451 Cloud Scape Cloud Heavyweights Eo

Analyzing the Business
of Enterprise IT Innovation

CLOUD HEAVYWEIGHTS
SHAPE THE IAAS LANDSCAPE
Service Providers Are Jockeying for Position in the Nascent Market
The service-provider heavyweights are busy crafting their cloud strategies. How
and where they compete will have less to do with technology and more to do with
their core competence and whether they are motivated to adjust their business
models to address new market conditions.

CLOUDSCAPE
4 FINDINGS 5 IMPLICATIONS 1 BOTTOM LINE
• Our conservative projection is • Managed hosters consider • The cloud market is red hot, and
that revenue generated by IaaS investing in cloud technologies as service providers are lining up
vendors will grow at a CAGR of just a next logical step for them. to get their share. In the highly
69% to reach $3.0bn in 2013. PAGE 13 commoditized IaaS market, where
PAGE 8 and how service providers choose
• IT outsourcers and systems
to compete will be largely driven
• The managed hosting model integrators will leverage their
by economics. Those entering the
most closely lines up with the expertise across the entire
space will have to contend with
emerging IaaS model, meaning technology stack to deliver broad,
Amazon, Savvis, Rackspace, and
that managed hosters have the differentiated cloud offerings.
Terremark – all of which have a
most to gain and the most at risk. PAGE 5
legacy in a commodity business
PAGE 13
• The cloud model will encourage and single-digit operating
• Telecom providers are being telecom providers to offer market- margins. To challenge them,
squeezed at all ends as Amazon differentiating functionality to drive service providers will need to
and Google threaten to steer operational margins. PAGE 14 sacrifice margin – not an attractive
traffic away from their networks, proposition to management or
• IaaS providers should partner
and IT service providers gear up investors. The trajectories of
with professional services firms
for new opportunities. PAGE 14 the large service providers in
because they often influence end
particular will significantly impact
• IT service providers are largely users’ downstream infrastructure
the IaaS landscape, and where
finding the market for stand-alone purchases. PAGE 53
these providers compete will
IaaS financially unattractive.
• With growing competition, the impact the strategies of both
PAGE 17
notion of trust will be a defining rivals in adjacent markets and
factor for success in the IaaS smaller vendors.
space. PAGE 53

AUGUST 2010
THE 451 GROUP: CLOUDSCAPE
© 2010 THE 451 GROUP, LLC, TIER1 RESEARCH, LLC, AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED.

REPORT SNAPSHOT

TITLE Cloud Heavyweights Shape the IaaS Landscape

ANALYSTS Sean Hackett, Research Director, CloudScape,
The 451 Group
Agatha Poon, Research Manager, Global Cloud Computing,
Tier1 Research

RELEASE DATE August 2010
LENGTH 54 pages

ABOUT THIS REPORT
Service providers are jockeying for position in the still-nascent IaaS market. Where and how
they choose to compete will be largely driven by economics. Those entering the space will be
challenged to compete with Amazon, Savvis, Rackspace, and Terremark – all of which have a
legacy in a commodity business and single-digit operating margins.

This report examines the IaaS competitive landscape and its likely evolution, with special
emphasis on the prominent, well-funded service providers that largely dominate the market
for commodity IaaS offerings. The report puts forth a reasoned argument as to how we believe
the IaaS landscape will evolve. It includes profiles of a select number of IaaS providers, which
represent a cross-section of legacy IT outsourcing, hosting and telecom service providers. It also
includes market-sizing analysis for the overall IaaS space, as well as the compute-as-a-service
(CaaS) and storage-as-a-service (StaaS) subsegments.

ABOUT CLOUDSCAPE
CloudScape, the new interdisciplinary research and advisory program from The 451 Group and
Tier1 Research, provides detailed insight, advice and analysis targeting cloud practitioners.

