IaaS: The New Commodity Managed Service

IaaS as a Channel Offering

If Rackspace leaving the IaaS business isn't proof enough, then let's turn our attention to the overall business strategy of channel focused IaaS. Similar to how the "master MSPs" reached the height of their prominence during the mid 200s, only to become virtually extinct today, IaaS is also trending down the same path. What made Master MSPs so popular is the same as what caused IaaS to become popular. MSPs need a service, the cost of entry (both monetary and other resources) was too great, so they decided to partner instead of build.

For the Iaas or Master MSP, the problem with this business model is that the channel MSP organization that needs the service is on the upswing of their maturity. Put differently, MSPs most likely to respond to a IaaS offering will be those MSPs who have not yet built their cloud solution completely. The problem with this model becomes apparent when the MSP matures and decides (as they all do if they are really maturing) that they can deliver the service (IaaS, or whatever it may be) more cost effectively, with higher assurance, more flexibility, etc., than the Master MSP. Eventually, the pupil becomes the Master and leaves.

This is why the most effective MSPs are the ones who own the customer relationship and focus on services they can deliver themselves, with minimal assistance from outside firms. Even MSPs who offer IaaS to their customers, do so not as an exclusive strategy but as part of a comprehensive set of offerings.

If you are a channel focused IaaS provider, all is not lost. You do have some options. First, you can offset or compliment your channel strategies with a direct approach. While my views on channel competition are well known and I am not advocating direct channel competitive strategies, in some cases if the strategy is well defined and known to the MSP, this approach can work. Second, the IaaS company can abandon its channel strategy and incorporate other services beyond IaaS. This model has the benefit of minimizing the risk of placing all of your resources into IaaS. This last approach is what Rackspace appears to be doing.

While most of this article has been focused on the benefits and risks of IaaS as a channel strategy, we have not discussed the alternative and competing model available o MSPs, which is to build the cloud platform themselves. Even small MSPs have been building out relatively sophisticated private cloud environments on behalf of their customers. Once you do it, it becomes very easy repeat. MSPs who are advancing along their maturity track, will ultimately reach a point where they decide that it is better for them to invest in their own cloud infrastructure, rather than rely on a third party IaaS company.

For now, IaaS as a concept remains important. Too many managed services rely on IaaS. The only difference in the future will be if the MSP does it themselves or continues to rely on the big providers.