Tony Lucas of Flexiant says in his presentation at HostingCon 2012 that service providers need to find their cloud niche to be successfulIn the January issue of Harvard Business Review a study of 2,347 established companies, over 10 years, identified only 10, less than 1% that grew by 5% every 10 years. Does this mean that all of the growth ambitions of the service providers who are working with Flexiant are unrealistic? Not necessarily so.

Today, at HostingCon 2012 in Boston, Tony Lucas from Flexiant spoke about ‘Finding your Niche in the Cloud’. We will be posting Tony’s presentation within days.

While listening to Tony speak I reflected on the Harvard study and wondered whether the predicted 47% growth in hosted private clouds this year was reasonable and whether the service provider market was prepared for the opportunity to measure up to the customer demand that Tony envisaged.

If service providers are to exceed the rate of 5% per annum growth then they need to differentiate the services they provide. Critical to this is selecting the markets that they are going to serve. This to most, if not all of us, is a pretty obvious first step.

However in recent conversations with service providers it is clear that no one can answer yes to the following questions:

  • Do you feel that you have a 100% understanding of the cloud service needs that your customers will demand of you in the next 24 months?
  • Is their 100% agreement in your organisation on what these needs will be?
  • Do you have 100% confidence that you have identified where these needs are not currently being met and therefore where you have opportunity to differentiate your services from others?

To answer these questions with confidence many organisations brainstorm what they think customer needs will be and use the insights gained from this exercise to drive their strategy. This approach is flawed. The chances of coming up with more than 5 or 6 accurate customer needs through brainstorming is close to zero. Especially when recent innovation research has demonstrated that there are usually between 50 and 150 measurable needs for every job that needs to be completed. Even washing your hands was proven to have 109 distinct needs!

For me the message is clear. This is the decade of the service provider. Value will migrate from enterprise and consumer IT to the cloud service providers. However, the service providers who will benefit from this will be the ones that take time to understand the needs of the customers and markets they are serving and who differentiate their services to meet these needs.

The future is not homogenous and higher profits will be driven from tailored services rather than commoditised services. Service providers will do well if they seek out and serve premium markets rather than purely deliver ‘me to’ services. A great analogy is Apple’s position in the PC market at the end of 2011. They had only captured 9% of the overall market for PC’s but by focusing on highly profitable customer niche’s they managed to capture 75% of all the profits in the PC market!

There is compelling logic to support the belief that service providers, by focusing on serving highly profitable niches and using a platform such as Flexiant Cloud Orchestrator to build and deploy differentiated services, will be able to replicate the Apple experience and capture large profits from small segments of the overall market. Those that do not differentiate and do not select the tool that will allow them to customise their services easily will squander this unique opportunity for extraordinary growth.