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Alternate Cloud Providers Like Linode Are Better Suited For Small Businesses


Guest: Philbert Shih
Company: Structure Research
Show: Let’s Talk

I sat down with Philbert Shih, Managing Director at Structure Research, to explore the factors that help small and medium enterprises (SMEs) & small and medium-sized businesses (SMBs) select their cloud providers.

Structure Research was founded 10 years ago in Toronto Canada as a research firm of analysts focused on the infrastructure services space. Their organization has seen, during the 18-month long pandemic, an acceleration of cloud infrastructure. Such an acceleration has led to faster deployment and the removal of barriers. To that end, Philbert Shih, Managing Director at Structure Research, says, “We follow the results coming from the public markets and not just the hyperscale guys, but also the SMB-oriented providers. Providers targeting SMBs are all showing tremendous growth and, in fact, are positioning for accelerated growth throughout ’21 and into ’22.” This has led analysts, like Shih, to conclude that the cloud has become mainstream and will be a mainstay going forward.

As to what has inspired this digital acceleration, Shih believes it was both the pandemic and a natural trajectory. He also believes the adoption has always been incremental. To that, Shih states, “The first early adopters of cloud moved a single workload or a single application, email server, website, but they didn’t think in terms of running their entire organization, going all-in on cloud, whether you’re a large organization or a small one.” Now, Shih believes the pandemic has changed the way everybody lives, the way businesses run, the way services are provided, the way people communicate and socialize. All of this has caused businesses to rethink acceleration.

Unlike larger enterprises, SMBs aren’t trying to run their entire organization in the cloud, but instead are “trying to solve a certain problem.” Shih uses a restaurant as an example that can’t serve or have in-restaurant dining. Those types of businesses had to figure out a way to make offering takeout easier. This, according to Shih, is a really big change. He says, “I think the urgency that people require is  just again brought on by this environment.” Shih adds, “And I think it’s interesting because the way small businesses consume cloud has always been reactive and often word of mouth.” Everyone has a friend that knows technology and the cloud and because small businesses have never been overly organized or sophisticated, they tend to turn to friends and other contacts for such information.

Shih also believes that reputation and trust play a major role in SMEs selecting a cloud provider. Beyond that, it’s all about simplicity, ease of use, predictability, user experience, and trust. On the subject of trust, Shih talks about the levels of trust: Initial trust, interacting with the services, and the reputation of the provider.

Shih also discusses how smaller cloud providers align with SMBs and how it comes down to the human element. But “…ultimately, you choose a cloud infrastructure service just like you choose a car or a jacket you buy. Everybody has different tastes and requirements, needs, and that’s how they ultimately make their decisions,” he quips.

He also adds, “And when it comes to cloud infrastructure, it’s the same thing. Am I looking for a toolset and a platform? Do I have a lot of technology resources to work with it, to work on my own?” According to their research, for a lot of SMEs/SMBs, the answer to that is no. What small to mid-sized businesses are looking for is a cloud technology platform, operating at scale, that comes with a support and service wrapper they can trust.

Summary for this interview/discussion was written by Jack Wallen

Here is the full, rough transcript of the interview.

Swapnil Bhartiya: Hi, I’m your host Swapnil Bhartiya and welcome to Let’s Talk. We used to say that every company should be a software company and that no company can survive without software as part of their core strategy. Today, same can be said about the cloud, especially in the post pandemic world where I think the world is literally running on cloud. But when it comes to small and medium businesses, when they have to build their digital transformation or cloud strategy, things become a little bit more complicated because sometimes the CEO is also the owner and the CTO and the decision maker. So what factors, including factors like trust, play their role? How do these small and medium businesses plan their digital transformation or cloud strategy? To talk about this topic today, we have with us Phil Shih, Managing Director at Structure Research. Phil, it’s great to have you on the show.

Philbert Shih: Thanks for having me.

Swapnil Bhartiya: I would love to know a bit about the company Structure Research. So what do you folks do? What are you all about?

