How cloud providers will help data center operators increase customer conversion

By Robert Jenkins, CTO, CloudSigma

Like any company operating in an industry closely related to technology development, data centre operators regularly have to re-invent themselves, the way they operate and how they service customers. There has been no greater disruptive technology for data centre operators in recent years than the advent of cloud computing.

On the face of it, rapidly increasing computing capacity requirements would seem like a straight win for data center operators however the actual situation is far more complex. A revolution is happening in the customer base of data centre operators, the next few years will represent an “adapt or die” change for incumbent providers of data centre space.

Where did all the customers go?

Significant change is already underway amongst the customer bases of leading data centre providers. The move to co-location by many companies started 10-15 years ago and continued to gather pace. The maturing of virtualisation technologies in turn made companies’ physical infrastructure deployments in data centers that much more flexible and useful. Now the latest technology wave is hitting the tenants of data centers; cloud computing.

The big difference with the latest technology transformation is that, in the case of public cloud, companies stop purchasing power and space from a data center operator – and instead buy computing resources from a public cloud provider. Essentially the cloud provider becomes an intermediary between the end customer and the data centre provider, if they use an external data centre provider at all.

As the adoption of cloud computing accelerates, on a business as usual basis, data centre providers are increasingly going to see customers failing to increase existing space and – over time – run down legacy deployments. This is a major threat to the long term revenues of the data center operator.

We are definitely a good few years away from the point where the majority of computing resources are purchased through cloud delivery models rather than directly through in-house dedicated hardware however the trajectory is already clear. Historically such shifts in technology have tended to accelerate faster than people anticipate.

Private cloud: A False Dawn

Not all cloud computing means customers moving away from a direct relationship with a data centre provider. Private cloud deployments do keep companies owning their own hardware and therefore are less disruptive to the customer base than public clouds. It is however clear that private cloud is a transitional technology. As public cloud is maturing, the boundaries that were previously understood for public clouds are being pushed back leaving the uncontested territory for private cloud deployments shrinking year on year.

Fundamentally private clouds fail to address some of the most powerful benefits of using public clouds: elasticity and agility.

A private cloud deployment is not elastic, companies therefore still need to provision for peak load and suffer from under-utilisation of their physical infrastructure. Yes private clouds can enable companies to more efficiently utilise their infrastructure through virtualisation but the overall fixed capacity constraint still exists.

Private clouds also offer limited agility for companies. Provisioning, procurement and maintenance are all still in-house responsibilities and for the most part, non-core to companies’ key strengths. Private cloud will not therefore be a steady long-term equilibrium for company infrastructure but a transitional step to wider adoption of public cloud. Private cloud has introduced companies to the powers of virtualisation but fails to focus companies around their core business strengths and has many limitations.

Hydrid Cloud will be pivotal

The reality is that all but startups from recent years have legacy infrastructure and systems. For that reason public cloud adoption will continue to gather pace but in-house infrastructure is here to stay for a good few years yet. Hybrid cloud deployments therefore offer customers a way to gain some of the benefits of public cloud whilst utilising existing investments in private cloud and dedicated infrastructure.

For this reason, hydrid cloud will become the dominant deployment model for most companies over the next 3-5 years. Once deployed it is likely that future growth will come from the public cloud side of the equation as the efficiencies and benefits shine through. Replacement cycles will be the crunch points where existing co-location space is downgraded and computing resources in the public cloud are upgraded.

The Customer Base of the Future:

Hybrid cloud deployments will become increasingly the norm in the coming years with public cloud provisioning relentlessly increasing its percentage of overall computing resources under management over time .

In the not too distant future public cloud will therefore represent the bulk of computing infrastructure. For the data center operator of today, this means that the majority of current customers will no longer be customers in five years time. The paradox is therefore that, whilst data center providers see robust growth today, as adoption of public cloud increases, that growth will slow and reverse quite rapidly.

Successful data center operators will therefore be the ones that can safely navigate this fundamental realignment in their customer bases.

Data center operators can however embrace this change and turn a significant threat into a major opportunity…

Keep it Under One Roof

As companies become increasingly aware of hybrid cloud and eventually more pure public cloud deployments, they are becoming increasingly discriminative about this aspect of their hosting when choosing data centre locations or renewing existing deployments. The ability of data centers to offer effective coordination of private in-house and public cloud infrastructure will become a critical success factor.

Currently most data centres do not offer public cloud hosting as part of the sales process considering it as a pure threat to the potential sale. By partnering with cloud providers who do not wish to run their own data centres themselves, data centre operators can provide a very compelling solution to potential customers. Customers currently are often comparing in-house solutions with public cloud solutions. A data center operator that can quote for both deployment types is in a very strong position indeed, especially if both deployments are within their own data centers. Without such an option, if the customer decides on a public cloud deployment, the prospect is lost to a public cloud vendor who likely doesn’t utilise that data centre operators services.

A data centre operator that can offer a public cloud within its four walls and actually offer private, hybrid and public cloud deployments as part of its sales process will significantly increase customer conversion rates and therefore revenue growth. The opportunity exists to create tight integration with the partner public cloud provider allowing secure connectivity between public and private deployments at low cost.

As customers transition away from their own dedicated infrastructure into hybrid and then more public cloud deployments, the data centre operator will continue to see revenue growth by having all those deployment options hosted within its environment.

The explosion of cloud computing and cloud delivered services will drive overall computing capacity requirements over the next decade. Data centre operators that work strategically with the right public cloud vendors will reap the benefits of that growth.

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