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The window to be a hyperscale cloud provider is closing

A handful of companies will control the majority of the public cloud. Is there still room for big-name companies to join the club, or are they already too late?

If the public cloud market is like a game of musical chairs, some big names need to scramble for the last few seats.

For years, the public cloud consisted of Amazon Web Services (AWS) and everyone else, as competitors came and went, including Hewlett Packard Enterprise, Dell, Rackspace and OpenStack. Eventually, Microsoft Azure emerged as a reputable No. 2. And, with Google Cloud Platform (GCP), they now round out a group identified as hyperscale cloud providers -- the biggest cloud vendors that act as globe-spanning IT supermarkets and test kitchens.

A handful of industry heavyweights still vie to keep pace and be associated with that trio, but the pressure is mounting. This market requires enormous capital expenditure to reach the highest scale and deep engineering investments to provide all the bells and whistles that developers crave.

Cloud relevance: An uphill, expensive battle

True, direct comparisons to rank cloud providers remain elusive, because each vendor defines the category to suit its own strengths, but most analysts place AWS and Azure high above the rest. IDC calculated the pair at 47% public cloud market share, a figure that has grown for several years. Google's cloud revenue is a fraction of AWS' no matter how it's sliced, but the company, which has poured tens of billions of dollars into GCP, is often lumped in with the pair because of its similar approach to scale and innovation.

A few companies still hope there's room for others in this market. Legacy vendors IBM and Oracle have doubled down on revamped public clouds, while dark-horse candidate Alibaba and niche players such as Virtustream try to stake their own claims as viable alternatives. These next couple years will determine who joins the hyperscale providers as the power brokers of the IT world for the next two decades -- and who gets left behind.

"It's down to the last one or two spots, and it's going to be all about developers," said Frank Gens, an analyst with IDC. "It's not about infrastructure as a service and who has the biggest data centers. It's all about attracting a large population of the people developing the next generation of killer apps and services."

Dave Bartoletti, analyst, ForresterDave Bartoletti

AWS and others have indeed extended public cloud beyond infrastructure, as they roll out stickier services for IT management and tools that hit on all the latest trends, from containers and serverless to internet of things, analytics and AI. But it's not just the size of the toolbox that matters. Each company aspiring to hyperscale status needs enough capacity around the world to meet the growing demand for cloud services.

That double-edged demand will prevent any new major global cloud players in the near term, and instead the market will consolidate to a small share of vendors that control three-quarters of the market, according to Forrester Research estimates last November. Nevertheless, outside of North America, there is still plenty of competition and an opportunity for companies just below the Big Three to seal those fourth and fifth spots.

"This idea that Amazon is so big they cannot be stopped and that they control everything is just not true," said Forrester analyst Dave Bartoletti. "It's not that we're approaching a monopoly in these spaces; we're really at an oligopoly."

IBM and Oracle mean business

With the notable exception of Microsoft, large IT vendors have failed to make inroads as public cloud providers over the past decade, but that track record hasn't deterred IBM and Oracle. Both companies have revamped their underlying cloud technology to lean on their enterprise bona fides and join the conversation as hyperscale cloud providers.

IBM has positioned its cloud platform to solve specific business problems, rather than as a blank canvas. IDC and Synergy Research both rank IBM ahead of Google in public cloud market share, and IBM's biggest strength -- knowing how to meet enterprise clients' needs -- is seen as Google's biggest weakness. Even AWS struggled with that; though, in recent years, it has aggressively built its support team.

IBM Cloud also got a boost from its partnership with VMware, an integration that was available more than a year before a similar service on AWS. In the past two years, nearly 2,000 customers have moved their VMware workloads to IBM Cloud, the company said.

[IBM can] differentiate from the other public cloud providers ... around higher-touch type of capabilities, especially for tier-two, tier-three type of enterprises that really can't afford to do a lot of experimentation.
Chris RiveraCTO, Syniverse

Syniverse, a mobile networking company based in Tampa, Fla., runs its own private cloud orchestrated with vRealize, and it uses IBM and AWS to extend its workloads to the public cloud while maintaining a familiar, reliable environment for its developers. The experience on both public clouds has been positive, but IBM has done more around support, said Chris Rivera, Syniverse CTO.

"One of the things they can do that differentiates from the other public cloud providers is around higher-touch type of capabilities, especially for tier-two, tier-three type of enterprises that really can't afford to do a lot of experimentation in a do-it-yourself environment," he said.

IBM's strength in cloud professional services will keep the company in the cloud conversation even if its public cloud stagnates. IBM Cloud had made headway in several areas, such as its Watson-based tool set and improvements to IBM Cloud Private and its Bluemix platform-as-a-service offering, but Big Blue must build up its credibility with developers who want to build cloud-native workloads.

Oracle, meanwhile, began to sell cloud applications before it moved down to the platform layer with its databases and eventually into the infrastructure layer with a major overhaul of its infrastructure-as-a-service component in 2016. The infrastructure component has become more commoditized and arguably not to Oracle's strength, but the company pledges to compete at every level.

Competitive public cloud vendors

Oracle Cloud at Customer, a scaled-down, on-premises version of its public cloud, has been purchased by thousands of Oracle customers to help them acclimate to a modernized data center. The company also has pushed to support more open source software, including Kubernetes for containers and its Fn serverless platform. Oracle has begun to move its higher-level services to this new infrastructure, and the fruits of that labor should start to pay off this year for existing Oracle customers, as well as AWS and Azure converts, Bartoletti said.

"We've been recently talking to early customers, and they like the support they're getting," he said. "Oracle is being very aggressive."

Still, Oracle's reputation for heavy-handed licensing agreements has helped create a public scrum with AWS, which claims its Aurora managed database is its fastest-growing service as companies ditch their older services.

"We do need to really change the perception around that," said Amit Zavery, senior vice president of Oracle Cloud Platform. "We've done a lot of work to improve our licensing to make [paying for our cloud services] as transparent as possible, and we are really taking aggressive steps to change that mindset out there."

Part two of this feature examines the role, and fate, of other second-tier cloud players that aim to be a hyperscale cloud provider, from Chinese online giant Alibaba to more niche players, including DigitalOcean, Virtustream and platform-as-a-service companies, such as Salesforce, SAP and Pivotal.

Trevor Jones is a senior news writer with SearchCloudComputing and SearchAWS. Contact him at [email protected].

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