What’s Really Behind the Cloud Wars?

    Think back to the mid-1990s when there was a turf battle between #Netscape and Microsoft for web browser market share. The browser war wasn’t a revenue grab or a technology superiority play; it was 100% about who could collect as many commercial users as possible and call them loyal disciples.

    While the media hyped the browser wars to be a many-legged race for over a decade, the war ended quickly because of copycat competitors in the enterprise IT space. The market share for Netscape and Microsoft quickly eroded with the entry of other Web browsers from Google (Chrome, circa 2008), Mozilla (Firefox, 2004), and Apple (Safari, circa 2003). Some might argue that the war was over when AOL acquired Netscape in 1999.

    I present this history lesson because the cloud computing market has experienced the same up and downs in market share dominance. So, history is repeating itself, with a few twists. 

    Dates and Dollars Don’t Lie

    With innovative products, the first to jump into the race is often the crowned revenue and technical champ. Is that true with the cloud? Some would say absolutely. Amazon Web Services (AWS) was the first one in, so they are the champ. Others will debate this with numbers. Let’s look at the top five players in the market as of Q4 2022 to apply the litmus test. 

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    Cloud Market Share as of Close Q4 2022 (CRN, 2023)

    The results in the chart acquired from Statista and CRN show that age is tied to revenue attainment with the top three leaders (AWS, Azure, and GCP). The top five vendors comprise 75% of the global cloud market share. Of the remaining 25%, other large enterprise vendors have yet to crack beyond >3% market share, including Salesforce (3%), Oracle (2%), Tencent (2%), and Dell (1%).

    But the story gets a bit murkier with Alibaba Cloud and IBM. Alibaba joined the pack in 2009, not far behind Microsoft and Google. Alibaba’s market share is heavily concentrated in the Asia Pacific markets (APAC), and always has been this way, while the other four vendors have revenue and market share that is globally distributed.

    IBM’s numbers are also a bit misleading as well. IBM jumped into the hybrid infrastructure market years before tooting the IBM Cloud (or Watson for AI). Heck, the story goes back to grid and mainframe computing in the 1980’s if you think about it. However, it wasn’t until the 2013 acquisition of SoftLayer, an IBM Company that IBM had amassed a formidable public, private, and hybrid platform that was substantive enough for market recognition. The acquisition of SoftLayer for $2B made IBM an instance market leader.

    Fast forward six years later, with the acquisition of Red Hat for $34B in 2019, IBM once again acquired market share by instantly adding a known hybrid cloud compute platform into its fold. The combined two acquisitions positioned IBM as the undisputed hybrid cloud leader in the IT enterprise, not a pure IaaS, PaaS, or SaaS play. And frankly, IBM recognizes that it can’t and won’t beat the senior cloud leadership, so it’s better to be an outstanding partner in the broader cloud ecosystem.

    The Verdict on Revenue and Age vs. Market Leadership

    There is some truth that the first one in the race becomes the market leader, but not 100%. Therefore, adopting a cloud provider purely on experience and revenue should not be the only metric to consider when selecting your next cloud service provider. 

    The SaaS, IaaS, and PaaS Case

    Of the five market share leaders, three of them (Microsoft, Google, and IBM) offer pure play SaaS products. At the same time, two (AWS and Alibaba) allow for the creation of SaaS products in their infrastructure. Per IDC in 2H of 2021, SaaS accounted for 60.9% of the total cloud spend (combines pure and system infrastructure-based SaaS) versus 22.4% for IaaS and 16.7% for PaaS.

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    CY2021 Deployment Type By Revenue and Market Share (IDC, 2022)

    Digging into the SaaS numbers a bit more, there was not a single vendor who can claim the top spot for SaaS dominance.

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    SaaS Market Share By Vendor and Revenue, CY 2022 (IDC, 2022)

    In fact, of the $177.8B pure play SaaS revenue in 2021, 32.2% of that market was dominated by a select few enterprise vendors. We can all glean that the closest dominant players are Microsoft with 10.9% market share and Salesforce at 9.9%. Still, 67.8% of the market has thousands of “other vendor” participants, indicating that SaaS is not at the heart of the cloud race. And notice who isn’t even on this chart, Amazon Web Services (AWS), which is proof that age and overall revenue attainment are not a clear metric for market superiority. What we can discern is this:

    The real cloud war boils down to IaaS and PaaS. And even then, there are two different wars brewing.

    So, what is the difference between IaaS and PaaS, then?

    • Infrastructure as a Service allows an enterprise to manage its entire business from the network, server, data storage, and security in the cloud, not in the enterprise data center.
    • Platform as a Service enables organizations to host, build, and deploy applications in an infrastructure managed by the cloud solution provider, not the enterprise customer procuring the cloud services from the provider.

    When you adopt an IaaS approach for your organization, you lift the burden from the traditional data center into a hosted environment. You’ll still have to deal with every software update imaginable (operating system, application, and security). While still managing the virtualized workloads may sound like a big negative, the big-ticket items that keep the system administrator up at night in the data center are relieved when you move to IaaS.

    The advantage of IaaS is simple: you only pay for what you need, the capital expenditure requirements are lessened, dynamic scaling at a whim is possible, and assurances on uptime reliability are greater.

    The Good, Bad, and Ugly of IaaS

    The same advantages of IaaS are also its downfalls. If you cloud capacity accelerates faster than you anticipate, your invoice will skyrocket. Basecamp is the poster child for this astronomical spend case, per it’s January 2023 story that it’s taking its data back its own hands after getting a $3.2M invoice from Amazon Web Services (AWS).

