Are Valuations of Cloud IaaS Offers Too High?

Are valuations of Amazon, Google and even Microsoft too high as the result of overly optimistic revenue growth assumptions for GCE, AWS and Azure? A brief look at why the value of any one of these offers may elude SMBs, reveals why inflated expectations may be at play here.

Reason #1: Marketing Collateral is Opaque for Average Business Users

It’s not likely a CIO from a $100 Million SMB is going to make much of the information Amazon provides on its Amazon EC2 Instances web page. When the sheer opacity of this promotional information is put together with a complete absence of easily accessible human support (I challenge the reader to find a telephone number for questions on any of the pages of the presentation), the inescapable conclusion is the target market for this type of an offer is a very small set of very large organizations in the public, private, and not for profit sectors.

How much of this very small market (composed, admittedly, of consumers with very large internal appetites) will any one of these competitors seize, and for how long? I argue all three services are completely targeted at the very same market.

Reason #2: Monthly Costs Are Too High for SMBs. Better Offers Are Available Elsewhere

For an average $100 Million SMB looking to use one of these three offers to provide a flexible, virtualized server platform for a big Microsoft® application like SharePoint® 2013, on premise, the monthly costs are simply too high. Amazon AWS, per a look at their publicly posted pricing schedule for IaaS compute instances on April 10, 2014, charges just about $1.28 per hour for the horsepower required to drive server, Search services, SQL services, etc. For 7×24 up time, we’re looking at $928.00 per month operating costs (this estimate is based on AWS’ “Windows with SQL Standard” offer and an m3.xlarge instance, which includes 4 CPUs and 13GBs of RAM).

It won’t take many months of this type of cost for the expense of opting for this support method to exceed the cost of purchasing an HP Blade Server with comparable specifications for physical support of the application on premise. Better yet, this same SMB can purchase vSphere from VMware and run its own internal private cloud IaaS off of the HP Blade Hardware.

Conclusion

Leading competitors for cloud IaaS offers are still focused on the very top of the market, without really viable offers for the vast market opportunity below. Unless/until these offers emerge, on premise alternatives still look like the preferred approach for SMBs.

Disclaimer: I’m long Microsoft, have no position in Amazon, Google or VMware.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2014 All Rights Reserved

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