The outstanding opinion about whether there will be an oligopoly or monopoly of cloud providers in the future is a resounding, “No”. However, life is not so simple and it emerges that the definition of what a cloud provider is can literally make the whole question much foggier than one would immediately think. This is because there are a number of different players within the cloud computing market, and each of them contributes in some way.
“Firstly, we have to look at how cloud if defined”, says Quocirca founder Clive Longbottom. This issue means that the market takes no real shape, and so it is unlikely to take the same form as the car market has had to do. "Here, the general public knows that they want to buy a car, but the manufacturers know that there is no such thing", he explains before adding that what amounts to ‘a car’ is defined by a number of categories: a mini, an executive, family, luxury, an off-road, an SUV, a sports, and a super car. This range of offers had been created to cater for the different needs of diverse customer types. So cloud providers will need to decide what kind of 'cloud provider' they are. Their definition depicts their market and with whom they compete – from hosting to outsourcing companies.
"I believe the market is increasingly competitive, but you will see competition at different levels", says David Chalmers – technology director for Hewlett Packard’s Enterprise Bureau Group. In his view the competitive nature of the market doesn’t mean that customers will be keen to buy from a single supplier. That’s because there is a drive towards hybrid cloud solutions, involving a number of suppliers. Each one of them will compete on a local and global scale; the services they provide will be project-based because the mission critical applications and services will be kept firmly locked in-house – at least to begin with.
Chalmers says that vendors like HP, Amazon, IBM and Microsoft will lead the market, but “there will be many more geographically sensitive suppliers, and while this may seem counterintuitive to the concept of the cloud this reflects the reality that users today need to know from where the services they are buying are being delivered.” This means that customers are looking for suppliers that are based in the UK and in the European Union to supplement the global service they’ve also bought into.
No electricity model
"This is important because users will want and need to build cloud services from a different mixture of different sources, and this is going to be the challenge for them, particularly as cloud services will not be anything like the electricity market model”, he explains before forecasting that there will be many new entrants to the market over the next five years. They will emerge from the bottom-up at a local level, offering smaller and highly focused market solutions – including industry specific ones. In contrast he predicts that there will be very few global players because the cost of entry into the market is too huge. The new entrants will typically be small companies who can’t afford to have their own data centre, and so they will need to partner with a larger firm that is already offering access to one.
Radwan Khader, Ziptech’s operations director also points out that the cost of entry isn’t just about whether or not you can afford to have your own data centre. You also have to consider the cost and capacity of the communications equipment that is necessary to allow any cloud solution to work, and then there is the expense of the software and data centre hardware. Factored into this is the question of how all of this is going to be managed and supported. “No-one is going to deliver everything for everyone, and so there will be specialists like SAP, which will focus on ERP”, he explains. As it already has an ERP solution which he describes as being “wide and deep” it makes more sense to work with SAP, particularly as it would cost millions of dollars to create and provide your own solution.
“If you look at Marks and Spencer and BP, they have been operating a cloud for the last 10-15 years”, Khader reveals before adding that fast leased lines can cost at least £10,000 per year. They had no choice, he says, but they could afford them. Falling communications costs are making this kind of facility more available to SMEs, making the cloud more accessible and affordable to a wider range of customer types. As the communications infrastructure is a key platform for cloud computing, faster internet access speeds will therefore improve the availability of cloud-ready solutions and it will change the pace of the market. In contrast to SMEs, the enterprise sector will continue to require more expensive and bespoke cloud solutions. Their challenge is to be able to integrate them.
History repeating itself
Although Khader doesn’t foresee there being a single cloud provider in the future, he does feel that history is going to repeat itself. So while everyone predicts that there will be many new entrants over the next five years, Khader feels that there might eventually remain five or six well-known providers in the end. This view isn’t at odds with what most other commentators said, and again as to whether this constitutes the emergence of an oligopoly depends much on how you define a cloud provider. In order to become one of the few competing cloud providers will need to offer a comparatively wide and deep cloud solution.
Khader adds that the only thing that is otherwise changing with the growth of the cloud is the way in which the business product is being delivered. The essential components that existed 10 years ago haven’t altered one bit. In other words there’s still a need to put what he calls the jigsaw together in the same way that the more traditional models required. What he’s talking about is how the individual components of the cloud are put together in order to cater for a particular market, pointing out that the large players can offer products for a multitude of different sectors. The small companies are likely to start with one sector, and if successful they can grow through acquisition to enter new ones over time.
Supply chain approach
As the market for the different components (eg infrastructure, software, communications, support and software) of the cloud matures it will become more and more complex. Therefore some people like Longbottom believe that one of the new entrants must become a cloud aggregator. However, CA Technologies’ cloud advisor Gregor Petri, advises cloud service customers and their IT departments to adopt a supply chain approach to “move away from being the in-house supplier of these to services in order to source external services as and when it makes sense to do so.” He stresses that these services must be assured, supported and compliant.
Laurent Lachal, Ovum Consulting’s cloud advisor thinks the key issue for the future is not consolidation but the way in which the companies differentiate themselves through innovation and diversification. He says that customers don’t care about what kind of support their providers have, but they do care about whether they meet the stipulations of their service level agreements. However, when it comes to providing support for the consumer a different picture emerges. Service becomes the key differentiator. “Amazon is a company that has extended its support options to meet the requirements of both extremes of its customer base: the small consumer and large customers”, he suggests.
So what his view of the market’s future? Lachal forecasts that there will be less rather than more consolidation within the cloud market. His prediction is that “There will be 50-60 infrastructure-as-a-service providers and not just five, while platform as a service providers will be in their hundreds and software as a service providers will be in their thousands. ”With this in mind it looks like there most certainly won’t be either a monopoly and an oligopoly of cloud providers in the future, particularly if his belief that the cloud will make it easier for new entrants to appear than for existing players to consolidate the market comes true. We shall see what the future holds, but the immediate outlook is of a growing market.
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