The cloud services industry is expected to grow by 20 per cent this year. Bill Bennett reports.

Datacom CEO Greg Davidson says there's a growing awareness of software's power to reinvent business. He says if you want to understand how software unlocks value, look at the way Air New Zealand and ASB Bank used it to transform the way they deal with customers.

The two are among Datacom's biggest accounts. Davidson says they are the tip of an iceberg: "For every company making sweeping, visible changes, there are six or so doing just as much behind the scenes".

Using technology to fuel business change isn't new. Companies have been doing it since computers first moved into commerce more than 50 years ago. Every decade or so there's fresh cycle of activity with successive waves of technology.

This time the biggest change is that the hardware powering systems has moved so far into the background that, in many cases, the companies using IT neither own nor operate their own servers. They tap into networks of data centres or cloud computing. Others hand their hardware over to facilities management specialists.


Seeing companies switch from in-house computing to IT services has been good to Datacom. Two years ago the company's outsourcing, datacentre and facilities management operations saw it leap-frog Hewlett-Packard to become New Zealand's second largest information technology service company.

Analyst firm IDC Research says New Zealand's overall IT services market is worth about $3 billion a year and is growing at close to three per cent annually. Datacom accounts for roughly 10 per cent of the total services market. Datacom is the nation's biggest player when it comes to IT outsourcing, with a roughly 20 per cent market share. The company has a 23 per cent share in software development and is a major player in custom app development and systems integration.

To get past HP, the 50-year-old privately held IT services company took a giant leap of faith. Davidson says just as the global financial crisis was getting under way and New Zealand was heading into a scary-looking recession, Datacom decided to make the biggest investment in the company's history and commit to Orbit, a major datacentre in Auckland. The almost $100 million investment paid off. Now the Auckland facility is approaching capacity and the more recent Kapua datacentre in Hamilton is expanding. Both are what Datacom calls "collaborative open" facilities. There are facilities in Wellington, Christchurch and Australia.

Davidson says an advantage of having datacentres is Auckland and Hamilton is that they are far enough apart to be in distinct geographic regions. If a major disaster happens in one location, it won't affect the other so they won't both go off line. But they are close enough for what he calls "ubiquitous high-speed networking" - in data transfer terms it is almost as if the two buildings were next door to each other.

Much of the IT industry - mainly involving hardware - has gone from being high value, high margin to becoming a commodity business. The IT business model is no longer based on the boutique but on the supermarket. This means scale and operational excellence are important.

Davidson says in spite of this there's still plenty of scope for an organisation to offer something different. "Companies come to us to apply IT intelligently, so they can get an advantage". This is vital in an age when cloud computing has effectively flattened the playing field.

He says an ability to understand a customer's business needs is still anything but ubiquitous. One thing in Datacom's favour is its local expertise - while small in global terms, it is large in both New Zealand and Australia. The two operations run autonomously, mainly with local staff.

Datacentres are now big business. Depending on definitions, companies are expected to spend more than US$170 billion on cloud and related services in 2014. The market is growing at a clip: this year it is expected to put on 20 per cent and it should reach US$235 billion in 2017 - three times as much business as in 2011.


Amazon Web Services dominates the global market; more traditional companies like IBM, HP and Microsoft are racing to catch-up.

Most big players have broad cloud offerings but their main focus is a version known as public cloud. Davidson says public cloud is right for some customers, but it is relatively difficult to move from existing in-house infrastructure to this kind of service. In many cases it requires expensive rearranging of existing software licences and considerable work. Datacom's main thrust is in what it calls the virtual private cloud.

Davidson says this is set up to ease the process of moving from in-house to the cloud. "We go for 90 per cent of the benefits of cloud computing while retaining all the advantages of existing systems."

Transtasman operation

Datacom is a New Zealand technology giant with its feet planted on both sides of the Tasman. The company now has as many staff working in Australia as in New Zealand.

CEO Greg Davidson says though the two divisions share a "commonality of practice and workplace culture" the two companies are quite distinct. He says Datacom Australia is very much an Australian business - it grew from different roots with many staff joining the company through acquisitions.


There are important market differences between the two countries. Davidson says the Australian business spends most of its time competing with major global IT services companies. He says the company's nimbleness often gives it an edge when it rubs up against these rivals - so does the ability to wheel out Datacom top brass in front of customers.

It also helps that Datacom cut its teeth in New Zealand.

Davidson says the market here is far more competitive with local firms chasing every lead. In comparison he says much of the Australian demand for IT services remains unmet and customers are desperate to form close relationships with committed service providers.