Reselling vanilla AWS (or Azure) is a dead end

Hosting has always been a game of scale. Cram enough users onto enough boxes, cut the costs to the bone, and you have a regular recurring revenue stream that will grow with your clients’ ambitions.

The cloud has changed all that. Ever since Amazon decided to rent out access to those whopping great data centres that power its bookshop-turned-global mall, many hosting companies have had to sit down and rewrite their business plans.

Here’s one business model you should avoid: dumping your own data centre and all the costs associated with it, and instead using Amazon Web Services for your clients’ hosting and make a living from the margin.

If you’re just doing vanilla hosting, it’s a bad plan for two reasons. The first is that the margin is widely considered too skinny to sustain decent profits. Even as AWS was rolling out its Sydney data centres a year-and-a-half ago, seasoned Amazon partners told CRN they were looking at cutting back on AWS because hosting was so unprofitable.

The second reason is that there’s no barrier to the client cutting you out.

Microsoft and Google have both made bold moves to win over IaaS business by slashing prices and boosting margins. One reseller claimed they were offered margins as high as 50 percent on Azure for buying $500,000 of VMs on a 12-month contract.

But don’t let these handsome trappings tempt you. Pure hosting is over. “I understand why companies [focused on hosting] might struggle with this. I personally think it’s because they haven’t figured out what value they can add,” says Bjoern Schliebitz, co-founder and managing director of PanthaCorp.

Schliebitz is in the know. He has held senior roles at Amazon.com and its German operation, Amazon.de, and formed digital strategies for high-profile clients such as BMW and GSI Commerce.

For the record, PanthaCorp is not one of those partners wondering whether to walk away from Amazon. More than 80 percent of its work involves infrastructure-as-a-service and 100 percent of that is with Amazon.

PanthaCorp’s model focuses more on setting up infrastructure and rewriting apps to run on the cloud. Like others that understand the potential, it has proven that there’s money to be made in PaaS.

Pantha is not moving from Amazon because its services and third party programs make it so much faster to build and deploy.

“The problem that any competitor to AWS has is that they have a services platform, whereas right now the other competitors have an IaaS offering,” Schliebitz says. “With Microsoft Azure, you have basically a server that you start up and it’s left to you to configure.”

Perhaps this was the case, but Azure is catching up by adding services.

One AWS add-on partner favoured by Pantha is Puppet Labs, which automates deployment of infrastructure through a management console and a script library. It handles servers, monitoring systems, load balancing – it can all be created as part of standard deployment routines.

Automation makes it easier to add services quickly when needed and dump them later.

A large e-commerce company moved its production environment onto the cloud and saved hundreds of thousands per year in hosting costs through automation. It only paid for the infrastructure that was live. “You click a button and that sets up whole new environments. There’s no real limit to how much of your infrastructure you can automate,” Schliebitz says.

AWS’ edge may not last for long. Puppet Labs, for instance, has recently also moved to Azure.

Hosting is your ticket to the game; the money is in the services.

Sholto Macpherson is a journalist and commentator who covers emerging technology in cloud