Dec 022014

The uncertain future of cloud computing and the plethora of frowny CIO faces of a couple years ago are rapidly giving way to the acceptance — if not embracing — of infrastructure as a service (IaaS), at least among IT leaders. The good news is that this shift is without the typical knee-jerk and shallow skepticism or naive Panglossian enthusiasm for the next new thing. This mental shift is tempered, real, and comes with more “buy” questions than “hold” or “sell” ones. In short, buyers and sellers are rolling up their sleeves and making plans.

Google, Amazon, and Microsoft are in what looks to be an all-out race to zero as they take oxygen out of the public cloud market in order to keep entrants out and establish a highly concentrated public cloud market (see “Nobody Can Win the Cloud Pricing Wars“). Prices drop while competitiveness heats up. All this could have been easily predicted by anyone who has read research over the past few years by economists Erik Brynjolfsson, Andrew McAfee, and Adam Saunders. IT-intensive industries (and yes, IT is IT intensive!) exhibit increased concentration over time with a few, very large players dominating the market. Will this kind of market dominance lead to price collusion in a few years? No, that would never happen!

As I expected, enterprise cloud vendors are cropping up underneath the shadow of the Amazon imperial battleship and the ensuing public cloud wars. While Amazon and Microsoft certainly have what they call “enterprise cloud offerings,” larger buying firms are quickly recognizing that industry verticalization and deep global contracting and legal expertise matters a lot and that public cloud companies may be lagging behind in these important nontechnical aspects. Not surprisingly, IBM, Dell, Cisco, HP, and now SAP are not simply wading into the IaaS waters, but paddling quickly to get to the deep end of the pool.

The early claimants to IaaS lands — cloud brokers Enstratius, SoftLayer, and MetaCloud — got snatched up by Dell, IBM, and Cisco, respectively, and Virtustream continues to gain ground as these firms have hundreds of customers with enterprise systems running in an IaaS environment. SAP decided to enter the enterprise cloud market with its HANA Enterprise Cloud offerings. HP and Cisco also sport enterprise cloud solutions. Not to be outdone, Oracle recently announced its intention to go swiftly into the cloud future by recently acquiring cloud executives from SAP and Google (see “Oracle Recruits Former SAP Cloud Head“). Quickly, everyone below the Big Three have armed themselves with parity-seeking offerings and attractive weaponry — some of it proprietary, some of it open. OpenStack will likely become a common offering for all enterprise cloud providers and will give corporate customers a common framework for deploying “generic” enterprise systems in cloud environments.

Not all enterprise IaaS firms are equal, however. Over time, the IaaS battleground for customer affections will likely be driven by the following six factors:

  1. Pricing flexibility. Amazon is setting the standard here, and I expect some of the enterprise IaaS vendors to advance beyond this marker. Contracts will need to support the following options:
    • Long-term pricing with commitments of one to five years. Many companies value deeper price discounts in exchange for long-term commitments.
    • Spot pricing. Name your own price and have the workload run when your price meets the market price.
    • On-demand pricing. Buy as little as minutes to weeks of processing at daily prices.
    • Scheduled bursting processing. Prearrange for excess processing at different times throughout the year to support seasonal processing that occurs in many industries.
    • Disaster recovery. Include nonproduction instances that can quickly expand into production instances, or forms of reserve instances specifically utilized for emergency circumstances.
    • Multiple-provider pricing. A cloud broker could package multiple IaaS providers, public or private, into a single-price package for corporate customers.
    • Foward contracts. Consist of locked-in pricing well ahead of actual processing needs, perhaps as far out as months or years, but at some defined future date.
    • Options contracts. Enter into a contract for the right (but not the obligation) to buy (or sell) cloud services at a defined price.
  2. International security and regulation services. Countries are quickly asserting local laws to ensure data and systems remain within their borders, among other technically tricky regulations. Multinational firms need enterprise cloud providers with ready-to-go legal and technical solutions.
  3. “One throat to choke.” Some firms are willing to outsource much or all of the complexity with the hopes of bringing a better customer or user experience for the firm and avoiding multivendor finger-pointing that ensues when things go wrong.
  4. Customizations. All firms today are starting to choose between multitenant software as a service (SaaS) solutions and single-tenant IaaS or platform as a service (PaaS) solutions. This is not an either/or choice, as many firms will want to claim some rights of customizations above and beyond the configuration capabilities of SaaS solutions. In addition, legacy systems won’t be converted to SaaS easily, so IaaS vendors will handle these single-tenant, fully customizable solutions.
  5. Flexible upgrading. While many outsource processing to IaaS vendors so they don’t have to worry about technical details, some enterprise software takes advantages of certain types of hardware configurations. Firms are going to want their IaaS providers to enable flexible and rapid upgrading to new classes of hardware and software over time.
  6. Bare-metal provisioning. Some customers want the option of having dedicated hardware for either security reasons or custom software configuration needs.

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Vince Kellen, Ph.D.

Vince Kellen, Ph.D. is a Senior Consultant with Cutter's Business Technology & Digital Transformation Strategies and Data Analytics and Digital Technologies practices. Dr. Kellen's 25+ years of experience involves a rare combination of IT operations management, strategic consulting, and entrepreneurialism. He is currently CIO at the University of Kentucky, one of the top public research institutions and academic medical centers in the US.


  One Response to “The IaaS Battleground”

  1. I would agree that Amazon does set the standard, but would caveat that despite a perfectly usable analogy between cloud computing and electricity, they have gone off-piste, with unhelpful nomenclature, and certain pricing deals that could have been structured more elegantly. For example, “on-demand” is what is known as “spot” in other markets, i.e. immediate delivery of non-interruptible capacity. What AWS calls “spot” is actually interruptible capacity, i.e. it is like on-demand with AWS having an embedded option to cancel the contract at any time at no cost to AWS. Furthermore, Reserved Instances are not instances – they are an unfortunate bundling of a capacity reservation, and a strip of discount vouchers that can be used to buy cheap “on-demand” instances, one for each hour.
    AWS have however got a lot of things right. Despite its complexity, there appears to be real thought behind where AWS sets its prices, at least for Linux where there are no OS costs to complicated matters. It is because of this that I think that anyone doing price benchmarking will look to AWS as the common reference…and that will prove to be a huge advantage for them going forward, if they know how to use that.

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