Rising Above the Competition as a Cloud Services Provider:

Transcription

1 Rising Above the Competition as a Cloud Services Provider: Five Effective Steps for Claiming Your Share of the Pie

2 Table of Contents Step 1: Develop unique vertical market expertise Step 2: Rise above the competition with clear positioning and messaging Step 3: Make cloud-based security a priority Step 4: Walk the fine line of pricing pressures Step 5: Leverage relationships with strategic technology vendors Summary About CA Technologies

3 With cloud computing adoption rates soaring, demand for cloud services is creating potentially massive business opportunities for service providers. The reasons why are well documented and, by now, readily accepted by more and more enterprises. Lower CapEx, increased IT agility, improved scalability, easier management, and cost-efficient business continuity are some of the most relevant drivers. Although for many organizations, it s simply a more costefficient and flexible way to deliver services to business stakeholders. Perhaps even more important in many cases these days, cloud computing helps resource-strapped IT organizations cope with the tug-of-war between increased business demand for IT services and downsized staffs and budgets. Of course, for service providers, there s a reality check that may temper a lot of irrational exuberance shaping business plans for cloud service provider (CSP) start-ups and expansion plans for existing providers. As has always been the case in fast-evolving technology market segments, cloud computing has attracted legions of competitors to deliver those services, creating a competitive landscape marked by brutal pricing battles, tightening profit margins and confused customers and prospects. Although an accurate census of CSPs is nearly impossible due to the traditionally high mortality rates of IT services companies, it s estimated that thousands maybe even tens of thousands of companies are offering some form of cloud services to businesses and consumers alike. 3

4 There are more and more players moving into the cloud services market, which raises the noise level and tends to confuse customers, pointed out Jeff Kaplan, managing director of THINKstrategies, a consulting and research firm focused upon IT services. That puts a lot of pressure on service providers to demonstrate a real track record, with areas of proficiency and clear success stories. In fact, unlike more developed IT services segments such as value-added resellers and managed services providers, cloud services are being delivered not only by relatively small market specialists, but also by some of the largest household names in the global economy, such as Apple and Amazon. Not only that, but larger technology companies such as IBM, HP and CA Technologies, in addition to well-entrenched IT hosting companies such as Rackspace, have both substantial financial resources and established customer relationships to draw upon. That means for the vast majority of CSPs that fall below the billion-dollar revenue threshold, there is a need to chart strategic paths to success in order to avoid being crushed by well-heeled mega-competitors and to fulfill their business potential. The good news is that this rapidly growing and fast-developing market segment already is spawning a number of best practices for survival and success to help CSPs achieve their goals and serve their customers. 4

5 Step 1: Develop unique vertical market expertise The good news is that more than 70% of CSPs already have some vertical-market specialization, according to a recent survey of service providers registered with SearchCloud- Computing.com. This means that customers of those service providers most likely will be dealing with an organization that understands many of the unique business processes of their industries, from workflow and industry trends to sales channels and compliance mandates. Although, what about the other nearly 30% of CSPs that have yet to develop a vertical market specialization? The implications are significant, and potentially daunting. Without developing industry expertise, CSPs will have a difficult time even being invited to make a presentation for the business, let alone actually have a track on winning the deal. It will severely limit the kinds of engagements they will have a chance to win to price-sensitive capacity provision or providing meat-and-potatoes applications services such as productivity suites or foundation-level security like antivirus. Even more important is that industry knowledge ultimately will help the CSP keep its own costs under control, such as being able to cut down on deployment time. Bringing new users up to speed as quickly as possible, with little strain on already-strained internal IT resources, is a lot easier for CSPs with detailed knowledge of that industry. Also, compliance an increasingly major challenge for organizations often comes with industry-specific mandates, such as Payment Card Industry (PCI) standards for retail. Deep knowledge of 5

6 retail, in that case, not only would make it easier for companies to prepare for annual PCI compliance audits, but also would go a long way toward ensuring that the organization was in a stronger compliance situation at any point throughout the year. Compliance is a big area where service providers have to demonstrate real competence, said Jason Carolan, chief technology officer at Denver-based CSP ViaWest. Even for relatively small businesses, compliance is becoming more prominent, and cloud service providers have to understand the regulatory requirements for their customers industries. A compliance standard like PCI for retail is actually becoming more stable, but in industries like healthcare and education, there are always a lot of changes and updates. As organizations place more emphasis on aligning IT resources with strategic business objectives, knowledge of a particular industry s processes and business rules makes it easier to deploy and deliver IT services, reduce operating costs and deliver tangible return on investment. CSPs looking to develop a unique vertical market knowledge need to start by analyzing customer demand in that segment; there are scores of information sources available that track IT services consumption trends in different vertical markets, although often the best information comes simply by talking to companies in that industry. It s also important to take care in evaluating the 6

