Although Amazon's and Google's popular cloud services have been hugely successful, other cloud providers must resist the temptation to imitate them. Instead, success in this market lies in building a cloud business model that focuses on differentiation.
"The challenge is: How do you differentiate yourself in the markets you want to serve?" said Dave Ryan, senior vice president of the Americas at Tata Communications Ltd., which is developing its cloud business model and strategy for the U.S. market. "We're going to be conscious of not being another 'me too' player in the cloud space."
The pure cloud computing and storage services offered by market giants like Amazon Web Services (AWS) and Google are becoming commodities, and most cloud providers can't compete with these market leaders on cloud pricing. That was the consensus of a panel of experts in the Carrier Cloud Forum at the Interop New York 2011 trade show this month. Cloud providers, whether their heritage is in telecom or managed services, must pursue a cloud business model that specializes in specific vertical markets or distinguishes itself with value-added services.
You're not going to out-Amazon Amazon at this point.
Partner, Everest Group
"You're not going to out-Amazon Amazon at this point," said Scott Bils, a partner at Dallas-based consulting firm Everest Group, who spoke on the "Enterprise Expectations for Cloud Services" panel at the forum. "Think[ing] about 'verticalization' and use cases is almost imperative."
Competing with AWS is not impossible and can lead to higher profit margins than boutique managed cloud services can offer, according to Troy Angrignon, vice president of sales and marketing at San Francisco-based consulting firm Cloudscaling. But the cloud providers that successfully challenge Amazon's cloud business model do so by not competing directly, he said.
"We think you can out-Amazon Amazon, and we've actually done that with a carrier in Asia. We got them into market at 20% below Amazon's pricing," Angrignon said during the panel discussion. "But it wasn't taking [AWS] head on. It was essentially making an AWS clone, but it was in their local geography, with local support, with localization of the language and with [differentiated] feature sets. They're also leveraging their network, so they sort of changed the rules of the game."
Those deployments may be exceptions to the rule. Most cloud providers that rushed to the market by imitating the established heavyweights' cloud business model have yet to see favorable returns, said David Frattura, senior director of strategy for cloud solutions at Alcatel-Lucent, during another Interop panel discussion, "Building the On-Demand Cloud Infrastructure."
"They're often emulating what they're seeing out in the marketplace -- they'll [see] maybe Amazon or Savvis as benchmark parallels and they'll try to replicate that," Frattura said. "[When] they do that, they run into disappointing results because they're not differentiated. You're trying to copy someone else who's already gotten critical mass."
Tata, BT: Verticals key to differentiating cloud business models
Tata, which expects to launch cloud services in the U.S. within the next six months, plans to do so with a narrow focus: very large enterprises in verticals where Tata has already made inroads, such as financial services, media, entertainment and manufacturing.
Those enterprises won't be shopping for cloud services as a way to outsource servers and storage because they have invested heavily in IT personnel and infrastructure, said Tata's Ryan. As a result, Tata must develop cloud services that address specific business needs for the individual verticals.
"We're not planning on launching your pure vanilla, 'Pull out your credit card and order up your compute [resources]' service,” Ryan said. "There are already dozens of companies that do that, and our target customers don't buy that way. Some of our customers own more data centers than most carriers."
BT Global Services is also eschewing the barebones Infrastructure as a Service (IaaS) or Storage as a Service cloud business models. Like Tata, it is targeting verticals where it already plays well -- consumer packaged goods, government, health care and banking -- and developing cloud-based security, networking, contact center and unified communications services to meet each market's needs.
"Instead of focusing on specifically creating a [cloud service] and seeing if it fits into the market, we're looking at the market and trying to understand what our customer needs are," said Scott Cain, head global portfolio manager at BT Global Services during another panel discussion, "Monetizing the Cloud."
"It's all about what the customer needs," Cain said. "It's not about what we think should be in the marketplace."
Providers augment cloud business model with managed services
Other cloud providers are differentiating in the market by enhancing standard IaaS or cloud storage offerings with managed IT services that make their cloud business models more attractive to customers.
Xtium, a cloud provider headquartered in Wilmington, Del., markets its IaaS offering to mostly midmarket customers that have "a high level of technical need but not the resources or wherewithal to support it," said Tim Vogel, Xtium's co-founder and CTO. To address that demand, Xtium bundles its core multitenant IaaS offering with managed network and disaster recovery services, calling the result, "a limo ride to the cloud," Vogel said.
The package includes a fully managed VMware host at the customer's premises that runs Riverbed Technology's Cloud Steelhead virtual WAN optimization software in addition to Xtium's in-house remote monitoring, backup and replication services. The managed services carry no extra charge, and customers are free to decline them.
"It helps us better manage their services and provide better, tighter SLAs," said Vogel, who does not view Amazon as a direct competitor. "It gives us a distinct advantage."
Rural carrier Windstream Communications announced in August its intention to buy Paetec Holding Corp., in part to mature its cloud portfolio and grow its data center footprint. Windstream has also packaged managed IT services into its current IaaS and cloud storage products to differentiate itself.
"Off the bat, we didn't want to compete with Google or Amazon. They had all the dollars, so what we [built] was an enterprise production cloud," said Christopher "Kip" Turco, senior vice president for data center operations at Windstream during the "Building the On-Demand Cloud Infrastructure" panel discussion. "We offer a full-services cloud, so it's not quick turn-up, turn-down."
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