Who's actually spending on cloud computing?

Cloud computing hype currently revolves around the enterprise and private cloud, but the real adoption is among service providers and hosters.

While cloud computing continues to gather steam, thanks to the established, money-making efforts of Amazon Web Services (AWS) and Rackspace, much attention has turned to the lucrative enterprise IT market as the next battleground for software vendors. Companies are focusing on building and maintaining private clouds: internal IT environments that operate and deliver services like Amazon's Elastic Compute Cloud (EC2). But is that where the money is?

You hear about this supposedly private cloud market, but in reality, most virtualization vendors have rebranded their products as cloud.
Reuven Cohen, CEO of cloud platform software company Enomaly,

Credible signs point elsewhere, as the hosting and service provider market appears to be the real opportunity in cloud computing at the moment. Now that the definitions of what is and isn't cloud computing have been largely settled, hosting firms and some cloud software vendors are forgoing the elusive enterprise data center customer and quietly using cloud to make money instead.

"We have literally hundreds of customers every month signing up for cloud," said Peter Sexton, COO of GigeNET, an established managed hosting provider based in Chicago. Sexton said GigeNET had no shortage of customers for its regular hosting and colocation offerings, but many of those same customers were clamoring for on-demand and pay-as-you-go hosting.

Sexton said that GigeNET had developed the platform to run its cloud computing offering completely in-house. Based on Xen and built out on a cluster of new servers and gear that GigeNET designed itself, he said it was an unqualified success for the investment.

Cloud providers aim at service providers
Some cloud providers, like OpSource, are explicitly switching focus from selling clouds to individual businesses and targeting service providers for partnerships instead. OpSource has enjoyed some success with its cloud services, but CEO Treb Ryan said the end-user cloud customer market was basically saturated, and its original managed hosting customers (primarily Software as a Service (SaaS) vendors) were the ones they saw coming onboard.

"We found more than 30% of our existing customers asking for OpSource Cloud," he said.

More on hosting and the cloud:
Citrix stokes battle with VMware for cloud hosting market

Rackspace attempts to retool hosting into cloud

Ryan said the demand for cloud among hosters and service providers was crystal clear. Every cent they made was based on adding value (in the form of services or capabilities) on top of delivering computing power, and the higher the margin between operational costs and revenue, the more money they made. Ryan said the one thing cloud computing excelled at was driving operational efficiency and lowering costs.

So much so, in fact, that Ryan said OpSource can afford to offer partners steep discounts on its "retail" cloud rates and still make money itself, because its own margins on operating costs are so high. Ryan wouldn't give specific details, but said even charging $0.04 per hour left "very comfortable margins."

Cloud offerings of all shapes and sizes
OpSource highlights the intersection between hosting, cloud and SaaS, but what's more telling is the prevalence of cloud offerings. Every major hosting provider has a cloud product line, with a variety of offerings that sometimes stretch far from the canonical example set by AWS but are still recognizable as cloud computing. An overwhelming majority of small and medium hosters have plans to or are starting to offer cloud services, simply because there is money to be made immediately.

"$20 million to $100 million [revenue] range," said Reuven Cohen, CEO of cloud platform software company Enomaly. "That's the market, and these guys win because they're on the ground in their area."

Cohen said he has been targeting hosting providers for some time now, because they have a natural appetite for cloud computing and because the private cloud market is ill-defined and largely obscure when it comes to streamlining enterprise IT.

"You hear about this supposedly private cloud market, but in reality, most virtualization vendors have rebranded their products as cloud," he said, dismissing the notion of radical transformations within enterprise data centers.

We have literally hundreds of customers every month signing up for cloud.
Peter Sexton, COO of GigeNET,

He said that's coming, but its years away; at the moment, things are completely focused around either buying SaaS products and outsourcing or application virtualization. Cohen's firm operates without venture capital backing, so he has a vested interest in making sales to whomever is buying, and he noted that Enomaly is in the black.

He also said there was a lack of maturity in enterprise-class cloud infrastructure products at the moment, whereas setting up and selling compute infrastructure or storage clouds was a natural evolution of managed hosting and virtualization. Providers were already out in front on both virtualization and selling IT services, so they are the obvious choice for cloud computing systems as well, according to Cohen.

Enomaly has an extensive list of service provider customers to prove his point. Virtualization vendor Parallels recently announced, like OpSource, that it was going to focus on selling to service providers. It claims it helps more than 5,000 service providers deliver services.

Cloud computing's first wave was around users with elastic, short-term needs, like startups; virtual lab and test and development users; or apps already "in the cloud," like Web-only businesses, content distribution and social media websites. The current wave of adoption by hosters seems to fall right in line with an expanding market, and the holy grail of enterprise clouds seems further off than ever.

Carl Brooks is the Technology Writer for SearchCloudComputing.com. Contact him at cbrooks@techtarget.com.

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