I've been in crowded and emerging technology spaces before, and I even tried to duke it out with the big guys several times. I won a few of those David-versus-Goliath matches, but I lost most. When I won, I declared victory, then changed the strategic direction. Sometimes, I simply sold out. It's a good business skill to know when that needs to happen, rather than ride the thing into the ground.
Providers in the cloud computing space, which number in the hundreds of companies, need to face those same decisions today. The reality is that the market has anointed three big providers: Amazon Web Services, Google, and Microsoft Azure. That's why, for example, veteran cloud provider Rackspace pulled out of the IaaS market dominated by those three. Many cloud providers are beginning to figure out a new niche, moving to new parts of the market or selling out to more substantial players.
The harsh reality is that the big guys can always outspend you. According to my colleague and friend Mike Kavis, "The amount of capital these three companies are pouring into infrastructure and R&D is astronomical. In [the second quarter of 2014], Amazon Web Services invested almost $1.3 billion in new infrastructure, while Microsoft and Google invested a combined $3.4 billion as well. And let's not forget about IBM either: It has committed $1.2 billion of capital for new data centers for the year."
The IaaS and PaaS cloud market is about going big, building infrastructure (and thus scale), or going home. Although I'm sure the smaller providers may be able to out-innovate some of the larger providers, the outspending part is what matters more now. Enterprises want to partner with cloud companies that can scale their business and invest in the future.
My predictions for 2015 and 2016 are pretty easy to make:
- AWS, Google, and Microsoft lead the pack, and the three companies will battle it out over the next several years. They have deep pockets and know how to scale.
- The other largish IaaS providers -- including IBM, Hewlett-Packard, and Verizon -- will find new niches to exploit, such as in vertical markets like health care, finance, and retail. They will grow, but not as much as the three leaders.
- For everyone else, there's not great news, but neither is all hope lost. They'll need to find a specific area where they can do well and exploit it for all it's worth. Hot submarkets in cloud computing include identity-based security, governance, and workload management.
This is not an unfamiliar pattern, by the way. We've watched this movie play out several times in the past. The providers might change, but the basic plot remains the same: After the initial scramble for position, a few providers emerge as the leaders, and the rest need to find something different to do.
Sign up for CIO Asia eNewsletters.