Is Public Cloud Finally Resembling Public Utility? Analysis of Gartner IaaS Magic Quadrant 2016

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‘Computing on tap’, ‘On Demand Computing’, ‘Utility Computing’ etc are terms that have been thrown around for many years. At the core of these terms is the idea of making computing so simple that anybody can access it just like you would turn on your electricity or water. Infrastructure as a Service (IaaS) is another name for such computing and Amazon has led the way in realizing the vision of utility computing with its Amazon Web Services (AWS) offerings. The dynamics of the public cloud market have also started resembling the Public Utilities market. Although not to the same extent but just as we have very few mega Utilty providers such as PG&E, TXU etc, the Public Cloud IaaS market is showing consolidation.

Gartner analysts Lydia Leong, Bob Gill, Mike Dorosh and Gregor Petri just released the 2016 Magic Quadrant (MQ) for Cloud IaaS and as per the report , the market for cloud IaaS has consolidated significantly around two leading service providers Amazon and Microsoft with Google as a follower. According to Gartner, the future of other service providers is increasingly uncertain and customers must carefully manage provider-related risks.

The primary forces driving Public IaaS per this report are Cloud-native applications, E-business hosting, General business applications, Enterprise applications, Development environments, Batch computing and Internet of Things (IoT) applications. Last year VCloud News had pointed out the absence of Internet of Things (IoT) as an important driver for IaaS in the Gartner MQ and we are pleased to see the inclusion in 2016.

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Lets look at the 2015 Gartner MQ for IaaS above. Both Amazon and Microsoft have moved up in the leaders quadrant with Google pretty much in the same spot as last year. The big change is for CenturyLink, VMware and IBM that have moved to the left in the niche players category from the visionaries category. These three vendors along with  Virtustream, Rackspace, Fujitsu and NTT seem to also be more suited for Private or Hybrid Cloud IaaS or managed hosting. CSC, Joyent, Interoute, Dimension Data and Verizon have been dropped from the MQ this year due to low market share. They are also more suited for private or hybrid cloud environments.

As per Wikibon, Public Cloud IaaS is 3.5x the size of true private cloud adoption. That equates to about $25B of public cloud and $7B of true private cloud revenue in 2015. This also implies that Amazon, Microsoft and most likely Google will get the bulk of the business in the $25B public cloud IaaS market. Microsoft released FY16 Q4 results in July and reported commercial cloud revenue for the whole year at greater than $12B. That is driven mostly by Office 365 Software as a Service (SaaS) revenue and it is unclear how much Azure IaaS and Platform as a Service (PaaS) have contributed. In April 2016, IBM reported ~$10B cloud based annual revenue but it is also unclear how much of that is SaaS vs IaaS. As of July earnings, Amazon reported total $9.9B in IaaS revenue for last four quarters. Oracle’s total cloud revenues in Q4, FY16  including IaaS was $2.9B.

Amazon is leading the pack – period. Innovation is keeping them ahead of competition. As per Gartner:

AWS is now a mature provider, yet it remains an agile, innovative thought leader with a broad impact across a range of IT markets. It has the richest array of IaaS and PaaS capabilities. It provides the deepest capabilities for governing a large number of users and resources.

However, while it is easy to get started with AWS, optimal use requires expertise. Customers must proactively seek the depth of sales and solution architecture engagement they need to be successful.

Microsoft Azure encompasses integrated IaaS and PaaS components that operate and feel like a unified whole. VCloud News has identified the possibility of IaaS and PaaS merging and Microsoft is very well suited to do so.

It has a vision of infrastructure and platform services that are not only leading stand-alone offerings, but also seamlessly extend and interoperate with on-premises Microsoft infrastructure. Microsoft is also becoming more open and less reliant upon its Windows franchise, and Azure’s support for Linux and other open-source technologies is improving quickly.

VMware has been focused on hybrid cloud management using vCloud Air and other products targeted at Cloud Service Providers. They are getting increasing competition from  container based infrastructure management and new players such as Nutanix that are targeting physical and virtual resource management with their new Enterprise Cloud product.

After shutting down SmartCloud Enterprise cloud IaaS offering, IBM has been migrating customers to Softlayer which it acquired in 2013. SoftLayer offers paid-by-the-hour non-virtualized Bare Metal Servers. It also has OpenStack-based object storage but their primary business is non-cloud offerings, such as paid-by-the-month dedicated servers and hosted appliances. IBM’s vision with BlueMix PaaS and IoT supported with IaaS is strong but according to Gartner:

IBM’s aPaaS (Bluemix) is hosted in SoftLayer data centers, but the offerings are not directly integrated. 

Per Gartner, Japanese giant Fujitsu is developing a portfolio of cloud IaaS, PaaS and SaaS services and NTT’s Enterprise Cloud is a basic cloud IaaS offering with little differentiation. Rackspace has successfully pivoted from its “Open Cloud Company,” OpenStack-oriented strategy, and returned to its roots as described in last Gartner MQ. Virtustream is going through a transition with EMC acquisition and then Dell-EMC merger. About Virtustream, Gartner comments:

Although the Dell-EMC merger creates some uncertainties about its future direction, customers should expect Virtustream to continue to focus on its core strengths, rather than expanding into the broad cloud IaaS market. Customers should treat Virtustream as a specialized provider for the workloads that suit the strengths and weaknesses of its technology platform.

VCloud News feels Google is the one player to watch in the space and possibly the only one that can challenge and get closer to Amazon and Microsoft. Per Gartner,

Google’s strategy for Google Cloud Platform (GCP) centers on the concept of allowing other organizations to “run like Google” by exposing Google’s internal technology capabilities as services that other companies can purchase. Google has extensive expertise in running technology platforms at scale, thanks to its consumer business. It has pioneered innovative infrastructure-related technologies, from its physical data center designs to its use of OS containers, and has been successful at advancing container-oriented capabilities related to Kubernetes, its open-source container cluster management software.

Google has strong IaaS and PaaS capabilities but needs to grow its business with enterprise and mid-market customers, specially those that are not technology-centric businesses. The company needs to put in more focus and investment in sales, marketing and positioning of its offerings to get closer to the leaders. Overall, the Gartner MQ paints a realistic picture on how general purpose cloud computing and specifically IaaS is gravitating towards the big players and the whole market is shifting to closely resemble Power and Energy Utility market.

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