7 appropriate technology use cases for the vertical target, in order to ensure tight alignment between customer requirements and the service provider s technology expertise. Step 2: Rise above the competition with clear positioning and messaging It s axiomatic fast-growing markets attract scores of competitors, particularly in segments with relatively low incremental capital investments like cloud services. So if your company is like the vast majority of CSPs, chances are you often find yourself up against a lot of other companies for the same business. How well you differentiate your company and your services may be the most important thing you can do in order to win more business. Lead-generation programs are a must, of course. But simply putting together a direct-mail piece or designing an HTML-based electronic newsletter won t do much if you don t understand the most fundamental tenet of positioning know what you do best, and how you do it better than the competition. Don t just rely on your own gut feel to get a sense of your competitive differentiator, even though your own staff will likely have good insights into why you win business and why you are passed over. Some form of market research with customers is an important step, and you don t necessarily have to spend large sums of money to find out what they think. If you have a good, accurate 7

8 contact database, you can easily conduct solid, quantifiable research for as little as $1,000. But you also can do it for nothing by just asking your customers for their candid assessment of why they selected you, and where they thought your competitors may have a stronger story. Of course, it s important that your positioning and messaging be rooted in something other than low-cost storage or delivering commodity software in the cloud. Whether your company s expertise is in industry knowledge, technical skills, faster deployment or high service levels, you must ask yourself three simple questions about your messaging: 1. Is what you re saying relevant to the customer? 2. Is it unique? 3. Is it credible? If you can t answer yes to all three of these filtering questions, you probably don t have a solid foundation for unique positioning and a clear value proposition. Finally, keep in mind the special needs of different job functions within the organizations of your customers and prospects. Findings from the SearchCloudComputing.com survey indicated that 69% of the respondents say IT decisionmakers are the most-supportive function for CSPs selling efforts, followed by 28% indicating line-of-business 8

9 executives were most supportive and just three percent naming finance and legal departments. Furthermore, it s crucial for CSPs to prepare for the growing influence of finance executives in the sales process, due to what can best be called the economic inevitability of cloud. Be sure to adapt your sales and marketing approaches so they resonate with financial executives or risk the consequences of avoiding an increasingly influential audience. Step 3: Make cloud-based security a priority Security concerns have always been at the top of any IT professional s list of things that keep them up at night, and it s no different with cloud computing. So, it should come as no surprise that CSPs view security as the number-one challenge they feel they must surmount in order to make customers and prospects more comfortable about adopting cloud computing. Whether a CSP is building and operating a public or private cloud, much of the problem is still one of customer perception, rather than actual security risk. Experts agree that CSPs have learned a lot about providing services in a safe, secure environment, often coming from managed services background where they learned security best practices. But CSPs need to keep in mind that all the investments they ve made in security and in providing customers with peace of mind about secure services will come crashing down like a tsunami following the first instance of identity theft, malware or lost data. 9

10 In fact, a recent study by the Computing Industry Technology Association (CompTIA), which represents the interests of IT services organizations including CSPs, pointed out a key data point that highlights the need for continued reinforcement of the notion that CSPs are taking every step possible to ensure full security. According to the CompTIA study, 38% of end-user organizations are concerned about malicious activity from insiders and privileged administrators at cloud service providers. Despite the fact that the study also noted that just 29% of those surveyed said they engage in a meaningful review of their CSP s security practices, it doesn t mean they aren t highly concerned about security at CSPs. A few requirements for CSPs: Be current on your security credentials. Make sure your staff attends and takes seriously vendor training programs and gets the proper certifications from both vendors and third-party organizations like CompTIA. Stay current with services from vendors and associations that monitor threats and identify new problem areas. Also, be sure to stay current with evolving security standards. You have to watch the standards because they will guide you on how to keep your customers safe and confident, said Kevin Crowe, director of cloud services at Long View 10

11 Systems, a Calgary-based CSP. You need to apply some rigor to this area, because there are a lot of standards coming together in a lot of areas, both technical and business processes. Take time to properly orient your customers employees about security best practices from a user perspective. Remember that even a user-induced security breach ultimately will cost your firm time, money and brand reputation. Step 4: Walk the fine line of pricing pressures Needless to say, the last thing a CSP should be doing is positioning itself as a supplier of low-cost infrastructure capacity or application hosting. That is a battle where 99% of CSPs will slog uphill in competing with bigger, wellheeled, brand name suppliers...and be destined to lose. As much as small, agile CSPs may want to think that their size is a virtue in competing with the big boys, that s only true if that small CSP has a unique advantage, either in terms of market knowledge, service portfolio or technical expertise. Small size may mean lower operating costs, but it also means a much, much smaller margin for error that is hard to withstand aggressive price cuts from bigger competitors. Of course, all CSPs face the reality that price does matter, even for premium services and in-depth industry knowledge. (Remember the earlier point about the inevitable ascendency by financial executives in the decision-making 11

