These past few weeks I have been rolling around Europe, meeting customers and talking deeply with sales teams.  After these travels, I have two major comments: First, I really like the Euro, it just makes travel easier.  No offense to the Swiss, English or Nordic countries, but I can't always get to a cash machine for a 24-hour visit. 

Second, and more importantly, why is every service provider I talk to focused on IaaS (Infrastructure-as-a-Service)?

This fascination with IaaS surprises me, because the IaaS market is already here and hyper-competitive.  Margins are on their way to zero as the big guys figure out the model and build up economies of scale.  Vendors are squeezing margins, customers have lots of options...Michael Porter, how could you do this to us?

There is some market demand for IaaS, but one or 100 virtual machines still doesn't solve the bulk of the problems of time-to-market for Enterprise IT.  And it certainly isn't cheaper in the long run for the customer.  That's how IaaS vendors make money.  So the answer clearly isn't that customers only want IaaS.

So why, with alternatives, is there this focus on IaaS?

First, because that is what  is easiest to buy today.  There are IaaS products everywhere.  Automate your way to the cloud. Buy this bag of hardware and software and you too can have IaaS!  Ok, sure.

Second, because competition is fierce.  Telcos everywhere need growth.  MSPs need higher margin offerings.  Customers want IT-on-demand.  IaaS seems to be the choice to make it all happen.  So, to defend the customer base, you have to make the land grab and defend the market.  When in Rome...deploy IaaS.

Finally, getting a new cloud offering out the door is hard.  Many MSPs see IaaS as the most basic service and the easiest of the set.  Get this first one knocked off, offer IaaS, learn from it and grow into more cloud.

What do you do about it?

There are many higher margin offerings out there for MSPs, like SaaS.  Why not offer a CRM solution on demand?  Some customers are looking to PaaS.  So why not offer a common development environment on demand?  And the most effective offerings seem to be Virtual Private Data Centers (VPDC).  These are dedicated virtual machines on demand that augment a customers' existing data center.  Even specialized applications that fill the gap of other solutions are highly profitable.  So it IS possible to set your sights higher than just IaaS.

If you are an MSP or Telco reading this, you probably are working with an automation or virtualization vendor and putting together a cloud offering - likely IaaS.  What you really need to do is ask the question - where am I going?  It can't just be a race to IaaS. IaaS must only be a stop on the way to something that differentiates your services and produces higher margins, like SaaS or VPDC.

Show me the Money!

The next thing to do is to ask your vendor to show you how to deploy a SaaS offering with the investments you are making.  I don't mean application architectures, pictures and anecdotes.  I mean make them show you the solution working and deploying an application as if you were a customer.  Want a virtual data center offering, ask them for that too.  Think PaaS is right for your market, then have them show that too.  The problem is most talk a good game, but actually delivering it is just not demonstrable.  In the end that means you're buying futures - which is highly risky and won't help you defend your market against more agile, faster competitors.

Now you need to determine who your customer is.  SMB?  Large enterprise? Industry vertical?  Once you decide this, have the margin conversation with your vendors.  They should be able to show you a customized ROI model for your business based on your offerings - and outline to your satisfaction the margin that is left for you at the end.  Make some assumptions on adoption and see what they leave you to live on.  Trust me when I say the margin with a large kit of products is not so good, so choose wisely!

And remember, leave room for differentiation.  You don't want to have the coolest out-of-the-box solution in the land to find out that the MSP next to you also has the same thing...from the same vendor...offering the same services.  Look for the solution that can show it working for you in your environment quickly, give it to you to play with, demonstrate the services you want to offer today AND tomorrow, and do so in a way that leaves you margin and differentiation.  When that is all done, you will be well on your way to thinking beyond IaaS.

And maybe you can also help me get every taxi in the world to take credit cards?  Then I wouldn't have to carry cash at all!  Now that would be a fantastic service.