As more and more enterprises are moving to cloud services to support mission critical business services the stakes for vendors are growing higher. The conventional wisdom over the past several years is that Amazon Web Services (AWS)– the gorilla in the cloud services market is the most affordable and inevitable leader. Amazon initially built a massive data center to support its own retail operation. It was smart enough to take advantage of the emerging market for offering compute and storage before most customers knew they needed it.
Amazon approached this market in a clever way. The company applied the retail business model successfully to cloud, using a loss leader to bring in a customer and then charge them a premium price for the add on services that are required to operate. This is a key way that Amazon makes money. On top of this, as the customer has to manage more and more data, they need additional services such as data movement, additional capacity at short notice. These are the most expensive services that are a customer requirement. Customers are not able to predict their needs in advance because the Amazon model is designed based on an on demand approach rather than a planned role out of services.
Amazon has figured out a business model that has worked brilliantly. Here is a simple explanation: Amazon offers new customers a simple onramp to the cloud. It offers free services to set started and quickly hooks customers in to a long term relationship. What customers have discovered about AWS is that they pay for every moment of use. If they purchase a bundle of services and manage to use a bit more, they are charged a premium. Likewise, customers are charged a substantial amount for moving data across Amazon’s network.
One CIO I recently spoke with told me that he has three of his IT professionals monitoring the charges from Amazon to make sure that they are not overpaying for services. One comment stuck with me, “ You have to watch Amazon or they will pick your pocket.”
After my conversation with the CIO, I had an interesting discussion with IBM about SoftLayer. In IBM’s recent earnings announcement, cloud services were a clear a winner in terms of growth and revenue. IBM had a 75% increase in revenue from its cloud offerings. It is clear to me that IBM’s investments in cloud, since the acquisition of SoftLayer is paying dividends. And it is also clear to me that IBM has Amazon as a clear target for competition.
While much of the attention in the market has been Amazon versus Microsoft and Google, I think that for enterprises focused on a hybrid computing approach, IBM will become a major player.
Here are the top five reasons that I am predicting that IBM will be able to challenge Amazon to become one of the leaders in enterprise hybrid cloud:
- The cost of elasticity. Yes, capacity in the cloud is cheap – relative to setting up a large scale data center. But there are always conditions that need to be understood. Ironically, one of the greatest benefits of the cloud is elasticity. You can add additional capacity through a self-service interface and automatically increase capacity when resources are in demand. But this ease of scaling comes at a cost. Many companies using public cloud services are required to pay a premium when they use additional, unplanned capacity. This pricing model is similar to how mobile phone companies operate. You select a plan based on assumptions about how much data you will use. If you exceed that threshold, you don’t just pay the same per gigabit fee but are instead charged a premium. Go over your limit several times and your service provider will convince you to upgrade to the next level of minutes. One other distinction to make on the pricing side is that SoftLayer offers hourly terms and monthly terms to make it even easier for customers to plan their budgets.
- The network is the computer. One of the advantages of cloud computing is the ability to move workloads and data based on capacity, performance and need. One of Amazon’s significant revenue sources in the cloud is its ability to charge customers for network utilization. Amazon charges for bandwidth between regions. Therefore, the Amazon model is designed to charge customers for each time the network is used and each service needed to complete that transaction. IBM, on the other hand, owns its own private global network and all of its data centers are connected to this massive network. All of the services needed by the customer to manage and move data are integrated together as one package. There is no cost to move data between data centers. IBM also includes a large amount of free outbound data bandwidth.
- Where does your data live? IBM and Amazon have very different approaches to implementing cloud data centers. IBM has created smaller data centers that are targeted in narrower geographic locations. IBM’s approach attempts to keep the data as close as possible to its customers making it easier to back-up and keep information in the desired country of the user. Therefore, these data centers can be better tailored to the governmental data privacy requirements. In contrast, Amazon’s philosophy is to create massive data centers in strategic locations that give it a global reach. IBM customers can pinpoint the exact server and SoftLayer data center location (where the server is in the rack, where the rack is in the pod, where the pod is, and how the pod is connected to the Internet).
- Performance Matters. Bare metal is important to many customers that require high performance. This approach can be successfully applied to provide better compliance, security, and reliability for customers. While most clouds use virtualization to gain cost efficiency, there is overhead that comes with virtual images. Bare metal, in contrast, offers customers the ability to run their applications directly on the server without virtualization overhead. Bare metal is used by a number of enterprise cloud providers including IBM, Rackspace, and Dimension Data and is becoming more important because of the control and performance.
- Hybrid Cloud Management. I believe that as more customers move from a single cloud model to a hybrid environment, the ability to manage a variety of services in a predictable and controlled manner will become increasingly important. While Amazon has partners that offer hybrid management services, most of its partners are focused primarily on cloud management services. IBM and many of its enterprise competitors are focusing their resources on providing management control and visibility into both traditional data center, private and public cloud services. The goal of hybrid cloud management is to provide a single contract and a unified way to bring together cloud services and the management tier.
The world of cloud services is not black and white. While clearly Amazon continues to show incredible revenue growth, their weakness remains on its ability to manage complex hybrid cloud environments. Therefore, vendors like IBM and Microsoft will continue to demonstrate leadership in an increasingly complex computing environment. As all vendors start providing more granular and lower priced services, companies will increasingly put a premium on predictability, reliability, and manageability.