The Cloud Computing Market

Henry Ford, industrialist extraordinaire, knew the value of his Model T in the American market. That is why, contrary to the popular belief at that time that customers should always be provided choices, he refused to offer his now-iconic product in multiple colors, going as far as to say, “They can have it any color so long as it’s black.”

Although the lack of options in the product portfolio may not have hurt Ford at a time when there were few, if any competitors, today it’s just not a feasible business strategy. Thus, for any new product, even cloud computing, offering the customer choice is of paramount importance.

TRIVIA: Henry Ford insisted on black because that’s the color that dried the quickest, thereby speeding up production.

In addition to having a good product (or service), the other thing that a business absolutely needs in order to be successful is a market that is large enough. In other words, having a great product (or service) that can be sold only to a few businesses will not ensure the provider’s success. That is possible only if there is a large market for what is being sold.

Now, I move to the other side of the table and try to determine if the Service Providers have a large enough market in their hands, and also, whether that is a growing market.

Going by the established names of IT that have already entered the cloud computing game, it is obvious that they see big dollars in this field. I had earlier referred to an industry report that predicted businesses in the United States will spend more than $13 billion on cloud computing and managed hosting services by 2014 as compared to $3 billion now.

Now, another report by technology consultant 451 Group has expressed similar optimism, with special emphasis on Amazon’s growth story in cloud computing. “In terms of market share Amazon is Coke and there isn’t yet a Pepsi,” remarked William Fellows, principal analyst of the 451 Group. Although the company has not revealed the revenue breakup from its cloud services division Amazon Web Services (AWS) in its annual report, UBS analysts estimate a figure of $500 million in 2010, and predicted to rise to $750 million in 2011 and a massive $2.5 billion in 2014. This is not far from Citigroup’s 2010 prediction of $650 million from AWS. AWS comprises Amazon’s 12 cloud computing offerings like Elastic Compute Cloud (EC2) platform, Simple Storage Service (S3) offering and others.

Jeff Bezos, CEO of Amazon, has gone on record that AWS could potentially become as big as its retail business, which last year racked up revenues in excess of $25 billion. And all this from a business scarcely four years old.

The second largest player in the cloud computing space, Rackspace, is also considered to have drawn in sufficient dollars last year. The 451 Group conservatively estimates that revenue from Rackspace’s cloud services was $100 million in 2010.

However, there’s still a long way to go before cloud-based products and services replace traditional IT infrastructure. As per 451 Group’s estimate, less than 10% of global IT spend is on cloud computing. However, the ratio is expected to change considerably, a lot of it due to constrained budgets post recession.

“Most CEOs can see which way the wind is blowing. We see something of a perfect storm of conditions which make cloud computing interesting for them,” said Mr. Fellows from the f51 Group. “The economic crisis means companies are avoiding capital expenditure. [Cloud computing] offers them a way of avoiding capital expenditure without negatively affecting capacity, and they don’t have to provision for peak capacity.”

Therefore, we may soon hear of more providers entering the market to take a bite of the pie…

By Sourya Biswas