CEO of Cloud Provider Voxel Describes Fundamental Changes in XSP Business

The change is convergence. It is IT doesn’t matter. The Managed Service Providers, Value Added Integrators, and Internet Service Providers are all acquiring software development skills as the business moves from hardware to software, says Raul Martynek, CEO and president of New York-based Voxel. Martynek has been in charge of Voxel since Janaury. Before that, he ran a CLEC called InfoHighway Communications that was acquired by Broadview.

Voxel is a managed hosting company that rents dedicated servers and can also provide services on a per-core basis. The company runs a CDN and other high end services too, but its core product is computing power on demand with guaranteed security and reliability.

“Amazon and Rackspace sell services such as a testbed for applications and e-commerce,” says Martynek. In contrast, Voxel sells the parts and expects its customers to know how to put them together.

“The primary cloud users are early adopters,” he says. “The users of automated infrastracture services are developers for public or private facing internet applications, or they are IT professionals.”

He says that large enterprises are not renting infrastructure yet, but he feels that’s because senior management still thinks of networks as hardware, not as a tool for delivering software. “Their entire life has been about procuring, installing, and maintaining hardware. It’s tough to see that everything that you’ve done with your life is no longer relevant and that you now need to focus on business applications and business processes. I see dinosaurs roaming the earth, and they cannot match the agility and flexibility that cloud providers have developed. A company like Zynga is able to grow its Farmville application to 40 million users because of the cloud. In what company can the CEO come in the next day and have ten times the number of users you had last week, with no problems?”

“The web crowd has leanred how to make the internet scale. These companies could be big from a recurring revenue perspective but they could be five developers who have a really good application. They partner with us because we can deliver the infrastructure and they can focus on delivering the application.”

VARs and ISPs

So you’ve been working with VARs for a long time? “I’m going up the stack with them. There are some that don’t think their business model will change and other who are thinking carefully about how they add value to customers. They call themselves MSPs now, not VARs.”

What skills do they need to change from VARs to MSPs? They used to maintain the customer’s infrastructure at the customer’s location. The typical VAR might have 150 customers with one Exchange server each. The expertise needed to run a cluster of 150 Exchange servers (one backup, one core) is entirely different than the skill needed to run 150 Exchange servers at 150 different locations.”

“In the past, companies sent bodies into customers’ premises and installed the Exchange server and hacked away at it. We now call that a meat cloud. It was not a programatically driven infrastructure stack. Today, MSPs need server administration, scripting, and what we call orchestration [or automatic provisioning through an API].”

ISPs are learning the same automation skills in order to streamline their own businesses. Some but not all will employ those skills to make life easier for their customers.

“Automation is tough. The core expertise for automation is software development and many ISPs are not software developers (they are good network engineers). We at Voxel have a staff of 45 people, nine of whom are developers. That’s a fifth of our staff. We’re more a software company than a hardware company. It’s a very different mindset. I was a CLEC and I know. How many CLECs can get their residential customers to open a trouble ticket online and then ensure that the system ingests the trouble ticket, delivers it to the tech guy who does an update, and then have the response show up in the customer’s inbox. The integration of billing, OSS, and the network monitoring system is something that very few telcos, wired or wireless, have.”

Why is the cloud succeeding where ASPs failed?

Today’s cloud services are very different from those offered by the (now failed) Application Service Providers of the past (see the writing of my former colleague Phil Wainewright who’s an expert on both — for example, see his critique of AppStream or his discussion of the difference between SaaS and Cloud).

But why did they fail and Voxel succeed? “With any new business paradigm, there are many new links in the chain, and the weakest link will bite you. There are many differences between the internet in 2003 and now. The pipes at the edge were pathetic compared to today (you were styling if you had a Covad SDSL circuit at 1.1 Mbps). We were at HTML 2.0 and active server pages were new (there was no Java, and we did not know how to build apps). Open source Linux was new, so people were running on Solaris whereas today major applications run on the LAMP stack. We had Perl then and we now use Python and PHP. Compare content management systems: we had Dreamweaver then and now we have Drupal. The final difference, as you know, is that broadband adoption in the U.S. happened between 2005 and 2010.”

Conclusion

The reason that cloud services are selling, according to Martynek, is that they transform the sunk costs of Capex into the more flexible expense of Opex. “You don’t have to pay $300,000 for a 20 server refresh. There’s no up front fee. We amortize for you the cost of the server infrastructure and take on the responsibility if it fails.”

Most service providers, such as VARs, he says, want to focus on sales and business development. The hardware has always been a loss leader. Money is made on services.

The cloud is the delivery of the promise that IT Doesn’t Matter.

That famous article said (though it also said a lot more), “what makes a resource truly strategic – what gives it the capacity to be the basis for a sustained competitive advantage – is not ubiquity but scarcity. You only gain an edge over rivals by having or doing something that they can’t have or do. By now, the core functions of IT – data storage, data processing, and data transport – have become available and affordable to all.”

The cloud is The Big Switch.

“In seven years, people will look back, and asking if you run your own infrastructure then will be as ridiculous as asking if you generate your own power now,” Martynek concludes. (But perhaps generating your own power will be more common.)