The State of Cloud Services

cloud computing

cloud computing (Photo credit: kei51)

My clients ask me all of the time how they can make money at cloud services. The fact is, for small carriers, there are a few opportunities, but the industry still has a way to go to be ready for prime time for small carriers as a revenue opportunity.

I say this because my average client only has a handful of business customers who can really benefit from using cloud services, and so the small volume they might be able to sell to them does not look like a profitable product line.

What is available today?

First, there is a very robust market in providing data storage and back-up of data. But there is only money to be made in this from business customers because residential customers can get mountains of free web storage if they look around. It’s possible for a residential customer to easily store a terabit or more of data for free.

But businesses don’t want to, and probably should not use cheap or free web storage. There are already horror stories of web storage services that have shut down and that have left people without access to the data they have stored in the cloud. So a business needs to store their data where they know they will always have access to it. This probably means storing it with a vendor that has multiple data centers so that there is a duplicate backup copy of everything to avoid the issue of natural disaster.

And it’s not hard for a small carrier to get into this business themselves and to store some data in their own central office. And if their customers want a second back-up copy there are a number of reputable data centers around the country that are owned by other small carriers and that seem pretty secure and safe. There is even a little money to be made to be the middle man and in sending all of the data to somebody else for your customers.

The other thing that is widely available today as a cloud service is IP Centrex. There are a number of national companies that will sell this service to anybody that has a fast enough data connection.

But one of the catches to this service is that these nationwide sellers do not offer phone numbers everywhere. This means that when they go to sell in rural areas they probably do not have the ability to do number porting to let the customers keep their local numbers. This is a big deal for businesses. We have always assumed that the nationwide sellers work through some other nationwide CLEC to terminate traffic, and those CLECS, like a Level3 have gained the ability to do number portability in RBOC areas, but for the most part they do not have those agreements in place for the rural areas.

But number portability aside, it is possible for anybody to resell the IP Centrex services. If you are competing in a neighboring larger town you could offer these services in the cloud as a reseller of one of the nationwide carriers. The margins are not nearly as good as if you offered this on your own switch, but they are okay.

Finally, the real promise of cloud services is that it could offer the software a business uses everywhere on any device. These are huge advantages to large companies having this ability and many of them have migrated their software to the cloud. But they have done so with a lot of effort. Most companies operate a unique set of programs. While a business may use the standard nationwide software like Microsoft Office or Quickbooks, most companies also run a number of unique and homegrown programs. The real challenge for a company that wants to take its software to the cloud is not getting the big name software to the cloud – because most of that software now has the option of cloud licenses. The issue is in moving all of the home-grown and one-off software that a company uses. As I mentioned yesterday, many companies still operate some PCs with Windows XP. It’s not as automatic to move older legacy systems to the cloud as you would hope and it takes some effort and trial and error to get some things to work in a cloud environment.

And there is no profitable product out there yet for the small carrier who wants to offer cloud software to customers. There are bits and pieces, but no easy platform that just lets you sweep your business customers into the cloud. This is probably coming, but it is not here yet.

So in summary, other than data storage and IP Centrex, there are not a lot of viable, money-making ways for a small provider to make money yet on cloud services. But I think the day when you can is fast approaching. There are bits and pieces already available for offering cloud-based software and the options are growing all of the time.

Data Back-up

There is a tremendous amount of free on-line storage available today. Just last week Flickr began offering their customers a free terabyte of storage. There is also a thriving new industry of data centers that are offering deals for businesses to back up their data on-line for affordable prices. So you might suppose that there is not much of an opportunity to provide off-sight storage for your customers. As attractive as some of the on-line storage prices are they don’t shut you out of this business. I have a number of customers who are making money by providing storage for customers. So let’s look at how they are doing it.

First, you have to recognize that there is an ever-increasing need to back-up data, including from many businesses that would surprise you. There are a number of businesses that are now creating mountains of data. And with the impending creation of the Internet of Things the need for storage is going to continue to grow.

Storage is getting cheap and customers will certainly keep a copy of their data on site. But no storage device is foolproof and there is always the risk of storage device failure, fire, flood or other damage to local storage. So the smart business will also store their data somewhere off-site.

While there are many web-based companies that will store data, you will find that many customers would prefer to store their data with somebody they know and trust. When they send their data out into the cloud they really don’t know where it is going and what is being done with it. And there is always the chance that the company that stores their data will fold and the data will be lost someday.

