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Can niche cloud players take on hyperscale cloud providers?

AWS, Azure and GCP are top of mind for public cloud market share, but companies lower down the ranks want their piece of the pie, too.

Editor's note: Part one of this feature examines the closing window of opportunity to become a major cloud player at hyperscale, and the two candidates most primed to take a seat in that group: IBM and Oracle.

The list of truly competitive public cloud players isn't completely set in stone, but aspiring companies may need a really big chisel.

Amazon Web Services (AWS) and Microsoft Azure are the heavyweights in the expanding hyperscale public cloud market, as their services extend to new areas of IT. Google Cloud Platform gets a nod here, too. But after years of volatility for big-name public and private clouds, only a handful of companies remain to even attempt to compete on a global scale.

Industry observers agree there is still time for a small number of companies to challenge the likes of AWS, but the window is closing. So, who has the potential to be more than just a regional player and elbow into that top rung of platforms? Legacy vendors IBM and Oracle have legitimate claims, with individual strengths and weaknesses. But some newer vendors want a seat at the table and can find other ways to be relevant, rather than copy the hyperscale cloud providers.

Alibaba, the Amazon clone

Chinese online retailer Alibaba, the dark-horse favorite, has vastly grown its public cloud in recent years, though its revenue falls far short of the biggest players. Established in 2009, Alibaba Cloud has more than 1 million paying customers spread across 16 global regions. It has a strong foothold in its home country and opened its first region in Europe in November 2016.

IDC ranks Alibaba fourth among cloud providers purely in terms of infrastructure, but it falls down the list when you factor in higher-level services, said Frank Gens, an IDC analyst. Alibaba must improve here to compete in this hyperscale public cloud market. Alibaba Cloud isn't a real competitive threat in North America, but if it improves its services and bolsters those higher-level offerings, it could become a real completive threat to the largest players.

What Oracle and IBM lack in public cloud credentials is one of Alibaba's strengths: experience building and operating a hyperscale architecture as part of a larger business. AWS has, Microsoft has Xbox Live, and Google has its search and apps. Companies need that experience and continued revenue stream to justify the outlay for a hyperscale public cloud to sit alongside it. That's why Alibaba, among the world's biggest companies on and offline, is a potential threat to hyperscale cloud providers, said David Mitchell Smith, an analyst with Gartner.

"They're basically trying to be another Amazon and do a lot of the same things they did," he said.

Alibaba also has one more advantage: Every major corporation is trying to get a foothold in China's markets, which is a real challenge, and Alibaba is already entrenched there. That can be the company's hook domestically, and it can help them build relationships to expand elsewhere.

"It's going to take a while, and there will be fits and starts expanding beyond China in the same way Amazon and Microsoft have found getting into China," said Dave Bartoletti, an analyst with Forrester Research.

Competitive public cloud vendors

A public cloud niche in a hyperscale world

Trading punches with AWS isn't the only way to find a place in the public cloud market alongside the hyperscale cloud providers. Smaller companies, especially outside North America, cater to clients that need a local presence, while others like DigitalOcean have found success explicitly targeting developers. Both approaches can be precarious, however. The biggest cloud providers want facilities in every major country, and Amazon isn't afraid to siphon off smaller players' customer base. Amazon Lightsail, added in late 2016, was seen as a direct competitor to DigitalOcean.

Others have found success by eschewing infrastructure sales altogether. Salesforce, SAP and Pivotal provide platform-as-a-service offerings to many of the world's largest corporations. These vendors compete against the hyperscalers in some ways, but also work closely with them, as each has improved integration with AWS, Azure and Google Cloud Platform over the past two years.

Once you get beyond scale, it's all about services and segment and why you can say you're better.
Larry Calabroprincipal, Deloitte Consulting

Virtustream, meanwhile, is a bit of an anomaly in this market. It competes directly with AWS, Azure and the rest in the infrastructure market, but it hasn't joined the race to add higher-level features and expand globally.

In 2015, EMC acquired Virtustream, an enterprise-focused startup that offered hosted or managed, high-performant SAP workloads without a significant cost escalation. That's still a big part of Virtustream's business, but the company has branched out to handle most any important enterprise application without the pain and cost to rewrite those workloads. With this strategy, the company quietly chugs along.

"The Virtustream value is you don't have to change application, which lowers the barrier to entry for scalability," said Lauren Nelson, a Forrester analyst. "Oftentimes, specialization doesn't go with the typical hyperscaler ."

Larry Calabro, principal and cloud practice leader, Deloitte ConsultingLarry Calabro

To compete with AWS, the major cloud vendors rely on their own expertise to stand out: Google pushes its analytics and cognitive tools, while Microsoft focuses on its workspaces. But others face a real challenge to remain relevant, as hyperscale cloud providers push hard into specialized use cases, such as Virtustream's SAP turf, said Larry Calabro, principal and cloud practice leader at Deloitte Consulting, which partners with all the major public cloud providers.

"The momentum [for public cloud providers] continues to be based on knowing who their customers are and who they want their customers to be," he said. "Once you get beyond scale, it's all about services and segment and why you can say you're better."

Any aspiring public cloud player should go that route, rather than join the tireless race to match AWS as a full-stack public cloud.

"I don't think everyone has to do everything," Gartner's Smith said. "They've got to find what their real value is and what their skills are and how it fits their business model."

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

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