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While large Infrastructure as a Service (IaaS) cloud players often use price as their most powerful weapon, small and midsize providers say their target market demands more finesse. The ability to meet diverse customer needs through custom and complementary managed services has been the most effective sales tactic for these small- and medium-sized business (SMB) cloud providers.

"You can draw an analogy between this situation [in the IaaS market] and hardware vendors that sell their hardware products both direct and through a channel," said Oli Thordarson, CEO of cloud service provider Alvaka Networks. "As a customer, you can buy direct whether you are large or small. But -- especially if you are small -- you won't get much value-add beyond the basic service."

Larger IaaS cloud providers have to scale to operate at the thinnest margins and rent compute cycles for pennies by the hour, but customers don't buy on price alone. Those services are often sold "raw," or devoid of any managed services to enhance the core IaaS offering.

Although large enterprises may be comfortable with raw IaaS products, Thordarson said they don't cut it with SMB customers. Small and midsize cloud providers say their strengths lie in providing flexible, agile and customized services, which is what they contend SMBs want from IaaS cloud services.

"What [larger providers] can't do for you is be close to you and your business, be intimate with you from a business standpoint," said John Carter, president of cloud service provider Radical Support, an Atlanta-based division of IT solution provider Computer Design & Integration (CDI) LLC.

"Once you get into commercial accounts, every [large IaaS cloud provider] has the best storage, best infrastructure and the best people running it all," Carter added. "The competitive advantage that remains is flexibility and customization, coupled with the fact that we can assist the client in managing the servers and the solutions being hosted."

IaaS cloud providers: SMBs don't want 'generic cloud services'

Many SMBs lack internal IT expertise, so it often makes no difference whether a server is on-premises or in the cloud because management is still a headache in both scenarios. This flies in the face of conventional cloud IaaS marketing, part of which encourages businesses to move infrastructure to the cloud to free themselves from the burden of managing it.

Smaller IaaS cloud providers are seizing on this hang-up for SMBs. Alvaka Networks touts the fact that it can offer customers one-on-one access to an engineer, who can help with tasks such as evaluation of competitive IaaS products, migration of data and users to the service, management of service levels and configuration changes tailored for a particular vertical market.

"I just don’t see many businesses buying generic cloud services," Thordarson said. "I think that segment is overplayed."

CDI Radical Support also subscribes to the notion that customer relationships will be crucial to the success of its IaaS practice.

I just don’t see many businesses buying generic cloud services.

Oli Thordarson
CEO, Alvaka Networks

Carter cites the recent example of a client that was in the process of migrating its backup data into CDI Radical Support's cloud when Hurricane Irene struck, causing the client to lose access to its on-site servers. Although the migration wasn't complete, CDI Radical Support was able to ensure that the business didn't experience a disruption on the following Monday by sending its cloud services team to the client's office the weekend of the storm to manually recover the latest backup media.

"We worked with them to help them with something that [they] hadn't actually contracted for," Carter said. "With the big [IaaS providers], you don't even know where your data is."

Dante Orsini, vice president of business development for iLand Cloud Infrastructure, a cloud service provider in Houston, said his company likewise highlights its focus on customer service. iLand differentiates its IaaS cloud offerings by investing heavily in virtualized servers and management tools that are best suited for providing cloud disaster recovery services to SMBs. The service is also targeted to independent software vendors seeking a high-reliability cloud platform for their Software as a Service (SaaS) applications, Orsini said.

Launching these specialized services required Orsini to heavily invest in and partner with specific vendors, including Dell and VMware. And like cloud IaaS providers at the higher end of the market, iLand supports an on-demand consumption model, as opposed to term-based contracts, to provide customers with more flexibility. This is especially attractive to customers that plan to use the cloud for applications that experience peaks and valleys in usage, Orsini said.

"Our clients need to be able to get out of the infrastructure and really focus on the application," he said.

About the expert:

Heather Clancy is an award-winning business journalist in the New York area with more than 20 years of experience. Her articles have appeared in Entrepreneur, Fortune Small Business, the International Herald Tribune and The New York Times. Clancy was previously editor at Computer Reseller News, a B2B trade publication covering news and trends about the high-tech channel.

This was first published in November 2011
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