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2022 Predictions: Cloud

Join Practice Manager and Principal Analyst Allan Krans, Senior Analyst Catie Merrill and Senior Analyst Evan Woollacott Thursday, March 10, 2022, at 1 p.m. EST/10 a.m. PST for an in-depth, exclusive review of TBR’s three 2022 Predictions special reports on the cloud market — Cloud Partnerships, Cloud Applications and Cloud Infrastructure & Platforms — each part of TBR’s Predictions special series examining market trends and business changes in key markets, such as cloud, IT services, digital transformation and telecom. 

Don’t miss:

  • Customization becomes the standard for cloud applications
  • Vendors prioritize partner ecosystems in their go-to-market strategy
  • PaaS emerges as the source of differentiation as vendors embrace open hybrid architectures

Mark your calendars for Thursday, March 10, at 1 p.m. EST,
and REGISTER to reserve your space.

Related content:

Oracle implores enterprises to adopt its uniquely architected cloud stack

Oracle reinforces its cloud stack to accelerate enterprise cloud adoption

Oracle has a strong portfolio of cloud applications that are proving competitive in the market against more narrowly focused or less integrated SaaS competition. Oracle’s core platform and infrastructure businesses, however, are proving a harder sell, implied by financial results and qualitative context, despite significant innovations over recent years. The tone of Oracle OpenWorld 2018 mirrored its overall performance: The company is well positioned and executing in cloud application adoption initiatives, and is well positioned but facing stalling sales in the infrastructure business.

Applications updates were minimal but valuable

As Oracle executives pointed out, Oracle has been able to position itself well in the SaaS market by buying and building applications across both front- and back-office functional areas, leaving few holes in its horizontal applications portfolio. This relatively comprehensive portfolio, particularly across the back office with integrated ERP and Human Capital Management (HCM) suites, positions the company well as more customers look to adopt cloud applications — both voluntarily to achieve efficiencies, and under duress to plan migrations as other vendors’ on-premises products are given end-of-support deadlines. Strengthening the value of its applications at the annual event, Oracle announced artificial intelligence (AI)-based capability additions to its ERP and HCM portfolios, including chatbots, recommendation engines and process automation. Oracle also enhanced select supply chain management applications with blockchain-enabled tracking and controls to increase value for customers. These advancements add value for customers but do not significantly alter Oracle’s back-office portfolio.

 

 

Oracle’s (NYSE: ORCL) annual conference, Oracle OpenWorld 2018, took a different tone than in recent years. With corporate focus narrowed around the cloud portfolio, and key product foundations already in place, keynotes and announcements were more focused on improvements to existing applications and the database and infrastructure architecture underpinning all cloud services. This year’s event doubled down on themes of past years, including Oracle CEO Mark Hurd’s previous keynotes concerning macroeconomic trends and predictions for the cloud market, and introduced a panel of distinguished U.S. and U.K. security personnel that painted a bleak cybersecurity picture, subtextually in support of a secure, single-vendor cloud stack that Oracle is positioning itself to best address.

When the expected cost does not match the actual cost in cloud

In the relationship between customer and business, expectations are everything

In a lot of ways, the shift to cloud computing has evened the playing field for what is expected in terms of cost, responsibilities, and the services exchanged between IT customers and providers. With cloud services, customers can experience far more of a service before buying it, see a clear unit price from the outset and understand the constraints of the service-level agreements. However, uncertainty still lingers in the exact specifications for many solutions, as the complexity of the design and variability of the actual utilization continue to make accurately predicting real-world cost for cloud solutions difficult for many customers.

While there is still typically a difference in cost between on-premises IT deployments and cloud, the unexpectedly higher cost of cloud projects impacts the market in several ways. Highly efficient and mature IT organizations can often use their own internal resources to compete with the price points delivered through public cloud options. For those customers, cost overruns make cloud deployments more expensive, rather than slightly more cost-effective, when compared with utilizing internal resources. Beyond those marginal customers, however, cost overruns universally wreak havoc on internal budgeting processes, which depend on predictable cost structures. Particularly compared with more stable internal IT funding, variability on a monthly basis puts serious stress on the finance function. Lastly, cost overruns impact other IT project decisions, serving as a deterrent to new and expanded cloud projects. In this respect, this unpredictability is bad for all cloud vendors, providing motivation for these providers collectively to further clarify the customer’s financial expectations.

 

This special report is part of a series driven by TBR’s Cloud Customer Research reports, for which TBR conducted more than 50 interviews and 200 surveys. These special reports will highlight key trends and topics impacting the cloud industry.

