The cloud computing market has been a race to catch up ever since startups and legacy vendors alike saw the burgeoning opportunity Amazon Web Services created. But that expanding market may begin to contract in 2016.
It's become increasingly clear over the past year that Amazon, Microsoft, Google, and, to a lesser degree, IBM, will dominate the infrastructure as a service (IaaS) market, according to Technology Business Research, Inc., a Hampton, N.H.-based market research firm. With that codification, other vendors must focus on higher-level services to remain relevant.
"We've seen a lot of vendors -- they're not getting out of public cloud, but they're shifting components to hybrid IT offerings," said Jillian Freeman, senior cloud analyst at TBR and co-author of the report, "Late cloud entrants making early exits."
By 2018, Amazon, Google, IBM and Microsoft will account for almost half of the public cloud IaaS market, according to TBR. With the exception of CenturyLink, most cloud providers are getting away from competing with the hyper-scale vendors, and hybrid IT provides openings for managed services or custom cloud services, Freeman said.
Dell was the first major vendor to go this route after ditching its own IaaS plans in 2013. Other vendors, such as Rackspace, have put the focus on managed services, while Verizon de-emphasized its public cloud offering.
"People are really just coming back to their core strategies, and that's OK," Freeman said. "It's a good thing that these vendors are not leading with public cloud because they haven't been successful and they're more turning to traditional strengths."
Transitions in cloud
Of course, these types of predictions aren't new. In January, Gartner, Inc. analyst Lydia Leong predicted that 2015 would be the "Year of Carnage," with many service providers exiting or significantly pivoting their IaaS business to cloud brokerage or managed services.
Some smaller acquisitions will continue to take place because of the increasing importance of geographic expansion and proximity to customers. Other acquisitions will focus on bringing in new technological capabilities akin to IBM's acquisition of Blue Box or EMC's acquisition of Virtustream, said Melanie Posey, research vice president for IDC in Framingham, Mass. But don't expect any seismic consolidation in 2016, she added.
"I don't really think that everybody folds up their tent and goes home and you only have three or four players in the world who offer something called cloud services and everybody else goes out of business and does something else," Posey said.
Hyper-scale companies such as Amazon and Google had huge head starts in IaaS because while they also needed to make significant investments, they already had massive infrastructure in place and plenty of funds on-hand, Posey said. Some of the smaller vendors underestimated the cost and technology required to build a robust, scalable cloud platform, and they will start to focus more on cloud-related services.
"What they're going to try is a different approach where they're selling something, managed cloud or enterprise-grade cloud services, where you get away from that very self-service, DIY approach that AWS has," Posey said. "The service, in a way, looks like traditional IT in that the customer can have service providers take care of some of the provisioning aspects, some ability to do self-service -- essentially outsourcing the public cloud to the service provider."
There's often an expectation that the cloud market will follow a typical Keynesian economic model of disruptive technology and a corresponding market that matures and consolidates, said Carl Brooks, analyst with 451 Research, LLC, based in New York. But cloud is different because the change is as much about the social impact as the technological and financial ones, he added.
"This is not a technology that's leapfrogging itself and making a bigger, faster jet engine," Brooks said. "What has changed is a fundamental expectation of what and how end users can consume IT resources, and that means the model of service delivery is spreading out and everyone will be operating more like Amazon than not in the future."
Still, don't expect many new vendors to build their own cloud, with 90% of existing cloud vendors in place prior to 2012, and 70% up and running before 2010, according to 451. There will be consolidation, but it will be strategic and in fairly well-defined grooves, and won't result in a monolithic market, Brooks said.
"Don't expect Verizon versus AT&T," Brooks said. "The truth is there will be those guys on top and a very long tail of what I would consider a big, vibrant market."
Trevor Jones is a news writer with TechTarget's data center and virtualization media group. Contact him at [email protected]