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Four Ways to Profits for Data-Centered Cloud Computing Companies

How do you make money as a cloud computing company aside from the sale of compute capacity?

John Gannon's Blog

How do you make money as a datacenter-focused cloud computing company? Aside from the sale of compute capacity (a la Amazon or Rackspace), what are the other revenue opportunities available? Here are some thoughts...

1. Management tools: The cloud hosters like Amazon are providing basic management tools, but we can already see there is a proven market for higher-order management and automation provided by companies like Rightscale and 3Tera. There are also a variety of companies and products who have figured out IT automation in the traditional datacenter (Bladelogic, Opsware, etc). I’m waiting to see when they’ll start moving towards new product development (or rebranding of existing solutions) that will be focused on management of outsourced cloud environments. As their customers move to the cloud, those customers will demand that their traditional set of vendors move with them. However, I think (in the long term) that the management tool space will end up open source, with revenue generated through other means…

2. Virtual appliances: Virtual appliances are a method of distributing pre-packaged applications that run on top of a specialized (usually Linux-based) operating system. Perhaps the management tool vendors could sell virtual appliances to their userbase through an ‘iTunes‘-like interface. I also see value in virtual appliance solution stacks, where multiple virtual appliances are sold together and pre-configured to be integrated with one another. This would be particularly compelling for SMBs who don’t have the time or money to spend on heavy integrations between disparate software packages.

3. Cloud intelligence: There is going to be a tremendous amount of usage data generated as more computation and data is moved to the cloud. Cloud management tools that are working across multiple customers and multiple clouds will have a birdseye view of how companies are operating their cloud-based applications. That data could be monetized (if done in a privacy-friendly way) to help customers benchmark their usage of the cloud vs industry peers or to help vendors operating within the cloud learn more about how customers are using their products.

4. Services: Companies that have products or services that help customers determine how to best leverage cloud computing should be able to create healthy businesses. We saw a very broad services ecosystem develop around VMware technology and I think we’ll see the same thing occur in the cloud computing world. Because this sector is so hot and there are so many new products and services coming to market, there are few “experts,” and those experts will be able to demand a price premium.

[This appeared originally here and is republished in full by kind permission of the author.]

More Stories By John Gannon

John Gannon is an Associate at L Capital Partners, a $165-million fund looking to advance companies with the potential to take groundbreaking products to market. He blogs at http://johngannonblog.com. Prior to joining L Capital Partners, John worked with Highland Capital Partners and Chart Venture Partners to identify and evaluate new opportunities in the enterprise IT sector. He also served as a consultant advising startup companies on business development, product strategy and venture capital fundraising. He currently sit on the board of advisers of VAlign Software.

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