In-Depth

Reaching for the Cloud

As hosting providers are squeezed, could Microsoft cloud services offer a safe haven?

• By Jeffrey Schwartz
• June 01, 2010

When Microsoft CEO Steve Ballmer made his "we're all in" the cloud proclamation back in March, he wasn't just aiming at the largest of enterprises. Microsoft wants its small and midsize customers to start shifting their IT functions to the cloud as well.

To reach small to midsize businesses (SMBs), Microsoft is embarking on an effort to enable its channel partners -- those who typically sell traditional software such as Microsoft Exchange, SharePoint and SQL Server bundled with servers, storage and networking infrastructure -- to offer those and other solutions as cloud-based hosted services.

At the same time, Microsoft is looking to align with traditional hosting partners whose conventional services are under siege now that companies such as Amazon.com Inc., Google Inc. and Facebook are offering free hosting services.

"The hosted business model is becoming dated," says Antonio Piraino, vice president and research director at Tier1Research, a division of the research firm The 451 Group, based in New York. "Hosters have to start thinking about new business models and determine where they want their core strengths to lie."

Microsoft is trying to convince hosting providers that advances and customer interest in cloud services can help reshape their businesses. For Microsoft, hosters offer another route to market that could bring in not just customers but other solutions providers who don't want to build their own datacenters.

To build that ecosystem, Microsoft is pushing forward to hosters its Dynamic Data Center portfolio, which consists of Windows Server 2008 R2 Datacenter Edition with the most recent version of its Hyper-V virtualization stack and the Microsoft System Center platform.

The company promoted that agenda at its annual Microsoft Hosting Summit 2010 in Bellevue, Wash., in late April, where it showcased two hosting providers that have used the company's new Dynamic Data Center Toolkit for Hosting Providers. Based on a set of architectural best practices including sample code and templates, as well as go-to-market collateral, the toolkit allows hosters to transition their datacenters into cloud hosting facilities that not only let them offer customers compute, storage and network capacity on a scale-out basis, but also extend business continuity and disaster recovery services.

More Love for Hosters
Until recently, Microsoft had neglected hosting partners, acknowledged Bob Muglia, president of the company's Server and Tools business, speaking in a keynote address at the summit.

"We have not done -- as a company -- as good a job of providing you software that was designed to run in your environment, and thus you've had to do a lot of make-work to adapt it to work," Muglia told attendees.

With new tools including Windows PowerShell and the Dynamic Data Center Toolkit, Muglia said hosting partners are now better equipped to deliver cloud-based datacenter offerings to customers. Directions on Microsoft analyst and RCP columnist Paul DeGroot said it behooves Microsoft to step up its focus on hosting partners.

"I remain convinced that partners can do this in greater volume and with more energy than Microsoft does and that creating great tools for hosting partners will be more valuable to Microsoft in the long run than doing hosting itself," DeGroot says.

During the keynote, Muglia argued that the current versions of Windows Server and Hyper-V are becoming better suited for hosters looking to build multi-tenant architectures that allow them to run virtual machines (VMs) for multiple customers on a common set of hardware or clusters.

"Our software historically has not been built to be multi-tenant," Muglia said. "It's not been designed to run in that shared environment. We're going to change that. I mean, everything has got to change. Everything has to be designed to be multi-tenant. Sure, there will be dedicated cases where this isn't important, but the software has got to be designed to be multi-tenant."

How exactly is Microsoft going to change that? Among the deliverables toward that end in the coming months will be Microsoft AppFabric, a set of components designed to add security, scale and connectivity services in the cloud that Muglia said will be able to take the resources of ultimately tens of thousands of VMs and treat them as a common platform to provide application services.

AppFabric is currently available for testing for developers; Microsoft is testing it internally and is releasing it into its Windows Azure and SQL Azure cloud services. "Over time, we want to be able to continue that staging, so we can provide the same set of services on a much more consistent delivery mechanism to our enterprise customers and to our hosting partners," Muglia said.

Will Hosters Buy In?
While hosting providers are aware they need to come up with new business models, they also are not convinced Windows Azure is going to be their ticket to reversing their declining fortunes. "Azure is seen with beady eyes to the hosters, because they believe it's going to compete with them the same way they view Hosted Exchange and online services," Piraino says.

John Zanni, general manager of worldwide hosting for the Microsoft communications sector said in an interview that hosting providers can sell their own services using Windows Azure. "A hoster or an ISV can essentially buy the capacity and compute power from us. They put an application on it and then they sell that service at a cost and we have no direct connection with the end customer," Zanni said.

While many hosters are still taking a wait-and-see approach, there are some hosting providers that are re-inventing themselves. Microsoft showcased two of them that have bought into its thinking. One is Fasthosts Internet Ltd., a U.K.-based hosting provider, which last month launched its first datacenter in the United States intended to deliver an infrastructure-as-a-service offering called Rise.

The other is nGenX Corp., which launched its Guardian GeoCloud, a set of managed services offerings aimed at letting VARs and customers run their business applications in its datacenter. The company's new managed services are configured on virtualized systems available with business continuity and disaster recovery options.

Zanni said hosting partners and VARs need to be looking at shifting to the cloud-based model of delivering datacenter services, where he said customers are willing to pay for premium services.

