Pop quiz. Stop what you’re doing. Think about your computing capabilities ten years ago. Heck, how about five years ago?
How does the infrastructure you had back then stack up against your current setup? What did your capital expenses look like? How about your networking capabilities, or the speed at which your network performed? Consider the software, the patching, the updates, the speed at which applications ran. What did your hardware footprint look like? How do your storage ability, the IT staff you employed, performance issues and downtime compare to today?
Sorry we made you think (our heads hurt, too, when we do it), but sometimes it’s important to stop and compare where you were then with where you are now. We do it, and when one realizes just how much has changed – seemingly overnight, but not really – it staggers the mind. It’s certainly changed the way people do business. How did we get here, in 2016, to where the word “infrastructure” has undergone such a paradigm shift that we no longer think of it as something sitting on our premises?
MSPs know it better than anyone else. Sure, a lot of companies have recognized the value of Cloud-based infrastructure as they watched the localized IT footprint come and go, but there are many organizations that still haven’t seen the flashing lights (or to be more accurate, they do see the flashing lights because the lights still reside in a server room somewhere on premises). But hosting and service providers, it can be argued, have been affected more than anyone else when it comes to future data center trends. And all reports indicate that the future is now.
From CapEx to OpEx
Structure Research’s report entitled “Shifting Capital Requirements: Capex to Opex – How and why is capital deployment changing in infrastructure services?” concludes that hosts and service providers are moving from CapEx to OpEx-based models, and this is where providers need to focus if current data center trends continue.
We all know the internet infrastructure services sector is a capital-intensive business. To wax understatement, data centers are not cheap, and while some companies have adopted leasing models, they still represent onerous capital expenditures. With the rapid evolution of technology, owning an infrastructure footprint has become a harsh and unacceptable reality for many businesses that simply don’t want to incur the costs associated with regular upgrades, replacement, and depreciation. And that doesn’t take into account planning for growth and anticipating capacity, both of which give CFOs fits, for good reason.
We said earlier that future data center trends are here now. While that may seem like a paradoxical statement, the fact is that ten years ago, no one could have imagined that behemoths like Amazon, Microsoft, and Google could take on the infrastructure problem and provide it as a service. At the time, having a computing department meant you had boxes you could touch, a room (or warehouse) to put them in, software to run on them, and people to maintain and fix them. Structure Research points out that “the world of infrastructure services – in its formative years – has been like this because few if any providers were able to achieve meaningful levels of scale.” Now that the aforementioned behemoths have been around for a while, providing Cloud infrastructure and SaaS, they’ve reached a critical mass that will be difficult for anyone else to match.
It’s Not About Size
It’s not even about size anymore. While scale does translate into lower prices, companies are more incentivized by improved time to market, global scope and reach, and the opportunity to attain critical mass with their customer base and partners. And that’s where hosting providers enter the discussion. Cloud infrastructure providers are having a difficult time traversing the side streets when the unique kinds of innovation offered by the big three are drawing organizations to the Cloud via the Amazon/Google/Microsoft freeway.
In fact, the prognosis is dire. We’re seeing a shift that’s rapidly accelerating, and hosted multi-tenant Clouds are becoming an endangered species, and the hosts may not be the only casualties of a rapidly-changing landscape.
So, What’s a Hosting Provider to Do?
How can you meet data center trends head-on? Structure Research suggests hosts and service providers need to move from CapEx to OpEx-based models – and the good news is that many of you already are. By doing so, you can relieve yourself of the infrastructure burden as you move to the massive-scale platforms offered by the big three.
The net result is the freeing-up of more resources; resources that can drive innovation and “add value through the development of new products and services.” Effectively, the creation of a better user experience – including the improvement of customer service and support, along with consulting and the provision of managed services – is where you need to shift your focus if you haven’t already. Providers, the study says, “must build value on top of raw infrastructure and in the process, innovate and create differentiators.”
How can you transition towards OpEx from CapEx:
- Get out of the business of building data centers and adopt a leasing model
- Maximize existing infrastructure to focus on revenue-generating products
- Build value by reselling massive-scale Cloud services
- White label and resell hosting and Cloud infrastructure
- Enable direct connections to allocate capital resources more efficiently
As you shift from a CapEx to OpEx-centric model, you’ll reduce data center spending and more of your infrastructure will run on third-party Clouds. Structure Research’s rough projections see a 50/50 world by 2030. And while it may not happen this quickly, they point out, the trend is in motion.
Future Data Center Trends Support a Shift to OpEx
So, should you shift from a CapEx to an OpEx-based operating model? There are plenty of good reasons to do so, Structure Research says:
- Margins are thinning and commodity markets are no longer lucrative
- An OpEx model is “pay as you grow”, which means infrastructure procured in an OpEx model is purely success-based
- Data centers do not provide differentiation
- Much faster time-to-market is possible
- Hosting and Cloud is more of a software business
Many hosting providers are recognizing the immense opportunities outlined in the report, and when the focus shifts from providing infrastructure you can reach out and touch to providing a service. Many companies will tell you that the real opportunities lie in service – for example, tailored offerings, better support, and customer-centric focusing, all while providing world-class speeds, scalable architecture, and nonexistent downtime. In essence, you can focus on your business while still providing what customers need, instead of worrying about your capital expenses.
It All Begins with Marketing
It all begins with a spectacular marketing plan, using MSP and VAR channel marketing, and the implementation that follows. A solid marketing strategy, which avoids these marketing strategy mistakes, is an important piece of the business-centric approach. Customers need to be engaged and educated while you make the transition from CapEx to OpEx, so if you’re interested future data center trends, and in learning how we can provide expert help in your move from a CapEx to OpEx model, contact us today.
