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Press Release -- March 22nd, 2013
Source: Peak
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PeakColo: an infrastructure provider with a twist [451 Research]

Carl Brooks  451 Research  March 6, 2013

PeakColo is an infrastructure-as-a-service (IaaS) provider with a twist: it is 100% via channel delivery and does no direct sales. It operates an Amazon-style cloud infrastructure environment with all the trimmings: Web portal, APIs, on-demand, elastic capacity for servers and storage but the service is sold and consumed via PeakColo’s customers, which are in turn selling it directly to end users. This model is conceptually identical to the way software licenses and IT hardware are sold by value-added resellers (VARs), IT outsourcing, systems integrators and distributors. Of course, selling a live subscription service is a bit different from a packaged product.

IaaS

Founded in 2006, PeakColo has raised $11m in two rounds of funding; the series B round was led by Meritage Funds and Sweetwater Capital. It has 34 employees – most are at its Denver headquarters – and more than 100 clients. The company has eight IaaS nodes located in datacenters spanning from London to Seattle. This is a quid pro quo – the multi-tenant datacenters include FORTRUST in Denver and Digital Fortress in Seattle among others. The datacenters resell PeakColo to their cage customers and PeakColo sells to its VAR and IT services customers over the MTDCs’ pipe. PeakColo says it takes great care to avoid conflicts – it says 3-5 year non-compete agreements are typical, and doesn’t enter into such arrangements with MTDCs that have a heavy base in wholesale or with IaaS provider customers.

The IaaS service comes in three standard offerings – hosted private cloud that can be tuned to meet an organization’s compliance needs, hosted public cloud and white-label IaaS. It’s built on NetApp, Cisco UCS and VMware vCloud – PeakColo was an early vCloud Provider Partner (VSPP). NetApp, Cisco and VMware’s channel programs are important avenues for PeakColo, which uses them to identify potential clients and fulfills sales, credits and licensing for NetApp and VMware. PeakColo says it has some software IP built into its IaaS platform, especially around its Brocade appliances and NetApp storage, and says clients can offer competitive pricing at 30-40% margins on cloud storage. That isn’t an unreasonable claim because operating margins for pure-play IaaS providers are usually well above that anyway. PeakColo says that one of its larger efforts on the sales side is educating VARs on how to manage a recurring revenue stream vs. a unit-based revenue model. It recently joined VMware’s new Cloud Credits program, which VMware hopes will sweeten the pot for resellers with prepaid vouchers for use with VSPPs.

While VMware is attractive as a match for end users in the enterprise, it has disadvantages for a pure-play cloud provider; licensing costs are burdensome compared with building out on open source software, and the provider is tied to VMware for the development roadmap. Right now, the pitch to a VAR is ‘your customers use major IT vendors like VMware, and we are compatible,’ so the onramp will be an easier sell. However, that compatibility comes with passing on those licensing costs; all a competitor has to do is undercut VMware on price and accessibility, and PeakColo may find VMware a millstone instead of a pedestal as prices come down and workload portability improves.

PeakColo says it targets mid-sized resellers and IT firms that are feeling pressure to supply IaaS but have limited talent and capital available. Customers are diverse within the channel, including firms like Arrow Enterprise Computing Solutions, CDW, Avnet Technology Solutions and Lewan & Associates.

Competition

Founded in 2006, PeakColo has raised $11m in two rounds of funding; the series B round was led by Meritage Funds and Sweetwater Capital . It has 34 employees – most are at its Denver headquarters – and more than 100 clients. The company has eight IaaS nodes located in datacenters spanning from London to Seattle. This is a quid pro quo – the multi-tenant datacenters include FORTRUST in Denver and Digital Fortress in Seattle among others. The datacenters resell PeakColo to their cage customers and PeakColo sells to its VAR and IT services customers over the MTDCs’ pipe. PeakColo says it takes great care to avoid conflicts – it says 3-5 year non-compete agreements are typical, and doesn’t enter into such arrangements with MTDCs that have a heavy base in wholesale or with IaaS provider customers.

The IaaS service comes in three standard offerings – hosted private cloud that can be tuned to meet an organization’s compliance needs, hosted public cloud and white-label IaaS. It’s built on NetApp, Cisco UCS and VMware vCloud – PeakColo was an early vCloud Provider Partner (VSPP). NetApp, Cisco and VMware’s channel programs are important avenues for PeakColo, which uses them to identify potential clients and fulfills sales, credits and licensing for NetApp and VMware. PeakColo says it has some software IP built into its IaaS platform, especially around its Brocade appliances and NetApp storage, and says clients can offer competitive pricing at 30-40% margins on cloud storage. That isn’t an unreasonable claim because operating margins for pure-play IaaS providers are usually well above that anyway. PeakColo says that one of its larger efforts on the sales side is educating VARs on how to manage a recurring revenue stream vs. a unit-based revenue model. It recently joined VMware’s new Cloud Credits program, which VMware hopes will sweeten the pot for resellers with prepaid vouchers for use with VSPPs.

While VMware is attractive as a match for end users in the enterprise, it has disadvantages for a pure-play cloud provider; licensing costs are burdensome compared with building out on open source software, and the provider is tied to VMware for the development roadmap. Right now, the pitch to a VAR is ‘your customers use major IT vendors like VMware, and we are compatible,’ so the onramp will be an easier sell. However, that compatibility comes with passing on those licensing costs; all a competitor has to do is undercut VMware on price and accessibility, and PeakColo may find VMware a millstone instead of a pedestal as prices come down and workload portability improves.

PeakColo says it targets mid-sized resellers and IT firms that are feeling pressure to supply IaaS but have limited talent and capital available. Customers are diverse within the channel, including firms like Arrow Enterprise Computing Solutions, CDW, Avnet Technology Solutions and Lewan & Associates.

The 451 Take

The channel market for IT goods is enormous. Collectively it moves more money than any other sector or vendor: it’s the trenches of everyday IT business. As IaaS has become more normal, more available and bigger vendors move into the trend, it’s natural to see an expansion of a channel to deliver these services. It’s a bit more of a technical challenge, but the value proposition remains the same. VARs and SIs that move product are the ones close to the customer base, and that base is asking for IaaS (and mobile and a host of other trends). There is a rich vein of opportunity for ‘arms dealers’ of all stripes to cultivate the channel and IaaS is no different. PeakColo has a straightforward pitch and a comfortable runway to continue to grow.

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