Microsoft Cloud Vision for Hosting Services and Service Providers

Dave Link

One of the keynotes this week at the Hosting & Cloud Transformation Summit was delivered by Hyder Ali – Microsoft Industry Director, Operator Channels. 

Anyone in the hosting industry who was expecting to hear about changes to the SPLA license agreement format or pricing structure were super disappointed, because Hyder barely touched on a small VDI pricing change for SPLA. There is always hope for next year!

That said, Hyder did share Microsoft’s current perspectives on the service provider/hosting industry. His keynote focused on three things:

  1. Macro industry trends from Microsoft’s perspective
  2. Where customers are embracing the cloud and how  we see service providers transforming their business to seize the opportunity
  3. Finally – Microsoft as a partner in the  community… Is Microsoft a partner or competitor?

Hyder used the analogy in the way back machine from 100 years ago when electricity was invented. “At that time most businesses generated electricity for their own needs.

Ultimately the creation of large electric utilities was cemented by the economies of scale that you get through consolidation and the price benefit passed on to the customer was a big switch moment.

He went on to predict: “Over the next 20 to 30 years we will see mass transformation of IT in a similar way to the transformation of electricity 100 years ago. “

The switch is on. Gartner issued a report last Friday that said: “While cloud email is still in its infancy, at 3 percent to 4 percent of the overall enterprise email market, we expect it to be a growth industry, reaching 20 percent of the market by year-end 2016, and 55 percent by year-end 2020.” No surprises as to the drivers of this trend:  Agility, Focus, Economics

Microsoft’s research shows that approximately 1,000 enterprises have more than 1,000 servers (mostly located within private data centers).

By moving to a public cloud and spinning up and down servers to incorporate utilization peaks and valleys, the costs savings are about 10X for most enterprises; however, not everyone will move quickly. Hyder said that, “Service providers need to evolve from infrastructure providers to solution providers – an extension of IT for your customers.”

So what is the opportunity from Microsoft’s perspective and how is industry evolving?

For the first time in 2011, the shipment of virtual servers will equal physical servers; however, growth of server shipments is expected to grow 14% in terms of physical servers shipped by the OEMs. It seems counterintuitive, in part because customers are moving the applications to the cloud, but for a variety of reasons they will continue to run on a dedicated server in the cloud.

Hosting market size and projections – Opportunities for Service Providers

The managed services market will grow from $15.4 billion in 2011 to $22 billion in 2013. By comparison, public cloud will grow from $1.6 billion to $2.9 billion during the same time period. Offering managed services is the huge growth engine for service providers in the next three years.

That is great news for ScienceLogic as more service providers are realizing the benefits of our virtualization and cloud management capabilities to help them improve service levels and offer differentiated service offerings.

We know that virtualization management becomes a big problem for customers as they grow the number of virtual servers. This is a huge opportunity for service providers to package new products that help unify management for public, private, and hybrid cloud applications.

So as a mechanism to identify the barriers to enterprise adoption of cloud computing, Microsoft and IDC conducted a survey where they asked existing customers who currently use a hosting company service this question: What criteria is most important in the choice of a service provider?

The answers:

  1. Security
  2. Timely resolution of problems
  3. Knowledgeable tech support staff
  4. Disaster Recovery capabilities
  5. Network Performance / Capacity
  6. Easy to do business with  / Flexibility
  7. Cost – a consideration, however cost is not a driver – Primary considerations = 1-3 above!

When they dug into the #1 concern that companies have to embrace the cloud (security and data privacy), they revealed that some workloads make sense to live in public clouds and others make sense to live in private clouds. A common set of issues need to be addressed, including identity management, virtualization platform, day two management tools and development platform.

How to stand out?

No huge surprise here: Better, more personalized customer care provides a critical advantage and differentiator for service providers to address pain points. “You can’t even find a customer support number on a web page for Amazon or Microsoft Azure to help answer questions.

” If that is true, I agree that a price advantage of the larger providers will quickly evaporate against the backdrop of superior customer service.

Lastly, his quick tip for a service provider to be successful?  Three things have to be right:

  1. Great infrastructure
  2. Good and transparent SLA reporting
  3. Set of services that people most commonly look for. Get the basics right!

As I think about trying to summarize Hyder’s key message to the service provider industry, I would say that Microsoft’s primary strategy is one of partnerships.

Although that is difficult to believe with the complicated SPLA license pricing, and the fact that Microsoft has cloud offerings that are clearly competitive to their service provider customers, I really think he was quite sincere in this message. 

Microsoft has always sold through partners from their very early days, and they really do get that the data center is quickly moving from traditional in-house IT to service providers. 

They have invested over 15+ years building incredibly strong relationship with the hosting industry, and that channel is now in the third inning of a very exciting ball game in which Microsoft has an edge.

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