Oct 4, 2013

Hybrid cloud services model driving new business, new metrics at Codero

The following article was written by Liam Eagle on October 1, 2013 for 451 Research. 451 Research, a division of The 451 Group, provides syndicated research, data and advisory services focused on the business of enterprise IT innovation. Over 60 publishing 451 Research analysts provide critical and timely insight into the competitive dynamics of innovation in emerging technology segments such as cloud computing, data center technologies and Internet infrastructure services.

Dedicated and cloud hosting provider Codero brought its Cloud 2.0 product out of beta this week. Built on Apache CloudStack, and available through the company’s proprietary control panel alongside its private cloud and dedicated server products, the new cloud offering is already having a transformative effect on the way Codero’s customers consume infrastructure from the company. Codero’s vision for hybrid cloud is similar to that of other mid-tier infrastructure service providers with a legacy hosting business. It is focused on users consuming a combination of cloud and dedicated resources, in a hybrid environment, from a service provider. This is in contrast to other common hybrid cloud concepts, such as the combination of on-premises with public cloud infrastructure, or public cloud infrastructure from multiple providers.

New products driving new business, new models

Codero’s new infrastructure-as-a-service cloud product has been in beta since about March, available only to existing customers. The company indicates it had 284 customers on the cloud product as of the beta test’s conclusion. The new cloud offering, based on the CloudStack platform, is one of several new products the company has rolled out in the last year, and part of an overall shift in focus toward a hybrid model for cloud hosting.

Essential to the execution of Codero’s hybrid cloud vision is the fact that all the company’s infrastructure products – including bare metal dedicated servers, smart servers (a dedicated server with a single hypervisor applied), the new IaaS cloud product and its MicroCloud SMB private cloud product – are provisioned through the same home-grown automation and provisioning platform. All are provisioned to the same per-customer private network, and customers are not charged for data transfer within that network. Finally, the company offers a layer of management service (in several tiers) that can be applied by customers to any of those products. Managed services are included in the MicroCloud product by default. Ultimately, as customer workloads move to best execution venues based on pricing, power, security and other concerns, the hybrid environment is intended to provide the customer with each of those venues as needed.

Codero indicates the hybrid model is already having an impact on the economics of its infrastructure business, as workloads move quickly to new venues. It now indicates that among entirely new customers, it is adding cloud and dedicated business at the same rate.

The company indicates that new cloud business leads to a temporary dip in average revenue per customer, with the ARPU for a typical cloud customer being somewhat less than a typical dedicated hosting customer spends. The consumption of cloud rather than dedicated resources is also likely to have a positive impact on the density the company is able to accomplish in its facilities.


While the bulk of Codero’s business remains in the dedicated server business, the company is positioning its services to include more managed, and more elastic infrastructure services. At the high end of customer size, it would compete with a provider like Rackspace. But in its core market of service providers moving beyond a core market of dedicated services with similar strategies, Codero competes most directly with SoftLayer, SingleHop, iWeb Technologies, LiquidWeb and PEER 1 Hosting, all of which offer some version of the ‘smart server’ product, and all of which have layered cloud services on top of their core dedicated server offerings.

The 451 Take

Codero is making the right move for a business with a legacy in the dedicated space. 451 Research’s Market Monitor data shows that growth numbers in the traditional infrastructure-focused hosting markets are lower than those in the managed space, and significantly lower than the IaaS market. The vanilla dedicated server market is the slowest growing, showing a CAGR of about 6%, compared with 20% in managed hosting market and 30+% in the cloud. Part of the reason for the difference is the migration of user workloads from dedicated servers to more flexible infrastructure environments, and by providing customers with that flexibility under one roof, Codero should be able to stem the tide of potential churn and encourage new growth. That the company is growing at an overall rate that looks a lot like our cloud market growth rates, in spite of half its new revenue remaining in its dedicated server lines of business, lends additional weight to the hybrid cloud model being adopted by many of the heavy hitters in the space.

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