In today’s world, where the standard cost model for public cloud platform services is per-use, it seems very misaligned that most cloud managed service providers (MSPs) continue to require traditional 12-month-plus contracts.
Most of these firms, and more traditional consultancies, that help you leverage and manage public cloud services have kept with standard multiyear contracts because their value proposition was that of a staff extension for your organization. But that value prop has been falling in value in the cloud world for quite some time. The reason: Increasingly, enterprise cloud consumption is shifting to app- and/or project-based — not a holistic consumption model. And companies that are investing substantially in public cloud platforms highly value the per-use cost model, especially as it relates to Agile development projects, test and dev cycles, and applications that benefit from flexible scalability. These latter apps benefit the most from pay-per-use capacity, as they can be scaled up on demand when customer engagement volume climbs and scaled back when traffic falls back.
Thus, we are seeing a significant rise in interest from CIOs to shift to cloud management contracts that are project-related and move away from traditional multiyear terms. The way this demand has mostly been addressed by leading firms has been through subcontracts within the standard multiyear commitment. This helps IT teams to tie specific parts of the consulting contract to projects and pass these costs on to product teams and business units that own these specific projects. But IT continues to be held responsible for the base contract, and in the case where the service provider fails to satisfy their needs, walking away from the service provider fully isn’t a realistic option.
Finally we’re seeing one of the leading cloud MSPs shift to an aligned per-use model. Rackspace this week announced the creation of its new Service Blocks, which shifts its business model from traditional MSP multiyear plans to outcome-focused engagements that are project-based.
As such, CIOs can now fully align their investments in cloud management and consulting to the per-use model on a per-project basis, which will drive up cloud consumption cost efficiency (as shown below).
Given that Rackspace has global expertise across all the leading public cloud platforms, plus private and hybrid cloud implementations, the benefits from this new pricing model can be broadly applied to your company’s entire cloud platform strategy and investments.
And like the public cloud platforms that have specific per-use pricing for each of the classes of services they provide, Rackspace is doing the same. If on one project you simply want the company’s help with architecture and deployment services, but on another you want it to help with data and security management, you can specify these needs and pay per use. And if at any time Rackspace fails to meet your needs, just as with the public clouds, you can drop the contract with them entirely.
This new offering is a fantastic example of an MSP that is shifting its core business model to respond to customer experience feedback. As we have documented in multiple Forrester reports, most companies tend to respond to customer feedback with operational changes, new services, new offerings, and tech-driven innovations. But most do not holistically shift their core business model, as this can raise enormous financial risks, and the most common internal resistors to transformational change are CFOs.
And this same executive could be a barrier to enterprise adoption of these new Service Blocks, as most CFOs want to see spending predictability from their IT teams (and other departments). If getting your finance team to buy into pay-per-use cloud service consumption has been an issue in the past for your firm, be prepared for this type of Rackspace contract to have the same impact. But, if you have overcome this barrier thanks to the increases in cost efficiency and execution alignment, now you can make the same case for cloud consulting. As noted in the “Cloud Foundation” and “Tooling” Service Blocks shown in the image above, many enterprises may find it easier to shift to this per-use basis while maintaining a monthly renewed baseline value prop to address their CFO’s change resistance. And in case this type of change resistance is broad in your company, Rackspace is keeping in place its traditional contracts for those firms unwilling to move to its Service Blocks model. So if your IT department or other teams are resistant to this new business model, you don’t have to move forward.
As my Forrester colleague, Bill Martorelli, pointed out, some enterprises will question: “Do I benefit as a customer by being able to walk away at a moment’s notice? What happens then? I still have to find someone to perform those services, so I have to have someone else ready to take over, even if it is myself, and transition the services and so on.”
Many cloud consultancies have justified your multiyear contract commitments to them because they bring in skills your team doesn’t have. But what you should be seeking from every consultancy these days is that it commits to training your staff in these new skill areas. This way, the consultancy helps you expand the value of your own IT team and shift your consultation focus from project to project rather than simply expanding the contract as you need more from them. And this focus is yet another CX-centric element of cloud consultancies’ modern business.
Collectively, Service Blocks and customer training by default sets up a model where, if Rackspace falls short of strong customer satisfaction, it is very easy for the customer to walk away. Thus, Rackspace must prioritize customer satisfaction as its top road map and skills development driver.
Action item — CIOs: Whether you are a Rackspace customer or not, use this business model change as a catalyst to push your cloud consultancies to be more responsive and aligned to your cloud strategy and business model.
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