So the number one sales pitch to make with data back-up is that your customer already knows and trusts you. You can show them your central office or headend if they want to see it. Data centers spend a lot of effort showing customer that their data is very secure, but the chances are that your existing central office is already secure enough for most customers. There is also less of a chance of data being hacked in your central office, simply because hackers aren’t looking at you as a target.

Another advantage of storing data locally is that the data is on-net between you and your customer. This means that you are going to be able to stream their data quickly to them in case of a recovery much faster than is going to happen over the open web. You have a direct connection to your customer, which is something nobody else can claim, and if large amounts of data are going to be exchanged this is a significant advantage. If the worst happens and they lose all of their local data, you can have them up and running again very quickly if you back up both their content and operating software.

There are a number of options on how to store data for your customers. First, you can just host a second version of the same servers they have at their business. This allows them to always have a mirror back-up of everything they are doing. Customers who want to do this are the best candidates for local storage because they are going to want to be able to occasionally visit the servers in your office. In this scenario it is typical for the customer to pay for the server.

But you can also get more efficient and put multiple customers into one large server or series of servers to save money on hardware and software at your end. In this case you can provide a mirror image of their own server, but to do so on a server that you share among multiple customers.

The last option is to store just their data and not their operating systems. Companies that generate a lot of data will often do this and will even store data at more than one location.

And you don’t necessarily have to do all of the sales for this business line, you can partner with local IT firms to jointly offer this product and let them do the sales for you.

One new way to sell local storage is to combine it with a security service. More and more homes and businesses are installing cameras. These cameras now can be reviewed remotely and a customer can check in back home on their cellphone. You can enhance this product by recording and storing the video images from the cameras which lets customers get a physical image of intruders or other anomalies at their home or business.

Managed LAN Service

local area network

local area network (Photo credit: benschke)

If you serve business customers you should consider offering managed LAN service. This is a service where you manage your customer’s LANs for them. The service has been around for years and was often provided by local IT companies. But as LECs, CLECs and cable companies have become more data-centric and are delivering Ethernet to businesses, the line between wireline provider and IT provider has blurred.

Customers want managed LAN for a number of reasons:

  • Eliminates staff and costs. With managed LAN a business would no longer need a dedicated IT person on staff. Before my own business went virtual we had a staff of about 15 in our office and we needed a full-time IT person to support us. This was an expensive overhead that I finally avoided by going virtual, but that many businesses still incur. Some businesses have solved this by hiring part-time IT help, but that is still more expensive than a managed LAN service.
  • Saves on Investment. The servers and software to support a LAN are costly. In our industry we are already familiar with helping customers made decisions about buying PBXs versus lines and this is the same sort of decision for a business.
  • Takes Away from the Core Focus. Businesses should focus on what they do best and not become IT shops.
  • Trusted Vendor. Many businesses prefer to work with somebody they know and trust. There are numerous online data centers and vendors promoting things like Managed LAN and IP Centrex, but most businesses will not trust their data and communications needs to an anonymous company in the cloud. Many businesses also prefer their data being stored somewhere locally and not in a faraway state.

The decision to offer Managed LAN Service should be driven by your philosophy as a carrier. I have talked in other blogs about the choice that you have to either be a dumb pipe provider or a full service provider. If you want to be a full-service provider, then helping your business customers with their data needs is probably a better long-term strategy than helping them with their voice needs. Many businesses are now totally reliant upon their data and as a full-service provider you can assure them that their data is secure, stored redundantly and accessible where and how they need it.

There are several ways that you can offer the service:

  • Operate the Customer’s LAN Remotely. This is the traditional model that has been used by local IT shops. Normally the customer is still expected to own the equipment and software and the service provider just takes care of the LAN remotely. The problem with this approach is that the customer doesn’t save money on equipment, and you are going to have to visit the customer’s location from time to time, adding to your cost, and the price you must charge. One option is for you to own the LAN, but that still has you buying one device for one customer which is not any more cost efficient than the customer buying it directly.
  • Put the LAN in your Hub. The most competitive scenario is for you to put the needed LAN in your own central office or headend. This allows you to buy servers and storage devices that can serve multiple customers, thus allowing for a savings on hardware and software. It also allows you to run all of your managed LAN customers with the same underlying hardware and software, making it easier to operate and troubleshoot. And if you are also the one supplying the data pipe to the business you control the customer’s data from end to end.
  • Outsource to a Data Center. If you only have a few businesses that want this service, or if you don’t have the expertise to do this, you can buy these services on a wholesale basis. There are numerous data centers around the country that offer these services and you can repackage this and still make a profit.

