Cloud has changed everything, for the better. Okay, maybe there is one exception – the price wars – the commoditization of cloud means the industry is going to battle over the price – after all every penny counts. And while everything has price wars – the latest TVs, mobile phone contracts, cars, homes (well almost everything, Apple does a great job steering clear of this), for cloud, the damage that these price wars can have on service providers could be significant.
If we look to AWS to set the stage for the industry, investors are worried about the lack of profits from the giant and its spending habits (last year the company as a whole invested nearly $9 billion). The good news is that AWS’s pending quarterly results call, signals “that cloud-computing has come of age: AWS’s revenues are thought to have reached $5 billion in 2014 and to be growing at more than 50% annually. Analysts have already assigned AWS a valuation of $44 billion—putting it in the same league as incumbent computer-makers such as Hewlett-Packard, which has a market capitalisation of $60 billion,” according to the Economist.
AWS is the industry giant, but competition is increasing from rivals like Microsoft and Google. What’s this all point to? That there is money to be made, and a lot of it. Gartner expects “the global market for cloud-computing services to reach $176 billion this year. That is still only 4% of all IT spending, but it is growing fast, as most other parts of the industry are stagnant or even declining. By 2017 cloud spending will total $240 billion.”
Those numbers are huge and might seem unrealistic for a smaller, lesser known service provider. But the truth is, imagine getting even .01% slice of the $176 billion pie?
The Cost is Getting Cheaper
The battle for market share, the rush for businesses to move to the cloud means the cloud is getting cheaper. “In the past three years prices are down by around a quarter, according to Citigroup and further significant falls look all but inevitable. Some providers, such as Microsoft, have started providing their services free to startups, in the hope of turning them into paying customers as they grow.”
The Economist writes:
But for providers of cloud services, and their shareholders, the question is: will we ever make any money from this? So far, all that many of them have done is run up losses. The providers may find it hard to differentiate their services, forcing them to compete on price and thus to expand rapidly to achieve economies of scale. The risk is that they end up somewhat like airlines and mass-market carmakers: chronically afflicted by overcapacity, constantly struggling to achieve a decent margin and perennially hoping that their competitors will keel over first.
Price Isn’t the Only Important Factor
We are strong believers in the ability of service providers offering public cloud services to differentiate on things other than price.
If you try to compete with Amazon on basic IaaS and it comes down to price, we’d bet you’ll lose (disclaimer – I’m sure there are examples out there where someone did win, but that’s the minority). It’s a simple situation – Amazon is huge, can invest in infrastructure and because of the amount of users, can offer it at discounted rates.
You cannot compete with Amazon, Azure (after all Microsoft is giving it away) or Google on price, but you still can compete with the giant by offering something different. You won’t win the battle on either price or number of features. But if a prospect labels you as someone who adds value on top of the infrastructure, then you can win.
Add Value, Differentiate
In an industry were commoditization is the new norm, competing with the big giants is becoming impossible because your price will always be compared to theirs. So don’t do it. Differentiate and do so based on what you are good at – your expertise in the vertical industries, localization, user experience, application delivery.
Using cloud services is complex – even more so because these services are not standard and every provider is different. For service providers, you can differentiate and offer cloud services based on commodity clouds, but only if you can add value on top of it. What type of value? Here are some topics to read: How to Differentiate, Cloud Blueprints to Revolution Your Business and the 10 “Must Haves” Needed to Support a Cloud Reseller Channel.
Also, take a look at Flexiant Cloud Orchestrator. We believe you’ll find the features and functionalities needed to build a cloud service that offers customers more than just IaaS, but actual business value.
And Take Advantage of Other Clouds
Finally, think about how you can take advantage of other clouds. You can offer value on top of the infrastructure you have available, but also consider how you can make the most out of AWS or Azure for example. Find out more here.