There’s an oft-repeated truism that Cloud Computing‘s service providers will always wish to ‘move up the stack’ toward the higher-margin nirvana of the layers above.
In conversation with RightScale CEO Michael Crandell yesterday it would appear that he, at least, sees little need to join this scramble upward.
For those with absolutely no idea what I’m talking about, it’s worth taking a moment to step back and describe this Cloud Computing stack. At its simplest (and this is quite complex and descriptive enough for almost every real-world conversation, thank you very much), the stack can simply be characterised as Applications (or Software), which sit atop Platforms, which sit atop Infrastructure. I have lifted four slides from a recent presentation, to graphically illustrate the stack and to show some of the players found at each layer.
Each layer of the stack is extremely dependent upon the one below, and there is a tendency for the lower levels to be perceived as more of a commodity or utility. As such, pricing tends to be highly competitive and margins on individual transactions are (often) vanishingly small, requiring successful players to operate at scale in order to effectively generate revenue.
Assuming these presumptions to be true, it’s easy to see why those operating at and near the Infrastructure layer might wish to progress upward to a space where there is less direct competition and far more opportunity to charge premium prices.
As Michael and I discussed in our podcast ‘basic’ Infrastructure providers such as Amazon, GoGrid, Rackspace and others are increasingly seeking to enrich their own offerings, adding dashboard and management functionality that was previously the preserve of value-adding third parties such as Michael’s company.
Faced with pricing pressure from direct competitors and potential feature creep from below, it’s certainly easy to believe the truism with which this post began.
Have a listen, though, and hear a rather different view of the space from Michael… who seems perfectly happy where he is in the stack.
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