Cloud Service Providers

Zynga, a leading developer of the world’s most popular social games took a roundtrip journey from the public cloud and back again reported The Wall Street Journal. Why the trip? Zynga built its business on the Amazon cloud. It then transitioned to a private set up after spending $100 million to build its own data centers to handle the bulk of its computing, but Zynga has now decided to return to Amazon.

The company, on Wednesday, said it would shut its data centers and shift its computing workload back to Amazon, as part of $100 million in spending reductions. The reason Zynga CEO Mark Pincus told its investors:

“There’s a lot of places that are not strategic for us to have scale and we think not appropriate, like running our own data centers. We’re going to let Amazon do that.”

Commenting on the change in business strategy, Lydia Leong of Gartner said:

Their business didn’t grow the way they expected. Games were unpredictable, making it hard to plan computing needs.

Zynga declined to comment to the Wall Street Journal. The answer might be simple – that it wanted to be a games provider, not a datacenter operator. However, the realities of the cloud market are that pricing matters.

Commodity Pricing

As technology progresses, hardware prices keep dropping, while large scale investments in data centres and a policy on giving up on profits to gain market share make the rest. The result is that cloud service providers like Amazon are dropping prices, as Leong put it “Amazon has famously slashed its cloud computing prices, and today offers companies like Zynga more flexibility to tap the right amount of computing power and storage.”

The battle for market share, the rush for businesses to move to the cloud means the cloud is getting cheaper. It’s becoming a commodity where service providers now need to focus on differentiation, not price.

As I mentioned in a previous blog “the commoditization of cloud means the industry is going to battle over the price” but we are strong believers in the ability of service providers offering public cloud services to differentiate on things other than price.

“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.”

When Zynga built the data centers, they thought they could operate them more cheaply than paying Amazon. But squeezing better price performance out of a city block of servers turned out to be a tricky proposition.

This is where true, valuable, cloud service providers come into play. Economies of scale can produce benefits for customers while still producing profits for the service provider. Private clouds won’t ever be able to compete on economies of scale in the same way as public clouds. Value add services can be the way service providers differentiate, find their own niche, become leaders in what they’re expert on and drive a higher margin business.

Why select a public cloud

Public Cloud

Hybrid Cloud or Multi-Cloud?

The article continued, “Even after Zynga built its data centers in 2011, it still relied on Amazon for some tasks. That required the company to create software for the data centers, called zCloud, which made it easier to switch between Amazon’s servers and its own. Leong said.”

The hybrid approach to cloud requires the ability to manage both workloads in a private and public setting. So while some companies like Zynga spend the time to build purpose built software to do this, others do not have the time or resource to achieve that.

Instead, when having to operate workloads and applications across different clouds, the ability to automate and deploy these easily across any cloud becomes important. It might only be two clouds today, but in future, it could be many more across multiple geographies. That requires both the ability to abstract workload from cloud specifics, and to centralize the management across clouds.

This is where an application-centric multi-cloud management solution becomes important.

Lessons for a Service Provider

So what can the Zynga example teach all service providers? Here are just three lessons.

Hybrid is the Journey to Public – There is still huge growth to come for the cloud. 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. There is money to be made and a lot of it, so stay in the game.

Differentiate – Public cloud is the way to go but there is competition out there. Don’t just compete on price… you’ll lose. Instead, differentiate based on value-added service. Offer industry expertise, offer one-click deployable infrastructure blueprints, deliver SLAs that mean something to a company. Learn more by reading our paper on how to differentiate.

It Isn’t Just One Cloud – You can no longer just offer your cloud. You need the ability to offer your customers other clouds from other vendors. The key here though is to deliver it through your interface that providers a consistent experience for the customer and that is built around your customer’s use cases. That’s valuable. Find out how to do this here.

Find out how we arm you with the solutions to win on the cloud battleground.

7 Business Reasons Why Moving Private Clouds is a no brainer


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