In part one of this series, we mentioned some of the changes taking place in the hosting industry. Analysts predict that managed services, not servers, will drive the majority of revenue for service providers in 2016 and beyond. According to 451 Research*:

  • More than two-thirds of the money spent on hosting and cloud goes to higher-value services and applications, not to raw infrastructure. Only 31% of organizational budget goes to IaaS or hosted infrastructure.
  • Managed infrastructure providers doing hosted private cloud and the added-value, higher-order services on top of it are going to make up a big chunk of revenue.
  • Added-value services can be (and should be, for best value) a mix of human touch/operational support and advances in technology and service delivery.

The bottom line is that managed services represent the best opportunity for service providers to add value and margin.

The role of infrastructure in a changing industry

Infrastructure is going from the lead (in the world of IaaS) to a supporting role. Specifically, when it comes to storage, how does it contribute to your managed services strategy? What should you look for in storage infrastructure to aid in the development of services that add value and margin?

Although storage has typically been slow to innovate, newer all-flash storage arrays have made advances in technology that are drastically improving delivery and quality of the services offered on top of raw infrastructure. Through storage automation advances, the burden on the human touch/operational support side is being lessened too, along with the human errors, to further improve managed service delivery and quality.

Let’s look at how storage can support managed services in their quest to add value and margin to the business, especially on hosted private cloud platforms.

1. How storage can support the creation of added-value services?

First, advances in guaranteeing storage performance (also known as “quality of service” or “QoS”) have enabled service providers to move up the stack and offer application services, like database and ecommerce application management, to enterprise customers more economically and efficiently on flexible cloud infrastructure.

Because storage QoS gives service providers the ability to offer dedicated-style storage performance on a shared storage platform, they are able to offer managed application services for a more affordable price without sacrificing service quality (namely, performance and availability). This expands application management services to a more broad set of customers and to more customer workloads, including mission-critical workloads that require higher levels of stability and predictability, along with the elasticity that traditional hosting doesn’t readily provide.

With QoS, service providers are also able to offer new recurring revenue services to customers to round out their service portfolios, like tiered storage pricing models and storage services with performance-based SLAs (which most providers can’t even offer on traditional dedicated storage). In a managed hosted private cloud, where service level expectations are high, additional SLAs that further ensure service quality can be an important differentiator.

2. How storage can boost margins of managed services?

This gets us to how advances in technology can improve service delivery and management, and in doing so, cut costs to increase margins of managed services. We’ve all seen, and have probably quoted, the IDC stats showing that enterprise IT departments devote ~80% of their time and resources to administrative and maintenance activities, and we’ve used that in our arguments as to why enterprises instead should outsource these tasks to service providers.

Yet, added-value managed services offered by service providers are also time and resource intensive. As such, they can benefit greatly from automation that streamlines the manual tasks, such as performance monitoring and troubleshooting, capacity management and scale, upgrades, and change management.

When service management can be automated and streamlined, the opex cost reduction potential is large. As an example, SolidFire service provider customers are highly automated in their storage operations, using our APIs to integrate with their management tools to enable automation of every aspect of storage provisioning, management, monitoring, and reporting. About 44% of them automate between 51 to 100% of their storage operations, and more than half of our service provider customers save 40% or more of their time on service management tasks such as performance troubleshooting, capacity planning/design, and upgrades in their hosted private cloud services.

This reduction in manual operations tasks translates into a number of tangible business benefits including labor cost savings, accelerated provisioning and scale (or accelerated time to revenue), and faster trouble resolution (or improved customer satisfaction), not to mention reduced human error (or higher, more consistent service quality).

Automation is also beneficial for providing transparency to your private cloud customers and self-service management through storage API integration into your customer-facing management portals.

Thus, while it’s true that it is the services, not the servers (or raw infrastructure), that will drive your revenue opportunities moving forward, it’s important not to underestimate the role of infrastructure in supporting these services, enabling you to get the highest margins out of them and deliver the greatest value and service levels to your customers.

*451 Research, Managed Infrastructure Market Overview 2015, September 2015

Darnell Fatigati