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Public IaaS market leaves some cloud vendors in the dust

Unable to handle the competition from the Big Three cloud providers, some IaaS clouds have closed up shop -- leaving many to wonder who might fall next.

Infrastructure as a service is a critical piece of the public cloud, and as that part of the market continues to grow, it's been tough for some vendors to keep up. Verizon and Hewlett Packard Enterprise recently folded their infrastructure as a service offerings, demonstrating the increasing competiveness of the market.

The growth of infrastructure as a service (IaaS) is fueled by enterprises moving away from on-premises data centers and toward the public cloud -- and IaaS adoption rates are not letting up. The worldwide public cloud services market is expected to reach $204 billion this year, and the IaaS market will remain the fastest-growing segment, according to Gartner.

"In general, there is a huge shift in the industry toward data center consolidation, which I believe will continue," said Ahmed Abdalla, cloud solutions architect at ADAPTURE, a Norcross, IT consulting company based in Georgia.

The Big Three prove hard to beat

Success in the hyperscale IaaS market requires a lot of capabilities that Verizon or [HPE] simply do not have.
Melanie Poseyresearch vice president of IDC's Hosting and Managed Network Services programs.

The clear winners in the IaaS market are the giants: Amazon Web Services (AWS), Microsoft Azure and Google, said Melanie Posey, the research vice president of IDC's Hosting and Managed Network Services programs. They dominate the market by encouraging and supporting self-service models, credit-card swipe, extreme automation, scalability, fault tolerance and a "primarily net-new DevOps approach to applications and workloads," she said.

Their success can also be attributed to a focus on enterprise needs.

"Large existing IaaS providers, such as AWS, have done a great job with marketing directly to clients and driving down costs," Abdalla said. Many public IaaS providers, such as Verizon, have had difficulty building a successful business model to compete in that environment.

Since Verizon has multiple lines of business to serve, including existing enterprise customers, and only so much capital to fund wireless, consumer entertainment, broadband and the Internet of Things, its ability to deliver IaaS was not sufficient, according to Posey.

It's not surprising that Hewlett Packard Enterprise (HPE) and Verizon have bowed out of the public IaaS market because they're "not cloud-native" like AWS, she noted. "Success in the hyperscale IaaS market requires a lot of capabilities that Verizon or [HPE] simply do not have," she said. Those capabilities include building technology platforms from the ground up and from piece part components, extensive software development and a range of proprietary IP.

However, traditional or "cloud-immigrant" providers like HPE and Verizon are still playing in the cloud space with hosted or managed private clouds and virtual private cloud offerings. These are promoted as being enterprise-grade and focused on traditional enterprise applications that organizations migrate or lift-and-shift out of enterprise data centers, colocation facilities or "old-school unvirtualized managed hosting" environments, she said.

"Rackspace is another one -- they have dialed back their investment and focus on their own OpenStack-based public cloud in favor of offering managed services for third-party clouds, including AWS and Azure at the moment," Posey said, adding that Rackspace is also focused on its own private cloud offerings.

New player battles for U.S. cloud market share

The U.S. cloud market is highly competitive, with Amazon, Microsoft and Google firmly planted at the top. Can new player Alibaba shift the balance?

What's next for the IaaS market?

It's hard to say whether any other IaaS player is likely to exit the public cloud market. However, there won't be a huge number of AWS-type public clouds out there in the IaaS market, Posey said.

"The scale of investment and development is beyond the scope of most companies at this point -- although I wouldn't rule out Chinese service providers, or even Huawei, making a run at it," she said.

IDC believes there will only be a handful of global hyperscale IaaS providers with the same business model and market approach as AWS in IaaS, such as Azure, Google, IBM/SoftLayer and some Chinese contenders, such as Alibaba. There are also companies like Deutsche Telekom (DT) attempting to establish themselves as public IaaS alternatives to AWS -- with a focus on data sovereignty and data protection.

In fact, Posey noted, DT is working with Huawei to build a European public cloud. However, at this point, "anyone trying to challenge the established public cloud IaaS players would be like trying to go head to head with McDonald's or Apple and doing it from the ground up," she said.

Next Steps

Consolidation could change the IaaS market

Compare the big public cloud providers

New public cloud pricing models emerge

This was last published in May 2016

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Which cloud providers do you think will struggle to stay relevant in the IaaS market?
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I'll be surprised if VMware's vCloud Air remains in business by the end of 2017. 
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I wouldn't forget emerging players in this sector with niche offerings - particularly DigitalOcean
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