By Mark Shirman

As I travel around the Globe and talk to business and technology leaders about the Cloud, it's clear to me that there is a ton of misinformation and hype about the Cloud and the pace of adoption in the marketplace. As with any major shift in paradigm, everyone will try and hijack the message and apply it to their own business. Nowhere is this more evident than with the large community of service providers in the market.

Even two years ago, signs all over major airports large OEM’s advertised “we will take to the Cloud” or “we will help you with your Private Cloud”. Which to me was another way of saying, keep buying our stuff and put it in your data center, we will still wine and dine you and feed you a ton of shrimp. The reality is the real promise of the Cloud is an efficient IT as a Service infrastructure that at times can be free from OEM lock-in, and markups. Expand this messaging to Service Providers most of which have some sort of Cloud Offering.

Most Service Providers make their money by filling up data centers with private co-location and/or managed server/network offerings. These can be high margin deals and the amount of efficiency from an infrastructure standpoint is really dependent upon the customer. The Cloud can take this offering to another level, however usually at a much lower price point than simple co-location or managed services. Add to this Amazon’s continual downward pressure on pricing Cloud offerings, and you have a situation where Service Providers may have to cannibalize their high margin businesses in order to compete in the Cloud.

This won’t be the first time a major shift in technology forces companies to take short term margin hits that are outside their comfort level. I grew up in Rochester, NY. This was the epitome of a company town with Kodak at the center. Kodak passed up investing in the digital technology they in fact invented. The margins in film were better, unfortunately those margins had no longevity.

Watch what happens to many of these Service Providers in the next few years, the parallels to Kodak, may be very relevant.