As part of its managed public cloud service, 2nd Watch examines and optimizes the whole spectrum of cloud cost-reduction opportunities on an ongoing basis. With cloud pricing never more complex, tools and advice will become ever more important for enterprises seeking best value.
The 451 Take
2nd Watch's strong point is that it looks at the whole raft of cloud cost-optimization opportunities, rather than just focusing on one. Do you really want to take your vehicle to different garages to service the engine, brakes and transmission, or would you rather take it to one that optimizes the whole vehicle? Our Cloud Price Index detected the addition of 50,000 SKUs to AWS's price list in November, bringing the total way beyond 350,000. There is no way such complexity can be manually resolved and optimized in-house – third-party tools are needed. These tools can solve the quantitative aspects of optimization, but what about more qualitative requirements such as future demands, new product launches and overall business strategy? Tools are just a supporting act to good advice and good planning. 2nd Watch is looking to optimize on not only past and current behavior, but also the future demands of the business.
Context
Headquartered in Seattle with offices in Chicago, New York City and Atlanta, 2nd Watch currently has over 215 employees, a significant jump since our previous report on the company in March 2017, when it had just 140. It claims to have doubled its revenue from 2016 to 2017, the majority derived from large enterprises. We estimate 2nd Watch's revenue at $30-50m. The company provides managed IT services based on third-party cloud infrastructure, primarily AWS but also Microsoft Azure. After raising a $19m series D round in March 2017, it now has landed $56m in funding. 'Managed service' has always been a loose term in this industry, with the devil being in the details – what exactly is managed?
In this year's private Cloud Price Index, we asked respondents to describe in detail what this term meant and found substantial differences in opinion. In fact, our research suggested a two-tier model of intrinsic and value-added cloud offerings. 2nd Watch's managed service spans four broad areas – security, automation, management and optimization – as the company looks to add greater value to off-the-shelf public cloud offerings.
We expect cost optimization to be an increasingly important factor in enterprise buying decisions in 2018. 451 Research's Voice of the Enterprise has previously found that cost optimization is the main driver of migration to the cloud but, ironically, it is one of the top three pain points of current cloud users. This paradox suggests that buyers are disappointed with the savings they are getting post-migration, which we think is caused by uncontrolled on-demand consumption. There is significant market movement in this area, which we cover in the next section.
2nd Watch offers optimization as part of its holistic managed capabilities to its managed service customers. The managed service is priced on a fixed hourly cost per VM under management, on top of infrastructure charges from the third-party provider. The company is an AWS Premier and Managed Service Partner.
Optimization
2nd Watch optimizes on several fronts. First, it can recommend on purchases of reserved instances (RIs), which we previously highlighted as being a source of ongoing complexity. The company notes that, on average, two-thirds of VMs can be better deployed as RIs, with the remaining one-third being consumed via on-demand instances. Typically, 10-15% can be saved as a result of the use of RIs across the estate. Usually, RIs are purchased for specific customers, but the company is also broker-dealing RIs: buying them in bulk and redistributing them across multiple customers as a means of reducing unit prices.
Similarly, spot instances can be employed to lower prices on workloads that can cope with periods of unavailability. There has been a wave of recent activity focusing on giving enterprises cost savings as a result of spot instances, including Cisco's acquisition of compute.io.
Second, a rightsizing process determines when a VM can be resized based on application requirements to reduce expenditure. 2nd Watch has IP and tools that analyze historical data and trends to identify where an AWS EC2 VM or RDS database instance might be underutilized. The company has an advantage here in that it can migrate instances from older or underutilized instances as part of its management service.
Third, 2nd Watch's IP can detect when resources are not being used and can subsequently be turned off, including load balancers, IP addresses, volumes and snapshots. It can 'auto park' unused instances temporarily (perhaps overnight or in periods of low interaction) via a schedule. Again, there has been a wave on new startups playing in this space over the past six months.
Finally, 2nd Watch advises when migrating to a new cloud service as a result of product launches might be worthwhile. For example, expertise is needed to determine when a serverless technology such as Lambda might be a better fit than a VM. With the hyperscalers announcing new products every month, ongoing advice is required to help enterprises plan and assess their options.
