The sky is falling: What can small cloud service providers do?

The sky is falling: What can small cloud service providers do?

Summary: Google, Microsoft and Amazon are engaging in a price war for basic infrastructure-as-a-service offerings. Can the little guys respond? If so, at what price?

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TOPICS: Cloud
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Ryan Koop, director of marketing and co-founder of CohesiveFT, recently reached out to me to discuss the current race to the bottom that the industry sees its largest cloud services providers engaged in and what impact it will have on smaller providers.

In the words of CohesiveFT's PR rep, "Google, AWS and Microsoft are slashing the price for cloud services. This new price war could change the entire industry. What's going to happen to smaller service providers when their margins hit $0?"

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When the large suppliers engage in a price war, the small players often can't respond in kind. They often have to live on lower levels of revenue and higher costs for systems, software, networking, power and cooling. They simply don't purchase things in the large volume of the larger players and can't command the large discounts they receive.

Unlike the big players, smaller cloud services providers often focus on the needs of either a regional or vertical industry rather than trying to be everything to everyone, everywhere, always.

Where is the differentiation?

The smaller players have to focus on personal service, local application requirements or even the special requirements of small medical facilities, financial services companies or regional industries such as mining, manufacturing or distribution — rather than focusing their attention largely on the lowest price.

The smaller players have the ability to move more quickly and find niches the big players haven't exploited. They also have to move quickly to avoid being stepped on by giants.

VNS3

CohesiveFT believes that the tools it is offering can help the little guys survive and prosper. Koop pointed to CohesiveFT's VNS3 as an example. The VNS3 is a hybrid virtual device that acts as six devices in one:

  • router
  • switch
  • SSL/IPSec VPN concentrator
  • firewall
  • protocol re-distributor
  • scriptable SDN

Snapshot analysis

Small cloud services providers need to seek out every advantage they can find and keep dancing or they're likely to get hurt as the bigger players engage one another.

While it appears that CohesiveFT's VNS3 offers some useful advantages, it clearly isn't the whole answer. Could CohesiveFT help? They certainly could. Small supplier executives, however, must do more than just purchase a product or service and say the problem is solved.

Small suppliers must really know the requirements of companies either in their region or their chosen vertical market and create offerings that more closely address those needs than the generic offerings of the big players.  They must also be very agile; that is, they must get into markets before the big players know they are there and be willing to get out of them once the big guys jump in.

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Topic: Cloud

About

Daniel Kusnetzky, a reformed software engineer and product manager, founded Kusnetzky Group LLC in 2006. He's literally written the book on virtualization and often comments on cloud computing, mobility and systems software. In his spare time, he's also the managing partner of Lux Sonus LLC, an investment firm.

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2 comments
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  • Everyone just sits back and watch the antitrust violators

    This is crazy! If it was another industry, small companies would be screaming for antitrust regulators. E.g. Google and Amazon have this horrible habit of flooring prices in different software segments, making it impossible for small players to survive. And they do this over and over again, and no one tries to stop them! Google in particular is terrible. Google decimates newspapers, software, etc. across different industries, causing many in vain attempts, to run to its own advertising services, for relief.

    Only in the computer industry can blatant antitrust violators, wreak havoc, and no one does anything to try and stop them. The problem is that things move so fast, that few realize what is going on. Regulators really should ban large companies from price dumping - often using Open Source software to do so. I don't have a problem with OSS per se. I however have a problem when large companies use it to deliberately or inadvertently to wipe out competition.
    P. Douglas
  • Example ... application requirements

    I agree it's going to be difficult - we use the big guys to run the SaaS offering for our Cloud ERP application. But we also have a small provider who uses our development toolkit to deliver features that our tailored to our application. This, combined with application specific pricing helps one 'small guy' win cloud deals.

    The net result is to give customers an option of 'completely outsourced' or 'mostly outsourced' IT infrastructure to run their ERP application. I hope this type of 'competition' continues.

    Doug Johnson
    Acumatica
    Web Cloud