The market for on-demand, pay-as-you-go infrastructure services that turn IT into a utility for businesses continues to expand rapidly. While initial use cases for such cloud services have been for application development and testing environments, the success of that model over the past few years is leading many companies to broaden their usage of outsourced cloud services. In fact, in its most recent Magic Quadrant for Cloud Infrastructure as a Service and Web Hosting, Gartner forecasted that by the end of 2011 these services will account for almost 25% of the overall hosting market.

As companies expand their use of cloud services to power more of their business, the decision of which cloud provider to work with shifts from a tactical vendor decision made by a single person or group to a strategic partnering arrangement that potentially impacts the whole company. This is where I see the clouds starting to part ways in the market.

On one hand will be today’s commodity clouds that offer similar ‘islands’ of basic storage and compute capacity beating each other up competing for tactical projects. These are services that will compete largely on price and best effort services. But as there are more users in the cloud with more mission-critical data and applications, so too will expectations shift to a need for a differentiated, enterprise-class cloud offering.

I addressed cloud performance in an earlier post and that it will clearly will play a key role in differentiating cloud services along with security, reliability as well as customer support. It will be the combination of these factors that turn commoditized ‘islands’ of cloud capacity into high-performance, managed storage, compute and networking solutions for businesses that are backed by real SLAs.

Clearly we see this as a significant market opportunity. With the launch of our Internap XIPCloud Storage™ offering last week, we see an opportunity to truly create differentiated cloud services that are based on an open, scalable platform (OpenStack) that protects our customers from vendor lock-in, gives them access to third party tools and enables us to develop key differentiators on top of it – in addition to all the benefits of our own data center and IP services and award-winning customer support.

If you’re interested in checking out Internap XIPCloud Storage™ – read details of the service or sign-up – and then let me know what you think!