Will T-Systems Be Competing With Amazon Soon?

With its latest public cloud offering, T-Systems not only comes close to Amazon’s EC2 pricing, it might even be cheaper than Amazon. The €4 billion, German headquartered IT services firm announced today a public beta running from November 2010 to February 2011.

Although Amazon recently made a time-bombed version of its EC2 available for free, a real, unlimited service still costs in the range of $0.095 per hour for a small server of one core with 1.7 GB RAM in Europe. Last week, Forrester had the chance to look at a beta version of T-Systems’ public cloud offering. Although no pricing has been announced officially, the beta showed the price for a virtual machine of a similar size to the aforementioned Amazon machine starting at €0.2/hour. T-Systems inidcated that they even like to go below the Amazon pricing! T-Systems has been working for more than a year with cloud provisioning tools from Zimory to manage the virtualization of larger-scale server and landscape compositions. Leveraging this experience, T-Systems manages to drive efficiency even further than the current economies of scale, which makes this aggressive move possible.

Is T-Systems planning to seriously compete with Amazon in the future and does it make sense for a traditional large enterprise IT services and hosting firm to compete with low-price public cloud offerings?

T-Systems’ public cloud beta shows a continuous memory sizing in a state-of-the-art self-service portal.

T-Systems’ current beta of a public cloud offering comes with an aggressive pricing model, which is cheaper than Amazon’s EC2 pricing level. (Shown here are the prices for a 1.7GB single core virtual machine.)

 

To answer this question, I’d like to turn it around for a second:

Does Amazon really compete with an enterprise hosting firm like T-Systems, which makes annually more than €1 billion in revenue with the operations of SAP servers in a modern dynamic infrastructure?

Well, Amazon is moving into this direction with its enterprise IT offering, but it is not yet perceived as offering the same level of security, trust, and reliability, especially by European customers. Forrester laid out its understanding of the difference between public, virtual private, and private cloud offerings in its cloud computing taxonomy and characterized the difference between Amazon’s and T-Systems’ focus.

We expect that Amazon will keep its core business in the area of highly scaled-out public cloud offerings, where it really differentiates itself from the traditional providers. This means that IT users wanting (or expecting) a higher SLA have a choice. They could use a third party that can refine a commoditized public cloud infrastructure like EC2 into an enterprise-ready cloud. Many platform-as-a-service (PaaS) offerings such as Tibco’s Silver and future cloud broker offerings follow this approach. Alternatively, users were able to select a different cloud infrastructure based on the different nature of workloads — until now. For example, they could use a dynamic enterprise hosting offering from T-Systems to run productive but already virtualized SAP systems and then use another public cloud provider to run test and development systems at a lower level of reliability and performance. Unfortunately, the security requirements for the latter might have been rather on the strict side due to legal compliance issues in Europe.

This is exactly the dilemma that T-Systems’ new public cloud offering will address. It’s a low-end cloud infrastructure-as-a-service (IaaS) offering with an appealing level of security and that is very closely integrated with the high-end part of a customer’s enterprise environment that is already hosted at T-Systems. Customers will be able to easily move virtual machines and large volumes of data (!) in hybrid models between more public-cloud-style offerings and the more enterprise-style virtual private offering. Thus, the new T-Systems Cloud will actually compete with Amazon’s EC2. But, frankly, both companies will only compete to this extend, to which Amazon will challenge T-Systems in its next generation agile large-scale enterprise infrastructure. As long as Amazon is not perceived as a major player in large enterprise hosting, T-Systems will not be perceived as a major public cloud player outside its customer base.

Is it a good idea for other large enterprise IT service providers to make a similar move?

This really depends on the maturity and nature of the customers you would like to retain as a service provider. If your customers only run packaged applications with very little of their own development, have lower security and regulatory requirements, or have a nearly constant demand of compute power, transforming your existing hosting service into a standardized pay-per-use offering with a high level of security, performance, reliability, and price will be fine. You won’t see many of your customers’ workloads shifting to public cloud offerings. However, if your customers are actually starting to move test and development or jobs with fluctuating performance demand to public clouds, you need to complement your enterprise IT offering with a public-cloud-style IaaS. Obviously, only $/€1 billion-plus IT services providers can deliver such a wide portfolio and have the internal economies of scale for a margin mix among the different levels of cloud computing.

Let my know what you think about this move of T-Systems is you are on the provider side. Have you considered adding an agressive low end offering to your enterprise services already?

Cheers

Stefan

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Comments

It will be interesting to see

It will be interesting to see more details about the offering from T-Systems, especially some technical details (what Hypervisor, OS's available, etc.).
However I would like to correct you. The small Amazon instance costs only $0.095 / hour, not $0.38 (this is the large instance).
Comparing the prices, the T-Systems offering is way more expensive than Amazon EC2.

It will be interesting to see

Christoph,

yes, price comparison is difficult. Please note that Amazon prices differ if you click on US or Ireland/EU hosting and also by the OS. Right, there are some options where Amazon is below T-Systems, some where T-Systems will be below. Please note that you can create even smaller virtual machines than the Amazon Small image type. I asked T-Systems to keep this continous flexibility on sizing.

A great tool to compare availability of IaaS-Clouds is www.cloudsleuth.net, but it does not compare prices.

The T-Systems cloud beta supports XEN, VMWare and VMWare-ESX images.

Stefan

Stefan Thanks for your reply.

Stefan

Thanks for your reply. It is true, comparing Amazon prices with other Cloud providers is very difficult. But, the price you mention in your post ($0.38) is for a large Amazon EC2 instance in EU/Ireland (7.5 GB Ram and 2 Cores).

This flexible pricing can also be done with our (ScaleUp) cloud offering here in Germany. Our prices are higher than Amazon but still below the prices you published for T-Systems (even without the large scale that T-System will/might have).

Christoph

Amazon pricing correction

Christoph,

thanks for the pointer, yes, you are right, the AWS starts at $0.085 (US)/0.095 (EU) / hour for a small instance. I have updated the blog above. Nevertheless T-Systems made the statement to analyst that they will go below the Amazon price for some configurations. And totally agree, there are many alternatives like www.scaleup.it or www.elastichosts.com.
One differentiator to T-Systems is the ability to swap data between these low end environments and productive large scale environments.

Stefan

Value-add through Higher Level PaaS

Hi Stefan,

A very interesting take on this piece of news. You know Fujitsu's offerings in this space well, and I see from your Twitter stream that you also commented: "Rolf Schwirz of #Fujitsu indicated more investments into Fujitsu's Cloud-Software stack. http://bit.ly/eagwuB"

As you indicated, service providers ultimately need to understand what their customers current and future needs are likely to be. While relative price is always an important consideration, to many of the independent software providers I speak to, and who use Fujitsu's ISV Cloud Program, just as important are the business value-add from:

- higher level services (including full control of how they brand and market their offerings)
- ease of use and transferability due to open standards (interoperability with other systems, reduced lock in, investment protection)
- security measures that exceed their customers' needs (wherever they are in the world)
- not to mention complete flexibility within whichever cloud architecture they choose, even a hybrid mix of private, public or trusted cloud.

Like you, I like to use the word dynamic liberally, when referring to cloud and IT architecture!

Thomas Gronbach
http://ts.fujitsu.com/bes