A storm of competition is brewing in the cloud: Control Shift

From time to time, there’s a buzzword from the tech industry that everyone wants to get behind.

In the ‘90s, we had dot-coms, new media, portals and synergies. At one point, Telstra marketed itself as an information portal – Telstra.com – while one of Australia’s big four banks infamously decided it was really in the business of IT, rather than financial services.

In the 2000s, we had web 2.0 and solutions. I remember once passing a small catering company on the way to work which had taken to describing itself as a “meal solutions provider”.

Now, one of the key buzzwords is the cloud, and everyone wants in on it. It’s also a concept that manages to confuse many small business people.

At its simplest, “the cloud” just means your files, online service, website or applications are hosted over the internet on someone else’s server.

Breaking that concept down a little, we see there are broadly two categories of cloud services out there.

The first is services hosting the underlying infrastructure of the cloud – fibre optic cables, servers and data centres – as well as providing the basic underlying hosting services. These services include hosting files, websites, virtual machines and apps.

You can call the companies the cloud service providers. The big names in this sector include the likes of Amazon Web Services, Google, Microsoft Azure, HP, Oracle and Akamai.

Then there are the services built on top of these underlying cloud service providers. These include web apps, websites and other online services.

Gmail and Hotmail are good examples of this higher-level of cloud-based service. Office 365, YouTube and Apple Maps also examples. There’s a good chance you’ve been using such cloud services since the ‘90s without even realising it.

These higher-level, end-user apps all run from data centres provided by a cloud service provider.

To say the growth of cloud service providers (and the cloud in general) has been rapid in recent times is an understatement.

For proof, look no further than virtual machine software developer VMWare, which announced a 14% increase in first-quarter revenues, with much of the demand coming from cloud service providers.

The company reported a quarterly net income of $US199 million ($A214m) for the quarter, up from $US173 million for the same quarter a year ago.

The intensity of competition has also heated up dramatically over just the past few months.

We’ve seen Samsung increasingly looking at data services as a future growth option outside manufacturing mobile devices, Microsoft boost its OneDrive for Business, Azure and SQL server offerings, Telstra forging a partnership with Cisco and shifting its focus from telecommunications to cloud services in Asia, SingTel respond to Telstra’s incursion by boosting its Hong Kong data centres, while Amazon and Google slash hosting prices.

For many businesses, this intensifying competition will be a good thing. Increasing supply translates into lower prices, both for any services purchased directly from cloud service providers, and in lower prices for apps that rely on these cloud services.

However, IDC Asia/Pacific’s lead analyst for cloud services and technologies, Chris Morris, warns smaller cloud service providers offering basic, undifferentiated services could soon be in a lot of trouble.

“If the smaller CSPs are strong enough with decent customer bases, they will be acquired by larger providers. If not, then they’re road-kill. In any case, both of the above will drive consolidation amongst the cloud vendors

“With its partners, Cisco will build out cloud services based on its reference architectures for different industries, including transportation and manufacturing. And that will become industry Platform-as-a-Service (PaaS) or iPaaS

“With Google getting serious about the enterprise and beginning to capitalize on its huge developer partner ecosystem, the whole partner landscape could get a bit bloody as service providers including AWS, Google, Microsoft, Cisco, Oracle and HP all vie for the same partners.”

In other words, intensifying competition is good news if your small business relies on cloud service providers – but things are likely to get rocky if you are one.