The cloud will shake markets

The cloud will shake markets

Recently, I predicted that in 2013, cloud computing will provide the biggest disruption information technology has experienced in 25 years. These impacts extend to the $128 billion data center industry, which will never be the same as the traditional business model is disrupted, and new rules for success are written.

The data center market traditionally has been composed of five types of facilities, ranging from small to mega. This market has bifurcated into “Category One” – server rooms to enterprise facilities – and “Category Two” – large- to mega-sized facilities. 

In Category One, hardware costs predominate. These facilities operate at an overall higher cost and provide customized services. In Category Two, software costs predominate. Focus is on a high-volume, low-margin business model. Due to the massive costs required to build and manage, the market for Category One is growing at a slower rate than that for Category Two. Category One also is undergoing unprecedented consolidation and virtualization. Category Two is evolving, in part, to the cloud services provider model, which offers highly secure, scalable and on-demand IT solutions. Fierce competition in Category Two is fueling a “survival-of-the-fittest” scenario – those that realize the importance of the disruptive cloud computing model, and adapt, will emerge as winners. 

We are entering an era of hybrid data centers. Gone is the era of unique centers with services at a premium price point. The impact of the cloud is threatening the very core of the data center business and its historic operational and profit-making models. Data centers that do not evolve – quickly – will face plummeting profit margins as more and more information moves to the cloud. According to a recent study, cloud computing will account for 34 percent of all network traffic by 2015 – up from 11 percent today. Smart data center service providers must abandon the old business model (design patterns, fixed pricing for co-location and hosting services, vendor lock-in and infrastructure investment) and move to the new hybrid model (varied service design patterns, high-volume/low-margin mass scale computing, removal of vendor lock-in, consumption pricing and “just-in-time” capacity).

In this new marketplace, data centers are not just competing with themselves, but also with cloud service  providers. If data centers want to keep and grow their customer bases, they must provide an enhanced business portfolio that incorporates cloud. Guidance and support is necessary, and this capability must be developed internally or acquired externally. Cloud service brokerages can help fill this chasm. In 2013 and beyond, hybrid and federated cloud services will play a large role in reshaping the data center marketplace by enabling the movement to the cloud – and the associated relationships with cloud service providers. 

Cloud service brokerages can help data center service providers decide what best suits customers' virtualized data center needs, ensure faster deployment at the outset and offer operations and sustainment support. Cloud service brokerages can alleviate that concern by educating data center customers on the differences between private and public clouds, and helping them make decisions on which clouds are best for housing which types of data.

The cloud is revolutionizing data centers to their core. Smart data center service providers who embrace the cloud as a component of their new business models will emerge as the true winners in the marketplace of the future.