The company utilizes a predefined process for this optimization. Onboarding is followed by a period of 90 days of monitoring, which is employed as the basis of a rightsizing exercise. From this data, reserved instances are purchased. A review takes place every quarter to ensure ongoing optimization. Left unchecked, server sprawl will likely increase over time, so ongoing monitoring and optimization is crucial.
Motorola took advantage of the rightsizing capabilities by moving a portion of instances from AWS M3 size to the newer M4 class, thus getting more performance at a lower price. Similarly, several M4 instances were moved to smaller and cheaper T2 instances. Other customers using the optimization service include Yamaha, Lenovo and SCOR.
Competition
2nd Watch competes with other MSPs that are building atop third-party cloud providers, particularly Cloudreach and Rackspace (especially with the recent purchase of Datapipe). It also vies with SIs such as Accenture, Capgemini, Wipro, DXC Technology and Cognizant. Cloud Technology Partners, now owned by HPE, is a rival as well. 2nd Watch and Cloudreach are in enviable positions – as startups, they have no legacy infrastructure to maintain and thus can concentrate purely on cloud-native infrastructure. Several firms focus on cloud cost optimization, including BidElastic, Cloudability, Cloudamize, FittedCloud, GorillaStack, Nuvola Analytics, ParkMyCloud, RightScale, RISC Networks, Skeddly and Spotinst.
SWOT Analysis
The 451 Take
2nd Watch's strong point is that it looks at the whole raft of cloud cost-optimization opportunities, rather than just focusing on one. Do you really want to take your vehicle to different garages to service the engine, brakes and transmission, or would you rather take it to one that optimizes the whole vehicle? Our Cloud Price Index detected the addition of 50,000 SKUs to AWS's price list in November, bringing the total way beyond 350,000. There is no way such complexity can be manually resolved and optimized in-house – third-party tools are needed. These tools can solve the quantitative aspects of optimization, but what about more qualitative requirements such as future demands, new product launches and overall business strategy? Tools are just a supporting act to good advice and good planning. 2nd Watch is looking to optimize on not only past and current behavior, but also the future demands of the business.
Context
Headquartered in Seattle with offices in Chicago, New York City and Atlanta, 2nd Watch currently has over 215 employees, a significant jump since our previous report on the company in March 2017, when it had just 140. It claims to have doubled its revenue from 2016 to 2017, the majority derived from large enterprises. We estimate 2nd Watch's revenue at $30-50m. The company provides managed IT services based on third-party cloud infrastructure, primarily AWS but also Microsoft Azure. After raising a $19m series D round in March 2017, it now has landed $56m in funding. 'Managed service' has always been a loose term in this industry, with the devil being in the details – what exactly is managed?
In this year's private Cloud Price Index, we asked respondents to describe in detail what this term meant and found substantial differences in opinion. In fact, our research suggested a two-tier model of intrinsic and value-added cloud offerings. 2nd Watch's managed service spans four broad areas – security, automation, management and optimization – as the company looks to add greater value to off-the-shelf public cloud offerings.
We expect cost optimization to be an increasingly important factor in enterprise buying decisions in 2018. 451 Research's Voice of the Enterprise has previously found that cost optimization is the main driver of migration to the cloud but, ironically, it is one of the top three pain points of current cloud users. This paradox suggests that buyers are disappointed with the savings they are getting post-migration, which we think is caused by uncontrolled on-demand consumption. There is significant market movement in this area, which we cover in the next section.
2nd Watch offers optimization as part of its holistic managed capabilities to its managed service customers. The managed service is priced on a fixed hourly cost per VM under management, on top of infrastructure charges from the third-party provider. The company is an AWS Premier and Managed Service Partner.
Optimization
2nd Watch optimizes on several fronts. First, it can recommend on purchases of reserved instances (RIs), which we previously highlighted as being a source of ongoing complexity. The company notes that, on average, two-thirds of VMs can be better deployed as RIs, with the remaining one-third being consumed via on-demand instances. Typically, 10-15% can be saved as a result of the use of RIs across the estate. Usually, RIs are purchased for specific customers, but the company is also broker-dealing RIs: buying them in bulk and redistributing them across multiple customers as a means of reducing unit prices.
