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Growing multi-cloud demand means providers must diversify to survive, warns 451 Research

Two reports from analyst house 451 Research suggest cloud providers must consider adding support for competing services to their portfolios in order to survive in the hybrid, multi-cloud era.

Cloud service providers will need to widen their product portfolios to include offerings from their competitors to ensure their long-term survival, according to a 451 Research report.

With users moving to adopt a multi-cloud approach to service procurement, firms that cannot provide customers with access to their own and third-party offerings may find themselves losing business, the 451 Managed Infrastructure Market Overview 2016 report said.

For this reason, a growing number of service providers should consider repositioning themselves as cloud brokers that can help enterprises negotiate the complex world of multi-cloud management.

“Almost without exception, service providers of all kinds – including the hyperscalers – are now offering access to third-party services as well as their own,” wrote the report’s author, Carl Brooks, who tracks the service provider space at 451 Research.

“They are becoming brokers of cloud services and must, if they want to win, keep and grow customer relationships without the customer needing to go elsewhere.”

It is a strategy that has been steadily gathering pace through 2015 and 2016, with the likes of Rackspace and VMware both launching services geared towards helping enterprises manage Amazon and Microsoft cloud deployments.

A separate 451 Research report, released alongside Brooks’, expands on this theme a little more, and predicts 2017 will see a marked rise in the number of providers seeking to establish themselves as cloud brokers.

In line with this, 451 claims CIOs are starting to employ the “AWS+1” operating principle when designing their cloud strategies to help them avoid lock-in later down the line, as they seek to incorporate services from more than one provider in their business.

“Enterprises are seeking suppliers that can unburden their load and bring expertise in running specific workloads or application tasks, whether it is SaaS, managed applications or hosted business processes,” said 451 Research’s 2017 Trends in Cloud Transformation.

“This is why the majority of the cloud opportunity for providers will be in the delivery of value-added services on top of whatever underlying infrastructure choice they make.”

To this end, service providers will increasingly move throughout 2017 to expand their offerings to include higher-value services, as simply pitching themselves as a provider of cheap, powerful or feature-rich virtual machines will not be enough to win additional market share.

It is also unlikely to give providers much in the way of revenue growth, as the pricing of virtual machines continues to tumble at a faster rate than value-add services such as object storage, bare-metal services and SQL as a service, the report added.

“Higher gross margins from value-added services can compensate for falling virtual prices,” the report said. “In other words, providers should race to the top of integrated, managed services rather than racing to offer the cheapest virtual machines in the market.”