Locked in on local IaaS?

Written by Jeremy Nees | 12/10/2022 11:57:00 PM

Our industry is a funny one, while some things change incredibly quickly and new technology is always becoming available, some things take a ridiculous amount of time to change.

One such area is local IaaS services - you know the old VPS stuff from the late 2000s? Sure it might be sold as a private cloud or similar now, but basically, you are renting VMs in someone's data centre.

At The Instillery we were early adopters of the public cloud, and rightfully so, a lot of questions were raised about migrating to cloud platforms in Australia and whether critical apps would function and be supported on these (at the time) new services. But that was a decade ago….. Since the industry has created a huge body of evidence that not only are most of the cited challenges relatively simple to overcome but that there are considerable benefits from the public cloud.

So why do some of NZ’s largest IT companies still strongly promote their own platforms?

Quite simple really. Money.

Not ignoring the fact that there can be some legitimate use cases for locally hosted services, most of the time the advice is simply motivated by margins. Building and renting space on your own IaaS platform can deliver gross margins anywhere from 60% to 80%. These services are sitting in the cash cow/maturity phase of the product life cycle. So for every $10,000 a month you’re spending, $7,000 of that could be gross margin.

Further to this, renting out a rack in a data centre may generate between $2,000 and $10,000 per month in revenue depending on the power draw. Running an IaaS platform in that same rack can generate $250k-$500k per month of revenue for the same floor space in the data centre, for an investment of $500k-$1M of servers and infrastructure. Now your data centre returns are getting interesting!

There are plenty of arguments made to support local platforms such as:

Data sovereignty - sure the Aussie government has the backdoor law, but if your data is that important and sensitive, encryption strategies are pretty handy. That of course does not change anything related to the jurisdiction, but it does give you control of your data.
Latency - it’s true that moving apps to Aussie adds about 30ms latency, however, it’s also true that plenty of apps can tolerate this without any noticeable end-user impact, and the apps that are most sensitive to latency have typically been designed to be in your office on the local network, so you’re probably using VDI or similar to deliver it anyway.
Application compatibility - this is a pretty dated argument. In the early days of the public cloud, people of course wanted to ensure that their applications would be supported by their cloud provider. Most vendors now support public cloud platforms and there are plenty of case studies to back this up.

Plus did anyone mention that AWS, Google Cloud Platform and Microsoft Azure are all coming to NZ…..?

So if your local ICT provider is saying they’ve got the right cloud for you, you’ve really got to question whether is it right for you or right for them?

Two other tidbits I want to clear up in the interest of transparency:

We also had our own local IaaS platform but migrated most of our customers to Azure over two years ago, and for those who didn’t want to move immediately, we organised a wholesale local service. We did this because we believed it kept our focus on our customers' needs, not on milking profits.
Public cloud does generate rebates for resellers however these are insignificant compared to local IaaS margins with no long-term guarantees. In some circumstances, resellers can also do things like reserve instances at a discounted rate and charge customers a full-on-demand cost. We have bundled a Cost Visibility tool with all our cloud-managed services to provide customers total transparency - something you should ask your public cloud reseller for if you have one.

So if you’re looking for the right cloud for your business, make sure everyone has the right motivations!

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