Over the past 10 years, public cloud, widely known as Infrastructure-as-a-Service (IaaS) has created a profound and fundamental shift in IT thinking and consumption. Today, IaaS is changing still as prices and differentiation both continue to decline. Most analyst project that by the year 2020, more than 50% of all IT applications on the planet will be running on IaaS. Gartner, Inc., the world's leading IT research and advisory company, predicts an increase in utilization of 38.4% in 2016 alone. IaaS is becoming dominated by a handful of enormously large players such as Amazon (AWS), Microsoft Azure, IBM and Google. Managed Service Providers (MSPs) are finding they need to adapt to this change as many are now uncompetitive against the massive economies of scale enjoyed by the leaders.
The Evolution of MSPs In the early days of outsourced hosting, many MSPs bought and operated their own data centers. This was highly capital intensive and required extensive resources. Subsequently, MSPs found a way to reduce costs by "renting" colocation space and managing client environments in their own portion of someone else's data center. Today, MSPs have another compelling option that lets them build a profitable business with few hard assets if any. They are starting to use the infrastructure of others instead of creating and maintaining their own. Turning on the Switch Today, IaaS is changing into an underlying commodity, similar in many ways to electricity, People don't think about how lights turn on – as long as they do. More customers care less about the internal workings of the cloud as long as they receive the core IT benefits they need. These are primarily price, reliability, performance, security, support, and flexibility. The seamless interface between clients and public cloud services has created a layer of abstraction between the infrastructure and its use. IaaS is now so powerful and flexible that it’s become almost transparent. People want what they need, when they need it, at an attractive price. SaaS is a great example of how something so vital can become an after-thought. When was the last time you seriously considered your favorite SaaS application in terms of where and how it's hosted? IaaS is Changing the Landscape for MSPs Like the electric companies, there will continue to be consolidation with public cloud and a constant drive to improve efficiency. The reality is that no MSP owner in their right mind is going to start building global infrastructure any time soon. How could they possibly compete? In fact, big names like HP and Verizon are pulling out altogether, following the lead from others such AT&T, CenturyLink, and Windstream. For many MSPs, the widespread adoption of IaaS coupled with low competitive pricing is resulting in lost business. This trend will likely continue to accelerate further. However, all is not doom and gloom, because along with the risk, this new paradigm also offers great opportunity. The first bit of good news is that IaaS simply isn't built for support. The pricing model assumes everything runs perfectly in self-service mode, but that has proven not to be the case for many. The IaaS "giants" are focused on selling their infrastructure platforms to as many people as possible. It's a volume game and providing high-touch support and managed services doesn't fit the model. Although some IaaS vendors are making attempts to fill the void, it's not their core competency the service and support levels are generally sub-par and over-priced. By detaching the high cost of running infrastructure, MSPs have begun to leverage large public cloud vendors to build and manage client environments. MSPs then layer on customized and cost-effective support and management programs regardless of where the physical infrastructure resides. These services can be offered to almost any client on any platform, and they represent great potential for MSPs who are technically deep and customer-driven. In another scenario, MSPs can still use their existing infrastructure, or even what the client has in-house, and augment it with third-party IaaS to create a myriad of possible solutions. Another opportunity for MSPs is to specialize by industry vertical or application. This has been a long-time trend in the hosting space, but MSPs have found it difficult because they have had to contend with the time, cost and effort that goes into managing the infrastructure layer. One thing is for certain, in this new reality, MSPs can provide significant value far beyond managing servers, networks, and storage. They can also create more profitable revenue streams than they could in the recent past as the price of IaaS has eroded. What it Means for Customers Many end-user clients want and need cost-effective support and access to a variety of services they either can't do themselves or don't want to worry about. Customers now have the best of both worlds. They can get reliable infrastructure at relatively low prices without concerning themselves about the details. Plus, they can now deal with an MSP of their choosing for technical support and additional IT management. The Bottom Line for MSPs In effect, an MSP now has the ability to offer "IT-as-a-Service" with a wider range of options since the infrastructure can easily be taken care of elsewhere. What will increasingly differentiate MSPs will be their technical and domain expertise; the flexibility and value of their service offering, and a focus on supporting and delighting customers. This new model can be a scary proposition, especially for MSPs with significant investments in their own facilities and infrastructure. But for others, it's becoming a time of exciting possibilities!