CloudScape draws on the unique expertise of The 451 Group, with its 10-year history of
in-depth analysis of grid, utility and cloud computing, and Tier1 Research, the leading analyst
company covering hosting, Internet infrastructure and IT services.

Insight is delivered via daily commentary, long-format reports, analyst advisory services, events
and webinars.


TABLE OF CONTENTS

ABOUT CLOUDSCAPE 1

SECTION 1: EXECUTIVE SUMMARY 1
1.1 INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 KEY FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 METHODOLOGY . . . . . . . . . . . . . . . . . . . . . . . 4

SECTION 2: MARKET OVERVIEW AND SIZING 5
2.1 THE OUTSOURCED SERVICES MARKET IN CONTEXT . . . . . . . . . 5
2.1.1 Market Overview: Disruptive Innovation . . . . . . . . . . . . 5

SECTION 3: IAAS MARKET SIZING AND DEFINITIONS 7
3.1 MARKET DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 7
3.1.1 Compute as a Service . . . . . . . . . . . . . . . . . . 7
3.1.2 Storage as a Service . . . . . . . . . . . . . . . . . . 7
3.2 MARKET SIZING BY SEGMENT . . . . . . . . . . . . . . . . . . 8
Figure 1: Aggregate IaaS Revenue ($M) . . . . . . . . . . . . . . 8
3.2.1 CaaS . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 2: CaaS Revenue ($M). . . . . . . . . . . . . . . . . . 9
3.2.2 Storage-as-a-Service . . . . . . . . . . . . . . . . . .10
Figure 3: Total Cloud Storage Revenue ($M) . . . . . . . . . . . . .10
3.2.3 Stand-Alone Cloud Storage . . . . . . . . . . . . . . . .10
Figure 4: Stand-Alone Cloud Storage Revenue ($M) . . . . . . . . . .10
3.2.4 Platform-Attached Storage . . . . . . . . . . . . . . . . 11
Figure 5: Platform-Attached Storage Revenue ($M) . . . . . . . . . . 11

SECTION 4: COMPETITIVE LANDSCAPE 12
4.1 MANAGED HOSTING PROVIDERS . . . . . . . . . . . . . . . . 13
4.2 TELECOM SERVICE PROVIDERS . . . . . . . . . . . . . . . . . 14
4.3 IT SERVICE PROVIDERS . . . . . . . . . . . . . . . . . . . . 17

CLOUD HEAVYWEIGHTS SHAPE THE IAAS LANDSCAPE

SECTION 5: VENDOR PROFILES 19
5.1 IBM . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.1.1 Overview . . . . . . . . . . . . . . . . . . . . . .19
5.1.2 Cloud Vision . . . . . . . . . . . . . . . . . . . . .19
5.1.3 Cloud Services Portfolio . . . . . . . . . . . . . . . . .21
5.1.4 SWOT Analysis . . . . . . . . . . . . . . . . . . . .22
5.2 RACKSPACE . . . . . . . . . . . . . . . . . . . . . . . . . 23
5.2.1 Company Overview . . . . . . . . . . . . . . . . . . .23
5.2.2 Cloud Vision . . . . . . . . . . . . . . . . . . . . .23
Figure 7: Rackspace Cloud Portfolio and Geographical Coverage . . . . . .27
5.2.4 Service Roadmap . . . . . . . . . . . . . . . . . . .27
5.2.5 Rackspace in Action . . . . . . . . . . . . . . . . . . .27
5.2.6 SWOT Analysis . . . . . . . . . . . . . . . . . . . .28
5.3 VERIZON BUSINESS . . . . . . . . . . . . . . . . . . . . . . 29
5.3.2 Cloud Vision . . . . . . . . . . . . . . . . . . . . .29
Figure 8: Verizon Business Cloud Portfolio and Geographical Coverage. . . .33
5.3.4 Verizon in Action. . . . . . . . . . . . . . . . . . . .33
5.3.5 SWOT Analysis . . . . . . . . . . . . . . . . . . . .33
5.4 TERREMARK . . . . . . . . . . . . . . . . . . . . . . . . 34
5.4.2 Cloud Vision . . . . . . . . . . . . . . . . . . . . .35
Figure 9: Terremark Cloud Portfolio and Geographical Coverage . . . . . .38
5.4.4 Terremark in Action . . . . . . . . . . . . . . . . . . .38
5.4.5 SWOT Analysis . . . . . . . . . . . . . . . . . . . .39
5.5 AT&T . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
5.5.2 Cloud Vision . . . . . . . . . . . . . . . . . . . . .40
Figure 10: AT&T Cloud Portfolio and Geographical Coverage . . . . . . .43


