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Ashish Vazirani
ZS Associates
John DeSarbo
ZS Associates
  Jason Bell
  Associate Principal,
  ZS Associates
Kyle Heller
Associate Principal,
ZS Associates
  Alex Southworth
  Associate Principal,
  ZS Associates
Brandon Mills
ZS Associates
Leon Wei
ZS Associates

Five Ways to Mine for Gold in the Cloud

Posted by John DeSarbo on Thu, Apr 18, 2013

gold mineGold was discovered 165 years ago at Sutter’s Mill in Northern California. When most of us think of this momentous event, we picture the iconic image of a grizzly prospector bent over a stream frantically panning for gold. Few of us remember Samuel Brannan, the first millionaire of the California Gold Rush.

Many credit Brannan with launching the gold rush when he walked through the center of San Francisco holding up a vial of gold dust yelling, "Gold! Gold! Gold from the American River!" As thousands of hopeful prospectors scrambled to chase their dreams in the Sierra Nevada goldfields, Brannan famously bought up all the mining supplies in San Francisco and resold them at a handsome profit. There is a lesson in his strategy.While others blindly stampeded after the next big thing, visionaries such as Brannan, Levi Strauss and others calmly assessed the market opportunity, selected profitable business models and offered compelling value propositions to the dreamers.  

The cloud computing boom feels like the California Gold Rush of our times. Gartner recently estimated that the cloud-computing market will grow 18.5% in 2013 to $131 billion. Infrastructure-as-a-service is that market’s fastest growing segment, growing at 42% annually. Not surprisingly, the cloud services marketplace is growing increasingly crowded as players from across the IT industry dive in to get a piece of the action. Every day, advertising bombards us to promote new cloud service offerings from big-name hardware manufacturers, software firms, telecommunication carriers, online retailers, traditional VARs, coloc and hosting providers, pure-play MSPs ... the list goes on. It seems like everyone who has a data center is considering leveraging their assets to offer some flavor of IT-as-a-service delivered via a public, private or hybrid cloud. Unfortunately, IT buyers are having difficulty differentiating between the multitudes of “new” cloud services. Passionate marketing of supposedly unique cloud services is beginning to blur into a cacophony of sameness.

It is clear that infrastructure-as-a-service is rapidly becoming a commodity. We have heard this story before. The cloud services shakeout is coming. When the dust settles, the winners will emerge with either low-price offerings enabled by economies of scale or truly differentiated value-added services that target attractive market niches. Sadly, many of today’s eager cloud service prospectors will fade away, unable to build sustainable businesses in a hypercompetitive market. It is not yet clear who will be the ultimate winners of the cloud-computing boom. What is clear? There will be many losers.

As IT buyers change the way they buy and consume technology, there will be more than one winning business model. Sure, some players will succeed by managing public or private clouds. Others, however, will succeed by enabling the change—either by selling products that power clouds or offering services that facilitate adoption of cloud computing. Every IT firm has a choice to make: Jump into the fray and stake your claim as a cloud provider or offer tools and services to help others build and manage their clouds.  

Some firms will pragmatically cut through the maelstrom of hype swirling around them and choose the right business strategy given their capabilities. Here are five key tips to help you follow suit:

  • Start with your customers. IT decision makers are not only changing what they are buying, but also how they buy and from whom. It is time to reassess how your customers prefer to learn about, shop for, purchase and ultimately consume technology.
  • Reanalyze your value chain. Like any disruptive technology, cloud computing will undoubtedly lead to value chain reinvention. Who are your suppliers and downstream channel partners? Where are the profits being made?
  • Engage your partners. No company in the IT industry competes in a vacuum. How is your partner ecosystem evolving? Is there an opportunity to better use your alliances and channel partners to enable your customers’ journey to the cloud?
  • Redefine the competitive landscape. Yesterday’s competitors may not be your biggest concern tomorrow. What moves are your traditional competitors making? What new competitors are on the horizon?
  • Define your value proposition … and don’t forget sales! It has been said many times that no business is real until a sale is made. Too many companies introduce new offerings without thinking through exactly how the offerings will be sold.

We are living in exciting times. One day soon, we will look back and remember the winners and losers of the cloud-computing gold rush. Will you be one of the masses who foolishly staked their claim on a copycat business strategy or will you be among the select few who had the courage to define their own unique offerings and go-to-market strategy?

Topics: cloud services, John DeSarbo, cloud business models

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