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I read the latest Daily T1R newsletter sent out by Tier1Research with interest this morning. Basically they were saying that traditional hosting companies need to carefully manage customer relationships and expectations as businesses become more aware of cloud computing.
I’ve talked about how utility pricing is a key advantage of cloud computing architectures. The challenge traditional hosters face is that as customers begin to understand the significant advantages of utility pricing they may seek new hosting vendors.
As an owner of a traditional hosting company I find myself in a tough position. I’ve had to build an infrastructure to service a diverse group of customers with ever changing needs. I know that many customers pay for resources they are not using. I’ve been able to lock in customer relationships for long periods of time using contracts. But customers have come to accept these constraints as part of the cost of doing business. Internet and telecommunications companies have relied on the oversubscription model and service contracts to propel growth for decades.
Now cloud computing is forcing service providers to reevaluate not only technology architectures but business models. At the same time we are dealing with increasingly savy business users that understand the cloud. How do we successfully transition from the old model of hosting to the new? How do we maintain margin much less propel growth in a world where the customer only pays for resources they are consuming?
I think part of the answer lies in the efficiency gains provided by a cloud computing architecture. Service providers will be able to leverage the computing resources of a cloud architecture more efficiently than racks of individual servers. Providers will also be able to provision and manage services more efficiently leading to labor cost savings.
Cloud hosting infrastructures have a number of unique advantages over traditional dedicated infrastructures. One of those advantages, a key part of any cloud infrastructure model, is the utility pricing model. Here’s a key point to understand: the customer always overpays for infrastructure and never underpays when using traditional hosting. Traditional hosters oversubscribe infrastructure such as bandwidth and storage. Customers pay for bandwidth and storage reservations as part of their selected hosting package. They also pay for any overages beyond their infrastructure reservations. In other words, a customer pays for a reserved amount of bandwidth or storage whether or not they are actually using that infrastructure. In the cloud model the customer only pays for the infrastructure they consume. They can scale the infrastructure up or down as the needs dictate. In many cases the infrastructure unit pricing goes down as the customer’s needs scale up.
If someone asked me what I wanted to be when I grew up I would say “SoftLayer!”. I’m impressed by their focus, their open architecture, and their frictionless business processes. SoftLayer probably looks like another me-too Internet hoster to a layperson. But to someone in the business this company is a shining example of how to do-it-right. I own and work at a hosting business and companies like this keep me awake at night — not out of fear, but because they prove what is possible in our industry. And I think everyone needs to identify a business in their industry that they look up to.
I love the fact they provide an open API that customers can leverage to manage their computing resources. Customers can use the API to integrate internal business processes with their service provider’s processes. As service providers become more of an extension of corporate IT’s internal resources these types of APIs will become more critical.
SoftLayer engineers also designed a network architecture which provides both performance and management benefits. They can easily connect multiple dedicated servers using a private internal network. The big benefit of a private network is that customers don’t have to pay for bandwidth consumed by servers talking to one another (i.e., web app server talking to a database server). Hosters like The Planet used to make oodles of cash off of companies that had heavy bandwidth utilization between servers. This kind of bandwidth effectively costs the service provider nothing.
SoftLayer’s frictionless business processes really separate the company from the pack. Take the service ordering process for example. You can go from an online order to a fully provisioned dedicated server in minutes. You can manage that server remotely using KVM-over-IP functionality. Need to reboot the server? No problem. They provide managed power port access. Need to rebuild your server? Again, no problem. You can rebuild your server using one of their server imaging systems.
SoftLayer didn’t invent anything new in the sense that most of these technologies have been around for years. Their success is based on their ability to elegantly bundle these technologies in a way that can be fully managed by their customers. The company recently announced a partnership with Citrix to build a cloud computing infrastructure. I plan to follow this new effort very closely.
Every day a new vendor or service provider touts their new cloud computing technology and strategy. But what is cloud computing? It is quickly becoming one of those catch phrases which hosting marketing groups morph into every product pitch.
The origins of cloud computing stem from grid computing. You generally find grid computing in academic institutions and research laboratories. You’ve probably read articles about schools that build supercomputers using hundreds of off-the-shelf desktop machines. They use grid computing architectures and technologies to tie all those computers together. Think Borg. You can’t install Windows XP on this sort of massive cluster. These types of systems only support custom applications that are designed to take advantage of the distributed computing architecture.
Cloud computing incorporates the horizontal scalability of grid computing and packages it into a service that is delivered from a datacenter. The idea is that you can install your applications in a datacenter computing environment with little regard to the underlying infrastructure. Your applications live in the cloud. Cloud computing environments generally utilize virtual servers, networked storage, and significant software automation. Amazon’s EC2 is a good example of a modern cloud computing strategy. Their hosting service allows users to load applications on virtual servers and then scale those virtual servers — even across datacenters — to meet increased performance requirements. Google’s App Engine is another example of a cloud computing strategy. Do users really know where their applications live within Google’s infrastructure? No. And it doesn’t really matter. Google’s massively distributed infrastructure ensures that applications survive and thrive within the cloud.
The biggest challenge with cloud computing is that the specialized architecture requires specialized application development. It requires re-engineering time that most businesses don’t want to invest in. Many of Amazon’s bigger EC2 customers are companies that have strategically focused their application development on Amazon’s platform.
I believe that cloud computing will one day replace common hosting services such as shared websites, virtual private servers, and dedicated servers. But it will take a few more years before we see a standardized platform that both hosting providers and businesses can support.
