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Rackspace (RAX) announced the hiring of Andy Schroepfer today as its new VP of Strategy. Many people are familiar with Andy’s analyst work in the telecommunications and hosting space over the years. I got to know Andy several years ago when my young startup hosting company was selected to host the Tier1Research website. And this summer I had the opportunity to work closely with Andy fine tuning some of the strategic initiatives at VISI. Congrats to a great guy from Minnesota!
Full disclosure: I am a Rackspace shareholder.
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.
