Amazon, Microsoft Web services edge toward direct competition with MSPs

Storage and utility computing services from Amazon might affect pricing, but MSPs aren't worried that it will become a direct competitor for fully managed services.

The line between managed services and Web services has blurred a bit recently. But managed-service providers (MSPs)

said new service offerings from Amazon Inc. and Microsoft Corp. are technically limited enough that they won't compete directly with an MSP, though they might reset assumptions about pricing.

After touting its Live service as a way for consumers and small businesses to rent Microsoft applications by the hour, Microsoft last week pitched the service as one VARs could sell to increase their own revenue.

Amazon's latest Web services, on the other hand, offer customers the opportunity to temporarily tap its storage or computing resources, though they have to do most of the work of connecting and managing the access themselves.

The company's prices are rock-bottom: 15 cents per GB per month for data storage, for instance, compared to the MSP industry's rate of about $10. But Craig Valentine Brenner, CEO of Waltham, Mass.-based New England Data Services, said that's because Amazon is offering a different product

"This is Web services that are being offered, it's not managed services," Brenner said. "We're not going to lose lots of customers to this."

He said that services such as Amazon Elastic Computer Cloud (EC2) and Simple Storage Service (S3) provide developers raw access to the company's resources without the personalized attention that is the core of MSPs' business.

Indeed, the services are primarily targeted at developers, especially smaller-scale developers ranging from "the kid in the dorm room" to small companies, said Adam Selipsky, vice president of product management and developer relations at Amazon Web Services.

Amazon established itself as a Web-scale application over the past 11 years, and its second phase was providing its e-commerce service, which third parties could use to sell their own products. Now, Selipsky said, it's time for phase three.

"We have developer customers who for years have been using our e-commerce service," he said. "They've been coming to us and asking, 'what else can you do for us?'"

According to Whit Andrews, a research vice president at Gartner, MSPs should be able to stay competitive as long as they can stress their added value and adapt a little to Amazon's entry into the basic level of data storage and utility computing.

"You're going to have to be able to think in a lightweight fashion and respond to enterprises who say, 'we're just going to use Amazon,'" he said. "[MSPs] just need to be able to say, 'we know Amazon is there, we know you better than they do, we have [service-oriented architecture-designed software] with you already, [and] we will support them as we move to this lightweight perspective."

Data hosting companies can also focus on the added value they provide, such as data backup and recovery, said Toronto-based Global Data Vaulting president Jeffrey Beallor. He said that although Amazon's cut-rate prices may affect some customers' concept of a fair price, its bare-bones storage is a different service altogether from the fully managed data hosting that companies like GDV provide.

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Selipsky said that some medium and even large companies, including Microsoft and Xerox, are already using the product. But he said that the products' focus, at least for now, is on companies that need resources for their own services, not those in the market for a fully managed data solution. He declined to say whether or not Amazon is planning on expanding into that market in the future.

In fact, rather than competing with MSPs, Amazon's Web Services may complement them.

"An MSP may be able to embrace some of those offerings as a way of offering more services," such as being able to provide managed data hosting without having to itself invest in the hardware infrastructure, Brenner said. "The prices are extremely aggressive. In other words, theirs is a wholesale service being extended to Internet-based companies that wish to incorporate additional services to their offerings."

"It's absolutely what we intend," Selipsky said. "If somebody wants to provide storage to other people, or somebody wants to provide hosting services to other people, S3 is a perfect platform from which to do that."

Some companies may be willing to do that, but Beallor said he would not want his customers' data, which they trust him to keep safe, on somebody else's machine. Gary Gammon, vice president of marketing at Bell Microproducts Inc. in San Jose, Calif., also said he wouldn't use S3 for his data hosting service.

"In the midmarket and enterprise environment I don't really see much competition coming from there for the near term. We still see customers dealing with storage management issues internally and wanting to have the data close to their heart. And they're not willing to risk that," he said. "It makes a lot more sense in the consumer world where you don't have as much of those kinds of issues."

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