I’ve written extensively on the topics of managed services and (more recently) cloud computing as a commodity. The difficulties of cloud computing as a commodity range from profitability issues to sales and marketing challenges.
Recently, I’ve been reading a lot of “non-tech” publications discussing the possibility of an oligarchy in cloud computing, whereby the market will be dominated by a very small group of providers. Now, I’ve accepted the fact that some people out there will inevitably view cloud (and even managed services) as an offering that will eventually become commoditized. However, this type of thinking will have consequences and I’d like to discuss just a few of them here.
Consequences to Cloud Computing Commoditization
- It all starts with price. When you begin to treat something like a commodity then you will see prices drop. Take Amazon as an example. Amazon has dropped their Amazon Web Services (AWS) pricing a whopping 31 times since 2007…and that’s according to Amazon’s own web site. At some point, the value of such a service becomes difficult to find, much less to articulate.
- Which leads us to our second challenge…sales and marketing. Selling a commodity is fairly straightforward; it’s based on price. At least selling a commodity gives the customer a sense that the sole or primary value is the price. Non-commodity products/services, by their nature, have many different values to a customer, hence the great variety of prices that exist. The more a cloud or managed service is treated like a commodity, the more difficult it will become to sell it to customers.
- Service Provider Valuations. If you want to ensure the death of small service providers, make sure and treat cloud/managed services like a commodity. When those prices for services plummet you will also see a corresponding decrease in MSP valuations as those services become less and less valuable.
The race to the bottom, so often described by MSPWorld speakers in the past, is appropriate here. Managed services pricing should not be a race to the bottom, and the more lucrative MSP operators tend to agree on this point. In my opinion, I do not think managed services is suffering from a commoditization. I do, however, think that cloud computing is still somewhat vulnerable to becoming a commodity.
Less mature “cloud service providers” (generally those companies who only deliver cloud and are not legacy MSPs) seem to be the main culprits behind this commodity push. I do not believe those providers will likely be profitable or successful in the long run. It does, however, remain to be seen whether their beliefs will harm the rest of the managed services professional community.