Managed cloud providers should be doing great. After all, they appear to offer an ideal middle ground between the costly prospect of enterprises building their own private clouds and the public cloud options that lack enterprise-class security, availability and manageability. In reality, however, managed private cloud providers are struggling to win that enterprise business.

What’s going on? I believe there are three key factors preventing managed cloud services from delivering on their business goals.

Factor 1: Flawed service strategy

To justify their cost premium over Amazon, Google and other “commodity” offerings, some managed cloud providers are going beyond infrastructure services, bundling in “value added” services. Sounds like a good idea. But every customer has unique needs, making it difficult to offer services everyone will want. Add a database? Great idea. Except that one customer might want PostgreSQL while another wants MySQL. There just is no single “killer app” that will justify a higher price for all customers.

Perhaps there’s a better way to add value. Instead of adding application services, perhaps managed cloud providers should be focusing on delivering more advanced infrastructure capabilities—like true, fault-tolerant availability or guaranteed SLAs. That would address the real-world needs of enterprise customers, while making a managed cloud offering really stand out from the pack.

Factor 2: Weak orchestration capabilities

Having the ability to orchestrate services is crucial for delivering an enterprise-class managed cloud service that is scalable and, therefore, profitable. Public clouds are built with strong orchestration capabilities to allow massive scaling. But private managed clouds are usually built with off-the-shelf solutions from a variety of vendors, making it difficult to achieve robust orchestration at scale. What can they do?

Managed cloud providers need to avail themselves of a new class of automation and management tools that work in concert with the available orchestration tools to deliver the functionality they need, at scale. This automation enables them to orchestrate resources dynamically, when and where they need it.

With dynamic orchestration, managed cloud providers can do amazing things. For example, they could deploy fault tolerance for an application only when it is needed. When fault-tolerance isn’t required, the application can be automatically moved back to a non-FT infrastructure, with no interruption in service. That saves money while delivering the availability customers need, when they need it.

Factor 3: Costly proprietary systems

Many of these struggling managed cloud providers have infrastructures built on older, managed hosting business models. So they face the challenge of balancing newer cloud technologies with legacy business structures, tooling, processes, and skillsets that are both costly and inflexible. As the marketplace advances, the high cost of proprietary system licenses and support fees will become a huge competitive disadvantage.

Adopting open source cloud technologies like OpenStack, Linux and KVM (Kernel-based Virtual Machine) offer an escape from the “proprietary software tax,” while providing greater flexibility than traditional approaches. That’s just part of the solution. It’s also important to adopt solutions that leverage the flexibility of open source frameworks in order to maximize their efficiency, reliability and automation. As open source cloud frameworks continues to mature, these additional technologies enable managed service providers to deliver a premium, enterprise-class service today at a competitive cost.

Change is never easy. But for private managed cloud providers looking to grow their businesses by attracting and retaining enterprise customers, adopting new ways of thinking and working is essential. By focusing their service strategy around enterprise-class infrastructure services, strengthening their orchestration capabilities, and migrating away from costly proprietary infrastructure, managed service providers will finally position themselves to hit the “sweet spot” in cloud offerings for the enterprise.