The Next Mandatory Business Survival Position for Service Provider Future Success

Enterprise IT is changing how it deploys and consumes technology. This means that everyone who sells products or services to enterprise IT must start to think differently about how they go to market. Enterprise IT strategies are changing so fast that it’s getting harder and harder for cloud and hosting providers to keep up with the pace and deliver and deploy the services that enterprises want to consume. As the hyperscale cloud providers grow at a rapid 49% over a 5-year CAGR, traditional service providers are trying to figure out their future cloud strategies to remain relevant to their customers. Enterprise customers have their eyes on a hybrid multicloud end state, and they’re looking to their service provider partners to provide this hybrid multicloud environment in a secure cloud infrastructure model that can be consumed across the data location continuum and at global scale.

This post shares some insider insights about how service providers and VARs are changing their business models to lay the foundation for the future of their business.

 

Channel Is Changing the Rules and Building Cloud Infrastructure

Traditionally, the channel, VARs, and technology resellers ventured onto their customers’ premises to sell technology, perform breakfix work, and deliver their own unique value proposition around the sales, delivery, and support of the IT infrastructure. When their customers wanted a cloud or hosting solution, they often partnered with a local cloud and hosting provider on behalf of the customer; that was a win-win for all parties.

The challenge, however, was that the evertightening margins with VARs began to cause the channel to look for alternate opportunities to drive up margins. On the other hand, cloud and hosting providers were enjoying strong margins of 65% or more. Even during the toughest economic times, they were growing at 20%+ year over year. What began as a mechanism to change the margins for VARs became a cloud and hosting infrastructure delivered and managed by the VAR that targeted enterprise IT without the traditional partnership relationship of cloud and hosting providers.

 

Service Providers Are Changing Their Models Too

As increasing numbers of VARs are standing up their independent cloud and hosting infrastructures, the traditional service provider brands have had to change how they remain competitive in an ever busier market. Many service providers have made acquisitions to fast track skills learning, accelerate market penetration, and explore entirely new lines of business. Many service providers have also changed their operating models and are moving beyond the walls of their data centers to offer similar managed infrastructure services on enterprise premises and in colocation in an effort to appeal to enterprises that are looking for new cost models of consumption. The current state of the channel and service provider market is complicated, and it will continue to evolve as both sides offer unique value propositions to their customers in very similar and overlapping ways. 

Finding a unique position that enables customer success will be crucial for VAR and service provider routes to market, and that position will most likely revolve around where data is positioned in one of the four locations on the customer data continuum.

 

The customer data continuum: The four locations where customer data can live.

 

Customer IT services can be delivered to enterprise users from four primary locations:

  • From the enterprise premises in a traditional enterprise deployment.
  • In colocation, either managed or unmanaged.
  • In a typical service provider usually in a multitenant deployment model.
  • In a public cloud model.

Here is a brief discussion of the four data continuum locations.

 

Enterprise premises. This is the traditional enterprise data center locale, but this model is being disrupted as well. Typically the domain of the VAR for technology sales and break-fix support, enterprise premises are becoming the domain of cloud and hosting providers. These providers are moving private cloud infrastructure resources on premises and managing them like their own internal data center. They offer traditional service provider infrastructure management and value added services on enterprise’s premises.

 

Colocation. Colocation is once again becoming an on ramp — but this time it’s the on ramp to the cloud. Most service providers have direct connections into hyperscale cloud infrastructures, and colocation gives enterprise applications closer proximity to the applications running in the cloud without being deployed in the cloud themselves. Infrastructure in colocation can also be cross-connected to the managed services side of the service provider business so that managed services can be consumed more easily in a colocation setting. Colocation also allows service providers to resell private cloud infrastructure into an environment that the customer controls and has access to,  but with the management and support processes that the traditional service provider excels at.

 

xSP infrastructure. This is the typical domain of the cloud and hosting provider. The hosted service provider (xSP) offers value-added services to allow the enterprise customer to focus on their core business while skilled and process-driven professionals keep the infrastructure running. The key here is the process and support skills that service providers bring to the table at a scale that most enterprises can’t match. This environment is the bridge between managed private clouds in colocation and workloads running in the public cloud.

 

Public cloud. As mentioned earlier, the on-premises locale was usually the domain of the VAR and colocation, and the hosted service provider infrastructure was the domain of the cloud and hosting provider. The public cloud was usually out of reach for both VARs and service providers, because the enterprise would typically consume public cloud resources without the support of either party. Lately, however, it has become more common for cloud and hosting  providers to support customer consumption of public cloud resources managed by the service provider, in order to retain control of the end customer.

As VARs and traditional service providers fight it out to sort out the next evolution of their channel offerings of technology services, it is becoming apparent that the key to future success is not in the technology itself but in owning and managing where the customer application data resides across the customer data continuum.

 

The Next Mandatory Survival Step for Channel and Service Providers

As VARs and service providers fight to own the customer, it’s apparent that the victor must own the entire customer data journey, from the enterprise premises all the way out to the public cloud. Owning the ability to wrap service value around the application and its data no matter where it resides is a crucial. Skipping a step in the data journey will cause complications and affect the possibility of long-term success of the owners of the customer journey, whether VAR or service provider or an amalgamation of both.

 

The next mandatory step is to be able to own the entire customer data journey and offer it in a seamless package that supports every aspect of the enterprise customer’s application and data roadmap at the exact time that fits the customer’s  needs. By selecting bundled services such as backups, monitoring, infrastructure optimization, migration, security, and consulting, enterprises will choose technology partners that enable the full spectrum of the customer data journey and that offer a unique and appealing value proposition for enterprise IT.

 

As VARs and service providers sort out where they fit in their markets and how they compete or collaborate, the technology vendor that wins the game will become the data broker for their enterprise customers’ data journey.

This poses the final question: Is your organization positioned for survival by becoming a successful customer data broker?

Stuart Oliver

Stuart is currently the Global Consulting Director at NetApp in the Next Generation Data center group, where he is responsible for articulating NetApp’s value proposition to hosting service and cloud providers globally. Stuart’s primary role involves interfacing with key hosting service providers and acting as a strategic market advisor and working with them to provide market guidance on the productization, the pricing and the strategic positioning of their next generations storage services.