When Amazon introduced its new service, there were cries that it would put Zencoder, another cloud transcoding provider, out of business with low pricing. I think this concern is overblown, because Zencoder solidly beats AWS on a number of key dimensions besides price that are important to its customers (more on that below).

Similarly, Sendgrid, a cloud-based email delivery provider, went up against Amazon after the company introduced its transactional email service in January 2011. Well, it’s been three years and not only is Sendgrid still in business, it’s thriving. It counts companies like Pinterest and Foursquare as customers, and it raised a further $21 million even after some had pronounced it dead. (Note: My company,  Screenlight, is a paying customer of Zencoder and Sendgrid, but we have no other financial or advisory relationship; I chose them for this piece only because they’re examples with which I’m intimately familiar.)

There are plenty of other pain points in the cloud where developers have staked a claim that may tempt Amazon. The question then is what can a company do when suddenly matched up against an 800-pound gorilla? Here’s a look at the successful strategies employed by Zencoder and Sendgrid.

Give your target customer better options

Elastic Transcoder is a fairly representative example of how AWS launches a new service: It starts with a bare-bones offering that appeals to a broad base of customers in different industries. Amazon then rounds it out and adapts the service based on customer feedback.

You can win by knowing exactly who your target customer is (it may not be the typical AWS customer) and delivering the full suite of features that they value. By that I don’t mean a laundry list of features, but rather the key features that they need and are willing to pay for. All of the things you learned through customer development and talking with your customers will pay off here. You understand your customer’s problems better than anyone else, right?

In Zencoder’s case, it offers a much richer feature set than AWS Elastic Transcoder (ie, HLS streaming support, closed captioning, live-streaming and so-on). All of these features are likely of high enough value to Zencoder customers that it’s somewhat protected from price-based competition. For customers to switch to Amazon, they have to be willing to give up these core features to save money. For many companies that makes it a non-starter.

Likewise, Sendgrid continues to differentiate its service from AWS SES by offering far more features (dedicated IP addressees, advanced tracking and deliverability features, advanced API features , etc). All of this is backed by phone, email, chat, and forum support. For basic, low-cost, highly scalable email-sending, AWS may work for a lot of customers. But for those with more advanced deliverability needs (and a willingness to pay), Sendgrid is one of several superior options.

Create a better user experience

With Amazon, a new service like Elastic Transcoder is just another API that is offered alongside many others. With AWS, support is a paid-service offering. When customers are getting started or are experiencing problems, their only recourse is to pore over the documentation and dig through forums.

By contrast, companies like Zencoder and Sendgrid offer premium support services. In my experience with both companies, there has always been a real human ready to help answer a question or solve a pressing problem. Thus to differentiate your business, you need to offer the care and attention that Amazon simply can’t lavish on a single service.

The opportunity to differentiate through customer experience goes well beyond offering support when things go wrong. Every touch point offers an opportunity. For example, as someone goes through the sales funnel, there is room to provide videos and clear marketing material that educates customers  and outpaces the static efforts of Amazon. Likewise, the customer on-boarding process can be addressed with timely emails and outreach that helps resolve common stumbling blocks when getting started. (For ideas around this, check out Customer.io.)

Design of the user interface provides another powerful differentiator, and since most customers interact with infrastructure services through an API, it’s particularly important. Here Zencoder does an excellent job with a clean and well-documented API that includes a request builder that simplifies integration and testing.

Price based on value – and communicate it

Price is only one of the 4P’s. The only way to sustainably differentiate your service based on price is if you are the lowest cost provider: When you are competing against your infrastructure provider, that’s not going to happen.

In a response to a discussion on Hacker News about entry level prices that were 50 percent lower than Zencoder’s, CEO John Dahl made a great point by explaining why 50 percent lower prices don’t necessarily translate to 50 percent more value.

He’s absolutely right. Whether AWS is 1/2 or 1/10 the price per unit of your service, your potential customers need to know that Amazon vs. You is an apples-to-oranges comparison. Furthermore, they need to clearly understand why your oranges taste better and deserve a higher price.

In some industries, particularly perfectly competitive ones, price is the dominant attribute that matters to customers. However, in most other markets, there are additional value drivers for your customers. The key to competing against AWS is to ensure that your value proposition delivers against these attributes, and is priced accordingly. When Amazon shows up, instead of panicking, slashing prices and getting into a price war you’re bound to lose – accelerate innovation and double down on the customer experience.

Chris Potter is co-founder of cloud-based video collaboration and sharing service Screenlight. Follow him on Twitter @potta.

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SendGrid CEO Jim Franklin

This is a big deal because most mobile app users expect to communicate via their apps. What’s the good of foursquare if you can’t alert the world that you ousted Joe Schmoe as mayor of your Dunkin Donuts? The new MbaaS integrations are all available now, according to Boulder, Colo.-based SendGrid.

One of the key advantages of SendGrid, developers say, is it lessens their overall reliance on Amazon Web Services for capabilities above and beyond basic compute and storage functionality.

That’s increasingly important for developers who don’t want to be overly reliant on a particular vendor’s cloud.  SendGrid’s biggest rival is Amazon Simple Email Service (SeS) and by using SendGrid developers can distinguish between their infrastructure provider and their mail service provider. “That’s key because it can take you six months to migrate an app off of Amazon if you need to,” said Mark Geene, CEO of Cloud Elements, a Denver area systems integrator specializing in cloud development projects.

SendGrid CEO Jim Franklin says he hears that sort of thing a lot. ”One of the strengths of SendGrid is it’s easy-on, easy-off. We make it very easy contractually and technically to sign up and to leave,” he said.

