Wednesday, 7 December 2011

Cloud Brokers - snake oil or valid service?

Cloud broking? What's that all about?

It's happening already - everyone sees a way to make a few bucks on a new trend without really getting involved. As take up of the Cloud rises exponentially, the speculation is that large companies, even resellers, may have simple capacity requirements such as data storage or virtual machine provisioning and the 'Cloud broker' will effectively just be a service that shops around for the cheapest rates to match customer requirements.

It sounds very much like a 'MoneySupermarket' type service for the Cloud but the reality is that there are an awful lot of companies building some huge capacity out there and it's highly likely that while they will get premium customers taking top rate managed services from them, they will have a ton of spare capacity for selling just to get a marginal return on costs already accounted for largely.

So the new kind of middle man could be a 'Cloud Broker' or Cloud arbitrage where they simply match that over capacity with customers' needs. On the face of it this is good news as this will increase competition and that means prices will drop and that means adoption of the Cloud rises. What can be wrong in that?

What is the opportunity? Well, on one level there will be the Aggregators who are the companies that simply consolidate services and applications to be billed as one monthly bill - utility style as you will pay on a consumptive basis. This may only be a billing service, i.e. is there a role for a company to not actually provide any more of a service but to poll and manage your Cloud suppliers and then produce a single bill with all the services itemised on it? That company may then collect a fee for doing this service but they may also get a cut in the service costs from the suppliers as an agent. They may also be tasked to drive the cost of supply of these services down as far as they will possibly get rewards based on the savings. This is not unlike some of the service providers in the Telco business sector who watch Telco costs for big companies.

But then there is the plain old brokers who just match up capacity to need. They will get paid a cut from the service provider as a referral fee on an ongoing basis without really forming any relationship with the end customer other then providing the matching service. There may be a reward for finding savings. This means that there may be plenty of 'churn' and migration between service providers to be managed and that's a possible additional service these brokers can provide. Much as with the mobile phone industry, customers can change providers totally and in between there is the whole migration process to be handled in order to access the savings - the transfer of individual numbers and accounts etc.

So Cloud brokers could provide a fantastic way to drive down costs ensuring that the Cloud provides yet higher returns on investment for end customers. As far back as 2009, several companies like Cloudkick, Elastra, Kaavo sprouted up and there are many, many more in existence now. And it's serious stuff as even software vendors like the mighty Oracle take this sector as a serious part of their 'Go To Market' model of the future as well as the validation given to the sector by Gartner.

So what could possibly go wrong as end customers simply move their data and capacity requirements around from supplier to supplier for the best price? Surely everyone wins?

Here's a 'what if?' for you to consider. What if, after taking up a capacity service to store some archived data, the customer is unable to pay the bill. Who owns the data? What then happens to that data? If it is to be destroyed, who checks that it has been? Does it become the property of the hosted who is not paid? Can they then do with the data what they wish, i.e. sell it?

Here's another 'what if?'. What happens to your data if it is moved from one supplier to another? Is the old data simply deleted off - if so by who and who checks it all has been done, under what conditions or compliance standards? What is the legal jurisdiction in all this? Where the data is held or in the country where the original contract is taken out? Where are cases heard if there is a dispute?

Cloud broking is here and it will stay so it is pointless dismissing it as a non-starter. But it comes with some huge questions about service levels, legal questions and compliance issues. There may be a further complication - what if the end customer takes out a contract with a software vendor but in turn that vendor farms out the data storage side to a broker service to get best rates to fulfil the contract? What happens to the data ownership? Don't under estimate this issue as many companies like resellers, system integrators and distributors let alone vendors are already playing this game in reselling the services of hosting companies. You think that the Service Agreements are back to back and that may be the case. But what about the data? Where does the legal jurisdiction lie? How does your contract tackle this question?

Has anyone stopped to look at the Terms of Conditions stated by companies like or even the mighty Microsoft and its Office 365 service (which in Europe is hosted in Ireland)?

The Cloud is here and it is a simple concept on the face of it. Just below that surface lies a potential quagmire of issues. One thing is for sure, Cloud Brokers may provide a valid and valuable service. But there will be charlatans peddling snake oil and juicy savings with sweet talk and clever comparison tools no doubt. Many will trivialise the issues surrounding the data and its ownership, many will skim over the Terms of Service and most will have no earthly idea bout the legal issues.

The Cloud is exciting, it's innovative, it has the potential of helping many businesses grow linearly rather than stepwise but it has some problems. Make sure you have the best advice as you move into the Cloud.

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