So You Want to Be a Hosting Provider? (Part 1)

If you’re a VAR or MSP, you’ve been hearing voices from all quarters telling you that you’ve got to get into cloud services:

  • The 451 Research Group has estimated that, by 2015, the market for all kinds of “virtual desktops” will be as large as $5.6 Billion. IDC estimates that the portion of these virtual desktops sourced solely from the cloud could be over $600 Million by 2016, and growing at a more than 84% annually.
  • John Ross, technology consultant and former CTO of GreenPages Technology solutions was quoted in a article as saying, “This is the last time we are going to see hardware purchases through resellers for many, many years.” He predicts that 50% of the current crop of resellers will either be gone or have changed to a service provider model by 2018.
  • The same article cited research by UBM Tech Channel (the parent company of CRN) which indicated that “vintage VARs” that stay with the current on-premises model will have to add at least 50% more customers in the next few years to derive the same amount of sales, which will require them to increase their marketing budgets by an order of magnitude.
  • Dave Rice, co-founder and CTO of TrueCloud in Tempe, AZ, predicted in the same article that fewer than 20% of the current crop of solution providers will be able to make the transition to the cloud model. He compares the shift to cloud computing to the kind of transformational change that took place when PCs were first introduced to the enterprise back in the 1980s.

If you place any credence at all in these predictions, it’s pretty clear that you need to develop a cloud strategy. But how do you do it?

First of all, let’s be clear that, in our opinion, selling Office 365 to your customers is not a cloud strategy. Office 365 may be a great fit for some customers, but it still assumes that most computing will be done on a PC (or laptop) at the client endpoint, and your customer will still, in most cases, have at least one server to manage, backup, and repair when it breaks. Moreover, you are giving up a great deal of account control, and account “stickiness,” when you sell Office 365.

In our opinion, a cloud strategy should include the ability to make your customers’ servers go away entirely, move all of their data and applications into the cloud, and provide them with a Windows desktop, delivered from the cloud, that the user can access any time, from any location where Internet access is available. (Full disclosure: That’s precisely what we do here at ManageOps, so we have an obvious bias in that direction.) There’s a pretty good argument to be made that if your data is in the cloud, your applications should be there too, and vice versa.

The best infrastructure for such a hosting environment (in the opinion of a lot of hosting providers, ManageOps included) is a Microsoft/Citrix-powered environment. Currently, the most commonly deployed infrastructure is Windows Server 2008 R2 with Citrix XenApp v6.5. Microsoft and Citrix both have Service Provider License Agreements available so you can pay them monthly as your user count goes up. However, once you’ve signed those agreements, you’re still going to need some kind of hosting infrastructure.

Citrix can help you there as well. Once you’ve signed up with them, you can access their recommended “best practice” reference architecture for Citrix Service Providers. That architecture looks something like this:

When you’ve become familiar enough with the architectural model to jump into the deep end of the pool and start building servers, your next task is to find some servers to build. Broadly speaking, your choices are:

  1. Buy several tens of thousands of dollars (at least) of server hardware, storage systems, switches, etc., secure some space in a co-location facility, rack up the equipment, and start building servers. Repeat in a second location, if geo-redundancy is desired. Then sweat bullets hoping that you can sign enough customers to not only pay for the equipment you bought, but make enough profit that you can afford to refresh that hardware in three or four years.
  2. Rent hardware from someone like Rackspace, and build on their platform. Again, if you want geo-redundancy, you’re going to need to pay for hardware in at least two separate Rackspace facilities to insure that you have something to fail over to if you ever need to fail over.
  3. Rent VMs from someone like Amazon or Azure. Citrix has been talking a lot about this lately, and has even produced some helpful pricing tools that will allow you to estimate your cost/user/month on these platforms.
  4. Partner with someone who has already built it, so you can start small and “pay as you grow.”

Now, in all fairness, the reference architecture above is what you would build if you wanted to scale your hosting service to several thousand customers. A wiser approach for a typical VAR or MSP would be to start much smaller. Still, you will need at least two beefy virtualization hosts – preferably three so if you lose one, your infrastructure is still redundant – a SAN with redundancy built in, a switching infrastructure, a perimeter firewall, and something like a Citrix NetScaler (or NetScaler VPX) for SSL connections into your cloud.

Both VMware and Hyper-V require server-based management tools (vCenter and System Center, respectively), so if you’ve chosen one of those products as your virtualization platform, don’t forget to allocate resources for the management servers. Also if you’re running Hyper-V, you will need at least one physical Domain Controller (for technical reasons that are beyond the scope of this article). Depending on how much storage you want to provision, and whose SAN you choose, you’re conservatively looking at $80,000 – $100,000. Again, if geo-redundancy is desired, double the numbers, and don’t forget to factor in the cost of one or more co-location facilities.

Finally, you should assume at least 120 – 150 hours of work effort (per facility) to get everything put together and tested before you should even think of putting a paying customer on that infrastructure.

If you’re not put off by the prospect of purchasing the necessary equipment, securing the co-lo space, and putting in the required work effort to build the infrastructure, you should also begin planning the work required to successfully sell your services: Creating marketing materials, training materials, and contracts will take considerable work, and creating repeatable onboarding and customer data migration processes will be critical to creating a manageable and scalable solution. If, on the other hand, this doesn’t strike you as a good way to invest your time and money, let’s move on to other options.

Once you’ve created your list of equipment for option #1, it’s easy enough to take that list to someone like Rackspace and obtain a quote for renting it so you can get a feeling for option #2. The second part of this series will take a closer look at the next option.

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  1. […] year ago, in a blog post targeted at prospective hosting providers, we said, “…in our opinion, selling Office 365 to your customers is not a cloud strategy. […]

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