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Mailjet is similar to the likes of MailChimp and SendGrid, in that it provides a way for companies to send out newsletters and their apps to send out transactional emails. While some of those rivals target marketing departments, though, Mailjet’s sights are trained on relatively small-scale developers that want to avoid the hassle of maintaining SMTP servers and the like.

“Whenever you have a web app you need to code a couple of emails – welcome, subscription, reset password – so it’s a headache for the developer to set that up,” co-founder Quentin Nickmans told me. “So we created a platform that makes it extremely easy for a developer to set up.”

Apart from these functions, Mailjet also provides tracking and ‘deliverability optimization’ of emails, so customers can see whether messages have been clicked on or opened.

The cash comes mostly from Alven Capital, which has put $2.6m into the round, with the rest coming from Airtek Capital Group chief Laurent Asscher and the eFounders incubator, which had previously provided $300k in seed funding.

Because Mailjet is mostly targeting startups, the company needs feet on the ground in each territory. And, according to Nickmans, such presence will also help with dealing with ISPs – essential when you’re trying to make your customers’ emails as deliverable as possible:

“The company has been having quite a lot of traction and… we need to hire more people in support, we need to be closer to our customers. We need to have a couple of people present in Latin America, we want to grow our support team in Canada, we don’t have someone now in Berlin who could be a developer evangelist –we want to participate in hackathons for people to get to know our API, and we want someone more locally based for ISP relations.”

Right now Mailjet has around 10,000 customers (big names include MIT and Fotolia), which it’s amassed since launching 18 months ago. The company employs a freemium model, with payments kicking in once you send 6,000 or more emails a month.

Paying customers also get a dedicated IP address that benefits from reputation monitoring. Nickmans didn’t want to detail the split between paying and non-paying customers too closely, but he indicated that somewhere between 15-20 percent were paying, which is fairly impressive.

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Now, the Boulder, Colo.-based company says it has raised a $21 million Series B round led by Bessemer Venture Partners, with additional funding from existing investors Foundry Group, Highway 12 Ventures, SoftTechVC, 500 Startups and TechStars. This follows a $5 million Series A round raised in 2010.  SendGrid will use the money to grow internationally, increase hiring and invest in product, developer relations and customer support.

Since launching in 2009, SendGrid’s cloud-based SMTP platform has been a valuable tool for many web application companies that stay in touch with their users through emails. It has delivered some 27 billion emails to date. Companies such as Pinterest, Hootsuite, Foursquare and Path all offload their transactional email to SendGrid. It’s a growing market, as companies rely on email to update users and keep their services sticky. SendGrid isn’t just handling a lot of emails; it’s doing some smart work to get past spam filters and blocked IP addresses to ensure emails reach their destination.

“Web application companies are under tremendous pressure to build fantastic services quickly. Offloading a core service like transactional email management and delivery is a smart and simple choice,” said Jim Franklin, CEO, SendGrid.  “Today’s funding validates our original vision and supports our global expansion plans as we continue to build out our team.”

SendGrid also said it’s launching on Windows Azure, Microsoft’s cloud platform for web applications.  Windows Azure customers who sign up for SendGrid will receive 25,000 free emails each month. SendGrid is showing the opportunity in infrastructure apps that help developers plug in needed services that keep their apps running.

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For this round, I’ll look at companies that share these common themes:

• They market to application and infrastructure developers.
• They have a simple sign-up button on their home page.
• They integrate through simple web-based mechanisms that turn conventional deployment times of days or weeks into minutes or hours.

Transactional email. Most applications, consumer to enterprise, rely on email as a communications mechanism with users. With a large user base, sending users something as simple as notification emails can be challenging with spam filters, blocked IP addresses and other email hurdles that complicate the process. SendGrid helps improve the chances that the email you send will reach a user’s inbox. SendGrid does this by using its email servers as a proxy, and maintaining the purity of the IP addresses, one of the biggest email management challenges

Compute-intensive cycles. While it’s getting easier to “dial up” virtual machines in the cloud, some applications still need instant access to compute cycles for CPU-intensive functions: for example, in the software development process and with math-centric calculations. Without having to actually spin up your own server, PiCloud allows application developers to send functions to the cloud where they are executed and returned. The company is initially focusing on the Python programming language, but I see no reason why this couldn’t expand later on.

Network services. Network services have been hosted for years, but the integration and simplicity of deployment has dramatically increased with cloud computing. Managed DNS is one area that is seeing rapid innovation. The Domain Naming System (DNS) maps web address domain names to network IP addresses, and companies using a DNS service benefit from improved security. OpenDNS and Zerigo provide ready-to-go DNS services.

Database as a service. Every application needs a data store, and if you know what you need at that level, why not let someone else manage it? That’s the premise behind the service offering of Cloudant, which offers a version of CouchDB in a shared cluster that’s ideal for development and small- to mid-sized applications. Instead of buying and configuring a database server, you can dial one up in the cloud.

Indexing and search. Our real-time world demands up-to-date search, and Solr, the “blazing fast open-source enterprise search platform from the Apache Lucene project” helps companies provide just that. Websolr, a company that provides support for Solr, also offers managed indexes. In this case, they host the index of your content in their shared cluster and can manage and optimize performance.

More segments are adopting the infrastructure apps model every day, and when people think outside the consumer web box, there are significant investment areas. Are there more infrastructure app areas that we’ve missed?

Gary Orenstein is the host of The Cloud Computing Show.

Photo courtesy of Flickr user michaeldbeavers.

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