Who Should Provide Your Cloud Infrastructure and How Would You Like to Pay?

M. Halama

M. Halama

Summary Bullets:

  • Data centres and networks, above all else, are key to enabling any cloud service.
  • The gatekeepers of infrastructure will not reap the early and mid-term rewards of cloud services.

Data centres and public networks are key to enabling clouds, whether they are IaaS, PaaS or SaaS; hybrid, private or public clouds.  The very notion of ‘the cloud’ springs from the visualization of networks and data centre elements as a cloud.  Without data centres, cloud content and applications have nowhere to be stored and interaction would not be possible.  Without public networks, cloud customers could not access centralized data centres.  So, data centre owners and network providers reasonably expect to gather a major chunk of the value from customers’ spending in the growing cloud market.

Despite this apparent advantage, telcos – with their networks and data centres – seem unlikely to enjoy a bonanza of cloud revenue.  The whole idea of the cloud hinges on commoditized or commoditizing infrastructure, with prices to suit commodity status.  Worse still, similar to Internet gatekeepers before, infrastructure players will not get much for simply holding the key: at the moment, they are forced to turn that key for little reward by the power of competition, regulators and public opinion.  There is more bad news: networking providers are not where businesses turn when they move IT to the cloud, even for simpler infrastructure-as-a-service.  Current Analysis’ 2011 survey of European businesses engaged in or planning cloud projects showed only 6-7% of respondents were looking to telcos for IaaS, even by the end of 2012.

So, what service providers will get value out of cloud business?  The survey showed ‘cloud specialists’ winning 88% of these projects now and 50% by the end of 2012.  These are over-the-top (OTT) players such as Amazon and Google, as well as the value-added players working on applications and professional services organizations that help businesses manage the transformation to cloud services.  Can telcos gain credibility in these value-added aspects of the cloud?

There is some hope for providers of commoditized infrastructure.  Wholesale, white label offers for very cost-efficient operators is one chance, and PaaS is another.  The Current Analysis survey showed a doubling in the number  of businesses (to 14%) that expect to turn to telcos for PaaS between 2011 and the end of 2012.  What’s more, as value from infrastructure fades, competitors will dwindle (through consolidation or business failure) and infrastructure players will begin to exercise greater power over pricing – if regulators let them.  If regulators try to control cloud pricing, then either OTT and value-add players or the public purse will have to subsidize the cloud’s physical infrastructure; otherwise, incentives to invest in maintaining and developing infrastructure will gradually disappear and innovation will stagnate.  Perhaps OTT players and data centre providers will need to become network service providers.  Will that be better?  At some point, users will end up paying.  As a business with a long-term view, would you rather choose and pay a telco the going rate directly as the key enablers of services in a competitive market, or pay indirectly to subsidize cloud services that are regulated as a utility?

About Michal Halama
As a Principal Analyst for the Current Analysis Business Network and IT Services team in Europe, Michal's coverage areas include leading and emerging providers of managed services. He has a special focus on managed unified communications, data center services and the cloud.

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