down and tailoring the projects according to their needs. This is the opportunity for Equinix, Alestra, etc. The client might want complete outsourcing, or they might want to have the administration of their machines. Others might just do colocation and minimal administration,” said Hurtado.

The public cloud, on the other hand, cannot offer the same level of commercial and operational flexibility to customers, Hurtado claimed.

“Customers start asking if they're paying too much for [cloud] elasticity they don't need or for a service they can get on-premise. In my view, this will be the case more and more.”

Both Hurtado and the executive in cloud services integration, however, say that, because of its agile deployment, cloud continues to make sense for some IT initiatives, even given smaller budgets and high operating costs, as the client would not have to buy all the hardware themselves.

In the public cloud sphere, Nutanix maintains global partnerships to integrate its hyperconvergence solutions with cloud players Amazon Web Services (AWS) and Microsoft Azure.

According to Hurtado, Nutanix is increasing its annual contract value with customers in Latin America by over 40%, while growing its clients base by 20%. Implementations of Nutanix solutions are done mostly through channels and systems integrators, such as Add Value and Positivo Servers.

Brazil and Mexico are its main markets in the region.