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Building targeted cloud services with software developers as partners

Prospective cloud providers increasingly face a fundamental dilemma -- where to target their cloud services on the value stack.

The 10,000-foot description of the problem goes like this: Low-level cloud services like Infrastructure as a Service

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(IaaS) are relatively easy to deploy and can be sold to small, midsize and large businesses across many industries. The downside is that IaaS has low profit margins because customers are only outsourcing infrastructure, and the service is difficult to differentiate. Higher up the cloud food chain, Software as a Service (SaaS) offers providers the best profit margins because business customers outsource higher-cost applications. But most operators don't want to get into the software development business, and many don't want to sell software services because of their lack of expertise.

One way to solve the cloud market-entry dilemma is for providers to work with software developers proactively to create a set of SaaS services for retail use, with cloud operators providing either IaaS or Platform as a Service (PaaS) to developers on a wholesale basis. This can be a win-win for both parties, but putting together a program to make it work is yet another challenge -- and the onus will be on the service provider to do the heavy lifting.

Where to start developing your cloud business model

Cloud providers should establish their business models based on the market they want to target rather than the technology available, then frame their infrastructure choices to support the market plan. Even though SaaS retail sales won't necessarily be a core mission for the cloud operator in this scenario, it is important to understand the opportunity in order to pick the right developer partners and frame the developer program correctly.

More on cloud services business opportunities

Making it work: Top cloud services for enterprises

Top 10 ways to create SaaS business opportunities

The next big thing: PaaS comes of age

In analyzing the market, it's important for providers to understand that SaaS is most often sold to SMBs based on vertical markets like accounting or healthcare or software tools that run their businesses. For SMBs, software developers should have expertise and a software offering in a target vertical market in the cloud provider's service area. Ideally, the developer will have a systems integration practice in place with customers in the desired vertical.

SaaS for large enterprises is usually based on horizontal market skills that target a specific function like customer relationship management (CRM). For this model, developers should have an application that fits easily into an enterprise without requiring major changes or integration. CRM was an early target for SaaS because it didn't collide with other in-house enterprise applications.

Luckily, government data can offer providers a good idea of what kinds of businesses are located in their geographies, which will facilitate targeting SMBs. For enterprises, the challenge of using census or other data in targeting a market is that the data may not differentiate between a company's physical presence in an area like a branch office or a procurement presence, where cloud service purchasing decisions can be made. The key to success in the enterprise space is to have company headquarters' sites within the service area. That data may be available from both government and private sources like the Chamber of Commerce.

Continued: Learn how to structure a SaaS development partnership.

About the author:
Tom Nolle is president of CIMI Corp., a strategic consulting firm specializing in telecom and data communications since 1982. He is the publisher of Netwatcher, a journal addressing advanced telecom strategy issues.

This was first published in January 2013

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