Press "Enter" to skip to content

Opportunities and challenges facing the managed cloud market

Anthony Milovantsev, Managing Director of Altman Solon, explains what managed cloud service providers must do to win and retain customers

The cloud market has seen significant expansion in the last decade, as organisations have sought to embrace new and better ways of operating their businesses. With digital transformation expected to remain high on the agenda for many – particularly in light on the ongoing Covid-19 pandemic – demand for managed cloud providers is set to continue.

Evaluating the future potential of a cloud managed service provider depends on both market growth and unique company capabilities and relationships.

Sales in the public cloud market are split between direct and indirect channels, with sales capabilities varying by provider. Even with direct sales growth and the addition of automated tools by the major cloud providers, the market for resale and value-added services is expanding at a healthy pace.

The managed cloud services space is currently highly fragmented, with service providers covering many niches, from generalist to vertical-specialist and from SMB-focused to enterprise-focused. Each provider brings value-added capabilities to the table, in addition to their resale business.

What customers want
Having so many provider options available creates market competition and increases customer choice. It is therefore critical for cloud service providers to have a firm understanding of the criteria or factors that drive customer acquisition and retention in this environment. These include:

* Price. Customers consistently cite price as a top factor when deciding on a cloud service provider. While there is little differentiation in price between comparable competitors, a company’s relationship with the major cloud platform, as well as volume, can drive material differences in margin, which directly results in price (or internal margin) differentiation.
* Cloud platform. Customers often purchase cloud platforms with particular use cases in mind and require a service provider that can cater to them. The best technologyreseller.co.uk41CLOUDAnthony Milovantsevcase scenario is a ‘one-stop shop’ service provider with multiple certifications that can meet customers’ varied requirements.
* Capabilities. While there is variety between providers, in terms of their breadth of offering, when it comes to most products there is very little differentiation. Generally, business size determines need, with enterprises seeking more specialised, hands-on services and SMBs valuing simple, affordable tools. Tools that optimise purchasing of instances and provide significant savings (and cost controls) have become table stakes, and many companies now seek to differentiate themselves by offering high-margin professional services and DevOps.
* Technical Support. Knowledge, reliability and fast responses from support technicians remain highly valued by customers. Fail to deliver support in a timely manner and customers are likely to seek the services of another provider.
* Geography and reputation. Given the highly fragmented nature of the market, customers may choose to select and stick to providers of reputation in their local area. Cloud providers themselves are likely to refer small to mid-size customers to well regarded, certified partners.

Business risks
Once they have made their choice, it is often the case that customers are reluctant to switch providers, as the risk of downtime outweighs most other potential benefits. Despite sticky customer relationships and a rapidly growing market, there are several risks to the cloud-resale business model that providers need to be aware of:

* Competition: public cloud providers are developing more robust services that might compete with managed service providers, particularly for SMBs and customers in industries with less complex demands.
* Expertise moving in-house: in an effort to reduce cost, more companies are bringing expertise in-house. This is taking place primarily within larger enterprises.
* Commoditisation: value-added services could become commoditised, with constant investment required to stay on-par with the competition.
* Margin compression: Azure and Amazon Web Services margins are stable but low (<10%) due to platform maturity, and while Google Cloud Provider resale margins are higher, they are likely to compress as its ‘land-grab’ subsides. With this in mind, the end state is likely to be relatively unattractive margins on the cloud resale portion of a provider’s product portfolio. Product innovation and product pipeline investment are therefore key.

Despite these risks, the need for managed public cloud will not slow any time soon. This is particularly the case for mid-market customers and those with complex or vertical-specific needs, so opportunity still exists for providers that understand the factors that are most important for driving customer acquisition.

In a highly attractive space with a large variety of players, a standout provider must constantly innovate in order to meet ever changing customer needs and gain a reputation for reliably delivering a stable service. Providers that do this will be in a better position to acquire customers and foster the trust that is key to retaining them.

Please follow and like us:

Be First to Comment

Leave a Reply

TechnologyReseller: 2021