Philbert Shih: Yes, happy to share. I’ve been following the infrastructure services space, data centers, cloud managed hosting for over two decades. We founded Structure Research 10 years ago in 2011 here in Toronto Canada, where I’m dialing in from. We’re a, we like to think of ourselves as a boutique research firm. We’re a smaller group of research analysts, six analysts, a company just less than 10 people, but we spend all our time on the infrastructure services space. So we live and breathe this sector. We follow service providers and our research and all the kind of commentary and insights and market share analysis that we do is focused on cloud providers and data center operators.

Swapnil Bhartiya: What kind of trends, exciting trends you are seeing in the cloud space, which you’re like, now there are two kinds of trends, right? One is that we see the natural progression and one is that a release something that was like oof, we did not even expect that. So talk about that. What are you seeing there?

Philbert Shih: I think what’s really just surprising and is exciting has happened during this, I guess, 18 month long pandemic that we’re living through, it’s the acceleration of cloud infrastructure. It’s the kind of widespread understanding of what the cloud is and how it can enable businesses.

You know, the depth of that understanding just hasn’t been there. It’s always kind of creeped up year by year, especially in the small business sector. And so just it’s unbelievable what businesses, how fast they’ve been able to deploy, kind of just new business models or new business lines, selling in a different way, selling different products and services with use of cloud technology, how easy that is to get started, how the barriers have come down. And so that’s, to me, that’s the most exciting thing that’s out there. And then, every day it just never ceases to amaze me how surprising and how steady and how much more of this acceleration is happening and is yet to happen.

You know, we follow the results coming from the public markets and not just the hyperscale guys, but the SMB oriented providers, SMB hosters are all showing tremendous growth and in fact, are positioning for accelerated growth throughout ’21 and into ’22. So it’s exciting times, I think cloud has become mainstream and it’s going to be a mainstay going forward.

The fact is that a lot of companies, they were already planning, you know, we have been talking about digital transformation for ages now. But did you see any acceleration that companies picked up momentum because of the pandemic or it was just a natural curve or trajectory?

That’s a great question. I would say it’s a bit of both. But I think this kind of sector adoption has always been incremental. The first early adopters of cloud moved a single workload or a single application, email server, website, but they didn’t think in terms of running their entire organization, going all-in on cloud, whether you’re a large organization or a small organization.

And so what we’ve seen now is the urgency in an environment that has just changed the way everybody lives, the way businesses run, the way services are provided, the way people communicate, socialize. All of that I think has just caused a dramatic rethink or an acceleration of what was already known but perhaps was not prioritized. And so that’s across the business sector or around our lives and around the cloud industry having to kind of scale to support that growing adoption. And so, yeah, I mean, I think it’s kind of almost like a perfect storm of events that is driving the growth in this industry.

Swapnil Bhartiya: Now let’s just narrow down on small and medium businesses, which is kind of today’s focus. What kind of adoption of cloud, public cloud have you seen in this business space because as we were, you know, kind of initially, because their challenges are a bit different than a large enterprise, where in a large enterprise, they talk about multicloud and every team is running their own cloud, but small businesses, they have totally different needs and challenges. So how are they embracing adopting cloud? What are you seeing there?

Philbert Shih: I think for the larger enterprise, it’s more strategic in many ways, but for small organizations, what’s important is that they are trying to, in many ways, not necessarily run their entire organization on cloud, but they’re trying to solve a certain problem, right.

So if it’s a restaurant, you know, we can’t serve, we can’t have in-restaurant dining, then we’re going to have to figure out a way to do takeout and how can we make that easier? How can we transact online? How can we take online reservations? How can we maximize our business given the environment that we’re working in? So it’s that kind of reacting to that kind of situation and then asking a service provider, a cloud provider, okay, what kind of infrastructure services do you have? What kind of help and guidance can you offer me? How much will that cost and how fast can I get that up and running?

