Cloud Source Blog
In This HP Cloud Source Blog, HP Expert, Christian Verstraete will examine cloud computing challenges, discuss practical approaches to cloud computing and suggest realistic solutions.

Become a Service Provider, build your own cloud services

servicesLet me now discuss the last of the five use cases I highlighted a while ago, the service provider one. I’ve seen two sets of customers interested in this use case, companies wanting to resell cloud services to external customers (includes telcos, outsourcers, channel partners) and IT departments of large enterprises which are transforming themselves into shared services entities. Although most of what I will discuss is applicable to both types of customers, I’ll mainly take the service provider view.

 

Obviously if you want to be seen as a service provider it’s important you look at your users as customers and you treat them accordingly. That sounds simple, but often requires a drastic mentality change. Your objective should be to have delighted customers as those will share their experience and allow you to attract others. By providing cloud services you allow your customers to leave you at short notice, so ensuring they see your value and feel well treated by you is critical for stable long term revenues. You no longer have contractual windows during which the customer cannot change provider. IT departments and outsources may have to manage the change in mentality of their staff to ensure long-term success.

I’m not dwelling on this side of things, but keep it in the back of your mind.

 

What service will I sell?

Most companies becoming service providers start with infrastructure as a service. It’s the easiest way to start an it is pretty close to what many of them did before (e.g. being a hoster). We have to ask ourselves hard questions. Can we make money by reselling virtual machines and storage, knowing the price at which Amazon and the other large players sell virtual servers and storage? Do we have a real differentiator? Why would a customer come to us rather than one of them?

 

It’s actually important to clearly articulate what you offer, in a world where a small server does not equate to another smart server. A study by Cloud Spectator describes the results of a comparative analysis of 5 large cloud IaaS providers from a cloud server performance point of view... It is interesting to note that an “equivalent” offering from Microsoft has a server performance that is 5 times that of Amazon, and an HPCloud one 3 times. So make sure you carefully position your offering.

 

Your differentiator may have to do with the transparency of your service, with the location of your datacenters, with the SLA you provide, with your terms and conditions, payment methods etc. But they have to be clearly highlighted or you may end up being compared, potentially unfavorably with the large players.

 

If you do not believe you can win in this space, you may want to start with another type of service. You may present yourself as a broker of services, provide a development/test environment or deliver some SaaS services. You may need more time to develop such services, so your return could be delayed – increasing your investment - but it may make you more successful in the long run.

 

At what price?

This is the second key question. At what price will I sell the service? Obviously, the cheaper I am the more attractive I may be, so the more customers I may have. There is an optimum somewhere along the price/customer curve. It’s important to try to get as close as possible to that optimum.

 

Take the time to build a well-documented business case. Look at your start-up costs, the time it will take to attract customers, how they will progress. Most often the adoption rate is a “hockey stick” curve; it starts slow till you reach an inflexion point. The question is really how you get to that inflexion point, and how quickly you can get there.

 

And then you will have to make the decision. Looking at the assumptions you made in your business model, looking at the inherent uncertainties, can you live with the business plan established? Are your chances of succeeding in a given amount of time large enough for you?

 

Can I reduce my risk?

Now it is getting time to build the platform from which you will deliver the services you choose to deliver. And that implies fixed costs. Those are obviously a burden in an environment where revenues are variable. Fixed costs with variable revenues are the worst combination possible. So, the question you should ask yourself is whether you can limit this fixed cost to a minimum, maybe replacing some of it with variable costs if your revenues increase?

 

If you plan to offer SaaS services, you may want to host your software on an established cloud, but if you plan to start with IaaS, you will require an infrastructure to deliver the service. The unknown is the speed at which your customers will come and how much they will consume. If you do not plan enough infrastructure, the quality of your service may suffer, which is not good for a new service that still needs to prove itself. If you plan too large, you have funds immobilized in hardware and so you may run large losses.

 

What you may actually want to do is to choose a partner to which you can burst if required. In other words, you foresee a certain amount of infrastructure to respond to the needs of the customers you had planned. If you have more, you start provisioning services within your partner environment. This has to be transparent to your customers obviously, but it allows you to deliver the same service to those extra customers without having to invest upfront. Obviously you will have to pay for that service, so your return on those customers will be lower, but it allows you to reduce your risk. You transform a portion of your fixed cost in variable.

 

And if you see those customers keep coming, well then you can speed-up the increase of your infrastructure (increase fixed costs) and deliver more and more from your own environment.

 

How do I make myself known?

If you are a telco or an outsourcer, you already have a customer base, which obviously becomes your prime target for your new services. You should use the communication mechanisms you already have to broadcast your new capabilities. Becoming a cloud service provider gives you new opportunities as your services may interest customers that had no interest in your traditional business. The question obviously is how to make them aware of your new services and how to attract them.

 

Think about how you can use social media to make yourself known, which blogger you should approach to highlight your services. Create some “buzz” in the marketplace. Ensure the blogs generated are tweeted and re-tweeted to reach a wide audience.

 

To attract users you may want to give them a special starter offer. Many cloud service providers launch their services in “beta” status, which often means the service is for free, and you have no responsibility if something goes wrong. It motivates potential customers to try your services out, it allows you to check whether your service supports the load of customers without a glitch, but obviously it does not earn you any revenues. Also pay attention, particularly if you are providing IaaS services as groups of people are looking for free infrastructure to run their software development projects. They may clock your infrastructure and stop valuable customers from trying you out.

 

One word of caution, it is not because many people use you when your services are for free, they all will still do it the day you start charging. Your numbers will go down when you become a paying service.

 

Conclusion

Becoming a cloud service provider consists in building a new business. And as in any business, combining caution and boldness is key for success. But take the time to think out of the box prior to decide what you want to be famous for. Don’t jump to conclusions and start with IaaS, as it is probably the most crowded and difficult market at the moment. Think about what service may make you unique. Maybe you want to “crowd source” the response to that question. Don’t forget to listen to your customers and prospects. They’ll tell you what they need. And then, use your creativity to deliver them more than they expect as a price that is acceptable to them. Don’t copy… invent.

Labels: cloud| CloudSource
Comments
Marc Rotthier (anon) | ‎07-04-2013 07:14 AM

Christian,

Spot on with what we are noticing daily. in the interactions with Service providers it is important to factor in proximity and differentiation, unless you can go head to head in the global market with the likes of Google or Amazon. Still too few are building the offerings starting from their strengths.  

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About the Author
Christian is responsible for building services focused on advising clients in their move to cloud, particularly from a business process and ...


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