Cloud applications of all types have generally been a very good thing for managed service providers (MSPs). As more applications move into the cloud, IT becomes more complex to manage for the average IT organization. Not only are there multiple applications running in multiple data centers, there are also still all those workloads running on premise that aren't going away any time soon.
But the one trend MSPs should take note of is the rate at which many cloud applications are starting to consolidate on Amazon Web Services (AWS). A recent survey of 336 privately-held software-as-a-service (SaaS) application providers published by Pacific Crest Securities, a unit of KeyBanc Capital Markets, finds that 55 percent currently rely on AWS to deliver their applications. The rest rely mainly on their own self-managed servers (33 percent), a third-party (10 percent) or Microsoft Azure (4 percent).
But, 64 percent of the respondents forecast that they expect to be on AWS three years from now — a full 9 percent increase. In contrast, self-managed servers will drop to 21 percent, and third-parties will go down to 6 percent. Microsoft Azure will gain three points to stand at 7 percent.
Those numbers suggest that AWS is only going to get stronger as a center of data gravity in the cloud. Most recently, Amazon reported that AWS generated $3.2 billion in revenue in the third quarter alone.
Impact on managed service providers
The implications of all that growth are profound for MSPs. SaaS application providers are attracted by the cost structure AWS provides, but they also want to make it simpler for customers to access data from within their application. AWS manages all that data in isolation, but if that data resides on the same cloud the latency associated with accessing that data between applications tends to be much lower. That creates a data gravity effect that results in more SaaS application providers wanting to orbit the AWS cloud.
Naturally, Microsoft is aware of this effect, so recruiting SaaS application providers is a major priority for Microsoft. But even when Microsoft does entice an independent software vendor (ISV) to set up shop on the Azure cloud, it doesn’t necessarily follow that the ISV won’t deploy its application on AWS as well. As far as many ISVs are concerned, a public cloud is little more than the digital equivalent of a distribution channel. It may be more cost effective to have only one, but if that cloud provider gets big enough to be able to compete at scale, the potential additional revenue that might be generated by taking on an additional distribution channel might outweigh the costs.
MSPs, of course, need to follow the application workloads because that’s where the money is. AWS is simply too big a force to ignore. Microsoft Azure soon will be too. What's less clear is too what degree other cloud service providers will be able to achieve the same effect. In the meantime, MSPs should plan to allocate their own resources based on where they feel the biggest data gravity tug.
Photo by NASA