Cloud computing has had a significant impact on the traditional hosting and managed service provider (MSP) industries. Many providers that only offered dedicated infrastructure are now clambering to offer more-flexible, elastic infrastructure in an attempt to keep up with the shift to the cloud. Some have simply added virtual private servers (VPS), while others have built elastic Infrastructure-as-a-Service (IaaS) offerings using commercial or open-source cloud-management platforms. The latter services often include programmatic APIs, object storage services, and other capabilities offered by the big three IaaS players: Amazon Web Services (AWS), Microsoft, and Google.
One of the major challenges for providers building their own IaaS offerings is driven by the ongoing price war taking place among established IaaS players. Service providers building these modern infrastructures must make significant capital expenditures while contending with continually dropping prices. Meanwhile the most successful IaaS providers are already accumulating margins at scale and using them to fund ongoing growth. These dynamics make it difficult for emerging IaaS providers to build and price services profitably.
At the same time, service providers are facing increased competition from telcos, value-added resellers, copier companies, and even systems integrators that are now offering managed services. This has led to declining profitability, increased difficulty acquiring new customers, and high customer turnover since customers of MSPs increasingly focus on lower price and not greater value.
It is imperative that emerging IaaS providers and MSPs gain deep insights into existing pricing models so they can attain low cost structures, increase profitability, boost competitiveness, and improve customer retention. Additionally, by understanding the advantages, disadvantages, and implications of these pricing models, service providers can develop and apply their own pricing innovations to make their offerings even more successful.
Feature image courtesy Flickr user Trenten Kelley
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