Public pricing via enterprise services: CenturyLink cloud

The blogosphere was abuzz this spring with speculation that the much discussed and long anticipated cloud pricing war is upon us, and with good reason. Google’s chop of its Cloud Platform pricing from 32 percent to 85 percent at the end of March was followed the next day by Amazon’s price reduction on many portions of its Amazon Web Services by 36 to 65 percent, and a week later, Microsoft slashed prices on various services by 27 percent to 65 percent. By the first of May, CenturyLink Technology Solutions (CTS) had entered the fray with dramatic price reductions that would see a CenturyLink VM reduced to 60% of its former cost. But is this the ‘race to the bottom’ that market watchers have been slavering over? As with many issues in IT, the answer is ‘it depends’ — in this case, on the type and scope of service that are on offer and the wiggle room these price ranges imply. A closer look at many of these price cuts shows that the greater reductions are typically associated with commodity cloud services — Microsoft’s 65% reduction, for example, affected storage services, and coincident with this announcement, the company introduced a new tier of basic VMs priced at 27% of the cost for standard instances.

Andrew Higginbotham - CenturyLink
Andrew Higginbotham, SVP, cloud & technology, CenturyLink

Interestingly, CenturyLink claims to have established parity with pure-play cloud providers on the pricing front, while maintaining, and in some ways, augmenting services. As Andrew Higginbotham, SVP cloud & technology at CenturyLink noted in a blog post on the day price reductions were announced, "The CenturyLink Cloud is the same or is less expensive than every AWS m3 server type and EVERY equivalent AWS c3 (compute optimized) server type for CPU + RAM." But Higginbotham also contrasted CenturyLink’s "built-in management, orchestration and platform services that enable hybrid cloud solutions across our data center service portfolio," with a "bolted-on strategy" that other providers have followed, pointing to these integrated services as a differentiator for the company and as fulfillment of its promise of enterprise class delivery.

With its price reductions, the company has also introduced new support bundles to accommodate what CenturyLink CTO Jared Wray called a "market that has matured." To delivery support that is appropriate for businesses that may be at different stages of cloud deployment, the company has analyzed seven years’ worth of support request patterns, developing a list of the most commonly requested work items to create a new menu of service tasks — 15 work items that are priced on an hourly basis, Wray explained. Customers will access these "a la carte services" through three support tiers, selecting from the list of the most popular NOC service items, or working with professional services for more advanced requirements. According to Wray, "This approach is a big win for businesses in terms of choice and flexibility.  It’s also worth noting that a comparable level of support, combined with the new pricing, is still a major cost reduction for customers."

JaredWray, CTO CenturyLink Cloud
JaredWray, CTO CenturyLink Cloud

Is it possible to square the circle, i.e. cut prices while maintaining service levels? In conversation with InsightaaS, Higginbotham answered with a resounding ‘yes’, offering some interesting commentary on how this has been achieved at CenturyLink. Over the past four years, build out of the company’s cloud, managed hosting and IT services strategy has been a key focus and important component of overall growth to $19 billion. Designed in some part to compensate for the decline of legacy communications services revenues, the IT/cloud business at CenturyLink has been viewed as a growth initiative, "with tremendous investment in terms of acquisitions, over the last three of four years to build out the portfolio," including purchase of the Qwest MPLS and Savvis data centre footprints, which position CTS as the second largest US data centre provider, as well AppFog and Tier 3, which now serve as the platform foundation for cloud services. For CenturyLink, cloud and managed IT also function as a complement to the company’s data centre and network businesses (CenturyLink is the 3rd largest communications provider in the US) — a growth initiative as opposed to defence against the erosion of software licenses or the means to recover declining server revenues Higgenbotham intimated may be motivating other cloud providers. As a result, he observed, CenturyLink has been able to apply huge focus to its cloud and IT managed services.

So what has this focus enabled? In a nutshell, competitive public offerings achieved through a readjustment of above market pricing characteristic of the pre-acquisition Tier 3 business, this enabled in turn through leverage of the CenturyLink network, and supported by the breadth of services that CenturyLink enterprise customers typically buy. Higginbotham noted: "you have to be relevant, and in lock step with the market for pricing on public cloud. To our customers we said ‘you don’t have to go to another cloud provider, we are committed going forward to being lock step with the market’." However, with its own network assets, CenturyLink is able to provide competitive rates on bandwidth (pricing will be $0.05 GB out/per month for public cloud), effectively undercutting pricing to scale through ownership of network infrastructure. The company has also worked hard to combine Savvis data centre assets and the new AppFog/Tier 3 platform, and to distribute customer workloads across 9 and ultimately 16 planned cloud facilities, with the ultimate goal of enabling delivery of a hybrid infrastructure solution across all CenturyLink colocation, managed hosting, and cloud network offerings. While the likely adoption model going forward, hybrid infrastructure represents a complex proposition for most organizations with legacy systems which will be best addressed through a solutions approach, rather than commodity services.

In Higgenbotham’s view, the breadth of services associated with this unified platform are what enterprises need, and what differentiates CenturyLink from the pure play cloud providers. But technology innovation is also delivering the efficiencies needed to scale (and reprice). "With what we bought with Tier 3, we now have what we think is the most automated enterprise platform, which is now CenturyLink cloud," he explained, and with "56 data centres, and a global network, scale is not an issue for us from a capital standpoint and it’s certainly not an issue from a growth standpoint. And while Moore’s law will deliver increased server efficiencies, the companies he believes will succeed will those that continue to develop new, innovative services. The company’s Seattle Cloud Development Center, for example, delivers on an agile 21-day release cycle: "We are a pace setter in cloud innovation," Higgenbotham concluded. "Since November, we’ve delivered more new cloud services than 75% of the Gartner MQ providers combined."

CenturyLink’s cloud strategy appears to be paying off, helping the company to reposition as a B2B provider and to grow associated revenues: while ten years ago, 90% of company revenues were derived from the consumer customer base, today, the majority (60%) of CenturyLink revenues come from the business segment, and the enterprise more specifically (CTS serves 98% of the Fortune 500). On the business side, hosting and cloud services are growing the most quickly (currently sit around $1.3 billion); in the last 150 days, public cloud infrastructure deployment increased by 50%, rapid scale by any measure. "CenturyLink is focused and is taking this competition seriously," Higginbotham explained.

 

 

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