I recently heard about a Nigerian company shutting down its public cloud services business. Apparently riding on the wave of cloud, the company built a public cloud infrastructure and quickly tried to leverage on its Data Centre experience in colocating services. However, after a brief stint, the revenues just did not add up. They had to layoff folks.
Rackspace is out of the selling commodity compute business as well, at least in the scale of AWS and Google. They still provide managed cloud services though. It is becoming very apparent that you need more than cash in the bank to pull off a successful cloud business. Lots of cash is needed but it isn’t enough.
How could you make money in the cloud business even as the price of compute keeps falling. One of the cheapest things to spin off today is a server on the Internet. Google too recently crashed their prices. What is enabling Google and Amazon to crash their prices aggressively and still stay in business (even in the face of massive loss)? What is the competitive advantage they have that the other public clouds do not have?
The answer might lie in their huge investments in R&D. Apparently, there is more than meets the eye when building scalable computing infrastructures. According to this analysis, which I strongly agree with, companies like Amazon and Google have invested (and still investing) a huge amount of cash in R&D. Their research team are pushing the boundaries of technology to look for better ways to provide compute and storage services over the internet?
If the differentiation is in R&D investment, how can local companies compete effectively in building public clouds within their country (to take advantage of the challenge of data privacy and compliance and security)?
Why local firms will never be able to beat an Amazon.
It is a given that very few Tech companies aspiring to build public clouds in Nigeria or elsewhere can invest in R&D as much as Google and Amazon. These companies have research and development teams across the world. Places like India, China and Isreal have become target spots for these Tech giants to build research teams. It is safe to conclude that, on that level, local firms will never be able to compete with Google and Amazon.
These companies are known to fund research in the top academic institutions in the world. This has become the norm rather than the exception. While at Stanford, the Google boys were said to have worked at the research Lab Microsoft donated to Stanford. Companies like MIT, CalTech all have research programs being funded by these tech giants. In Nigeria, there is not a single Tech company that sponsor any form of research in the Universities. All these schools have computer science programs but not a single one of them do any notable research.
The low hanging fruit option
If local Tech firms that want to build public clouds cannot invest in R&D, what can they do?
The low hanging fruit option for these companies is to partner with the foreign Tech firms with the R&D budgets. Computer Warehouse Group (CWG) is currently offering such a service. They have partnered with IBM to build public clouds in the country. In other words the same model of running an un-inspiring tech business in Nigeria since forever. Bring a partner that will do the work, share the profit. This way, the local firm never worry about innovation. They never have to worry about research. They just resell. Their success ultimately is dependent on the success of the OEM.
This OEM-partner-resale model has a faster go-to-market period. The challenge to profitability of this model however lies in software licensing. Cloud isn’t just another virtual machine accessible over the network, its about control, self service, metering and on demand scalability of compute, storage and networking. You need a cloud operating system/platform to be able to sew together these three. Combine heavy licensing of this cloud software with the existing infrastructure challenge of Power and Internet, then you begin to have a rethink about your cloud business.
A much smarter approach.
For local tech firms with some cash to invest in building a public cloud practise, I’d think it’d makes sense for them to look into in any of the open cloud initiatives that exist today rather than leaning towards proprietary cloud vendors/OEMs.
Apart from their huge investments in research, companies like Facebook, Google and AWS have been able to build scalable and highly available infrastructures by leveraging on Open standard technologies and open source software. Without leaning towards any particular vendor, these companies can easily adopt the best of open software available.
Some cloud operating systems available today include OpenStack, Eucalyptus, Cloudstack. While we can argue about the maturity of some of these projects, they already power many public clouds in production today.
Adopting an open technology cloud approach will enable these companies to build a lasting practise. They will grow into the cloud, building human capacity along the way. This allows them to solve the problem of skilled manpower down the road.
Another advantage of this approach is to start up the cloud business lean and agile. If the concern of enterprises today is about data security, privacy and compliance in the cloud, tomorrow these concerns could actually pale when compared with the other advantages realisable from moving to a major public cloud (outside the country).
Staring lean and open allows these tech firms to respond to competition from AWS and other major public cloud players. If I’m not bugged down by a 5-year commitment to a proprietary cloud OS license, I can change my mind when the facts change. With vendor lock in, I don’t have that much flexibility.
Taking Research Seriously
it is important to note that R&D is still one of the differentiating factors for innovative companies.
Research is important for any company that wants to create any innovative solution or sustain the culture of creating “new things”. I wonder if Nigerian companies invest any amount of money in research. No matter how small.
The fact that research is not our strong focus explains why cutting edge technologies seldom originate from African tech companies. We rather reproduce what works. Innovation is what will enable local companies to be able to survive stiff competition.
The Tech industry, like any other industry in Nigeria needs to engage and challenge Nigerian Universities to start to think again. Our CSC departments have become places to learn about computer history and about how they were using punch cards for data input…Please. During my undergrad program, a lecturer was actually working on grid computing for his PhD without as little as a 2 node-cluster in the entire university. The private sector can do a lot here to encourage research.