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Colocation providers need not live in fear that the rise of Amazon Web Services (AWS) in the public cloud will eradicate enterprise demand for their services in the years to come, according to datacentre market watcher Broadgroup.
Speaking at Broadgroup’s 9th annual Finance and Investment Forum for Datacentres, Hosting and Cloud in central London, the analyst house’s cloud partner Daniel Beazer said operators cannot afford to be complacent about the threat AWS poses to their future growth.
“Should we be worried in our industry about a company that has made its stated objective to put us all out of business,” he said, particularly one whose financial results suggest it is banking quarterly revenue in the region of $2.1bn.
The biggest companies in the datacentre space are making around half of that, he said, while the industry – as a whole – is now at risk of disruption at the hands of AWS.
“The majority of people in our industry are doing a lot less [money] than that and growing a lot more slowly. AWS is probably the fastest growing technology company out there. It’s not just a question of numbers, but also a question of recognition,” he continued.
To back this point, Beazer shared anecdotal evidence of how AWS has acquired household name status in the enterprise, prompting some to automatically assume running an application in the Amazon cloud is simply the accepted way for their organisation to go.
“The feeling always was that – as the host – if we own the website, we’ll start to get more of an enterprise’s IT, such as email, and then other enterprise apps, and that kind of hasn’t happened,” he added.
“Then you suddenly have a company come in taking that enterprise business, and it isn’t us – it is someone who made their name selling books online.”
Opportunities in the colocation market
However, while it is less likely that enterprise IT chiefs will be as familiar with the names and offerings of companies operating in the colocation market, that does not necessarily mean the game is up, added Beazer.
“There is a great future for the datacentre and the hosting industry, but only certain people will be in the right place to take advantage. The key question they must ask themselves is, what am I doing that Amazon doesn’t do, and can’t do?”
When it comes to answering that, datacentre operators need to adopt a broad and long-term view, as Amazon’s rate of innovation and responsive customer feedback loops means it can move quickly to close any perceived gaps in the market.
“AWS does 500 new products a year. Your bog standard hosting company is lucky enough to do that in its entire lifetime, and probably does one or two a year, which are likely to be updates,” he said.
“It’s not enough to say you have two datacentres in the UK, because Amazon has an amazingly good customer feedback loop that means if they see a gap in the market, they’ll probably fill it in four months,” he said.
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That aside, there are opportunities to be had in the colocation market around helping support enterprises that have legacy application investments, because of the high cost involved with making them cloud-ready, Beazer continued.
“The cost of rewriting software to run on x86, to run in the cloud and on virtualisation platforms means – for most organisations – it’s much cheaper to leave it running until you need to do a refresh,” he said.
Furthermore, with enterprises looking to do more around big data, it is not uncommon for them to run into difficulties when relying on the public cloud to run analytics projects.
“A top priority for CIOs is running analytics, but it’s extremely difficult to run this on public cloud infrastructure in production because of network restrictions,” he explained. “So, you end up looking for colocation and the capabilities the public cloud can’t offer because it is, by its very nature, shared.”
Pricing in the public cloud
While the price-cutting antics of AWS, Microsoft and Google regularly make headlines, once an enterprise starts moving sizeable chunks of its infrastructure to the public cloud, the costs involved soon mount up, Beazer added.
In some instances, this can put the cost of using a colocation on a par with using public cloud, particularly if datacentre operators are willing to invest in building their own hardware.
“You can get comparable prices by building your own hardware, and there are lots of opportunities where colocation might be the cheaper option to use anyway,” he said.
“Pricing in the public cloud is like a car you lease on holiday where you hire a car for a week for €200 and you think it’s great. But, if you need extras – such as a child seat – the price suddenly doubles. Cloud kind of works on the same principles.
“The compute and storage price [of cloud] might be cheap or close to zero, but there are hidden costs and transfer is a big one. There are many customers out there spending more on bandwidth than they are on cloud storage,” he added.
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