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How providers' industry-specific cloud offerings impact IT

Vertical industry offerings are a trend among the leading cloud providers. IT teams will have to learn to adapt to the complications and changes these efforts will spark.

Whether IaaS or PaaS, cloud companies are moving toward specialized industry offerings.

AWS has co-developed various projects in recent years as it eyes industry-specific services to further grow its business, such as:

  • logistics monitoring with Carrier Global Corporation;
  • vehicle data platform with BlackBerry QNX;
  • IoT energy analysis with Vector; and
  • Industrial Cloud with Volkswagen.

These partnerships also serve as a directional indicator for the cloud computing market, and AWS isn't alone. Other vendors doing the same include Microsoft, IBM and Oracle. Google is behind in this aspect, but market experts expect the company to eventually follow. The IT industry has seen this type of shift time and again.

In the past, software vendors started with horizontal offerings and then moved toward verticals, where industry expertise offered a competitive advantage and stronger margins. Now, the shift is occurring on a massive scale to drive customer utilization of cloud infrastructure. The implications for companies and their IT departments will be significant.

Vertical migrations

Cloud is the battleground of change in IT, and cloud industry growth is sharp right now. Gartner expects end-user spending on public cloud services to increase 18% in 2021, and the cloud will make up 14.1% of total enterprise IT spending by 2024 -- a jump from 9.1% in 2020.

To put the outsized influence of the cloud in perspective, Gartner projects 4.1% growth overall for IT services this year. The changing delivery dynamic is clear. So are the business implications.

In the past, hardware and software vendors made money through sales, even if purchases ultimately stayed on a customer's shelf. With cloud, if there's no active use, there's no revenue. For that reason, expansion into verticals has become critical.

"It is really about cracking open the next generation of consumption of cloud," said Hillery Hunter, CTO and vice president of IBM Cloud.

Moving toward verticals is more than a single strategy. There are at least five distinct ways in which the major and secondary cloud vendors are moving.

  1. Marketing as specialization. Vendors reposition collections of existing horizontal offerings with a vertical spin.
  2. Marketplace. The cloud vendor opens a marketplace of third-party offerings.
  3. Compliance focus. The focus remains on horizontal capabilities but with support for the specific compliance and security needs of heavily regulated industries.
  4. Vendor development. A vendor creates products and services specifically targeted at verticals.
  5. Co-development. The cloud vendor works with a company in an industry vertical to develop an offering and then markets it more broadly.

Vendors typically use multiple approaches. AWS, for example, uses co-developments, but it also has vertical offerings developed strictly in-house.

Cloud providers' industry-specific offerings

So far, the leading providers have taken different approaches to vertical, industry-specific cloud offerings.

Amazon has the most specific sets of services, such as those in robotics and mobile development. One example offering is AWS Ground Station, a managed service for companies that rely on satellite data. The service targets those who own and operate satellites; no one is going to use that service unless they have satellites in orbit, said Eric Dynowski, CTO at cloud consultancy ServerCentral Turing Group.

Microsoft, which also got into the satellite-support business, has a long history of successfully bundling industry-specific services. "Microsoft is famous for this," said Jeff Valentine, CTO of cloud governance provider CloudCheckr. "They have a great go-to-market strategy."

Chris Hertz headshotChris Hertz

But this is more than just a marketing strategy. With most companies, the compute they're using and the services they're using overlap about 99%, said Chris Hertz, vice president of cloud security sales for Rapid7. The need is to "take these services that are fairly generic but [add] patterns and say, 'Here's how you apply it in your vertical or subdivision.'"

Google has made less of a foray into industry verticals. "It has more of an infrastructure [focus] and then we see them deep on the analytics side," said John Ezzell, co-founder and executive vice president of IT services company BIAS Corp.

However, based on the company's recent moves, that could change. "Obviously with hiring Thomas Kurian [former president of product development at Oracle and CEO of Google Cloud since 2019], Google got a lot more serious about enterprise," said Chris Nicholson, CEO of Pathmind.

The move to industry verticals is complicated by potential competition with customers. Rick Vanover, senior director of product strategy at Veeam, spoke with an organization in the U.S. dental industry that was influenced by potential competition as it planned to move from AWS to Microsoft Azure.

"'Why am I giving my cloud strategy to a parent company that is my competitor?'" Vanover said of the organization's rationale for the move. "If you think about heritage IT, granted there are a lot of changes, but Microsoft has proven those relationships and investments. They're never going to open an airline or delivery service or grocery store."

Other players in the cloud market also have strategies in place to expand business into industry verticals. IBM is focused on hybrid cloud and middleware in its approach, said George Burns III, cloud operations senior consultant at SPR.

Gosia Steinder headshotGosia Steinder

"We focus so far on the financial services cloud," said Gosia Steinder, IBM researcher and fellow. "It's not the only sector we're thinking of addressing, but it's where we're most advanced. Different industries come with different challenges. I think this is an opportunity for the cloud providers to address more targeted needs."

Impact on IT

IT teams will have even more options to wade through as cloud providers expand their vertical services, which could make the buying process more complicated. However, it could also help them avoid getting locked into any one vendor.

"Not one organization has [just] one single cloud provider," Ezzell said. "Microsoft has to talk to Oracle. Oracle has to talk to Google, and then they have to talk to the dozens of other SaaS providers out there."

But hopping around clouds -- like the dental company that moved from AWS to Azure -- can be expensive. IT teams need to assess factors like data egress fees and any refactoring they need to do to their application in the new environment.

There needs to be an overall strategy, but that can be difficult for IT to enforce when line-of-business units can obtain cloud services at whim and budget. This could be even more of a problem as providers promote more tailored services.

Chris Garvey headshotChris Garvey

"The IT department is losing the ability to have a say," said Chris Garvey, executive vice president of cloud services at cloud consulting and management firm 2nd Watch. "The actual application development and ownership is moving away [from IT]. I think business owners are saying, 'We're willing to fit into that mold because we're building and running the applications more and more.'"

IT departments may need to change their own focus to maintain their relevance.

"In the cloud world, they're generating new services all the time," said Pavel Pragin, CEO of system integrator ClearScale. "They're specialized and you need to know how to use them. Somebody needs to … parse through and understand what these things mean and how they can make the business better."

And with a potential flood of vertical offerings on the horizon, that may be the way IT can retain its influence.

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