Service Provider Insider

Do Service Providers Have A Real Scale Advantage?

If you follow the buzz around all things cloud, you've seen the "scale" argument in different forms: cloud operators will win in the long term simply because they have economies of scale.

And then the author will invariably point at compute, or power, or some other commoditized economic input as evidence of the cloud model's inherent advantage over traditional IT.

Well, I beg to differ.

Yes, I think there's an inherent 'scale' advantage that service providers have in their favor.  But it has little to do with things like compute, storage, data centers, etc.

It has to do with people and process.

Your Value Proposition Should Be Obvious

So many IT-as-a-service providers seem to be intimidated by approaching enterprise IT organizations with their value propositions.

They seem to be concerned about being cheaper, or competing with the established IT organization.

Well, let me offer you a different perspective ...

Creating The Next Business Model

I now spend the majority of my time with a vast array of entities I've come to call service providers, or -- more specifically -- IT-as-a-service SPs, to differentiate them from the telco and network variety.

Push me a bit more, and I'll add the phrase "next gen" to the term, simply to differentiate between existing offers (largely built around physical IT) that are in the market, and newer models that can fully exploit what virtualization can do.

Each and every one them smells opportunity in the air, and is trying to figure out their next big play. 

But, as I've come to find out, most of their thinking is characterized by where they're coming from, and less about where they're going.

Let me share some examples ...

Towards A Serious Discussion On Secure Multitenancy

This whole topic has been bubbling for a while as we consider fully virtualized (and inherently oversubscribed) pools of resources which will form the basis of so many service provider (cloud?) models going forward.

A small skirmish erupted when NetApp started promoting a solution they dubbed SMT -- secure multitenancy.  While there were aspects that did address some concerns around security (but not all), and some concerns around multitenancy (but not all), many of us felt it was being over-marketed in several regards.

Indeed, I saw a nasty take-down by @texiwill at GestaltIT's Field Day about the security aspects. I could do a similar take-down on the multitenancy aspects as well.

The purpose of this post isn't to slam any competitor, it's to drive towards two key discussion points -- (a) what is needed, and (b) how do SPs monetize it? 

And I don't think I can do all of this in one post.

Sticky Is Good

I was in another of my wide-open, full-throttle discussions the other day -- this one about IT service provider business models -- and I started ranting about "stickiness". 

Someone in the meeting made a face, and I had to stop and explain that -- in this world -- stickiness is one of those gotta-get-it-right strategic topics that should really matter to any SP.

If you aren't familiar with the term, it's creating incentives (rather than barriers) to keep your current customers your current customers.  Done poorly, it results in "churn" -- people leaving your service for one they like better.

Telecom operators (another form of service provider!) understand these concepts all too well.  Indeed, there are stories of CEOs being asked to leave because they didn't get the stickiness equation right.

So, how does these concepts apply in our burgeoning IT-as-a-service space?

The Secret Of Standardization

Just about everyone in IT will give the concept of "standardization" lip service, but for service providers, it's part of what sets them apart from ordinary enterprise IT, traditional outsourcers, system integrators, et. al.

Despite everyone's intellectual acknowledgement that standardization is generally a good thing, it turns out to be a hard thing to excel at -- simply because there are so many pragmatic forces at work to create the IT equivalent of entropy in large settings.

However, if you're an SP, a well-thought-out philosophy towards standardization is a key part of any successful business model.  Otherwise, you're just another data center with a chaotic pile of gizmos.

Atmos and The Importance Of Ecosystem

We as technology vendors have to do more than just bring shiny technology to the nascent service provider industry.

We have to bring clear market opportunities.  Differentiated answers to new problems.  Aligned software vendors.  An efficient route to market.  And, yes, a bit of shiny technology as well.

Call it an ecosystem, call it whatever. 

And we're starting to learn our lessons here ...

Putting Tenants In Control

Let's face it -- most enterprise IT types are essentially control freaks -- and with good reason!

So, how can infrastructure service providers use this basic behavioral fact to design their offerings -- and differentiate themselves in the process?

I've fallen into the habit of calling it the "tenant in control" model.

The Two Sides To Upsell

Lots of business model discussions these days around the "upsell" -- the ability to offer customers and tenants progressively more sophisticated IT-related services.

Yes, the primary motivation is creating differentiation, growing margins, and avoiding an Amazon-like "race to the bottom".

But, in a happy coincidence, what's good for the SP is also good for their customers as well ...

From Scale Out To Scale Up

I'm now starting to meet more and more classical hosting providers who want to evolve their business model.  They've done pretty well in providing dedicated resources in efficient data centers at an attractive price.

Now, they want to move from a fixed-resource, fixed-price model to a more lucrative variable-resource, variable-price model -- presumably, where the variability is in an economically positive direction!

And many of them are starting to realize that the scale-out architectures that worked so well in their last model probably won't work out so well in their next model ...