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 low prices from cloud providers used to lure in these eager clients also mean that services like AWS are 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, but nowhere near enough to actually make back costs. By selling everything below cost to grow user bases, “everyone is losing money…they haven’t proved this is a profitable business”.

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 a “devastating cost crunch”.

There have already been some high profile victims of this jump on the bus now, think about the destination later, 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 can’t 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 centre.

As VMWare Chief Strategist Chuck Hollis writes in his blog, 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 model?’.”

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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