"There's a transformation happening to those who offer traditional hosting businesses like domain services or shared hosting or unmanaged dedicated services, which used to be or is to some extent still a profitable business," Zanni said. "There's a lot of price pressure at the low end. Over time, [it] will be very difficult to make money [in that business], especially with new competitors coming into the market like Facebook, where you can build a Web site essentially for free."

Overland Park, Kan.-based nGenX plans to roll out its Guardian GeoCloud suite of services next quarter. Guardian GeoCloud lets customers or VARs provision services using the company's control panel that lets a solutions provider or customer spin up capacity on demand. The control panel will allow for the provisioning of such variables as processor speed, storage and network bandwidth, which can be made available to customers within seconds, according to nGenX.

To build this new cloud-based platform, which in many ways has the attributes of Microsoft's public Windows Azure service, nGenX used the Microsoft Dynamic Data Center Toolkit, says Robert Bye, the company's executive vice president. Microsoft also brought nGenX together with NetApp Inc. Microsoft and NetApp co-developed code for NetApp SANs and storage appliances to perform synchronous replication. Furthermore, nGenX is incorporating the new Microsoft Live Migration feature on Hyper-V. The interface was developed using a control from control panel vendor EMS-Cortex Ltd., a Gold Certified Partner.

NGenX owns five datacenters connected with Ethernet fiber running more than 30,000 route miles from Norlight Inc., a sister company. "GeoCloud is a virtual private server with near real-time failover and fallback," Bye said in an interview. Initially, nGenX had developed the service using servers running VMware's hypervisor but despite its superior features over Microsoft HyperV, Bye said it required too much manual intervention and it was a more costly solution.

"There are more features in VMware but the way we view it, as in any disruptive technology, you go with what's good enough and at the right price point," Bye said. "The performance of Hyper-V is good enough. Microsoft is putting a ton of research and development dollars into Hyper-V. I think that the supply is ahead of the demand when it comes to VMware, at least in the services provider space."

Bye said nGenX is not de-provisioning the VMware instances, which are running on a pool of 1,000 servers, but the company will not invest more in it, either. "It will be a cap and grow strategy," he said. "We're not going to trade it off for those customers that are using it today. But as we add new customers, it will be on Hyper-V, and then we still have access to VMware, for those customers who require it for whatever reason."

The service officially went live in April and it will be fully functional next quarter, Bye said. The company plans to add 1,000 VMs by year's end. The service is targeted at companies with about 500 employees, Bye said. In addition, nGenX has begun its outreach to potential channel partners, who will be able to white-label Guardian GeoCloud as their own service. Bye said there are some pending partner deals in the works, though he declined to identify any.

"We're doing a real deep dive to make sure that everything is fully baked," Bye said "Over the course of the next several months we're going to be reaching out to VARs both locally in the Midwest and in other regions as well. Our target is really those Microsoft partners that are certified and have competency in Microsoft."

Customers and partners can choose from a variety of services starting out at the low end with Exchange and SharePoint hosting. The next level offering will be called Guardian Data Store, an online backup and recovery service aimed at SMBs. The company also offers co-location in its datacenters for those customers with various non-Microsoft systems such as an IBM AS/400 or Oracle system, or anything else that doesn't fit in a virtualized environment, Bye said.

The next step up is the managed server where nGenX manages the hardware and the Windows Server in a virtual environment. And the company also offers a service it calls Office Anywhere, its thin-client offering based on Citrix Systems XenApp 6.0. Office Anywhere gives a thin-client desktop that runs Office, Exchange and line-of-business apps.

Bye said he considered virtual desktop infrastructure (VDI) but wasn't sold on it. "We tested VDI but we don't think it's ready for the services provider market," Bye said. "It's probably a good solution in the enterprise for specific uses but for our customers it's not a good fit."

British Invasion
Unlike nGenX, Fasthosts is starting from scratch in the United States though it has served the U.K. market since 1999. Fasthosts has operated over the past decade as a conventional provider of Web hosting services, which include low-margin domain-name registration. It now has 700,000 Web sites running in two datacenters in the United Kingdom where 50 percent of its business comes directly from customers and the rest from its network of channel partners.

Andrew Burton, Fasthosts' CEO, said in an interview he felt it was necessary to transition his business model as a result of the commoditization of Web hosting. In the interview, Burton said the rise of social networks has brought a keener awareness to customers of how cloud-centric services can enable them to rethink the way they deploy IT.

"What the cloud has done is it levels our playing field. Now SMBs can come in and compete on cloud technology alongside of enterprises because they're only paying for the infrastructure that they need but they get all the advantages of the technology they want, and they can have it to the level they want it on-demand," Burton explained. "It has changed just on the fact that the technology is an enabler in its own right but it's also changing the supply model."

Based on those conclusions, Fasthosts has been shifting its business model to deliver cloud infrastructure through channel partners to SMB customers -- those with up to 1,000 employees.

Indeed, Piraino said Fasthosts and nGenX are embarking on business models that all hosters should be considering. "There are very few forward-looking and innovative hosters that are thinking that way right now," Piraino said. "The vast majority are not yet comfortable with that model. The systems integrators are [comfortable with it]; they don't need to own the software. But for the vast majority of hosters, they're not quite sure where their value is, and if they all continue to offer standardized models, they will become commoditized pretty quickly. They all have to start thinking about how they add value going forward."