5.5.4 SWOT Analysis . . . . . . . . . . . . . . . . . . . .43
5.6 AMAZON . . . . . . . . . . . . . . . . . . . . . . . . . . 44
5.6.2 Cloud Vision . . . . . . . . . . . . . . . . . . . . .45
5.6.4 Amazon In Action . . . . . . . . . . . . . . . . . . .47
5.6.5 SWOT Analysis . . . . . . . . . . . . . . . . . . . .48
5.7 SAVVIS AND SOFTLAYER . . . . . . . . . . . . . . . . . . . . 49
5.7.1 Savvis . . . . . . . . . . . . . . . . . . . . . . .49
5.7.2 SoftLayer . . . . . . . . . . . . . . . . . . . . . .50

SECTION 6: SUMMARY AND RECOMMENDATIONS 52
6.1 SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . 52
6.2 RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . 53
6.2.1 Partner with Professional Services Firms . . . . . . . . . . . .53
6.2.2 Develop Rich Partner Ecosystems . . . . . . . . . . . . . .53
6.2.3 Leverage Trusted End-User Relationships . . . . . . . . . . .53
6.2.4 Expand the Developer Community . . . . . . . . . . . . . .53
6.2.5 Capitalize on the Developer Community . . . . . . . . . . . .53
6.2.6 Create a Channel Strategy . . . . . . . . . . . . . . . . .54
6.2.7 Have a Vertical-Focused Cloud Strategy . . . . . . . . . . . .54
6.2.8 Build and Acquire Where Necessary . . . . . . . . . . . . .54

INDEX OF COMPANIES 55

CLOUD HEAVYWEIGHTS SHAPE THE IAAS LANDSCAPE

ABOUT THE 451 GROUP
The 451 Group is a technology analyst company. We publish market
analysis focused on innovation in enterprise IT, and support our clients
through a range of syndicated research and advisory services. Clients
of the company — at vendor, investor, service-provider and end-user
organizations — rely on 451 insights to do business better.

ABOUT TIER1 RESEARCH
Tier1 Research covers consumer, enterprise and carrier IT services,
particularly hosting, colocation, content delivery, Internet services,
software-as-a-service and enterprise services. Tier1’s focus is on the
movement of services to the Internet — what they are, how they are
delivered and where they are going.

© 2010 The 451 Group, Tier1 Research and/or its Affiliates. All Rights Reserved. Reproduc-
tion and distribution of this publication, in whole or in part, in any form without prior written
permission is forbidden. The terms of use regarding distribution, both internally and externally,
shall be governed by the terms laid out in your Service Agreement with The 451 Group, Tier1
Research and/or its Affiliates. The information contained herein has been obtained from sources
believed to be reliable. The 451 Group and Tier1 Research disclaim all warranties as to the accu-
racy, completeness or adequacy of such information. Although The 451 Group and Tier1 Research
may discuss legal issues related to the information technology business, The 451 Group and
Tier1 Research do not provide legal advice or services and their research should not be construed
or used as such. The 451 Group and Tier1 Research shall have no liability for errors, omissions
or inadequacies in the information contained herein or for interpretations thereof. The reader
assumes sole responsibility for the selection of these materials to achieve its intended results. The
opinions expressed herein are subject to change without notice.

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