12 process.) Every CSP must find their sweet spot when it comes to pricing, and more often than not, it s going to have to come at least to some degree from value-added services that normally carry a healthy pricing premium. If your organization is well versed in helping healthcare firms manage the tricky transition to electronic medical records, your services will be in demand especially if you can show how the cloud model allows them to lower operating costs and capital expenditures. If you re competing with another CSP for a healthcare client s business, you can support somewhat lower-than-normal margins if your pricing already has accounted for high-value services. That is particularly applicable if those services actually spawn demand for other cloud services, such as storage virtualization, server consolidation or security practices such as identity management. For instance, some CSPs have expanded their revenues and profitably by offering incentives to customers in order to expand their managed applications portfolio or deploy new services like virtualized desktops. Those incentives could be discounted rates, which can more easily be absorbed by the lower cost of sales or lower incremental support costs on a per-user basis. Or, the incentive could be extending the annual technical support agreement by three months, or even improving SLA terms. 12

13 Also, consider the idea of charging a reduced, but still meaningful, fee for proof-of-concept demonstrations. If the customer buys off on the concept, you can credit the customer s payment toward the cost of the initial cloudbased deployment of production systems. It s important that customers and prospects understand there is a considerable value in your intellectual property and cloud experience, so don t be too quick to give that away for free in hopes of attracting new business. Step 5: Leverage relationships with strategic technology vendors Of course, technology vendors supply the critical building blocks for cloud infrastructure and enable the delivery of cloud-based services for CSPs. But they provide many other essential benefits to CSPs, such as technical support, customer service and sales/marketing resources ranging from lead-generation programs to dedicated sales engineers. Strategic-thinking CSPs look to key vendors to help enable the delivery of cloud services in ways that when done properly can reduce CSPs operating expenses and increase the likelihood of customer satisfaction. However, there are a few key rules to follow to help CSPs get the most from their relationships with technology suppliers. 13

14 First, place your bet on a manageable number of suppliers whose products form the basis of your cloud services delivery infrastructure. Obviously, suppliers of servers, storage and networking gear literally lay the foundation for cloud computing services. But so do key software suppliers for such products as security, databases, middleware and virtualization hypervisors all essential tools for CSPs looking either to build their own cloud infrastructure or partnering with other service providers to provide a wholeproduct solution to customers. Whether that number is three, eight or 20 will, of course, vary significantly from CSP to CSP, based upon its financial, staff and technical resources available. Another smart step: Look first at wellestablished technology suppliers that already have experience in working with CSPs. No CSP wants to be a vendor s test case. Second, build your tightest relationships with suppliers that have demonstrated track records for service, support, financial staying power, and a commitment to its partner ecosystem. You certainly don t want to be a guinea pig, teaching tech suppliers how to work with CSPs if they haven t done so before, or convince them that contract terms and conditions aren t going to be the same as with their VAR network. Third, spend time with their top product development strategists so you can see their technology roadmap, particularly as it relates to the delivery of your cloud 14

15 services. And finally, ask to meet in person with the people at the supplier responsible for making your organization successful. It may be a dedicated account manager, or a personalized support specialist the job function matters less than the person behind the title. Summary As competition among CSPs continues to intensify, it will become more critical that suppliers understand and adopt smart business practices in order to differentiate and succeed. Failing to understand and deliver on a promise of unique value to the customer will inevitably lead to a no-win scenario of price competition, declining margins and poor customer satisfaction. There s little doubt that, as the cloud computing environment continues to develop and mature, requirements for success will similarly evolve. But the smartest, more resourceful and, ultimately, most successful CSPs will focus first upon business-oriented best practices in order to stand out from the crowd and deliver the economic benefits customers are looking for in cloud computing. While this will put short-term pressure on nearly all service providers to hone their business models while continuing to invest in technical skills and new services, those that take a longterm view toward these business investments will be the ones most likely to reap the benefits of higher sales, increased profits and enhanced customer relationships. 15

16 About CA Technologies CA Technologies (NASDAQ: CA) is an IT management software and solutions company with expertise across all IT environments from mainframe and distributed, to virtual and cloud. For more than 30 years, the majority of the Global Fortune 500 relies on CA Technologies to manage evolving IT ecosystems. CA recognizes that enterprises and managed service providers (MSPs) are facing a major shift in IT as cloud computing innovation drives quicker and more efficient delivery of business services. To help companies get to the cloud fast, CA Technologies offers a unique, revolutionary, application-centric approach with CA AppLogic, its turnkey cloud computing platform. CA AppLogic provides the ability for service providers to bring new, differentiated solutions to new markets fast, and to do so in an efficient and cost-effective, scalable manner. Visit ca.com/marginwithcloud for more details. 16