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CenturyLink and Rackspace show that established players can become cloud service providers

Joseph Bertran Senior Analyst

"The dominance of hyper-scalers in the IaaS space is forcing cloud providers to focus less on hosting and more on managed services."

Hyper-scalers such as AWS, Azure and Google are expanding their public cloud services globally, which makes it more difficult for moderately sized (relatively speaking) cloud providers to be competitive with their infrastructure-as-a-service (IaaS) and platform-as-a-service (PaaS) offerings. Nevertheless, a growing opportunity exists for these smaller cloud providers to supply additional solutions and services above and beyond what is provided by the hyper-scalers. Many hosters and service providers are moving away from offering services on their own data centres and are offering more managed services instead.

Cloud will continue to be a lucrative space for IT vendors and service providers of all sizes. Our forecast model estimates that the total spending on core cloud solutions by small and medium-sized businesses (SMBs) will grow at a CAGR of 22% from 2018 to 2023 (Figure 1).

Figure 1: Total SMB market size for IaaS and PaaS, worldwide, in 2018 and 2023

Source: Analysys Mason, 2019

Many cloud providers are remaining competitive by shifting their focus to value-added services

Businesses will need support in order to navigate the changes to their IT environments during the transition to the cloud. Hyper-scalers such as AWS, Azure and Google rely on partners to distribute their IaaS offerings and create bundled solutions for end users. This includes onboarding workloads and providing uptime assurance and added security. Service providers can also analyse KPIs to ensure optimal performance for given workloads. This is where cloud service providers can make an impact, and some are already well-positioned to do so.

CenturyLink and Rackspace are just two examples of cloud providers that are placing a greater emphasis on building stronger partnerships with hyper-scalers in order to offer their customers the most well-rounded cloud experience possible. Rackspace, a managed cloud services company, was previously known as a hoster and had its own data centres. Since 2014, it has shifted its branding and has made use of its technical expertise to establish itself as a provider of expanded professional and managed services around public, private and hosted cloud offerings across various platforms.

In celebration of its 20th anniversary, Rackspace held its US analyst day event in its home town of San Antonio in August 2018. There, Rackspace emphasised that it aims to take on a more consultative role with customers as it expands its presence in the enterprise space. Rackspace wants to be “the most trusted partner delivering modern IT as a service”.

It plans to do this by taking a holistic, platform-agnostic approach to managing client’s IT solutions. This means that it will not only provide access to the infrastructure/platform for managing IT, but it will also provide analysis, support and security for all workloads (holistic) regardless of which platform is being used to store and process data or run applications (platform-agnostic). To achieve this, Rackspace is focusing on deep technical expertise and “fanatical” service to stand out in a highly competitive space. In addition to growing its managed service portfolio organically, it has taken steps to expand in this space through M&A, as exemplified by its acquisition of Datapipe (a provider of managed hosting services) in 2017.

CenturyLink, like Rackspace, is focusing on providing added value on top of hyper-scale infrastructure offerings. CenturyLink sold its data centre and co-location business in 2017 but continues to sell co-location services on these (now) third-party-owned data centres.

Additionally, CenturyLink has made a concerted effort to bolster its expertise in public cloud. It has been named a Microsoft Azure Expert Managed Service Provider and an Amazon Web Services (AWS) MSP Partner. Services on AWS and Azure are offered through CenturyLink’s ‘Advanced Managed Services’. Both CenturyLink and Rackspace are part of a growing group of hosters and operators that are eschewing home-grown cloud offerings in favour of consultative, managed and professional services on top of platforms such as AWS or Azure cloud.

Businesses that are moving to the cloud stand to benefit from co-operation between providers

This evolving ecosystem is mutually beneficial. Players such as AWS turn to local service providers to help sell and support their services. Many of the smaller channel partners are not well-equipped to provide onboarding services for AWS and Azure. Cloud service providers such as CenturyLink and Rackspace, on the other hand, have both the experience and resources to develop proficiency in these cloud environments and serve end users that are looking to move to the cloud. Some providers will experience the challenges of adjusting their business models, but there is ample opportunity for them to continue to benefit from the cloud space.

End users stand to benefit too. Businesses often use different cloud environments for different workloads; a phenomenon referred to as multi-cloud. To simplify processes, many organisations are looking for one provider that can help them find and navigate the best platforms to optimise their workloads. By offering support for different cloud solutions, CenturyLink and Rackspace allow enterprises to reduce their dependency on a single cloud platform. As a result, businesses can learn which infrastructure platforms are optimal for their existing workloads and can use different environments for running different applications. This information can also be filtered back to the hyper-scalers that can then determine where to apply improvements and potentially reduce cost and boost customer retention. Working with an established service provider allows enterprises to limit the time and resources spent on building in-house expertise around cloud, therefore enabling key decision makers to spend more time on critical business operations.