In an earlier edition of this blog, I wrote about the spreading commoditization in the cloud market which is particularly raging in the cloud infrastructure market. This development creates a push for smaller cloud infrastructure service providers to differentiate. In this post, I look into some of the alternatives in the offering and partnership space.

Gearshift Group has had the pleasure of participating in the ITEA3 project EASI-CLOUDS, that brought together leading businesses and universities from Europe and Korea to develop cloud brokerage and cloud federation. The multinational consortium examined the business implications of these technologies, and summarized their findings in a report. Can these emerging concepts change the game, or are professional services perhaps the most viable avenue for smaller cloud infrastructure providers?

The professional services opportunity

Conventional wisdom states that if your offering gets commoditized, you should invest in related services. For the cloud infrastructure provider, this would mean expanding professional service offerings, and possibly outsourcing data center activities altogether to larger players. Here, differentiation would build on the intimate knowledge of customers’ processes and business needs.

Indeed, many companies are bombarded with a marketing message that they need to go to the cloud or face becoming antiquated. Sometimes this creates a sense ‘cloud anxiety’, the combined urge to take some action, but not knowing exactly what. This business and IT consulting service opportunity, which at the same time is perhaps the most significant business opportunity in cloud, involves weeding through the latest acronyms and technologies to provide solutions that create value to business.

Cloud brokerage

So, will smaller cloud service providers outsource their data center operations to likes of Amazon and focus on offering cloud-related professional services to survive? The situation is not this back and white after all: Not all organizations are comfortable with the idea of handing their critical data over to large global players. In some cases, law may even prohibit this, for example in the case of medical records. Hence, there is and remains a core need for regional cloud services, that smaller players may seek to focus on.

Beyond retrenching to these regional ‘islands’, cloud brokerage and federation may offer smaller players the opportunity to reach further. By analogy, a cloud broker is similar to a real estate broker: it matches buyers with sellers and takes a commission. The key value of brokerage is however not in the commissions that the brokers collect, but in the more efficient markets they enable.

In the case of smaller cloud service providers, cloud brokerage addresses a key weakness that smaller providers have compared to international giants: willing cloud consumers have difficulty finding them. By being connected to larger markets, smaller cloud providers could more easily sell their excess capacity to improve utilization rates, and to obtain new (regional) capacity from markets during peaks. While it is unclear how cloud brokerage will affect the life of smaller cloud providers, there is an abundance of startups that offer technology for cloud brokerage or run brokerage sites. To add to this, many more traditional IT service companies are doing cloud brokerage without automated means alongside their cloud deployment projects.

Cloud federation

Cloud federation is a similar concept to brokerage, but it is more similar to an airline alliance than a real estate broker: From the customer’s perspective, the members of the alliance (or federation) ‘pool’ together their resources, but still maintain their independence in the customer-facing relationships. For example, if you buy a ticket from Finnair to San Francisco, you will get to your destination on a ‘Finnair flight’, which is partially ‘operated by’ another airline in the same alliance.

Cloud federation is clearly less well known than cloud brokerage, and there is more ambiguity about what is actually meant by the term. Regardless, there is already at least one commercial cloud federation in operation. The federation is glued together by OnApp’s cloud orchestration platform, which enables users of the platform to federate their resources. This has resulted in one of the largest content delivery networks on the Internet. Furthermore, large players are experimenting with federation, and the approach may be viable ‘privately’ inside corporations.


When faced with the dynamics of a volume business, offering professional services to navigate the cloud jungle may provide smaller cloud service providers a lifeline to differentiate. These firms can also seek to gain more out of their data center resources through brokerage and federation. However, brokerage and federation are not merely means to improve utilization rates to fight direct cost competition.

These approaches can also help customers to find synergistic resources. For example, an internationally expanding health care startup may be interested in finding cloud service providers in their target markets to keep their customer’s data close to their customers. This is a service that a cloud federation that focuses on the healthcare vertical would be able to easily offer – and charge a premium for it. So while it seems that some kind of a shakeout is inevitable, there are also opportunities to find new directions for existing businesses.