The Public Cloud Debate

I recently had breakfast with a longtime managed service provider, a member of CRN's VAR500 and Entrepreneur Magazine's Hot 500 Fastest Growing Businesses. It was immediately clear to me that this partner boasted a focused leadership team with a clearly defined mission and strong set of customer offerings.

The partner's well-articulated slate of hosted e-mail, hosted voice, backup-disaster recovery and other managed offerings were priced, packaged and ready to relieve their customers of IT burdens. Every last detail was a part of a well-orchestrated go-to-market plan.

But when our conversation shifted to adding cloud-based services, the response was clear and heartfelt. "We won't be adding any public cloud service offerings. They compete with what we've built here and the data center investment we've made."

So the question becomes, do you enhance your opportunity for profit by choosing which service levels you provide customers and which service levels you "white label" or resell from a new and larger cloud service provider?

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Most likely, there are some applications that will remain in the customer data center for some time, particularly due to the sensitive nature of some data. Customers may feel uncomfortable moving certain data or applications off-site. On the other hand, there are some applications and data that your customers will trust to move to your data center. So if you assess what it costs you to support a 24x7 service level to your customer, can you provide that same service level, at a lower cost, by buying and reselling or "white labeling" a service you host from a Microsoft, IBM or a Terremark?

The place to start your analysis is with a generic or vanilla-based service. Save the more complex services you manage for customers in your data center.

A small number of managed service providers are already segmenting the compute environment this way. As a VAR, they will sell to the customer when the application requires high levels of audited compliance, confidentiality, complexity or other characteristics that make them appropriate for the customer data center. When they're dealing with a standard line of business application, backup-disaster recovery or desktop management, they will then either host at the customer's data center, or their own. In cases of e-mail servers, development servers, test servers or peak level/seasonal capacity, they will offer service via a public cloud service provided by the managed service provider. The MSP offers a clean, single service level, a single invoice to the customer while segmenting the services provided vs. resold.

In this way, some MSPs see public cloud-based services as just another tool or set of products from which you can build out your offerings and manage your level of margin or profit. At the end of the day, it's the single point of contact the customer values. That portion of your value hasn't changed!

So, I've spoken with two sets of managed service providers: One school believes public cloud service providers compete with managed service providers. The other school believes public cloud service providers offer additional products that can be repackaged and sold to supplement their managed offerings and offer an avenue to protect margins. Where do you land in this debate? Which is correct? What is your experience?