CLOUD AND DATA CENTRES SPECIAL REPORT: How to woo your partners into the cloud - and keep them there
22 April 2016 | Guy Matthews
Competition is increasing between carriers and data centre providers to support enterprises' thirst for cloud services. New partnership models are emerging across the complex cloud ecosystem. Guy Matthews investigates.
Demand among enterprises for cloud-based services and applications has never been keener.
A recent global survey of CIO-buying intentions conducted by data storage vendor Western Digital reveals that 61% of major enterprises are holding or increasing their spend on cloud budgets this year.
It also points out that organisations which measure their data in petabytes are starting to move their entire IT infrastructure into the cloud in large numbers, such is the pull of service-based on-demand IT resourcing. General Electric, British Gas and Netflix have recently completed major transitions to Amazon Web Services (AWS), a market-leading public cloud service.
There is a notable corporate appetite for what public cloud platforms such as AWS, Google, Microsoft, Rackspace and others can deliver. Market research firm Gartner forecasts that this side of the cloud market is set to grow from $175 billion at the end of last year to $318 billion by 2019.
Private cloud deployments are flourishing, as are examples of hybrid cloud initiatives where enterprise functions that sit on a private or public cloud platform coexist with traditional on-premise applications.
This type of dramatic growth can only mean a sharp increase in the traffic volumes that data networks are expected to handle, and increased pressure on network operators to provide appropriate support.
But traditional network service and hosting models no longer provide the scale and performance required. Many end users are already experiencing sub-optimal performance when accessing services via the internet, affected as it often is by the sort of congestion, high latency and excessive packet loss that is death to the performance of cloud-based services.
Evolving business models
New business models and new types of partnership are needed, taking in network operators, data centre operators and cloud platform providers.
Jerzy Szlosarek, CEO of wholesale carrier Epsilon, believes that partnering with the right public cloud provider is an obvious first step for any carrier wanting to make an impact in cloud: “Carriers can quite easily add public cloud to their existing network services, becoming available and present in data centre meet-me rooms,” he points out. “It is a relatively simple add-on to their WAN services so they can cover both markets.”
The responsibilities of network operators must start to merge into those of data centre operators, creating mutually beneficial alliances, he believes, with the pressure as much on data centre players as connectivity providers.
“If a data centre operator wants to connect to the cloud, they need to find a partner that can support and differentiate their offering with network services. It is the same for carriers, since they can add AWS to their portfolio.
But they need to offer guaranteed QoS and QoE.” Szlosarek justifies name-checking AWS, as he believes it has become the poster child for public cloud, defining the market as the iPhone has done for smartphones: “Partnering with AWS is a reliable indicator that your organisation is in the market and has a relationship with its leading player,” he asserts.
Beyond public cloud
For data centre operators, he believes, there is a further opportunity for developing their solutions beyond public cloud: “They can be proactive and shape new services that directly cater to the needs of customers,” he says. “They can target verticals and create tailored solutions that are differentiated from public cloud. That’s an exciting opportunity.”
Szlosarek is excited by what he sees as a the emergence of a dynamic market where numerous parties can embrace a model where they both compete and cooperate: “Everyone is working together but competing to serve new customer demands – and that is going to have a positive influence on the cloud market in the long run.”
While there has always been a strong symbiotic relationship between carriers and data centres, the interplay between the two is evolving, believes Darren Watkins, managing director at Virtus Data Centres.
The optimal value proposition for enterprise customers is carriers and data centre operators functioning as specialists but coming together collaboratively: “We see networks as essential building blocks in ensuring a full-service offering to customers,” he says. “Carriers that own and operate data centres in a dual strategy are rapidly divesting these two distinct businesses due to the high capital investment requirements of both – and reverting to their pure play model of network-only solutions.”
In order to remain competitive, says Watkins, traditional colocation providers must ensure that their data centres are capable of delivering not only first-class colocation services with flexible contract options but also offer their customers a clear on-ramp to cloud: “Some colocation providers do this through simple connectivity partnerships with network operators that are already aligned to the large public cloud providers,” he observes. “Others introduce value-added private cloud solutions within their data centres, while some offer simple managed hosting.”
