As enterprises turn to public cloud services and managed service providers to meet their IT needs, colocation providers have seen their customer base gradually diminish. Infact, managed service providers now bring in five-times more revenue.

Colo providers are aware their traditional business models are no longer relevant and that they need to give enterprises what they want: the cloud. But incorporating cloud into their provision in such a saturated market won’t be simple. To have any chance of success, colo providers need to carve out what differentiates them from their competitors and implement the right technology to underpin their offering. But where do they start?

Service providers who got into the cloud game early seemed, at the time, to be more visionary. But for a colo provider looking to get into the cloud business now, there are advantages to being a little later to the table. Early cloud adopters are now burdened by a number of things, including poorly-performing legacy equipment that still has one to three years of remaining depreciation and older storage technologies that costs them a lot to maintain. They are also required to carry out deep quality assurance and testing in response to any change to a legacy system that typically has very poor APIs, or none at all.

Even if service providers were to adopt newer technologies like all-flash storage and iSCSI networking, migrating customers from one system to another can be disruptive and cause severe customer satisfaction issues. With the right strategy and technology, colo providers can become the proverbial small, agile ship in the harbour while the larger cloud providers are the lethargic vessels struggling to keep up with the fast pace of innovation.

Understand the need to differentiate

Determining the kind of cloud offering that makes sense for a colo’s business operationally, based on who their customers, is crucial for identifying who they’ll likely be competing against. Everyone uses Amazon Web Services or Rackspace as a point of reference, but many compete on differing value propositions. It is key for colos to build their value proposition based on why their current customers chose to do business with them in the first place. By looking at why they chose them for colocation, there is most likely a recurring theme.

Whether it’s proximity to a major point of presence, the availability of multiple bandwidth providers, or a trusted local brand, these are a colo’s established differentiators. And they need to build their cloud value proposition on the same core pillars.

They’ll find that by understanding why their customers chose them and what cloud services they are competing against; extending their business value proposition will be much faster, easier and less costly than trying to build a new cloud services brand from scratch.

Choose technology wisely

Now consider the technology used behind the scenes. Using strategic technologies to bridge the colocation-to-cloud gap can be a solid first step. The choice of technology is key to architecting a colos cloud offering (as is the decision to either build their offering from scratch or buy a “cloud in a box,” but more on that later).

If colos automate their solution as much as possible, then it means they’ll be delivering consistent quality services to their customers. And it will totally differentiate the service offerings from most of the competition.  Enterprises are simply looking for a guaranteed and predictable platform from which to host their applications. The hypervisor has become ubiquitous and most enterprises don’t care what is under the covers of the infrastructure until it comes to its underlying storage systems.

Colocation to the cloud: The hybrid approach

It’s unlikely that a colo will go from colocation to an Amazon-like cloud straight away due to complexity and the cost. Many colo providers begin by delivering private clouds to their colocation customers in what is called a hybrid model. Delivering hybrid cloud hosting services on top of their colocation business makes the jump into the cloud business a financially attainable and realistic business proposition.

Taking small steps by delivering hybrid-hosting offerings to their current colocation customers is an easy way to hone their cloud delivery and implementation skills. Their current customers will be more forgiving and more tolerant of small issues as they grow their hybrid cloud offerings.

The journey from colo to the cloud can be a little scary, but with some advance planning, the latest all-flash storage, a good understanding of customers and good timing —colocation providers can make the journey a successful one for their business.