There has been a flurry of activity lately regarding the acquisition of various companies within the cloud community. Dimension Data acquired OpSource just prior to the purchase of cloud/hosting companies including Terramark, Sawis and NaviSite.
There is an unmistakable trend within the cloud hosting model that indicates a movement towards traditional server-based hosting models moving into self-service based cloud models. What are the factors driving this trend? Two prime factors are seen to be pushing the hosting community. One is the competitive price positioning for a vendor because of the higher operational efficiencies and lower TCO cloud hosting offers. The other is a response to customer demands for self-service options where those options are more flexible and services-centric.
While it is unlikely that traditional hosting services with dedicated physical server environments including co-locations services will be going away any time soon, the pay-as-you-go self-services cloud model exemplified by Amazon Web Services is just beginning to take on the marketplace and looks poised for gigantic and rapid growth.
After all, why would anyone return to traditional hosting once you have gone to the cloud and find you can have a server online in a few minutes instead of the weeks you spend negotiating with a vendor, signing a contract that binds you to them for several years and then waiting around for several weeks to begin to access your resources? No wonder Treb Ryan, CEO of OpSource said recently that “cloud is eating hosting’s lunch.” You could say they are eating hosting’s breakfast and dinner too.
In the end the reality will probably look like a mid-point between managed service and self-service, with a bit of each. OpSource is a good example of this as they provide managed services in addition to their cloud hosting. The managed services include performance, location, database and security management required whenever you have complex customized environments. There will probably remain a need for traditional server-based hosting in the case of legacy client-server applications. But when it comes to the scalability and elasticity that fast growing SaaS and large ISVs require, that is where cloud hosting will see some true growth.
There are three main ways in which we will be seeing cloud adoption:
1. Developers and business users bypassing corporate IT and financial guidelines in order to access “rogue” cloud services, particularly external SaaS and IaaS services. It has been rumored that as much as 60% of current adoption happens through this scenario.
2. The transformation of legacy applications into cloud applications.
3. Whenever you have large projects that involve either testing or software development
We are typically seeing this led by big system integrators and telcos for large-scale migration and development projects, especially in the Fortune 500 companies. This is generally followed by the evolution of the development/test case that concludes with a movement of production to the cloud. There are some cases where the application’s production is tested temporarily in the cloud and then returned for final production on-premise. No matter which scenario is employed, this is a giant opportunity for the partnering of enterprise with system integrators and cloud hosting providers to help enterprise begin the process of moving to the clouds. This is a partnership that is bound to benefit both sides as enterprise begins the migration of large-scale development to the clouds.
Telco companies are the common thread in several of the recent acquisitions. Verizon purchased Terramark, Century Link acquired Sawis and now Dimension Data (which is a wholly owned subsidiary of Japan’s NTT Holdings) acquired OpSource.
It is obvious that the telcos have lagged behind the leading cloud players such as Amazon and RackSpace, even with the strengths of large-scale network resources, extensive global reach, deep wireless experience, strong IP backbone and co-location services. Unable to leverage the cloud they have chosen to acquire what they don’t have in order to combine their own traditional strengths with the new cloud models and drive new revenues.
With Layers 1 and 2 being seen by telcos as commodities, the offering of high quality networks, seamless content/app availability for mobile devices and massively scalable utility cloud services will drive differentiation and value. By playing directly to telcos advantages and strengths, these decisions will push bandwidth and data usage.
In the next couple of years cloud infrastructure hosting is going to be a major market opportunity. It is also going to be an opportunity whose market cycle may well run into the next decade.
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