A Place for Cloud Marketplaces: Part Three

September 26, 2013
John Freimuth

Our first post on this topic recognized the lack of industry consensus surrounding the viability of cloud marketplaces, i.e., virtual markets where cloud service providers can offer their wares to customers or even trade among themselves. The follow-on post outlined the rise of cloud brokers who have begun to normalize both the data and resources being provided in order to support a more accurate comparison of pricing and related services.

In the long run, cloud brokers capable of creating and enabling value-added services may not only be “winner take all” in the context of cloud exchanges, but also architecting a way of doing business that ultimately transcends the conventional buyer-seller relationship.

How are Marketplaces Evolving to Achieve Higher Value?

It is hard to imagine how cloud marketplaces would not generate competitive pricing and ultimately benefit buyers through lower costs. Price is consistently at or near the top of the list of decision factors for infrastructure service buyers. Assuming the standard units of consumption are comparable, cloud providers have and always will be forced to compete on price with one another. Also, the standard unit of measure wouldn’t necessarily have to be identical for each cloud provider since the broker could establish that the individual buying unit could be equal to or greater than the defined standards.

Price is certainly not the only decision factor for buyers of cloud services. Brokers generally understand that price and the other core benefits discussed in the previous blogs on this topic are just a starting point. To achieve sustainable business growth and reach the broadest section possible of buyers, brokers must continue to develop their services with higher levels of value add.

Some cloud brokers see the development of both PaaS and SaaS offerings as critical components in providing a more complete and agile delivery of business solutions that focus on applications and the end user experience. Other cloud brokers are teaming up with traditional financial exchanges in order to develop a marketplace that can optimize buy side and supply side economics. This model in particular opens up what promises to be a vigorous debate around the potential for future pricing, particularly as these ventures are increasingly supported by industry leaders from both the technology and financial sectors (Zimory / Deutsche Börse Joint Venture). Adding financial exchanges to the solution offers both an independent and neutral third party, which, in part, was a missing link in the success of the pure federated cloud model. Not to mention the expertise that financial exchanges can offer in developing and maintaining efficient commodity markets in general.

Underlying cloud service providers who offer their services with the growing number of cloud brokers also have an opportunity to demonstrate value to buyers. As more buyers provision services through brokers, the brokers can begin to share data on the quality of services based on historical achievement of SLA service measures. Most cloud provider SLA’s today are based on availability measures of the underlying network, virtual instance or storage layers. Having more transparency of the performance against availability or uptime based SLA’s will create a competitive environment to continuously improve services and could create incentives for cloud providers to expand SLA’s to include for example measures of elasticity and the ability to automatically scale an environment based on transaction volumes or the changing workload needs of applications. The broker model ultimately can support greater transparency by allowing buyers to rate their overall experience with individual cloud providers and share that publicly.

Time will ultimately determine the success of the cloud marketplaces as well as the winners and losers of specific delivery models. The number of cloud service providers teaming up with brokers is growing rapidly and, with the availability of API’s, providers can readily expose their services through marketplaces as an additional sales channel. The question remains: how many and how fast will buyers come?

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