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Cloud startups: Differentiate, don't compete with cloud giants

Cloud startups shouldn't compete with large, incumbent cloud players; newcomers should focus on complimentary and differentiated services.

The cloud market is maturing, and many different types of providers -- including telecommunication and hosting providers -- want a piece of the pie. But opening up a portfolio of successful cloud services doesn't happen overnight.

Cloud startups new to the cloud market may find competing with Amazon and Rackspace daunting. But aspiring cloud providers and newcomers shouldn’t focus on competing with these incumbent players.

In 2013, smaller service providers and cloud startups can differentiate by gearing cloud services to particular vertical industries.

"On the surface, smaller [cloud] providers won't be able to compete with the likes of Amazon, and they shouldn't even try. They should be working on providing complimentary, or differentiated value that attracts a different kind of customer," said James Staten, vice president and principal analyst for Cambridge, Mass.-based Forrester Research Inc.

Cloud startups: As market matures, so will your customers

Many cloud providers have offered bundled or "cloud-in-a-box" offerings as a way to quickly attract customers with promises of ease of use and quick deployments. But customers are becoming mature enough to choose what they need for their own cloud environment, said Bernino Lind, chief operating officer of CloudSigma, a Swiss Infrastructure as a Service provider.

As customers gain confidence in their cloud knowledge, more are beginning to go it alone by selecting and buying their own services and capabilities, Forrester's Staten said.

CloudSigma, which has offered cloud services for three years, has differentiated its services by "unbundling resources" and allowing its customers to select and buy CPU, RAM, storage, bandwidth and networking resources based only on their particular needs, Lind said.

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Business needs vary across industries, and customers are appreciating the flexibility and cost savings associated with unbundled resources. "If a customer comes to us to move big data into the cloud, they don't really want CPU, but they will need a lot of RAM, and we can charge them accordingly," he said.

But cloud market literacy is not high enough among the majority of customers to make them comfortable with making their own buying decisions, said Tom Nolle, president of CIMI Corp. "Unfortunately, [cloud providers] will not find many buyers who know what to do. Customers still like bundles and larger cloud players that they can point to confidently in case something doesn't work," he said. "[Cloud providers] still have to lead the buyer."

But CloudSigma's Lind said customers were asking for bundled cloud services two years ago, but the market has changed.

"We are seeing [customers] now asking more technical questions, and they have a better idea of what they want. This shows us that the customer is maturing along with the market," CloudSigma's Lind said.

Selecting your target audience

Once customers begin piecing together their own cloud strategy, it's important for cloud providers to recognize what tools and services their customers need. "It's really dangerous for [cloud providers] to make assumptions on what their customers need and what they aren't interested in," Staten said. "Providers will spend a lot less money setting up one service, than putting 20 other services in place."

In addition to selecting the right services, choosing a vertical market could be a great strategy for smaller providers. To start, providers should focus on their current install base and meeting their needs as specifically as possible, Staten said.

"Cloud providers should play the customer intimacy game. … If a provider knows the health care market cold, than a health care cloud could absolutely be a differentiator," he said.

And while the larger cloud providers may have a broader geographic reach, they may not have a geographic-specific reach. "A large provider might choose not to put a data center in a certain area, and if you are a hosting provider in that area, it's perfect for customers who want a local provider. That's where a small provider's value may lie."

Let us know what you think about the story; email Gina Narcisi, news writer and follow @GeeNarcisi on Twitter.

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