Similarly, spot instances can be employed to lower prices on workloads that can cope with periods of unavailability. There has been a wave of recent activity focusing on giving enterprises cost savings as a result of spot instances, including Cisco's acquisition of compute.io.
Second, a rightsizing process determines when a VM can be resized based on application requirements to reduce expenditure. 2nd Watch has IP and tools that analyze historical data and trends to identify where an AWS EC2 VM or RDS database instance might be underutilized. The company has an advantage here in that it can migrate instances from older or underutilized instances as part of its management service.
Third, 2nd Watch's IP can detect when resources are not being used and can subsequently be turned off, including load balancers, IP addresses, volumes and snapshots. It can 'auto park' unused instances temporarily (perhaps overnight or in periods of low interaction) via a schedule. Again, there has been a wave on new startups playing in this space over the past six months.
Finally, 2nd Watch advises when migrating to a new cloud service as a result of product launches might be worthwhile. For example, expertise is needed to determine when a serverless technology such as Lambda might be a better fit than a VM. With the hyperscalers announcing new products every month, ongoing advice is required to help enterprises plan and assess their options.
The company utilizes a predefined process for this optimization. Onboarding is followed by a period of 90 days of monitoring, which is employed as the basis of a rightsizing exercise. From this data, reserved instances are purchased. A review takes place every quarter to ensure ongoing optimization. Left unchecked, server sprawl will likely increase over time, so ongoing monitoring and optimization is crucial.
Motorola took advantage of the rightsizing capabilities by moving a portion of instances from AWS M3 size to the newer M4 class, thus getting more performance at a lower price. Similarly, several M4 instances were moved to smaller and cheaper T2 instances. Other customers using the optimization service include Yamaha, Lenovo and SCOR.
Competition
2nd Watch competes with other MSPs that are building atop third-party cloud providers, particularly Cloudreach and Rackspace (especially with the recent purchase of Datapipe). It also vies with SIs such as Accenture, Capgemini, Wipro, DXC Technology and Cognizant. Cloud Technology Partners, now owned by HPE, is a rival as well. 2nd Watch and Cloudreach are in enviable positions – as startups, they have no legacy infrastructure to maintain and thus can concentrate purely on cloud-native infrastructure. Several firms focus on cloud cost optimization, including BidElastic, Cloudability, Cloudamize, FittedCloud, GorillaStack, Nuvola Analytics, ParkMyCloud, RightScale, RISC Networks, Skeddly and Spotinst.
SWOT Analysis
Strengths
2nd Watch has an optimization process that looks across a range of opportunities and adds ongoing value to its managed service capabilities.Weaknesses
This is a specialized area, and we wonder if the company can scale to address the demand for consultants who understand both the qualitative and quantitative aspects of optimization.Opportunities
Cost savings are a major driver of cloud adoption, but post-migration expenses can spiral out of control – enterprises need help to keep costs as low as possible.Threats
There is a potential conflict of interest in that by reducing expenditure and shutting down workloads, 2nd Watch is taking a hit on its per-VM revenue.
Owen Rogers
Research Director, Digital Economics
As Research Director, Owen Rogers leads the firm's Digital Economics Unit, which serves to help customers understand the economics behind digital and cloud technologies so they can make informed choices when costing and pricing their own products and services, as well as those from their vendors, suppliers and competitors.
William Fellows
Co-Founder & Research VP
William Fellows is a cofounder of The 451 Group. As VP of Research, he is responsible for the Cloud Transformation Channel at 451 Research. This Channel provides a point of intellectual convergence for 451 Research around cloud computing, in much the same way that the industry is converging on cloud from all points.
Jean Atelsek
Analyst, Cloud Price Index
Jean Atelsek is an analyst for 451 Research’s Digital Economics Unit, focusing on cloud pricing in the US and Europe.