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Technology v support: Amazon's premium challenge

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In order to compete in the public cloud with the Amazon juggernaut, rivals like Rackspace and Alcatel-Lucent are turning to value-added services to try to turn commoditised cloud computing into premium offerings.

It's unclear whether this will work. Once customers get habituated to "low cost and more than good enough", it's hard to convince them to pay more, particularly when Amazon Web Services has come to be the default public cloud option.

The stakes are high enough, however, that Amazon's competitors aren't about to shirk the fight.

That's the distinct impression I had when talking with Rackspace chief technology officer John Engates recently. Engates made it clear that his company's commitment to "fanatical support" is just as relevant in the cloud age as in yesterday's hosting market, and will continue to win Rackspace customers against Amazon's more impersonal approach.

Not that Rackspace is resting on its support laurels, either. The company also recently announced the launch of Rackspace Cloud: Private Edition to offer many of the benefits of its public cloud offering behind enterprise firewalls for risk-averse CIOs. Built using the popular OpenStack cloud "operating system", this Private Edition product, along with additional tools like Cloudkick, is designed to take the guesswork out of using the cloud.

Which should, in theory, translate into revenue for Rackspace.

It's a reasonable theory, one that has paid dividends over the course of Rackspace's history, even as other hosting companies were commoditised out of existence.

Less promising, however, is Alcatel-Lucent's approach. As outlined in a recent Wired story:

Coach may be fine for your digital vacation memories, the argument goes, but enterprise applications need the performance, security, and guarantees of the telco carriers. In short, the carriers say, turn to us for business-class cloud services.

Nice theory, but it's unlikely to prove true.

This was roughly the same idea that Iron Mountain had when it introduced its digital business just a few years ago; Iron Mountain tucked its digital tail between its legs and sold the business to Autonomy, however, because it didn't make enough money. Sure, some execution missteps contributed to the failure of its digital business, but the real failure was the concept itself.

Iron Mountain Digital believed that customers would pay non-commodity prices for a commodity service (digital document storage) that was available in a wide variety of places for free or nearly so. They didn't, and eventually Iron Mountain's biggest sale was of the business itself.

Amazon is the default for public cloud computing. There is little to no room for a big business in building a "premium Amazon" when the whole purpose behind the public cloud is to lower costs and increase IT agility, neither of which is well-served by Alcatel-Lucent's premium approach.

Of the two approaches – premium technology versus premium support – introduced by Alcatel-Lucent and Rackspace, only Rackspace's seems credible, provided that the premium paid is minimal. Amazon has set the price for the industry, one that will only go down over time. Setting the price much above Amazon's rates is going to be a struggle, one that only Rackspace has demonstrated it can command. ®

Matt Asay is senior vice president of business development at Nodeable, offering systems management for managing and analyzing cloud-based data. He was formerly SVP of biz dev at HTML5 start-up Strobe and chief operating officer of Ubuntu commercial operation Canonical. With more than a decade spent in open source, Asay served as Alfresco's general manager for the Americas and vice president of business development, and he helped put Novell on its open source track. Asay is an emeritus board member of the Open Source Initiative (OSI). His column, Open...and Shut, appears three times a week on The Register.

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