As Carriers Move Out Of Data Center Business, MSPs Move In

Thanks to industry heavyweights such as Amazon and Google, cloud competition is proving too fierce for many large telecommunications providers. Carriers may be moving out of the colocation and hosting business, but that's opening up an opportunity for managed service providers (MSPs) that are offering a combination of cloud infrastructure and professional services for business customers that are hungry for cloud.

Telecoms tried to get into the cloud early by scooping up data center assets. But many of these providers aren't seeing a return on their investments. For example, telecommunications provider Windstream sold its colocation and hosting business in 2015, while CenturyLink announced it's considering the sale of its data center assets.

So, after failing to compete with cloud leaders, some carriers are returning to their roots selling services rather than operate data centers.

[Related: Cloud Exodus: 5 Reasons Carriers Are Bailing Out Of Data Centers]

But some MSPs already realized the futility of trying to compete with cloud giants. There is a vibrant market of private and hybrid cloud solutions for these "boutique" cloud providers that are still hosting these services within their own data center space, according to Scott Kinka, chief technology officer for Evolve IP, a cloud services provider based in Wayne, Pa.

"There's a lot of MSPs out there making waves and selling a ton of cloud infrastructure, but we aren't trying to be something we're not. We are selling a ton of IaaS and we don't even try to compete with Amazon," the leader in public IaaS, Kinka said.

Evolve offers unified communications (UC) and Call Center-as-a-Service solutions to midmarket customers. The Wayne, Pa.-based MSP owns and operates six data centers throughout the U.S. As the business has grown, three of the six data centers were acquired within the last two years, Kinka said.

Business customers are interested in cloud, but their needs vary. For customers looking for pure Infrastructure as a Service, a provider such as Amazon will work. But the market opportunity for MSPs and smaller cloud providers is founded on the basis of a better support experience for the customer, said Andrew Pryfogle, senior vice president of cloud transformation for Intelisys, a Petaluma, Calif.-based master agent that has MSP partners offering data center services within its portfolio of suppliers, as well as carriers and traditional cloud providers.

"A small to mid-sized customer moving its infrastructure to a public cloud like Amazon will have to accept that it is a pure do-it-yourself venture," Pryfogle said. "But they might want to look at a partner that can manage that infrastructure, and who can also manage their private infrastructure, too."

INTEGRATION HELP ALSO NEEDED

Midsized business customers seeking a relationship with a cloud service provider are also often looking for integration help. That immediately eliminates a provider like Amazon from the conversation because the pure-play cloud providers are offering low-touch infrastructure services.

"When you buy pure public cloud like Amazon, you figure it out on your own. You don't ask for advice. But customers who buy cloud from us are not do-it-yourselfers," Kinka said.

Evolve's customers are often moving applications out of their own internal data centers -- legacy apps in which the public cloud won't be a good fit. These customers are looking to buy from a provider that will be available to help with migration and take customer support calls, Kinka said.

"No one could compare Evolve IP to Amazon, and that's fine. It's just a different level of service. Most of the servers in our data centers are supporting back offices, CRMs, and [Microsoft] Exchange servers."

There are plenty of MSPs in the market offering cloud hosting and colocation services similar to Evolve's, Intelisys' Pryfogle said. The reasons why the opportunity around cloud infrastructure services are opening up for MSPs are the same reason why carriers are moving in a different direction.

Telecoms have found themselves in a difficult position, Evolve's Kinka said. Unlike a company like Amazon, a telecom provider like Verizon or AT&T doesn't have the luxury to be as disconnected from its customers. At the same time, carriers that already invested in cloud infrastructure weren't sure if they should also pursue investing in a cloud consultancy business model.

"There's a kind of trap that carriers fell into in between MSPs who do a lot of consultancy and professional services in addition to cloud infrastructure services, and the big low-touch cloud companies on the other side," he said.

Carriers are now realizing that they're never going to outspend cloud providers like Amazon and Google, which don't have to worry about cultivating relationships with their end customers. Hence, the newly formed sweet spot in the market for MSPs like Evolve that can focus on high-touch, professional services, Kinka said.

MSPs like Evolve are positioning these services as a complement or alternative to an AWS or Microsoft cloud strategy," Intelisys' Pryfogle said.

"The promise of public cloud is fantastic and will always have a place, but there are lot of workloads that don't belong in the public cloud and require a lot more handholding that what a company can expect to get from an Amazon or a Google," he said.