The Economics of an In-country Cloud Business – Understanding Costs, ROI, Opportunities and Your Market.

In our previous post, we discussed the basics and the economics involved in setting up an in-country cloud business. We also talked about the costs, revenues and the long term returns that you can generate from the cloud business. In this post, we’ll walk you through the details of why domestic public cloud business is an opportunity to pursue. We’ll take a look at why local data centres, ISPs and telcos are best suited to take advantage of this opportunity. We have demonstrated with example and a complete playbook, a sample business case that helps understand the capital expenses, operating costs and the ROI of setting up a public cloud. Finally, we’ll see what kind of enterprises you can sell your newly setup public cloud to.

Let’s take a look at ‘why’ and ‘how’ you can start a cloud business:

Why start a domestic public cloud business?

A large number of businesses and enterprises today depend on public clouds to deliver their services. Whether it’s government organisations or local businesses, the demand for public cloud services has consistently grown in the past decade and a half. Today, 77% of the cloud services market is dominated by the hyperscale cloud providers – AWS, Google Cloud and Microsoft Azure. In spite of their superiority in terms of market size, they do not have the reach in those geographical locations that have data localisation regulations. Other reasons for not expanding into certain markets is that the market sizes aren’t large enough for them to set up and effectively run a cloud service.

Geographical location has become a key differentiator in the public cloud business. This is exactly why domestic cloud service providers have emerged. They can cater to the cloud infrastructure requirements of the regions more effectively and offer better latency, cutting edge tech stacks, local currency billing along with compliance with the local data residency laws. These benefits stack up as powerful competitive advantages for enterprises who choose domestic public clouds.

Why would enterprises, start-ups and local businesses be interested in your domestic cloud offering?

Capital and operating expenses: With local cloud services, businesses find it easier to hire infrastructure rather than outright purchase of hardware and software. This helps them reduce their capital and operating expenditures. Renting storage and complex disaster recovery plans that are offered by cloud vendors is a plus. Cloud vendors help them reduce the operating expenses on server maintenance and applications.

Better management of storage: Single storage location enables them to better manage their files and documents. The hyperscalers only localise the storage. Localised cloud computing is much more than just that.

Resources: Enterprises get the flexibility to scale up or down their use of bandwidth and storage based on their needs. Cloud service providers protect their cloud infrastructure physically and digitally by using the best encryption, anti-malware, and antivirus tools.

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There is high demand for local currency billing for cloud resources: The hyperscale cloud providers usually bill in dollars. For larger transactions such a gap can wreak havoc with working capital management. In-country cloud services bill customers in the local currency. As a result, customers avoid foreign exchange shocks and manage their operating expenses better.

Enterprise’s tech teams demand low latency services for better end-user experience: In-country cloud service providers because they can deliver quick and more personalised services and full-fledged tech support when their clients need it. Also, they can offer limitless options for stacking technologies and customize price plans because their scale allows them greater flexibility in designing service offerings.

COVID-19 has accelerated digital transformation and cloud adoption: In the post COVID 19 world, with work from home becoming mainstream, businesses are looking for ways to collaborate with internal and external teams. They want to have their business applications, data, and processing in the cloud to enable their employees and partners to work independently of their location. Public cloud service providers are best placed to meet this surging demand.

Cloud minimises technical and business risks: Cloud is a highly low risk solution for businesses and enterprises. It eliminates the upfront costs for procuring hardware. You have an option to reuse existing or spare hardware. Technical and business enablement support eliminates the costs that might be incurred for knowledge and manpower too. It also offers the shortest time to go live.

Why are service providers the best people to start a public cloud service?

It’s evident that starting a domestic public cloud that caters to the technology requirements and local data regulations is a good opportunity in the current market scenario. Local ISPs, telcos and data centres are best suited to take up this opportunity. They have the required infrastructure that creates a strong foundation for building a cloud setup. They also have strong existing relationships with many businesses and customers which works to their advantage while selling their cloud offerings. They already possess the key assets required to provide cloud services – a broad base of enterprise customers, data centre space and an extensive internet backbone. Building and managing public cloud services extends their current strengths and they can reach out to the markets and satisfy their technology requirements in a much better way than new entrants or non-local cloud players.

A business case for a starting set-up of a public cloud service

Let’s now take a look at the expenses incurred and how long it will take you to breakeven for capital expenses as well as operational expenses and ultimately see ROI. We have worked with public cloud setups of all sizes. Having designed cloud services for both – bare minimum requirements and with large data centre customers servicing hundreds of users, we’ve seen that a bare minimum starting set-up needs 3 hosts and can earn up to $240,000 in yearly revenue.

Also Read – The Rise of Cloud Repatriation: Balancing Cost and Performance in the Cloud Landscape

For example, let’s take a look at a business case with a minimum configuration of 100 physical cores. With 3 hardware hosts and 800 virtual cores and with average VM size of 4VCPU 8GB, here’s a handy playbook to calculate your break even and ROI if you sell max. 200 VMs.

Let’s take a look at an example business case with a minimum configuration of 100 physical cores. This would be possible with 3 hardware hosts and you can configure 800 virtual cores with average VM size of 4VCPU 8GB, here’s how the cost works out if you sell around max. 200 VMs.

Kshitish Purohit

Kshitish is a ‘startup expert’ and has been involved with early stage startups, seeing various phases of growth, for more than 15 years. A specialist in Product Management, User Experience, Technology and Product Growth/Strategy, Kshitish is a seasoned entrepreneur with deep expertise in building enterprise products and horizontal/vertical SaaS. Kshitish did his PG in Product Design from NID, Ahmedabad.

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