Is IaaS a good business for operators?


The short answer is no unless you operate in a part of the world where there is no regional IaaS. The longer answer is:

Amazon is running their AWS services with a cost-plus pricing model. This means they aim for a 10% profit margin. Every time they have improvements in their economies of scale, they lower the price to get back to the 10%.

Although Amazon has healthy gross-margins, the IaaS is all about investing in hardware and R&D. This means that volume is the name of the game. Although Amazon is making IaaS into a billion dollar business, the number two player (Rackspace) is around $285M for their IaaS business. This shows the winner-takes-it-all.

How are operators going to compete?

Competing at price with Amazon AWS, Rackspace, Gogrid, etc. will not be an option given that they are lowering pricing continuously.

Competing with better technology is also almost impossible because Amazon is THE marketleader for IaaS innovation with services like DynamoDB. IT players are just doing catch-up and any operator that will use an RFQ process will just be buying previous-generation-software and hardware. This means in Cloud terminology: legacy systems.

Operators could give better SLAs then the 99.95% offered by Amazon. However in the world of cloud computing, SLAs do not mean anything. If you want availability, then you are better to implement a multi-cloud strategy in which you use multiple cloud providers and your software can move dynamically between them.

Trust? IBM and other IT players can provide that as well. They have been in the Cloud space for more time then telecom and are quicker at deploying technology.

Networking reliability, QoS and speed? Yes but only for a niche segment of the market. A segment that is unlikely to be big if you look at the local nature of most operators.

Geo-localization reasons? YES. This is probably the only valid reason why in Africa, some parts of Asia and Latin-America, operators should look at IaaS. However in Europe, the US, Australia, Japan, Korea, Singapore, etc. this can not be the driver.

So unless you are targetting some very specific low-latency or high data volume nice markets or are in a part of the world where reliable networking and electricity is hard to get, you are unlikely to make your CEO happy with IaaS. You should think about other parts of Cloud Computing like PaaS, business processes as a service, networking as a service, etc.

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