A bit of “Bizarro World” in the cloud space last week

Microsoft
A couple of cloud things happened this week. Microsoft announced a sales increased due largely to cloud-based technology, and AWS’s sales were slightly off.   Some of the better coverage from Gigaom’s Barb Darrow around Microsoft included:

“The company also called out cloud growth saying ‘commercial cloud revenue’ was up 147 percent to a $4.4 billion run rate. But, as always, what constitutes cloud can be, um nebulous. Clearly, the Microsoft Azure public cloud infrastructure, which Microsoft has taken great pains to make hospitable to third party (non-Windows) tools and applications — is front and center.”

And about AWS, included:

“That could be one reason AWS sales dipped this quarter. Amazon announced Thursday that for its second quarter, which ended June 30, the category that includes AWS saw a 3 percent sequential revenue slip. That ‘other’ category — which also includes advertising services and co-branded credit card agreements — also logged 38 percent growth year over year. That sounds great until you realize year-over-year growth in the first quarter was 60 percent. There have been other slight quarterly dips in the category’s otherwise relentless rise over the past few years, but they’ve mostly happened between fourth and first quarters.”

The public’s reaction? I’m best reminded of a passage from Ghostbusters.

“Dr. Peter Venkman: This city is headed for a disaster of biblical proportions.
Mayor: What do you mean, “biblical”?
Dr Ray Stantz: What he means is Old Testament, Mr. Mayor, real wrath of God type stuff.
Dr. Peter Venkman: Exactly.
Dr Ray Stantz: Fire and brimstone coming down from the skies! Rivers and seas boiling!
Dr. Egon Spengler: Forty years of darkness! Earthquakes, volcanoes…
Winston Zeddemore: The dead rising from the grave!
Dr. Peter Venkman: Human sacrifice, dogs and cats living together… mass hysteria!”

The fact of the matter is that the apparent success of Microsoft or failure of AWS mean much of anything. It’s certainly not a pattern, as of yet. As we’ve covered here before, the public cloud market is beginning to normalize, with Google, Microsoft, and AWS emerging as the primary players. While AWS may slow down in time, they will surely continue to grow. What’s more, I’m sure that Google and Microsoft will demonstrate quarter-to-quarter growth in the cloud space over the next 3 years, at least.
What is occurring is a bit of new market dynamics. As enterprises move away from a single cloud provider model to a multi-cloud model, current trends around the growth of public cloud computing will likely change somewhat. While many will call for shifts in the opposite direction, the likely outcome is more “spreading of the wealth.” Other public and private cloud provider will obtain larger shares of the market rather than get stomped to death by AWS, as many predicted.
So, what can we expect over the next few quarters?
First, AWS’s downturn of 3 whole percentage points won’t continue, and that will disappoint those who are waiting for AWS to take a couple steps backward. The reality is, and will continue to be, that AWS dominates the public IaaS cloud space, and that’s the way it will be for the foreseeable future.
While I’m sure that AWS will make a mistake or two, they don’t seem afraid to try new things, as we saw with the Zocalo launch. Moreover, they don’t have the legacy baggage that other larger cloud players have, including IBM, HP, and even Microsoft. Not a lot can stop them, at this point, and the trend will be continued rapid growth.
Second, we will see continued market share growth of both Google and Microsoft. The numbers from Microsoft are not just a “flash in the pan,” there is some good strategic thinking behind how Microsoft is moving to the cloud. Microsoft’s relocation of Office as a cloud-based product, as well as other SaaS-based offerings, is providing much of their growth.
In many cases, they are just moving existing traditional software products to the cloud. However, that’s exactly what their user and developer base wants them to do, and I suspect that if they just went out there and purchased a large public cloud provider, as IBM did, they would not have the traction they have now. In many instances, building on your own existing success is the best path, and that seems to be the Microsoft way of doing things.
Google is now the outlier, and clearly in third place. However, while late to the IaaS game, they have recently gotten their footing and really know more about creating Web-scale services than the other public cloud players out there. They seem to be focusing their development efforts in the direction of public cloud services, and these steps will be heard coming up behind Microsoft, at some point.
Finally, there are some disruptive forces that could mean changes in 2015 and 2016. They include:

  • The rise of managed service providers as the desirable way of onboarding, leveraging, and managing public cloud services. These will be mostly smaller players that will, in essence, front the larger public cloud players, adding high-touch services for enterprises, as well as additional security, governance, and management.
  • The use of multi-cloud providers, which may include more hybrid and complex cloud architectures than originally thought. More enterprises are considering the use of traditional on-premise approaches, as well as private clouds, along with public cloud providers. That will distribute the market a bit more.
  • The retail cloud market, including low cost file sharing and sync systems such as DropBox and iCloud, becomes more sophisticated, and begins to dilute the some of the larger cloud storage providers for enterprises. The new improvements announced by DropBox this week are a step clear in that direction.

So, “Human sacrifice, dogs and cats living together… mass hysteria!”? Nope. However, ongoing systemic changes that make the emerging cloud computing marketplace hugely interesting? Always.