No rainmakers in the cloud sector

Lucy Carey

Analyst predicts doom and gloom amidst battle of the cloud vendor titans.

Cloud is the zeitgeist. Cloud is everywhere. If
you’re not drinking the cloudy Kool Aid, then you might as well
throw in the towel and join Blackberry on the ‘so 2009’ bench.
That’s the message we’ve been hearing for the last few years
 - but according to one analyst, cloud not might turn out to
be the golden cow everyone is hoping for.

Speaking at Channels Forum 2013 in Barcelona
this week, Canalys CEO Steve Brazier  predicted a
“devastating” crunch for cloud service providers who can’t find a
way to convert their massive user bases into viable businesses. He
pointed out that
, whilst there’s no doubt
that businesses are ready and willing to fill cloud space, super
prices from cloud providers used to
lure in these eager clients also mean that services like AWS
bleeding money.

According to Brazier, Amazon’s profits from its
infrastructure totalled a paltry $3.86bn, and its nearest five
competitors will clock up around $2.5bn -
big figures,
nowhere near enough to actually make back costs.
By selling everything below cost to grow user
“everyone is losing money…they haven’t proved this is a profitable

The menace of a dominant Amazon was the
instigator for other service providers like VMware to launch their
own vCloud hybrid services, and the inevitable result could be
“devastating cost crunch”.

There have already been some high profile
victims of this
jump on the bus now,
think about the destination
, mentality. Just last
week, cloud storage company Nirvanix announced that it was

closing shop
, leaving customers to do the legwork
to retrieve their data from the Nirvanix infrastructure.

With the mushrooming of mega vendors like Amazon
Web Services and Windows Azure in the sector, smaller niche
companies like Nirvanix, which
was a player in the
market for five years and
specialised in pure storage,
have found themselves unable to successfully differentiate
themselves. And they certainly
compete in the ensuing price wars as cloud
becomes increasingly commoditized.

Oxygen Cloud, who are tasked with helping
Nirvanix customers turf their stuff from the now defunct base, are
a bittersweet example of how companies have had to adapt to remain
competitive in the booming marketplace. Offering a cloud drive
virtual hub that companies can use to connect to other services,
Oxygen Cloud offers the flexibility of cloud, but also offers an
option to make personal files available in the data

As VMWare Chief Strategist Chuck Hollis writes in his
, to be successful in the cloud space, for enterprise
oriented vendors, “the rubric shouldn’t be ‘how do I compete with
Amazon or Rackspace or … [other large vendors]’, it should be ‘what
important unmet customer needs can I satisfy using a cloud

The cloud bubble may be close to bursting, but that doesn’t mean
it’s going away – even if consumers will likely be increasingly
wary of putting all their eggs in one basket. With a growing demand
for PaaS and SaaS, and a clear demand for more capacity than some
vendors can
currently provide
, a clear profit turning formula for cloud
services isn’t just a pipe dream – but for the next few years at
least, the skies are going to get increasingly tempestuous for
struggling companies.

Image by tC~riDer~

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