Menu
In depth: Cloud services - marking the margins

In depth: Cloud services - marking the margins

The multi-faceted Cloud market is chugging along; some components are ballooning, while others crawl

The impact of the Cloud, while undoubtedly massive in the long term, remains nebulous and hard to pin down, according to ICT experts.

Yes, this ‘Cloud thing’ is making some serious noise, yet there are mixed messages wherever you look.  Organisations which have overcome their  fear of ‘it’ are looking to deploy, while Cloud services and solutions providers are scrambling to make ends meet in a growingly congested Australian market filled with confusion and, often, a lack of direction.

Add to that the fact that no one strategy has yet been determined as definitively successful (if there is such a thing), and it becomes a tough task.

What is certain for now is that the multi-faceted Cloud market, on both the compute and services fronts, is chugging along; some components are ballooning, while others crawl.

According to IDC figures, Cloud computing climbed to a global estimated value of $US47.4 billion in 2013, with the analyst firm expecting it to reach $US107bn by 2017. IDC datacentre and Cloud vice-president, Rick Villars, said its 23.5 per cent compound annual growth rate is five times faster than that of the broader technology market.

Meanwhile, the Cloud services market remains in the early stages of development, but is also growing. Ovum Asia-Pacific (APAC) IT research director, Steve Hodgkinson, sees growth at a quicker rate for more generic-style services such as compute and storage Infrastructure-as-a-Service (IaaS), and commodity-like Software-as-a-Service (SaaS) solutions.

But while blanket figures position Cloud services as a ‘can’t go wrong’ play, figures around its utilisation remain a mirage.

“Many surveys look only at ‘any use’ of IaaS or SaaS solutions. Of course, most organisations are investing in Cloud computing and making some pilot or experimental use of Cloud services,” Hodgkinson said.

“But this does not necessarily translate across the broad use of Cloud services for a wide range of ICT activities, applications and workloads.”

Delivering on promise

Nonetheless, Cloud is delivering on its promise and offering margin to “organisations that have approached [it] with eyes open and in a professional manner.”

The smarter resellers are cutting through the confusion and jargon and presenting customers with additional services on top of the base offering, and a price explanation, according to Channel Dynamics director, Cam Wayland. Cutting edge companies talk about brands, which platform services are hosted on, which vendor is solving customers’ education and which is understanding the issues.

“It’s about how the smarter players get in there, carve out a piece and maintain that recurring revenue,” Wayland said. “We are still in that growth phase where prices and margins are being squeezed as the big players enter the market.

“A small, focused managed services provider cannot compete with the likes of AWS as it does not have scale. While price is important, it’s actually about partners being able to articulate the difference between their offering and the big players.”

Show me the money

For the smaller players, the consensus from industry experts is that the way forward is through partnerships.

Dimension Data Cloud services general manager, David Hanrahan, said there is good margin in partnering and the resale of Cloud, because building a service and infrastructure base is challenging. He also claims it is not worth investing in public compute-as-a-service and the likes of Exchange- and Sharepoint-as-a-service as these are becoming commoditised.

Partnerships allow smaller businesses to leverage larger players’ scale and deliver Cloud services without needing a massive investment on a global scale to be competitive.

“Smaller players need to be looking for organisations that can give them the same reach as if they were a global player,” he said.

“They need to be able to compete on price and scale, and also need the security and local infrastructure that Australian organisations are demanding. But to partner with multiple Cloud providers to deliver different services makes for a very complex portfolio.

Hanrahan said businesses which are unable to help a client through the evaluation and selection of Cloud solutions and migration run the risk of being pushed out over time due to the lack of control. It is therefore critical to make an investment in consulting and skills in order to retain ownership of the client.

Risk woes

Part of the puzzle is addressing customers’ risk woes. Last year’s top concern was data sovereignty but organisations have stepped past that to question where data is stored, who has access to it, and what happens at the conclusion of a contract.

Meridian IT business solutions manager, Leo Silva, said major consolidation can be expected on the Cloud computing front across both the channel and vendor spaces due to the capital-intensive nature of the investment; some will exit the market due to the funding shortfalls, and others as a result of competition.

Silva sees margins in consulting, integration, application and business process delivery services. Small businesses which predominantly rely on already-commoditised IaaS will face continuous financial pressure.

For Distribution Central managing director, Nick Verykios, small companies by definition make money by working the niche, and must continue to take on emerging and advanced area to remain relevant specialists.

“If small players are going to try to do the same thing as Amazon Web Services, it won’t happen. If you’re a specialist and you’re going to be delivering specialist solutions you will probably partner with companies you thought you would compete with.”

Verykios said that because customers dictate their Cloud investment, they have already decided to move certain applications, infrastructure, and data access, and require services providers to fulfill that strategy as the extent of it may not be something that has been figured out yet.

Moving out

While Cloud is thrown into every business transaction, Nexus IT principal, Sean Murphy, claims the benefit behind the “nebulous term” is that it leaves space for “the next good idea and smart way to consume or deliver Cloud, aggregate services, white label, or otherwise add some value to a specific client set.”Although it can lead to an array of inappropriately-delivered Cloud services.

The reality for service providers is that not everybody who enters Cloud sticks to it.

According to Murphy, “Various providers are experiencing and understanding that Cloud and IT efficiency are inextricably linked.

“Stories of users moving away from Google Apps are legion and the reality is that Google and Microsoft have worse uptime stats than Nexus customers with managed on premises equipment, or Nexus Cloud, for that matter.”

Murphy warns against investment on long-term contracts or capital. He said there is a slight oversupply of capacity to deliver Cloud and some consolidation will come as a result. At the same time, he said because Cloud is disruptive at the infrastructure platform level, it provides an opportunity for smaller companies to displace more established players.

But not all customers exiting the Cloud are doing so as a result of failed investments. Gartner research director, Michael Warrilow, said there have been several scenarios in which customers have canned their Cloud play on a considered ‘it doesn’t work for us’ basis.

“You might go to Cloud to prototype and you get to a certain scale and find it is cheaper to do it yourself,” Warrilow said. “A lot of gaming companies have been big Cloud consumers, but have realised they can do it cheaper themselves. The variable pricing issue comes up, and people kind of retreat as they have gone too far too quick.

“Over the last couple of months there has been a lot more angst around security. Some people are saying there are national agendas trying to bring back Cloud providers to be present in country because they don’t want opportunities to go offshore into other markets such as North America.”


Follow Us

Join the newsletter!

Error: Please check your email address.

Tags Cloud computing

Show Comments