    Constantly updating your cloud also come at a cost when resources are pooled with other companies. Mass usage doesn’t necessarily mean mass savings.

    Think about it like this: it’s not just external users that an organization is charged for, it’s also your internal use of the cloud, to build and maintain the platform comes at a cost, too.

    Remember, with IaaS, If the power is running for your virtual machine, the clock and billing meter ticks with you.

    Bottom line: IaaS requires your organization, not the cloud service provider, to support the workload being hosted once on the shared infrastructure. An organization won’t be cutting back on labor, the cost that come down are tied to compute acquisition costs.

    Why Even Bother with IaaS?

    The war between the vendors in the IaaS space boils down to money. The vendor with the most tools for the lowest price and best commitments (long-term agreements for a significant discount) seem to win the race. If you know how to optimize your IaaS platform, you can and will realize significant cost savings over time, especially since you are not the one buying the hardware, the most expensive part of the ongoing expense for an IT organization.

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    Comparison of Market Share, Revenue, and Discount Thresholds for IaaS, 2H 2022 (Statista, 2022)

    In pitting Amazon Web Services (AWS)Microsoft, and Google‘s revenue against one another and then comparing the total addressable IaaS market along with highest discount levels offered, cost is the driver to winning the cloud war for IaaS, hands down.  

    Platform Computing: The Cloud Growth Opportunity

    So far, we’ve established that the cloud war isn’t a SaaS turf war. And we know the IaaS war is all about who’s product offering is cheapest. Is there actually a cloud war brewing, with untapped market opportunity. Absolutely, it’s the platform as a service (PaaS) market.

    The COVID-19 pandemic didn’t just uproot the world’s health; it also shed light on the shortcomings of enterprise organizations and their computing needs. In a recent article, The Register reported the cloud “cash grab” is slowing down, but opportunities still exist in the cloud marketplace.

    Major IT vendors have shifted from innovation to cost savings and price-performance improvements. Virtually all cloud vendors now see that the boon that accelerated during the pandemic is hitting resistance. This is largely due to economic realities and customers needing to optimize their spending with more sophisticated cloud solutions, not just a gyration to a new place to store data.

    Many enterprises “try to avoid” managing the full computing lifecycle, which includes creating, running, and installing applications in their environments. Implementation and maintenance can be complicated, costly, and slow to realize value. If you are running an enterprise application, chances are you require a database, middleware, hardware, operating system, Web Services, and security to keep the lights on. Enterprise applications also require network capacity to function smoothly, including backup, recovery, and scalability features. If any of these pieces fall out of line, the cost to hunker down and fix the problem can be problematic, perhaps never ending. Would you want to undertake such awesome responsibility? Likely not.

    The Real Value-Builder of Cloud Computing: Platform Services

    We’ve reached the Aha!

    Enterprise customers see value in shifting their development from in-house to the cloud, as PaaS offers the complete infrastructure over the Internet to create, test, run, and install applications without the labor and compute resource overhead.

    As noted in several of the books I’ve authored pertaining to Cloud Computing found on Amazon.com, IaaS gives organizations more flexibility at the operating system level to make changes. The benefit of PaaS far exceeds just the operating system specific changes.

    • IaaS requires an administrator to ensure an optimized environment runs smoothly. PaaS takes on the responsibility for the enterprise without the extra labor cost, for a fraction of the price.
    • A cloud’s scalability and elasticity (horizontal and vertical growth) are limited by what the administrator dictates in the core IaaS configuration. In contrast, with PaaS, the cloud service provider handles the growth of an organization’s applications footprint without you, the customer, even knowing.

    Who exactly is adopting PaaS, then?

    In a study conducted by KBVResearch, PaaS adoption was strong in the BFSI (Banking Financial Services & Insurance) space, IT & Telecom, Healthcare, Retail, Public Sector, Energy & Utility, and Manufacturing Space, covering almost 80% of the addressable market. PaaS can also be broken down into segments: Application, Integration, Database, and Other PaaS Solutions. KBVResearch expects that by 2027, market share for PaaS will reach $167.3B, with Application PaaS (think ERP, CRM, HCM) revenue generating just shy of 40% of the total revenue pool.

    It becomes clear that there are plenty of opportunities for revenue and market share growth in PaaS space, as spending and customer adoption are anticipated to at least double over the next five years. 

    Which Cloud Should You Choose?

    There are hundreds of metrics that you might consider when selecting the best cloud platform for your organization. When you get into the weeds though, you’ll likely realize that your line of business, the applications you use (or intend to use), spending capacity, and support needs will drive the ultimate decision.

    Once you decide, it is imperative you don’t stop there. Making the investment on talent, whether full-time or consultant, can be the game changer for your IT optimization success story, even if your cloud is primarily SaaS or PaaS-based.

    As you embark on your current or future cloud journey, consider the following:

    • What is the business justification for moving to the cloud?
    • What am I going to put into the cloud? And what is the total cost of implementing such features?
    • How important is it that someone in-house manage the cloud infrastructure?
    • Are you willing to pay a premium for backup, recovery, uptime, and service level agreement conditions?
    • Do you have a plan for who will optimize the cloud, or even keep the lights on if you manage your infrastructure?
    • Does your cloud require it meet regulatory requirements?

    Heeding on these tidbits of wisdom will help you innovate, integrate, and automate at speed and scale.

    I look forward to hearing from everyone on this very spirited topic.

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