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Over the last few months, I have had conversations with numerous financial analysts and industry analysts and a question that comes up frequently is whether or not cloud service providers pose a threat to product manufacturers. They are surprised when I describe how deployments by cloud service providers are one of the fastest growing segments of our business. Not only are we acquiring dozens of customers in this segment, including Virtacore (see today’s press release), they are also some of our largest customers! I find myself offering this explanation fairly frequently. Hence this blog post.

Let us start by parsing cloud delivered solutions based on a couple of key dimensions:

  • What is being deployed in the cloud?
  • Who is providing the IT service from the cloud?

The Opportunity is Larger than the Threat

The image conjured up by the term “cloud” is that of companies like Amazon, Google and Microsoft delivering large-scale computing infrastructure that eliminate the need for on-premises IT equipment and software. To the extent that Enterprises port their applications to leverage Amazon EC2 or the Google Cloud or Microsoft Azure, these Enterprises are indeed displacing on-premises infrastructure. Further, since these cloud providers build their own infrastructure rather than buying from product manufacturers, they are indeed shrinking the available market for product manufacturers.

However, there are other categories of service providers that on balance, more than offset the reduced spend and create an opportunity.

  • Consumer SaaS providers aggregate consumer-spend into Centralized Shared Enterprise Infrastructure. Consumer applications that traditionally consumed end user equipment (PCs, PC applications, etc.) are moving to the cloud triggering a need for Enterprise infrastructure. While some of these service providers build their own infrastructure (e.g., gmail), others leverage product manufacturers. Example: Yahoo Mail
  • Enterprise SaaS providers aggregate SMB requirements into Centralized Shared Enterprise Infrastructure. A key customer segment that SaaS providers target is small businesses that would otherwise never have invested in Enterprise IT infrastructure. Consequently SaaS companies end up aggregating SMB spend into Centralized Shared Enterprise Infrastructure, and while some SaaS companies may end up building it on their own, most are focused on their core areas of expertise, choosing instead to deploy best of breed infrastructure from product manufacturers. Examples: ServiceNOW, Salesforce
  • Modern hosting companies aggregate SMB spend into Centralized Shared Enterprise Infrastructure. Traditional hosting companies thrived on renting real estate, power and cooling. Now these same companies are evolving into renting hypervisors (and all the servers, networking, storage and other infrastructure that comes with a hypervisor) or renting virtual desktops or renting DR infrastructure. Examples: Virtacore, Desktone

The key to leveraging the opportunity lies in recognizing that the requirements posed by such service providers is different.

Centralized Shared Infrastructure Requires Rethinking Traditional Approaches

While we believe that cloud delivered IT solutions and applications create an opportunity, we also believe that the requirements posed by cloud providers are different. Specifically, as it relates to storage infrastructure, some of the dimensions that matter more are as follows:

  1. Efficiency. For end customers, making IT efficient is important as a way to manage costs for the Enterprise. For service providers, on the other hand, efficient IT infrastructure is the very essence of their business success. Lowering the cost of infrastructure allows them to price their services more competitively to gain market share and improve profitability.
  2. Flexibility in Scaling. The storage industry has traditionally deployed incremental storage performance and storage capacity in big “capital intensive” chunks at a time. What is needed is an approach that allows service providers to scale performance and capacity in small, low-cost increments – thus making IT equipment costs more variable and aligned with revenues. Perhaps, an even more critical requirement is to avoid fork-lift upgrades of hardware and to be able to perform “rolling hardware upgrades” that are non-disruptive.
  3. Rapid Recoverability. For service providers that operate against stringent SLAs, the notion of nightly backups and backup windows is simply not good enough. What is needed is the ability to provide hundreds of recovery points and rapid recovery from any such point for applications.
  4. Dramatic Simplicity. Lowering the administrative cost of operating a large-scale data center with hundreds of tenants is key to profitably for service provider. To this end, most service providers rely on extensive in-house automation that requires extensive APIs and deep integration with hypervisor vendors. Similarly, the traditional support model of responding to customer calls with a layered, hierarchical organization comprised of level1 engineers, level2 engineers and escalation engineers will not suffice. In a connected world, Vendors will need to have sophisticated remote monitoring tools that recognize problems concurrently as they occur at customer sites, and remote diagnostic tools that allow for rapid problem diagnosis and problem resolution.
  5. Integrated Security. Gaining the trust of Enterprises through robust security becomes a foundation for persuading them to move their data and applications to a third party. This requires a much deeper investment in integrated security (as opposed to security as a separate layer) on the part of product manufacturers, even if they are not building security products.
  6. Multi-Tenancy. Going back to the theme of driving efficiency, the ability to share infrastructure across multiple users while simultaneously maintaining good quality of service drives superior economics.

We have seen a rapid increase in the number of deployments of our products by service providers. The key drivers of this have been our unparalleled efficiency in simultaneously lowering the cost of capacity and cost of performance, our ability to scale in low-cost increments and scale non-disruptively, our ability to deliver superior data recoverability, and our simplicity and remote support automation. I believe that we are just at the very early stages of leveraging the opportunity, and am excited about the partnerships we are building with our service provider customers.

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2 Responses to Cloud Service Providers: Opportunity or Threat?

  1. Man of Few Words says:

    Very true. But once a SaaS provider or Hosting Company standardizes on someone else’s storage, they become a threat. Until you can convince them to switch back to your storage.

  2. Chery Smothers says:

    IT service management or IT service support management (ITSM or ITSSM) refers to the implementation and management of quality IT services that meet the needs of the business. IT service management is performed by IT service providers through an appropriate mix of people, process and information technology.*-,”

    http://caramoan.ph

    Head to our very own online site too

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