The cloud services market is at a crossroads. After a period of extensive and explosive growth in cloud services, the stakes are high. The past decade has been a good one for the cloud services market, but one of the things I hear more frequently than ever before from those in the industry is that, over the next year or two, we may be looking at a big change. A lot of very smart people believe that those in this space are going to have to make some bets, and are going to have to provide service at a whole new level. When cloud services are normalized on the way to commoditization, that’s what it takes for organizations to continue to grow. Some companies will thrive, and some will not.
So what will it take to succeed in this changing market? The first and most important thing to do is to define success for a service provider. The primary difference between service providers and those in internal enterprise IT operations is the link to the business element. As a service provider, when you define success, it’s all about growing revenues. And for those on the technology side, it’s always a good idea to attach yourself to revenue – it helps you be more relevant in your business.
As a service provider, there are a few ways to help grow revenue. The most obvious (but often the hardest) is to attract new customers. That’s why it’s important to think about realizing incremental revenue from existing customers – growing wallet share from the organizations you’re already working with. There are so many options out there for your customers – it’s no guarantee that, as they continue to grow, your share of the wallet will grow with them. You need to ask the question, “How can we retain our existing customers and then support their organic growth?” This is a critical path to revenue that you can’t afford to ignore as a service provider.
Now that we’re identify and pursuing incremental revenue, the next step is to look closely at and protect profit margins. Whether we like it or not, this is an era of declining prices. As much as service providers would like to increase prices as the quality of those services improves, market forces are working furiously against that idea. There’s a need to be competitive from a pricing perspective, or you risk losing out to someone who will undercut you. In order to protect margins, service providers need to identify areas from an operating expense standpoint or infrastructure efficiency standpoint to protect that margin.
Once you’ve identified ways to generate additional revenue and protect your margins, the next thing service providers need to focus on is performance improvement. Almost every service provider has some level of availability service level agreement in place that they’re required to hit, but hitting that SLA doesn’t guarantee you anything. The reality is that customers are going demand everything faster, better and easier. It’s what customers do. And we’ve talked about the increased competition in the cloud services market, so if your performance isn’t improving, you can bank on the fact that your competitor’s is.
Finally, cloud service providers need to understand that every customer is different – they have different visions, different priorities and different expectations. Part of your job as a service provider is understanding those differences, communicating that you understand them, and tailoring your service offering to support those different needs. If you’ve ever heard the phrase, “When you’re a hammer, everything looks like a nail,” you know that can’t be the case with a diverse set of customers. Understanding who your customer is, what their needs are and aligning services to support them (not only now but into the future) is a critical priority.
Unfortunately for all of us, straight-line growth for markets is unsustainable. Cloud services are hitting what might be the peak after a long, long time of sustained success. It’s easy to rest on your laurels and get fat when things are going well for everyone involved, but the service providers that identify and act on these success factors are the ones that will survive and thrive when the market inevitably shifts.
It is now more important than ever for service providers to revisit their cloud and related service offerings and how software tools and systems can help. Used properly these tools will drive revenue, save money, enable new products, and improve performance. Download our Critical Success Factors checklist to increase the probability of your success.