Centralized Computing - Control vs Stickiness?

An interesting question is sometimes raised when discussing Utility Computing providers and ASP providers – how much control should a company give up when selecting a provider?  How much is any “stickiness” actually in the customer’s interest versus only being in the provider’s interest?

 

Well, one thing that has to be borne in mind is that there are distinct stratifications in the centralized datacenter approach:

 

1 = Application Service Providers.  These companies have developed multi-tenant web applications that reside in their datacenters.  They make just these applications available to their customers.  The majority of companies in this arena provide horizontal applications (e.g. Customer Relationship Management) across all industries, or else provide industry specific applications (e.g. Hotel Property Management Systems).  These are ASP providers of proprietary applications.

 

2 = Remote Desktop/Software Rental providers.  These companies provide hosted subscription based software and this can include (for example) the full Microsoft Windows desktop and Office applications (or other industry standard applications that can be made available in a similar manner).  This is a different distribution method compared to the buy it, install it and manage/maintain it all yourself model.  These are ASP providers of commodity corporate software (think of this as off-premise, subscription based, Managed Services).

 

3 = Utility Computing providers.  These companies provide server-based computing power to customers.  The pricing models vary, often according to the underlying technology used in the delivery (Sun vs Linux vs Windows servers).  Essentially companies have resources allocated to them for their centralized dedicated server needs priced per GB or memory allocated and GB of storage allocated (longer term centralized model that outsources the server hardware and underlying management of it) or they can pay for the computations and data transfer that they actually use (outsourcing the raw computing power so that they do not have to purchase assets to meet their peak needs, but can optimize the assets purchased to meet a lower level of average usage).  These are providers of Utility Computing.

 

How “sticky” are these different flavors of centralized solution?

 

1 = These can be very sticky and the customer has little control, unless they are in a very competitive space with a data model built on open standards like XML.  The applications are mostly proprietary.  The data is really what the customer owns.  There is often a high cost of exit for the customer – must find a new provider, ensure that the new provider’s application can be customized to map the data across, workflow and business process must often be altered (often radically), the data must be migrated and the new application must be adopted effectively by the people using it.  The applications must also remain highly available in a way that works for the customers using them.

 

2 =  Not at all sticky and the customer retains the control that they need.  At its most elemental this approach provides a virtual LAN/Wan environment for the customer – perfect for small and medium size business, especially where there are multiple locations.  Microsoft Windows desktops (so standard they are a commodity) run remotely on the datacenter servers, the server applications already owned by the customer  are all installed in the datacenter and additional ones can be rented where available on a subscription basis.  The applications can be provided in this manner by many different providers, the customer is paying per user per month and can scale up and down as they need, the helpdesk, management and security is often provided within the fixed monthly price per user.  The data is all owned by the customer and it is a simple and small project to move to another provider for these services.

 

3 = Not at all sticky and the customer retains the control that they need.  Centralized server resources for your applications or outsourced processing power.  Customers have these made available to their organization on a location independent basis with much more redundancy and stability than they wish to invest in and manage themselves.  Low switching cost here, much like the previous flavor the only cost is finding a good provider and then managing the project to switch to them.  Frankly the inconvenience of switching is tiny when compared to the benefits offered (like switching banks – it is never convenient to do, but it does not really cost you in a significant out-of-pocket way – hence why the term “utility” is used).