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Cloud computing is said to have evolved out of the hosting and colocation services. Are we watching the beginning of the extinction of those species? The business implications of this evolution in the cloud marketplace could have a big dollar impact for you.

Many firms use providers of data centers and services from third parties rather than build and run their own. Do recent announcements by two of the high profile providers signal that the value of those services are being smashed by the Cloud Infrastructure as a Service (IaaS) vendors? If your firm uses these services perhaps the tea leaves are predicting another course would be prudent. Let’s look at the state of play and business evidence.

Rackspace and Datapipe are the two “leaders” that Gartner – a leading analyst firm – lists in its Magic Quadrant for Cloud-Enabled Managed hosting. Rackspace (RAX) is an almost $2 Billion supplier of hosting/colo, and cloud services. (A cloud washing advisory notice: RAX claims about 70% of it revenues are from dedicated “private cloud”, which is cloudwashed traditional hosting and colo). At the AWS (Amazon Web Services) re:Invent conference this month, they announced that they would offer tools, expertise, application management, and operational support to customers on the AWS Cloud. In other words, Rackspace will now resell AWS services with a wrapping of different levels of value added support.

Datapipe, the other leader, is a privately held hosting and colo provider. Just six months ago they announced that they were becoming a similar AWS managed service provider. Plus, not to be outdone, Datapipe and Rackspace have inked similar deals with the number two IaaS provider, Microsoft’s cloud services. Datapipe announced theirs in February and Rackspace’s was in July – a busy year.

What questions do these moves suggest? An obvious observation might be that whatever public cloud ambitions either had are over. You don’t resell the number one and number two’s services if you think you can compete with them.

But, let’s look at the rest of their business regardless of the euphemisms they might use as labels. These are the majority of their revenues. Does this represent an evolution for them to a new distinct commercial strategy? Are they – and will soon others – acknowledging that they cannot compete against the AWS and Microsoft’s of the world when it comes to infrastructure – period? Is the hosting/colo model dying and being replaced by this model of a Managed Service Provider (MSP), who does resell a hyper efficient IaaS and makes them more useable with a suite of services? The model is only recently emerging in cloud but has been common in the legacy hardware and software world. We called them VAR’s (Value Added Resellers).

Why consider this? Yamaha America provides a small but helpful example. It moved its 200 servers from a data center services provider to AWS with the help of a different MSP. The result – it saved $500,000 per year and as the CIO shared: his team is doing more and more rewarding work. Save money and happier more productive staff – sounds like a win-win.

Ask yourself how many servers does my firm have running in a third party environment and with what sort of hard costs. Does it make sense to continue on that path, especially if the very vendors strategy is otherwise? Maybe the better bet is to work with them to transition to the new model to foster an even better outcome and partnership for you and them.

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