When Dell announced in May that it would be getting out of operating its VMware vCloud infrastructure-as-a-service product, the company indicated it would farm the operation of those services out to a group of partners that includes ScaleMatrix, Joyent and ZeroLag Communications. Dell will continue to offer a similar cloud service, even expanding into some of the capabilities of Joyent and ZeroLag.

For ScaleMatrix, a relatively small young regional colocation player with a growing national business in a VMware cloud product very similar to Dell's (and the datacenter and capital resources to handle growth), the arrangement provides a significant and immediate leg-up in the cloud space. The influx of Dell customers migrating to ScaleMatrix facilities more than doubles the company's current cloud business. The inclusion of the service in Dell's ongoing sales efforts represents a significant source of future business for the company.

Dell's partnership and cloud brokerage strategy

The three partners mentioned in Dell's announcement would supply Dell customers with different types of cloud services. ScaleMatrix will take over for the public multi-tenant cloud product – the VMware cloud product Dell had previously operated in-house – whereas the other two will enable Dell to add new services and offer a more complete menu of cloud products where it hadn't previously. Joyent's service is an on-demand, utility-billed IaaS product more directly compatible with Amazon Web Services. ZeroLag will provide cloud-hosted applications, including Microsoft Exchange.

ScaleMatrix's role in that mix means the company will take on the bulk of Dell's existing US-based cloud business from Dell Datacenter Services. The company indicates it is currently migrating hundreds of Dell customers into its facilities in Houston and San Diego. Dell will continue to support its own enterprise-focused private cloud product, and will also make ScaleMatrix's smaller-scale private cloud offering available at some point. Dell has more than 1,500 sales staff with some responsibility for cloud products, which ScaleMatrix expects to mean a significant boost to the uptake of its cloud services.

The move toward partner-hosted cloud infrastructure meshes strategically with Dell's acquisition in May of Enstratius, a cloud management and enablement platform that enables users to manage hybrid clouds across on-premises and public cloud environments. By moving from an in-house cloud product to a collection of partner-supplied cloud platforms, Dell will be able to present customers with the management tool, as well as several flavors of cloud services on a single invoice (although customers would also be able to manage other public cloud services via Enstratius).


ScaleMatrix is a relatively new entrant to the colocation and cloud space. Incorporated in 2010, the company opened the doors on its core San Diego datacenter facility in Q4 of 2011. It has since opened datacenter space in Houston and expanded its facility in San Diego. At the beginning of 2013, the company opened a business continuity center offering colocation and cloud computing space for disaster recovery, as well as dedicated seats in a temporary office space environment. The company indicates it has 90,000 square feet of space deployed between the two facilities, with 255,000 square feet of expansion capability between the two locations. The company is planning a facilities expansion to the east coast.

ScaleMatrix indicates that the fact that it operates its own facilities, as well as its existing capacity and ability to expand that capacity, was a key factor in the company's appeal to Dell as a partner capable of supporting the potential demand for cloud services. Its access to capital was another factor. ScaleMatrix's initial growth-stage funding came in large part from one of its founding partners, board chair Paul Marble. Management indicates the company has access to a capital commitment of $50m, of which it has only scratched the surface to date. As a result, ScaleMatrix says it has the flexibility to build out infrastructure significantly on short notice.

The privately held company is reluctant to share many financial details, but management indicates current sales trends point to revenue potential of more than $15m for 2013, which would represent an increase of more than 500% over 2012 numbers. The company currently has more than 75 employees, about 15 of which have joined the company to support the deal with Dell.

The ScaleMatrix cloud platform

A relative newcomer to the datacenter space, ScaleMatrix came out of the gate with a product set that includes both cloud and colocation, a mix that many legacy multi-tenant datacenter providers are currently pursuing, since it provides the potential to serve a more complete IT lifecycle.

Originally, ScaleMatrix's cloud platform was based on the AppLogic platform from CA Technologies. The company was one of the largest integrators of the AppLogic platform, and took on several High-profile customer environments in partnership with CA. It still supports the platform, which it indicates is effective in enterprise and service-provider environments. However, ScaleMatrix has since expanded its cloud products to appeal more to SMBs and small enterprise custmers. In 2012, the company began building out the VMware-based cloud offering it is delivering through the Dell partnership. The VMware cloud addresses the base of IT users already entrenched inside organizations. ScaleMatrix currently operates hundreds of VMware nodes. It runs discrete internal networks for storage, network traffic and bandwidth, enabling customers to choose between 1Gb and 10Gb backplane connections, depending on the needs of their environments. The company also offers on-demand cloud storage services and geographically diverse disaster-recovery options, and indicates that Dell will be able to sell both of those services.


Competition in the colocation space is often regionally focused. ScaleMatrix believes it is a disruptive force in the San Diego market (where providers can sometimes meet demand originating in Orange County and Los Angeles to the North). Locally, the company faces competition from American Internet Services and redIT. However, given the breadth of its services, ScaleMatrix says it competes on a national level against providers that offer some combination of colocation, cloud and managed services, including Savvis, Terremark and Rackspace. On the cloud front, the company competes with Amazon Web Services from a more ideological perspective, rather than an apples-to-apples comparison, but it indicates it has some success in presenting cost advantages versus AWS in high-performance scenarios.

The 451 Take


ScaleMatrix was an interesting player in the datacenter services market prior to the Dell deal. Its fairly recent entry to the space made it possible for the company to start from scratch with a vision for a hybrid IT environment that included both colocation and cloud services. Many colocation providers are currently expanding their services to include cloud offerings – a natural extension. But legacy systems and contracts and integrating new services can be a challenge for traditional colocation players moving into the space. For many colocation players making the transition, cloud still represents a tiny portion of their business. ScaleMatrix was 50-60% cloud before the Dell deal, and now that number is roughly 70%. 451 Research has mentioned many of the advantages (density, margin, differentiation) cloud can represent for datacenter providers.

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