Government’s AWS deal blows locals on IaaS supplier panel out of the water – NZ Rise

Buy-local advocate sees new deal undermining an existing Crown supplier panel, which includes Spark's Revera and Datacom; criticises Internal Affairs for not putting deal out to tender. 
NZ Rise co-chair and Catalyst IT director Don Christie

US multinational Amazon could grab more business in New Zealand after inking an all-of-government supplier agreement with Internal Affairs.

NZ Rise co-chairman Don Christie says the just-announced deal will blow an existing all-of-government cloud supplier panel (consisting of Datacom, Spark-owned Revera and IBM) out of the water. He also says Internal Affairs is star-struck by multinational providers, and not paying enough heed to what he sees as the advantages of local cloud providers.

Like other all-of-government deals, the  Cloud Framework Agreement (as it is known) will allow Amazon’s Web Services division (AWS) to treat the all New Zealand government agencies as a single customer. In turn,  government agencies can access any of Amazon’s many cloud computing services at a discount price negotiated by Internal Affairs.

AWS was launched in 2006 when Amazon decided it could monetise the cloud computing systems developed for its giant e-tail operation.

Last year, AWS was (once again) easily the biggest cloud computing provider on the planet, ahead of Microsoft, IBM and Google. Its success has helped propel Amazon founder Jeff Bezos to become the world’s third-richest man (by Forbes’ estimate) with a wealth of $US84.6 billion.

But on the face of things, it seems to override the government’s Infrastructure as a Service (IaaS) cloud computing supplier panel, which has three members appointed by the Department of Internal Affairs (DIA): locals Datacom and Revera (a fully-owned subsidiary of Spark) plus IBM.

“On the face of it, this could be the beginning of the end for Internal Affairs' IaaS service,” cloud computing commentator Ian Apperley says

“The IaaS service is delivered by Revera and Datacom primarily and is reported to include back end public cloud services, such as Amazon. It’s also one of the only mandatory services, meaning that rather than buying their own infrastructure, agencies must buy IaaS.”

He adds, “This deal appears to signal to all government agencies they can go directly to Amazon and buy services and reinforces the cabinet’s previous cloud-first policy. Effectively, it trumps local IaaS as Amazon will definitely be cheaper, faster, and better. If I were a government CIO I’d be looking at what I could move pretty quickly.”

Internal Affairs says government agencies mandates to use the IaaS panel must continue to do so, but they can tap the pricing and conditions of the new AWS Cloud Framework deal, allowing them to pressure Datacom and Revera for better pricing if part of the IaaS service they supply includes resold AWS services (more on this point below).

Local services can be better and cheaper: Christie
Local cloud service provider Catalyst IT begs to differ.

There are a couple of arguments always used for local cloud providers: data sovereignty, or legal, regulatory or company policy requirements for files to be stored within New Zealand (AWS’ closest data centre is Sydney) and better performance from being closer to New Zealand customers.

But Catalyst Cloud general manager Bruno Lago said that in one recent case his company was able to offer pricing below AWS.

Catalyst director Don Christie says he can’t comment on the pricing for the AWS all-of-government deal since it hasn’t been made public (he’s also upset it wasn’t put out to tender).

But he says his company is able to compete on all levels “because we’re so lean and agile in our innovation, constantly upping the value. It’s the Kiwi advantage.”

He does agree with Mr Apperley on one point. He also considers the AWS deal will marginalise the IaaS panel or “blow it out of the water” in Mr Christie’s words.

The co-founder of NZ Rise, a lobby group representing about 30 local IT companies, also says choosing local companies helps build the skills base. And that it benefits the government in that about 40% of the cost of services comes back in tax.

Many of the multinationals, on the other hand, pay little or no tax in New Zealand, he says.

Government business is big business to local suppliers, Mr Christie says, meaning they’ll go the extra mile. But on the flipside, it’s small beans for the likes of AWS, Google and Microsoft. Some in government just like dealing with the big global players "because it strokes their egos," he says.

Today, Catalyst hit back by offering a de facto "all of government" offer, or a new pricing deal that it says any government agency can take advantage of if they want to break from the official AoG deals.

Internal Affairs responds
A spokesman for Internal Affairs told NBR 76% of incumbent suppliers are local. That is true, though it's also true some multinationals on the panel, such as Accenture, which is handling a lot of IRD's multi-billion transformation project, are much bigger and have been allocated much more work than local panelists, some of whom are boutique (Mr Christie does give Internal Affairs kudos for recently making this list public. His company is on it, by the way; its clients include the Electoral Commission, Customs, NZ Post and various DHBs and councils).

The DIA spokesman also disputed that the deal marginalised the IaaS panel, emphasising participation by government agencies in the new Amazon Cloud Framework is not mandatory.

On the other hand, he points out, it is mandatory for a big swathe of the public sector, including the 28 public service government departments (Education, Health, Justice etc, all district health boards (DHBs) and the following Crown agencies: the New Zealand Qualifications Authority, the Tertiary Education Commission, ACC, EQC, NZQA, NZTE, NZTA.

That represents a whole lot of business for Datacom, Revera and IBM on the IaaS panel.

But there's a nuance here. Datacom and Revera both have a hybrid model. They both have their own data centres at various points around New Zealand, which their customers can take advantage of (for a so-called "private cloud"). Or, if one of their customers wants to use a public cloud operator like Amazon Web Services (as a complement or as a whole), Datacom and Revera will help facilitate and manage that too — though it's presumably not as lucrative as when a client uses their services only.

The Internal Affairs spokesman says if a government department or agency is mandated to use a supplier on the IaaS panel, then it must continue to do so, "However, agencies mandated by the cabinet to use the panel can access the Cloud Framework Agreement and its terms and conditions through the panel providers."

That means if AWS is offering killer pricing through the Cloud Framework Agreement, then agencies using the IaaS panel will be more likely to take use more AWS services through Datacom and Revera, rather than the local duo's own services.

Whether the cloud framework pricing does undercut the IaaS panel's pricing is impossible to say; Internal Affairs won't reveal the financial details of its deal with Amazon, citing commercial confidentiality.

Revera responds
That point was taken up by Revera chief executive Robin Cockayne, who told NBR "Local cloud providers – Revera included – will view the agreement between AWS and DIA as a growing opportunity.

“It may sound counterintuitive coming from a leading New Zealand cloud services provider like Revera but the growing embrace of public clouds [run by multinationals] among both private and government clients is good for our business. Governments run complex IT systems – they need lots of specialist help regardless of the location of systems and data, and we bring years of experience moving government to hybrid cloud models.”

He says there will always be a place for local providers, “because it’s one thing to buy cloud services from the likes of AWS or Azure but quite another to keep everything running and optimised to keep up with the pace of change. And that’s why we say that it doesn’t take a rocket scientist to choose cloud but you’ll want someone to get you there and keep everything running smoothly. Which is why AWS is putting so much grunt behind its partner programme."

Datacom declined to comment.

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