Earnings recap: Amazon, Microsoft and Google grow fast and keep hold on the market — for now

Although the market is consolidating around AWS, Microsoft Azure and GCP, the trailing vendors are unable to match AWS’ quarterly revenue gains

Consolidation is occurring across cloud segments, with the most notable convergence occurring around the five leading PaaS and IaaS players, blending the lines between PaaS and IaaS. Customers and applications vendors are flocking to the leading players Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform (GCP). This is evidenced by these three vendors collectively growing 58% year-to-year in 2Q18, while the total PaaS and IaaS market is expected to grow only 16% year-to-year in 2018. This consolidation is helping the largest players continually capture greater market share and, as a result, largely dictate the growth of the PaaS and IaaS markets.

With the leading vendors’ CY2Q18 earnings results now public, it is clear that AWS continues to rule the PaaS and IaaS spaces, sitting at almost three times the size of second-place Microsoft Azure and sustaining greater quarterly revenue additions. Google sits in third place in mindshare for many customers, but trails AWS and Microsoft Azure in revenue by a large margin. These three vendors face increasing competition from Alibaba, which continues to expand its global reach, and IBM, which has seen more success in private cloud and hybrid IT.

AWS maintains its public cloud lead through continuous innovation, but faces growing opposition as new and existing competition strengthens

AWS accelerated revenue growth for the third consecutive quarter in 2Q18, up 48.9% year-to-year to $6.1 billion, further extending its lead in PaaS and IaaS. AWS’ position as the far-and-away market leader causes the competition to fiercely innovate and expand to challenge the vendor. However, AWS’ mindshare has been secured, and paired with its portfolio breadth, innovation pace and global availability, inserts the vendor into the bulk of customer and partner evaluations. AWS’ determination to innovate with and ahead of customer needs continues to drive service and feature releases, aimed at winning new workloads without compromising profits. Halfway through 2018, AWS has released 800 new services and features, an accelerated pace of service innovation from 2017’s record level.

Microsoft Azure continues its fast-paced growth, but will remain behind AWS in revenue for the foreseeable future

Microsoft’s Commercial Cloud revenue, which includes public cloud and private cloud versions of Office 365 commercial, Dynamics 365 and Azure, approached $6.9 billion as Microsoft nearly doubled the number of Azure agreements worth $10 million or more over the last year. Azure revenue grew 89% year-to-year to $2.2 billion in 2Q18.

Microsoft’s combination of traditional software, public cloud and on-premises private cloud positions the company to be the backbone of customers’ hybrid environments — a label few competitors, especially AWS and Google, can claim. As such, Microsoft is uniquely positioned to help customers extract the value from their integrated data and has put itself at the forefront of innovation and commercialization of emerging technologies such as artificial intelligence (AI) and Internet of Things (IoT) to capitalize on this leading position.

Google will be unable to retain its third-place position as it fights to shift market perception and fend off strengthening competition

Relative to AWS and Microsoft Azure, GCP is far behind in the PaaS and IaaS space but is trying to prove to customers that it is as enterprise-ready as its main competitors. As Google solidifies its cloud portfolio and builds out key offerings, the company has also prioritized improving its large enterprise go-to-market efforts under its One Google strategy. Google Cloud, which consists of G Suite and GCP, increased revenue by an estimated 56% year-to-year, nearly reaching $1.42 billion. TBR expects Google Cloud revenue will increase to $1.6 billion in 3Q18 as the vendor continues to execute its One Google strategy.

While Google is investing in its go-to-market activities and shows progress through growth, its overall reputation in the market has been slow to adapt from consumer-grade to enterprise-ready. To combat that market perception, Google Cloud focuses its innovation on mastering four areas of expertise: machine learning and analytics, security, application developer tools, and connected business platforms. Recent investments in hybrid enablement and improved rendering capabilities demonstrate Google’s ongoing commitment to becoming a leading cloud vendor in differentiated areas of high-growth opportunity. While Google will succeed in these discrete areas, TBR expects Alibaba to emerge as the third-place general-purpose PaaS and IaaS provider.

Analysis: When expectations do not match the actual cost in cloud

In the relationship between customer and business, expectations are everything. In a lot of ways, the shift to cloud computing has evened the playing field for what is expected in terms of cost, responsibilities, and the services exchanged between IT customers and providers. With cloud services, customers can experience far more of a service before buying it, see a clear unit price from the outset and understand the constraints of the service-level agreements. However, uncertainty still lingers in the exact specifications for many solutions, as the complexity of the design and variability of the actual utilization continue to make accurately predicting real-world cost for cloud solutions difficult for many customers. — Allan Krans, Practice Manager and Principal Analyst