Public Cloud Winners and Winning Strategies

 3 months ago
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Public Cloud Winners and Winning Strategies

The rich get richer, so the saying goes, and in the public cloud space that’s likely true, because the big are getting bigger. According to an article in SDxCentral, the big three of public cloud (Amazon, Google, and Microsoft) took a larger share of cloud spending—62% in the latest quarter versus 58% a year ago. The market share of these giants stayed roughly the same according to the same research. What’s happening underneath is, or should be, the big question. There is movement, both real and potential, in the cloud market according to almost everyone, and I see signs of it in my contacts with enterprises.

The public cloud market is really two markets. One, the segment most people think about, is the public cloud spending by “ordinary” businesses, the enterprises and some SMBs. The other is the cloud spending by Internet or OTT companies, especially startups. Amazon’s cloud lead, and much of its growth, comes from the second segment, while Microsoft and Google do better with the first. This distribution of spending is important for a number of reasons, some pedestrian and some with broad industry implications.

One important, and obviously industry-impactful, point is whether telecom is an ordinary business or related to the Internet and OTT side. Telecom represents an enormous growth opportunity for the cloud, and if current cloud-provider dominance patterns are followed for telecom, then whether it’s “enterprise” or OTT really matters. What I hear from the industry is that the telcos would rather deal with Microsoft or Google than with Amazon for cloud services, but many are planning a bit of a multi-cloud hedge in the near term as they work out just what they’d do with the public cloud.

The largest driver for public cloud use by the telcos is 5G hosting. There are a number of drivers for that, but the two leading ones are the need to supply 5G hosting out of their home regions, where they have central office real estate, and the question of whether they could deploy efficient (in economy of scale terms) infrastructure even within their region. However, some operators are looking ahead to other edge computing missions, and some want to offer enterprises cloud services by rebundling the services from public cloud providers. These last two missions are often seen as a way of building a bigger commitment to cloud usage, to secure better pricing.

A less pressing but potentially even more important question relates to the metaverse. A number of companies have been selling NFT “lots” or “land” in a metaverse, demonstrating that there will surely be many metaverses created. The infrastructure needed to host a truly functional metaverse would be far more expensive than any startup would likely be able to afford, so the presumption here is that most will rely on public cloud/edge resources. The more metaverses there are, and the more that align more generally with digital twinning than with specific social-media missions, the more these will resemble enterprises rather than OTTs.

In a sense, these virtual countries or worlds are aimed at creating a kind of portable metaverse user base by collecting investors who are then obviously incentivized to support the metaverse they’ve invested in. A cloud provider, a social network provider, or even a mass online retailer (Amazon comes to mind) could decide to offer virtual-world-hosting capability, and by doing so pull all the users, and any companies who then work to build experiences within their virtual worlds, into their domain. Since only large players could hope to sell broad metaverse hosting, this would create a model much like that of the OTT world.

Small-scale metaverses, meaning in particular those designed to support a limited geography, will certainly look like enterprise public cloud consumers in service terms. Non-social metaverses, or social metaverses designed to augment the real world rather than create an alternate reality, would be particularly likely to have constrained geographies, even perhaps down to the level of a single company or application within a company. I’ve noted before that a “metaverse of things” or MoT might become the general model for an IoT mission, and MoT hosting in this situation is almost certainly going to mean hybridizing local compute and sensor/controller technology with the cloud. This is very much like an enterprise hybrid cloud mission of the kind that Microsoft is already winning with, and that Google is surely targeting.

A broad question that arises with any metaverse model is the traffic associated with delivering the experience to the user. Obviously a part of that is the kind of experience we’re talking about; visual experiences are richer in an information content sense. Another part is the hosting model, and in particular the extent to which the user’s individual device or local compute resource participates in the metaverse. Do we render a model of a metaverse “locale” locally to each user, or in an edge data center? If the former, we need send only the model, and if the latter we need to send the current view of the model, much more bandwidth-consuming.

The question of the metaverse model and the nature of the experience it’s designed to deliver is the most complex element of future cloud opportunity, and thus the thing most likely to have a large and unexpected impact on market share. This, IMHO, is the place where Google could shine, since I believe Google is the most technologically sophisticated of the public cloud providers. However, that’s a weakness as well as a strength, and that plays to the last of the factors that could reshape the public cloud market—positioning.

Amazon understands startups. Microsoft understands enterprises, and Google understands technology. Google’s challenge is that it may well be too smart. The company has a bit of the classic problem of being too geeky to communicate with the real world. Amazon’s problem is that it’s startup mission makes it a bit reactive to the VC interests and biases, and Microsoft’s is that its dominant base is conservative in terms of technology. All of these present positioning challenges with the future of the cloud.

For Amazon, the metaverse intersection with startups is the big question. If social startups focus on creating the virtual world rather than the metaverse experience, then can Amazon figure out what metaverse hosting requires, and deliver it? If not, then there’s a good chance they miss a big part of the metaverse driver, and if that driver is a dominant force for the cloud market of the future, they miss out on that too.

For Microsoft, metaverse success with the enterprise means either framing a purely collaborative vision, which is highly limiting and thus dangerous, or promoting an MoT vision, which is going to require a lot of positioning work and relies on IoT to drive enterprises to the cloud. Today, most IoT missions aren’t particularly cloud-centric; they focus on on-prem edge and the data center. Microsoft would need to invent an MoT model that was much more cloud-centric to win with it.

Google has the greatest challenge, but could reap the greatest reward if they could meet it. I’m constantly impressed by Google’s insight into the evolution of the cloud at the technical level, but their skills are such that they can be easily communicated only to highly skilled cloud people, not to people like C-level executives who can make budget decisions. In fact, it’s not particularly easy to engage those cloud people except at conferences where what you say and do is shared with all your competition. Judged by technical capabilities, Google has the absolute lead, but they’ve got to be able to demonstrate that leadership with a model of a metaverse and not with the tools used to build the model.

Cloud market share and sales growth has been fairly steady for recent years, and if that’s going to change then some major new force has to enter the market. Right now, metaverse either is that force, or it demonstrates what the force would have to be and do. Cloud providers who want to improve their position and revenue will need to consider this.

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