And so that’s a really big sea change. And I think that’s just again brought on by this environment, the urgency that people require. And I think it’s interesting because small businesses, the way they consume cloud has always been reactive and often word of mouth. You know, everybody has a friend that knows technology, that knows cloud. And so small businesses have never been really overly organized or sophisticated about how they procure this stuff. You know, sometimes they’ll call a friend, sometimes they’ll take that person, let’s say it’s a 10 or 20 person team, they’ll ask that person who knows something, who knows a little bit about this technology, or knows a service provider they can recommend. And that’s often how things get started. That’s obviously still the case for many businesses, but as well, the learning curve, people are moving up that learning curve and becoming more familiar and being able to make more informed and more complex decisions and choices about what service provider they use for cloud.

Swapnil Bhartiya: Are there certain factors that you have identified that do play a role in these SMEs and SMBs’ selection of their cloud provider?

Philbert Shih: Yeah, absolutely. I mean, there’s so many, you know, every decision, every small business that makes a choice around a service provider is driven by different factors, but in the small business space, like I said, it’s often, you know, it can be as straightforward, hey, I’ll ask my friend and get that recommendation because that recommendation translates into trust. Hey, my friend, or my colleague who has experienced with this service provider already, had a good experience. And so I can, that’s kind of their way of assessing reputation of that service provider.

I think a big thing as well, these days beyond reputation and trust, that’s, I guess a minimum bar, you know, people go online and read about providers. They do a little bit of basic Google research, and then they go to the website and try to get familiar.

And so when they get there, simplicity, ease of use, these factors are top of mind among SMB users. They’re thinking, hey, maybe this is not, you know, I’ve not used the cloud before or I’m trying to use it more. How easy is it this? How can my business, you know, do I have to hire people or can I do this myself in just a few hours and get what I need and get up and running? And so, ease of use of the website, how easy is it to find a phone number or email, or to open a ticket to ask a question, whether in real time live, or how long do I have to wait to get an email response? They want to know things like that.

How does the portal experience, the management interface look? Is it easy for non tech savvy people to use? Is my bill going to be predictable? Is it going to be something that I have to understand how it works in terms of my usage? Is it going to come on a monthly basis, can I expect some surprises as can often happen with different models such as the public cloud.

And so that’s just a short list of the potential things that people have to consider, but fundamentally at a base level, it’s about getting familiar, having some kind of intangible level of trust. And then the user experience is it comfortable, is it easy to use. That is much more, I would argue, is more important than say specific feature by feature or specific price points. I think it’s the overall experience and comfort that people have. Many small businesses don’t have a ton of experience working with this kind of technology.

Swapnil Bhartiya: When we look at small and medium businesses, what does this trust mean? That, hey, you know what, I trust my cloud provider, but the trust could mean so many different things for different people.

Philbert Shih: Yeah. I mean, there’s so many levels to it, but as I mentioned, I think there’s that kind of initial trust. Does someone I know have success with it? Is it a brand maybe I’ve seen a commercial for? Do I do a quick search and do I find anything really bad about the company? You know, things like that are kind of like stage one, developing trust.

Interacting with the service, interacting with people there develops kind of another level of trust. Do I have a positive experience with the person I call into and ask questions or ask for customer support? Do they talk to me in a way that I can understand? Are they condescending? Are they helpful? You know, if you get positive answers to those questions, then trust builds to another level.

And so I think that’s really important and then of course, interacting with the service. Does the service go down? Are the new products and services, are the new products and features easy to use? Are they presented to me in a way that I can consume them?

So I think, trust, you kind of want to think of it as a process in many ways. It doesn’t happen just from day one. I think you have to use the service over time. And so, we find that a lot of SMB providers do like the fact that the service provider they’re working with has been in the market for a while, has the reputation, has 10, 50, 100,000 or more customers that are on that infrastructure platform. That certainly gives people a level of comfort. They’ll think, hey, well, if so many people have used the service and their businesses haven’t blown up, mine won’t either.

And so, yeah, it’s all of the above and it is very much a process. And like I said, the repeated interactions and trials and interaction with the service kind of slowly builds. And that’s why there’s so much, especially for the top providers in the market, whether they serve SMB or large business, that’s why a fundamental quality of this business is that churn and customer movement happens at pretty low rates. People tend to get on a service and are loathe to move off it if they’re comfortable.

