IaaS = Utility - Can IaaS providers shake off commodity status?

Published: 5 February 2015

Once the domain of the high powered technology futurists, IaaS has now been relegated to commodity status. It is a similar status that befell the server industry when the commonly held belief was that the benefits of server A were identical to server B. It took AWS to realise that they aren’t all created equal and if you tune the servers (e.g. build your own) and build hyper-scale you can meet the world’s insatiable desire for compute.

In its infancy the IaaS business model was often compared to an easy to understand utilities model. ‘You wouldn’t build your own power station so why have your own infrastructure’ was the phrase on every sales person lips. Security, efficiency, scalability swirled around in the minds of the CIO before deciding that hybrid was probably best (you may take your power from the grid but always keep a few candles in reserve). The data has been divided up, labelled and apportioned to the most relevant IaaS provider dependant on location, tiering, portability, price etc.

Everyone is happy; CIO’s get the secure(ish) compute they need, CFO’s like the price, and developers can spin up more compute than the entire Amazon infrastructure in 2004 without blinking an eye. Apart of course for the IaaS providers who are left carrying the burden of any commodity - the price is going through the floor.

The view that we are getting from the market is that margins will remain positive for some-time and IaaS vendors will continue to be successful (particularly those who can execute in emerging markets). However, service providers must be under no illusion; commodity is the direction we are heading. It is time for the pure players to iterate or die. The question is what to do; PaaS, SaaS, consulting? The answer inevitably lies with the customer and how you build a defensible position within the customer – selling vanilla IaaS with AWS, Google and Azure building at hyper-scale is not defensible. Embedding yourself deep within the customer is the answer.

What this means from a people perspective is that the product / sales loop is becoming one of the most integral parts of any IaaS provider. Getting the right talent to pinpoint and draw out a customer business problem or opportunity is critical. That information must then be plugged into a functioning product cycle. This will require forward thinking talent, but there must also be willingness for the business to invest and believe in a culture of iteration and growth. Earlier I mentioned that AWS changed the landscape of compute infrastructure, in part by reworking the piece that most thought irrelevant; the server. This is an exceptional demonstration of a business willing to gamble, willing to innovate, hiring the right talent and building the right internal structures.

 If a business can engender this type of mind-set it will be able to attract the very best sales, product engineering and product marketing talent in the IT market (and they need to be looking at the entire IT market not their traditional hunting grounds.) There is an element of chicken and egg in the cycle between setting the right structure and attracting the right talent. To tackle this you will invariably need a change in mind-set and / or personnel at Director level and above to re-align the culture and build the right operating model for talent to thrive.

As we know IT&T is one of the fastest moving industries globally. In the IaaS world this was tempered somewhat by the major challenge of virtually securing outsourced IT estates. This problem is by no means solved but buyers are now looking beyond just security and scale, demanding more from their providers. The IaaS providers must adapt and diversify or they will be standing still, which will mean regressing and companies moving backwards in IT do not survive.

Callum Wallace is a Consultant in the TMT practice at Berwick Partners 

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