Back in May it was reported that Morgan Stanley had been appointed to explore options for the sale of hosted services provider Rackspace. Business Week, May 16th reported the story with the headline Who Might Buy Rackspace? It's a Big List. 24/7 WALLST reported analysis from Credit Suisse that narrowed this to three potential suitors; Dell, Cisco and HP.
To cut a long story short, Rackspace sees a tough future competing with the big three in the utility cloud market; Amazon, Google and Microsoft. Rackspace could be attractive to Dell, Cisco, HP and other traditional IT infrastructure vendors that see their core business being eroded by the cloud and need to build out their own offerings (as does IBM which has already made significant acquisitions).
Quocirca sees another question that needs addressing. If Rackspace, one of the most successful cloud service providers, sees the future as uncertain in the face of competition from the big three, then what of the myriad of smaller cloud infrastructure providers? For them the options are twofold.
Be acquired or go niche
First achieve enough market penetration to become an attractive acquisition target for the larger established vendors that want to bolster their cloud portfolios. As well as the IT infrastructure vendors this includes communications providers and system integrators.
Many have already been acquisitive in the cloud market. For example the US number three carrier CenturyLink buying Savvis, AppFog and Tier-3 and NTT’s system integrator arm Dimension Data added to existing cloud services with OpSource and BlueFire. Other cloud service providers have merged to beef up their presence, for example Claranet and Star.
The second option for the smaller provider is to establish a niche where the big players will find it hard to compete. There are a number of cloud providers that are already doing quite well at this; they rely on a mix of geographic, application or industry specialisation. Here are some examples:
Exponential E – highly integrated network and cloud services
Exponential-E’s background is as a UK-focused virtual private network provider, using its own cross London metro-network and services from BT. In 2010 the vendor moved beyond networking to provide infrastructure-as-a-service. Its differentiator is to embed this into in to its own network services at network level 2 (switching etc.) rather than higher levels. Its customers get the security and performance that would be expected from internal WAN-based deployments that cannot be achieved for cloud services accessed over the public internet.
City Lifeline – in finance latency matters
City Lifeline’s data centre is shoe-horned in an old building near Moorgate in central London. Its value proposition is low latency, for which it charges a premium over out of town premises for its proximity to the big city institutions.
Eduserve – governments like to know who they are dealing with
For reasons of compliance, ease of procurement and security of tenure, government departments in any country like to have some control over their suppliers; this includes the procurement of cloud services. Eduserv is a not for profit long-term supplier of consultancy and managed services to the UK government and charity organisations. In order to help its customers deliver better services, Eduserve has developed cloud infrastructure offerings out of its own data centre in the central south UK town of Swindon. As a UK G-Cloud partner it has achieved IL3 security accreditation enabling it to host official government data. Eduserve provides value added services to help customers migrate to cloud, including cloud adoption assessments, service designs and on-going support and management.
Firehost – performance and security for payment processing
Considerable rigour needs to go into building applications for processing highly secure data for sectors such as financial services and healthcare. This rigour must also extend to the underlying platform. Firehost has built an IaaS platform to target these markets. In the UK its infrastructure is co-located with Equinix, ensuring access to multiple high speed carrier connections. Within such facilities, Firehost applies its own cage-level physical security. Whilst infrastructure is shared it maintains the feel a private cloud, with enhanced security through protected VMs with built in web application firewall, DDoS protection, IP reputation filtering and two factor authentication for admin access.
Even for these providers the big three do not disappear. In some cases their niche capability may simply see them bolted on to bigger deployments; for example, a retailer off-loading its payment application to a more secure environment. In other cases, existing providers are starting to offer enhanced services around the big three to extend in-house capability; for example UK hosting provider Attenda now offers services around Amazon Web Services (AWS).
For many IT service providers, the growing dominance of the big three cloud infrastructure providers, along with the strength of software-as-a-service providers such as salesforce.com, NetSuite, and ServiceNow will turn them into service brokers. This is how Dell positioned itself at its analyst conference last month; of course, that may well change if it bought Rackspace.