Swapnil Bhartiya: When it comes to small and medium businesses, one thing that does play a role sometimes, not all the time, is also that when they do interact with large companies, they are just another ticket. They just follow the ticket chain. If there’s a problem, there is nobody going to pick up the phone in most of the cases. So sometimes we kind of tend to get involved with the relatively smaller player where we are not another cattle, we are more or less like pet where somebody actually cares about us and want to listen to us and solve the problem. So from that perspective, if you look at, of course, the hyperscalers, AWS, Azure, Microsoft, Oracle, IBM, you can name, they’re all there. And there are alternative cloud providers like Linode, which kind of, you know, Linode has been around for so long. They kind of started off in cloud before AWS was a thing. So do you see that these alternate cloud providers kind of offer better value for all the factors, that you played a role, that they have been around for a while? They have a customer base, at the same time, they actually do care about their users?

Philbert Shih: Yeah, I mean, ultimately at the end of the day, these are services, right? And service experience is so critical to the SMB and what drives their decision and their level of trust and comfort with the service.

I would argue that if you think about the large public clouds that you mentioned, those are kind of businesses that are not built around service experience and dealing with customers, interacting with customers not just on a regular basis, but even once in a while. I like to think of it, the best way I think to think of it is to think of hyperscale or public cloud as platforms or tool sets and some of the SMB slash alternative clouds, like Linode as a service, you know, a platform within a wrapped service experience wrapper.

If you kind of draw that line down the middle, I think that’s pretty much most SMBs are not going to cross that line. They’re not going to want, they’re not going to, they’re going to choose the service experience. They’re going to choose the human element. They’re going to choose all the things that tend to come in a different way, or for many SMBs, just an unusable way when it comes to the public cloud platforms. It’s not a good or bad thing, I often say it’s just different.

And that’s ultimately, you choose a cloud infrastructure service, just like you choose a car or a jacket you buy, those clothes you buy at the store. Everybody has different tastes and requirements, needs, and that’s how they ultimately make their decisions.

And when it comes to cloud infrastructure, it’s the same thing. Am I looking for a tool set and a platform? Do I have a lot of technology resources to work with it, to work on my own? A lot for the SMBs, the answers to that is no. So what’s out there for them, a good technology platform that have been operating in scale, but also come with that support and service wrapper and that’s ultimately at the end of the day, what pushes SMBs to this kind of alternative sphere of providers and why they’ve done so well, as I referenced at the beginning of my comment.

Swapnil Bhartiya: One more thing is when it comes to ease of use, when we do look at hyperscalers, they offer way too many services. You actually have to be a mathematician just to understand their price point and just go to the labyrinth of services they’re offering and all those jargons that are being used. Versus when you go to somebody like Linode’s site, you know, hey, these are the three things that I need, and these are three things they’re offering, it’s done. So how much role does that also play? Because in most cases, most SMBs don’t even understand these terms.

Philbert Shih: Absolutely. As I mentioned, the service experience, the ease of use, those are critical. It’s pretty much some of those very advanced and complex and technical services are just out of the realm or just out of the reach, I should say, of SMB users.

And that’s why the best SMB services are those that are designed to fit those few unique, few specific requirements that an SMB has. Linode has been around for a long time and has that kind of historical context and experience of dealing with tens, hundreds of thousands of users and have tweaked and refined their service to accommodate that type of customer profile. And that’s why it’s a superior option for so many SMBs because the provider has taken that experience and basically built something for them specifically for them that is meant to fit for them. And just to go back to the shopping analogy, it’s like having something that if are you buying a suit off the rack, or were you buying something that’s a little more bespoke or made to measure? In this case it’s made to measure for the SMB.

Swapnil Bhartiya: Phil, thank you so much for taking time out today and talk about the trends and the value and importance of alternate cloud providers. And I would love to have you back on the show to discuss more trends in this space. Thank you for your time today.

Philbert Shih: Thank you. Look forward to next time.