Selling Managed LAN opens up the door for a host of other services. A very popular service is redundant data back-up, and you will need to establish a second storage hub or else work with a data center to back up data you store at your location. You will also find that businesses that use you for Managed LAN will look to you for all of their IT advice and will ask for your help to buy and repair computers, implement custom solutions like transparent LAN or video conferencing, etc. So this business line will create an opportunity to sell your technician time on an hourly basis.

The main advantage of this business line for both you and your customers is that you can provide them with a unified solution to all of their data needs. If they use you for Ethernet and voice and somebody else to manage their LAN then they are not getting the ideal data network with seamless integration of voice and data. We always talk about customer stickiness in the industry and I think this is the best ‘stickiness’ product you can offer.

So, You Want to Get Into the Data Center Business?

Data Center

Today’s guest blogger is Mike Fox. He was one of the founders of CCG and we still work together on a number of projects. He is working today for Fox Management Advisors.

Cloud computing, business disaster recovery and continuity, off-site data storage, co-location, managed services, mirror site operations, data warehousing ….. what does it all mean, and, more importantly, how can you get some of this business?

On the surface, data centers are closely related to telco operations – high capital costs, spiky investment, technology driven, and (hopefully) good long-term investments.  Furthermore, telephone companies are natural partners (or owners) of data center operations due to the requirement for robust (and redundant) bandwidth connectivity (preferably fiber based).  Site security is also a critical factor; something telcos are well acquainted with and can naturally support.  However, given the fast-moving nature of both businesses (telecommunications and data centers), there are several key aspects that must be considered.

Location, Location, Location

As with real estate, one of the most critical factors when considering whether or not to invest in or build a data center is location.  In addition to other issues, location impacts costs (e.g., power costs – which are one of the primary cost elements), vulnerability to natural and man-made disasters, access to qualified technical personnel and your sales opportunities.  Some of the key location-based factors include, but are not limited to:

  • Cost and availability of real estate – is there sufficient open space for expansion
  • “Green” attributes – availability of green power and other low sulfur emission power sources
  • Cheap and abundant power from multiple sources
  • Climate – e.g., climate can affect HVAC cooling costs and design
  • Available education resources – colleges, universities and technical training
  • Access to redundant sources of broadband facilities – especially fiber optics
  • Local/State income tax rates – including any ‘incentives’ available for tech-based companies

Locating a data center near or in conjunction with a telephone company can be advantageous from the perspective of securing an anchor client (telcos house and store a lot of data), proximity to superior broadband connectivity, and access to technical expertise (e.g., it is not too far of a leap for telco IP technicians to be trained to be able to handle many of the technical needs of a data center).

Access to sufficiently trained technical personnel is very important.  While telco technicians have many of the same skill sets necessary to meet the needs of data center operations, it is likely that you will need more highly trained and certified employees than are necessary for traditional telco operations.  Therefore, locating close to colleges, universities and technical training centers, while not a requirement, can be a great advantage.  That said, I am personally aware of several data center operations that are several hundred miles from such educational facilities.  These operations were able to attract very qualified people due to their unique location – e.g., sometimes people would prefer to NOT live in the big city!

Not being located in the ‘big city’ is also positive from the perspective of site vulnerability.  Assuming you have sufficient broadband and power availability (again, redundant feeds, if possible), then locating in rural areas is very attractive for companies wishing to house their data in secure locations with very low risk profiles from both man-made (e.g., terrorism) and natural (e.g., hurricanes) disasters.  Coincidentally, most rural telcos are NOT in high risk areas; particularly with respect to terrorism and other man-made disasters.

The cost of power is also very location dependent.  In many rural states (e.g., Wyoming, where I reside), the cost of power is below the national average (often way below).  For example, the cost of power in Wyoming is consistently below $0.04 / Kwh (again, depending upon the exact location), which is less than half the national average of over $0.11 / Kwh.  Furthermore, availability of power is a location-based factor – is your location subject to issues such as rolling brownouts, which are common in some of our country’s more populated locations?

Know Your Business; Know Your Market

Like many technology-based businesses, the data center business is rapidly evolving.  What might have been a great business model a year ago, may have no legs today.  Rates, services, packages, bundles and even target customers are changing daily.  However, there is no doubt that in one form or another data storage, remote site availability, business disaster recovery and ‘cloud computing’ (the meaning of which is also evolving daily) will be viable products for years to come.  The key is to know where to start and how to focus effectively to meet your customers’ needs for many years to come.  It’s not necessarily ‘rocket science’ but it’s also not child’s play.  As such, we are prepared to assist with the evaluation of these and many other similar opportunities and, if it looks positive, help you launch or expand existing data center operations.