Infrastructure as a Service cloud offerings have been creeping toward commoditization over the past several years, but IaaS providers shouldn't panic yet. They can still differentiate by building without moving up the stack.
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Infrastructure as a Service (IaaS) heavyweights like Amazon can afford to continuously drop prices to kill competition, but as customers' cloud strategies mature, pricing won't be the only way providers can win deals in the IaaS market.
I think cloud providers are discovering that the infrastructure is the least interesting thing about the cloud, so we're seeing a lot of services piled on top.
program director of cloud computing services, Frost & Sullivan Inc
"With cloud, it doesn't always have to be about price," said Lynda Stadtmueller, program director of cloud computing services for San Antonio-based Frost & Sullivan Inc. "The bare bones, low-priced Amazon model doesn't offer [customers] enough value-added or professional services."
Differentiation within the IaaS market
Many IaaS providers use OpenStack software, which has focused competition on service quality and pricing, but they are starting to understand what additional features their architecture is capable of providing to customers or vertical markets.
IaaS providers sell value-added services -- like security and load balancing -- on top of their existing architecture, said John Rymer, vice president and principal analyst of application development and delivery professionals for Cambridge, Mass.-based Forrester Research Inc.
"These infrastructure-level services and functions are natural for an infrastructure-focused company, and [businesses] are showing a great appetite to consume [these functions] as discrete services," Rymer said.
IaaS providers should focus their offerings around features that are not easily commoditized in order to avoid competing with Amazon on a race to the bottom, he said.
IaaS providers have traditionally offered storage capacity to their customers, leaving the end user to grapple with data and application assessment and migration. An IaaS provider offering professional services -- like data center, disaster recovery or migration services -- will also have an edge over its competition, Frost & Sullivan's Stadtmueller said.
"I think cloud providers are discovering that the infrastructure is the least interesting thing about the cloud, so we're seeing a lot of services piled on top -- especially services for assessment and migration of applications," she said.
IaaS market basics: Know who your customers are
Various industries have distinct needs from the cloud, and providers should tailor their value-added services to those needs. IaaS providers should focus on vertical markets that require specific features, said Bernino Lind, chief operating officer of CloudSigma, a Swiss IaaS provider.
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CloudSigma focuses on media and finance customers with its utility-based billing model and its private-to-public cloud bursting technology, which allows businesses to securely move from their private cloud enviornments to public cloud environments on a private VLAN.
"Once an IaaS provider becomes more specialized, they become more competitive and differentiated," Lind said. "This gives customers more choice and makes the IaaS market more valuable."
Offering value without moving up the stack
Many IaaS providers move up in the stack -- i.e. Platform as a Service (PaaS) -- to avoid commoditization. While some providers can succeed by selling services to Software as a Service providers or developers, they may do better by staying in the IaaS market and layering their own IT-related services on top of existing architecture, Frost & Sullivan's Stadtmueller said.
CloudSigma has adopted that approach and is avoiding a move into PaaS. "We believe that IaaS providers that choose to offer PaaS end up diluting [their] main focus, and the [providers] end up competing with their PaaS partners," said CloudSigma's Lind.
"PaaS providers are starting to realize they shouldn't run their own infrastructure, and are allowing their platforms to run across several IaaS providers' architectures -- that's the definition of high availability," Lind said.