Cloud Computing: When Will the Big Money Arrive?
Despite all the hype, it’s still early in the cloud game — and big-time cloud revenues have yet to arrive. At least that’s the spin from Matt Asay, a CNet blogger and chief operating officer at Canonical. Asay notes that Amazon’s Elastic Compute Cloud (perhaps the best-known cloud environment out there) is believed to only generate about $220 million annually in annual revenues. That’s a rather small sum, considering Amazon’s annual corporate revenue was $24.5 billion in 2009. So, when will cloud revenues really kick in?
Asay’s blog is a great read, and I heartily recommend you take a look if you have any interest in the cloud computing market. Asay certainly isn’t dismissing the cloud wave — he’s just wondering when all the promise will pay off in big-time revenues?
No doubt, startups continue to flood the market. Asay notes that Eucalyptus (now headed by former MySQL CEO Marten Mickos) is looking for $100 million in funding indicate a growing market that’s expanding to meet rising demand.
From where I sit, software-as-a-service, virtualization and the cloud seem inevitable for most MSPs and customers that are looking to cut IT acquisition costs and CAPEX costs.
Anecdotal success stories continue to pop up daily. The prime example is Google Apps: schools and cities alike are adopting it because it’s cheaper, it’s easier to scale up as needs increase, it’s easier to use, and it doesn’t make customers feel like the 80’s never left. Even if you want to leave the search giant’s ecosystem, Microsoft and IBM have competing SaaS suites.
The way I see it, the cloud has three interconnected problems for MSPs: the gap between on-premise and the cloud, in terms of usability and security; the lack of mainstream awareness; and the lack of monetization options. But those are really the same problem, and some of the best software engineers in the world are working on cracking it.
As cloud platforms develop more features and tighten security, they’ll attract new customers, pushing them closer to the mainstream. Once it’s in the mainstream, the savvy MSPs will be able to find paths to SaaS success. And the ones who really thrive are going to be the ones who get in now and start evaluating cloud solutions.
Still, keep your expectations under control. Not even Amazon is getting rick on cloud computing (yet).
Additional reporting by Joe Panettieri. Sign up for MSPmentor’s weekly Enewsletter, Webcasts and Resource Center. And follow us via RSS; Facebook; Identi.ca; and Twitter. Plus, check out more MSP voices at www.MSPtweet.com.
The promise of turning your Clients CAPEX costs into a stream of monthly OPEX payments that are based on usage certainly is the way to go for them. Don’t forget that this doesn’t mean the CAPEX spend doesn’t exist, it’s just shifted to the SaaS provider. Their ability to pay MSP’s any commission is a function of the scale and efficiency of their CAPEX dollars spread across multiple (hopefully thousands) resellers.
The SaaS players (specifically large resellers) are generally providing a commodity service that always trends to lower margins over time. This will squeeze the ability to pay any commissions to MSPs out over time. Eventually they will all go direct to the Client or it becomes a pass-through cost to the MSP.
I think a good set of SaaS vendors is a must for any MSP, but building your business on the incremental revenue from those relationships will be an ever harder proposition. Focus on providing great SERVICES first!
Edward Stringfellow
http://www.stringfellow.com
Ed: I think project work still fits into the formula somewhere, too. Bread-n-butter expertise in a specific IT niche always seems to serve VARs and MSPs well. But thanks for the services perspective. I definitely appreciate the interaction.
-jp
Joe: Project work is certainly part of the MSP revenue stream, we just target recurring revenue to be over 60% which ensures higher margins. I guess my point was that to be chasing hourly project work and then saying you are an MSP by reselling SaaS services could be a dissapointing way to make it!
Keep it the great work here on MSPMentor!
Edward Stringfellow
http://www.stringfellow.com