There is fierce debate in the data center industry today regarding the ‘death of the data center’ and what some predict as a mass migration of IT services to the cloud. that spending on cloud computing infrastructure and platforms will grow at a 30% CAGR from 2013 to 2018.
CIOs and their Information Technology teams look to cloud service providers to reduce capital costs and increase scalability of their platforms and applications. Development of the correct cloud strategy for a given enterprise or institution is a complex one and executing on that strategy requires the lengthy process of evaluating your cloud service provider options. While service delivery times, cost, and security (rightfully) receive much attention, an area of cloud computing not often discussed is the financial viability of a cloud service provider.
But for providers of cloud services, and their shareholders, the question is: will we ever make any money from this? So far, all that many of them have done is run up losses. The cloud providers may find it hard to differentiate their services, forcing them to compete on price and thus to expand rapidly to achieve economies of scale. The risk is that they end up somewhat like airlines and mass-market carmakers: chronically afflicted by overcapacity, constantly struggling to achieve a decent margin and perennially hoping that their competitors will keel over first.
Given the rise in cloud computing offerings, the comparison to airlines and mass-market carmakers may prove to be an accurate one. More importantly, it raises an important point that any organization should consider when evaluating cloud services – what happens if your cloud goes out of business? The financial health of a cloud service or colocation services provider should be a component to any organization’s evaluation process when looking to migrate to the cloud. When we assist clients with cloud or colocation service evaluations, we always require a review of financial statements from the cloud service provider being considered.
It may be difficult to imagine a company like Amazon Web Services shutting down for financial reasons. (Remember when no one thought After all, , which showed first quarter revenue grow 50% to $1.57 billion. Their total revenue for the quarter was $22.72 billion, with a net loss of $57 million. Whether you believe this is feasible or not, the need to assess the financial viability of your cloud or colocation services provider is critical and should be a component of your formal cloud services evaluation process.
If you are considering your options when it comes to a cloud service provider, we would be more than happy to help you evaluate your options.