Those of you who have been keeping a loose eye on the cloud space would know that three colossuses maintain a monopoly over the cloud market – AWS, Azure, and Google Cloud. This dominance has recently attracted scrutiny, as it has left smaller companies within the industry doggedly competing for slim shares in regional niches.
Cloud oligopoly as it is referred to is a phenomenon observed worldwide. The competitors may be different in different regions, but the notion is the same – wielding unaccountable influence over the market.
This accumulation of market powers in the hands of one or a group of companies is deemed unhealthy. This anti-competitive behavior bars entry for new competitors, and is often the reason behind price fixes.
Seeking a Monopoly in Public Cloud
Collectively, the three big companies seize up about 65% of the total cloud spend worldwide, says a research from Synergy Research Group.
Their earning calls indicate a positive year-over-year revenue growth. “Google reported earnings last week and revenue went from 8 billion to over 10 billion on a quarterly basis,” says Steven Dickens, chief technology advisor at The Futurum Group, while talking about this at the Techstrong Gang in July.
For smaller players however, the turnover is significantly small, and their market shares are steadily arcing southward.
Interestingly, in China where local players like Alibaba and Huawei prevail, the stats are a bit different for these international brands. Under the Chinese trade law, an outside brand can only penetrate the market if they work through local partners. As a result, a market dominance for them is a distant possibility.
In some sectors, on-premise datacenters also hold significant market shares. “In some of the highly regulated industries, cloud penetration is as low as 5%,” Dickens says. “If you look at the financial services, organizations are still really huge on on-premise deployments. HPE, Lenovo, and Dell are all growing with hybrid cloud offerings.”
Drivers of Vertical Integration
The big three operate primarily in the infrastructure-as-a-service and platform-as-a-service markets. It is interesting to note that despite competing in a closed space, they don’t use pricing as a differentiating factor. Their price points are in fact quite similar. Then what makes the customers prefer keeping their workloads with them?
There are several reasons for that. For one, consumers tend to put more faith in providers that are recognized and established as opposed to those that are not. Secondly, the draw of cloud giants is their offerings. “It’s not just marketing power or sales power that’s leading to this in many ways. It is what I would call “feature power”,” says Stephen Foskett, president of Tech Field Day.
The biggest cloud companies make their offerings attractive by continually rolling out new features.
“Amazon for example is constantly adding new features, functions and capabilities to AWS. Those are very attractive to customers whether they’re modern web-scale startups, app developers or more traditional enterprises,” he says.
“Azure has long been the darling of enterprise IT simply because Microsoft has seemed so laser-focused on providing enterprise-grade services in Azure that are friendly and easy to implement for IT companies. Google is really leaning into its enterprise storage, networking and security features.”
The enticement of more ensures that companies continue their subscriptions and consume resources incrementally. However, it is quality of infrastructure which prompts the decision of choosing a platform in the first place. This is where smaller platforms like Oracle, IBM Cloud and Akamai fall behind.
For customers, it is supremely comforting to know that everything they will ever need can be found under the same roof, or roofs.
But counter-intuitively, it also makes it harder for them to walk away. “The more differentiated features these platforms add, the harder it is for customers to balance and get their workloads out,” he says.
Mike Vizard, chief content officer at Techstrong, points to the licensing agreement as an added contributor to the vendor lock-in. Cloud providers offer savings plans and discount offers designed to reduce the cloud bill in exchange for a spend commitment. To take advantage of that, decision-makers from higher up the chain often push developers to consume more services from a particular cloud provider as opposed to others, further driving up dependency.
A downstream impact of that is increased likelihood of service disruptions. Dickens alludes to the recent Microsoft Azure outage as an example. The outage which came less than two weeks after the CrowdStrike disruption which halted businesses worldwide, lasted a total of 14 hours, and was a double blow for Azure customers.
“3 availability zones went down at the same time. Numerous vendors were without e-mail plus a whole bunch of services were affected,” Dickens says.
So is there a way for customers to step out of the walled garden of cloud oligopoly? One way to resist monopoly is to cut dependency on the top providers only. Intuitively architecting the stack with both native services and independent solutions from external vendors help dodge the downsides of it.
Let’s say Red Hat OpenShift, Mirantis, etc. These can improve the capabilities and maintain the ability to have infrastructure independence, he says.
Having this mixed bag lets customers freely re-platform workloads when they need to without worrying about losing a chunk of the capabilities they rely on.
“There is a natural intention of cloud providers to lock you in but smart enterprise architecture, and thinking through some of the locking points, give you self-control,” he concludes.
Takeaways
Cloud adoption is still at a nascent stage, but the level of competition is growing every day. To steer clear of the trappings of vendor lock-in, companies must consider using multiple vendors, even those outside the obvious choices. A solutions stack that is supported by offerings from various vendors, not only keeps cloud consumption and cost optimized, but also helps avoid over-relying on a particular provider or providers. And in the bigger scheme, an equitable distribution of market share makes way for more challengers to enter the arena and balance out the power equation making a market perfectly competitive.
Listen to the whole conversation at Techstrongtv.com. For more stories like this, keep reading here at Gestaltit.com.