Nobody has any uncontested hold on the market: “It is through the combined service of best-of-breed colocation and best-in-class network operators that the cloud is readily available to all enterprises,” he says.
“The cloud and colocation offerings available today exist in a topology that can be modelled to suit any corporate business objective, including rapid growth, consolidation, simplification, mobilisation or simply cost reduction.”
If there is a historic symbiosis between carriers and data centre providers, then there are also links that tie data centres with the Googles and Amazons going back some years. As primary data centre customers, these content giants have been able to command good rates.
“They were especially useful for the colocation industry when it was in trouble post-dotcom crash,” claims Steve Wallage, managing director at BroadGroup Consulting, an analyst and consulting firm. “But in the last couple of years, the focus of these colocation providers has switched to cloud. Cloud is fascinating to these guys, and they all want to get cloud players into their facilities. People like AWS and Microsoft have been able to get great rates to base themselves in data centres in places like London.”
Moving to cloud
Data centres that spotted this trend and adapted to it in time are well positioned, argues Wallage: “Equinix, for example, is saying it is now getting 30% of its revenues from cloud companies of various types,” he says. “Digital Realty says 75% of its new data centre deployments last year were cloud-related in some way. Colocation players want to be seen as cloud brokerages.”
He thinks there are other trends that data centres need to be mindful of – for example, large data-centric businesses with little or no legacy IT to worry about transferring their prize asset out of traditional data centres and dealing directly with cloud providers.
Netflix and Spotify personify this move. And as enterprises continue to slash in-house IT budgets, they are more interested in a data centre that can cover multiple disciplines on an outsourced basis. “I can see a scenario in the future where cloud companies might be in indirect competition with colocation players in this area,” says Wallage.
“Colocation could be at a disadvantage in this case, and the cost of their services tends to go up, whereas those of cloud providers tend to go down. As for telcos, their role is going to be more and more about offering managed services. We’ve seen this with AT&T joining forces with Digital Realty and Equinix. CenturyLink has also done something similar. Telcos will be wary of seeing how much they can offer themselves, not giving too much away while still staying friendly with the data centre operators.”
Many regional carriers without the ability to offer outsourced services, but looking to grow their stake in the cloud market, might be instead turning to cloud service providers to do the heavy lifting of managing data, leaving them free to concentrate on their core competency of delivering connectivity and value-added services to customers.
An example of this trend is Vodafone Italy which is being supported by AWS as it looks for easier ways to let subscribers add credit to their mobile account: “Using AWS, Vodafone was able to design and launch a security compliant solution in just three months. It also reduced its capital expenses by 30%,” says Ian Massingham, technical evangelist with AWS.
“This is just one example, but we have seen many more opportunities for cloud to help carriers capitalise on new business opportunities and new lines of revenue. IoT and big data analytics present significant opportunities for carriers. At the same time, carriers can also leverage the cloud internally to improve their productivity and efficiency, increase agility, speed up innovation and experimentation while reducing complexity and risk, as well as creating value for their customers.”
Massingham says there are similar ways for data centre operators to add value for their customers: “We have seen many data centre providers join the AWS Partner Network, which allows them to establish dedicated network connections for their customers, directly from their data centres into the AWS cloud,” he explains.
“This gives customers access to AWS resources, which in many cases can reduce their network costs, increase bandwidth throughput, and provide a more consistent network experience than internet-based connections. We work with many data centre providers, and carriers, around the world in this way, including TeleCity and BT in the UK, MTN in Africa, Eircom in Ireland and Equinix.”
In the three-way nexus between cloud platform, data centre operator and carrier, there are multiple permutations of possible partnerships. What all parties must ensure, wherever they sit in the value chain, is that they stay open to new business models and new channels to market, never content to stick with a single proven formula and perpetually alert to new opportunity. What worked yesterday probably won’t work today, and what satisfies needs today may be ancient history in a year or two.