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How Can Smaller Cloud Providers Win as the Top Providers Grow Like Crazy?

January 24, 2017 by Miroslaw Burnejko

How Can Smaller Cloud Providers Win as the Top Providers Grow Like Crazy?

The public cloud market is changing every day, with new services, new products, and new cloud providers. Prices and margins are lower each month. Top vendors are hiring thousands of new engineers, PhDs, and data scientists. It’s an interesting time to have your head in the cloud.

But is it an interesting time for smaller cloud providers?

Based on IDC FutureScape: Worldwide Cloud 2017 Predictions, by 2020, the top five cloud players will control at least 75% of combined PaaS/IaaS market share (compared with 52% share in 2015). That’s 23% growth in five years. So let’s repeat the question: How can smaller cloud providers win as the top providers grow like crazy?

There is one solution that works, but it’s really hard for companies to think this way and change their perception: STOP TREATING THEM AS COMPETITION.

To achieve outstanding results, big margins, and great distributions channels, you should stop fighting and comparing your business with theirs. You should build your services based on their weaknesses and use their strengths to build additional revenue streams.

Blue Ocean Strategy

Blue Ocean Strategy is a book written by W. Chan Kim and Renee Mauborgne. If you look on the cover you will find this statement: “How to create uncontested market space and make the competition irrelevant”. It’s easier to create new space in the market or create a new niche.

Let’s look at the IaaS market. AWS has Amazon EC2, Microsoft has Azure Virtual Machines, Google has Google Compute Engine, and so on. Each month a new cloud provider from the CEE region decides to enter this space. They can read in IDC reports that the cloud infrastructure market will grow in value from $212 million in 2016 to $462 million in 2020. Why not take a slice of that pie?

It’s really hard to win with innovation and compete with the offers of the largest cloud vendors. They are already engaged in a major war with each other. If your goal is to provide standard virtual machines that fit everyone, then you are taking the wrong path.

Create Smaller Markets with Bigger Margins

Let’s imagine that you still want to offer standard virtual machines. You have good people and 10–100 current customers. So how about creating a smaller market? You can create an offer specifically targeting:

  • Medical companies
  • Medical companies in Czech Republic
  • Medical companies in Prague with onsite support
  • Medical companies in Prague with onsite support that require PCI DSS certification

Hire people from the industry that you want to focus on and build specialized services with specialized support. Focus only on a specific market. This is an easy way to win, because the largest vendors will never have the resources to adopt this kind of specialized approach.

Build Industry Clouds and Industry Collaborative Clouds

Industry clouds are less about technological improvement and more about operational transformation and creating new business value, including the generation and monetization of data sets.

You simply work with a specific industry to build a cloud that can help to solve specific problems, such as identifying fraud in the insurance industry.

IDC predicts that the number of industry collaborative clouds focused on information and data will triple globally from 50 in 2016 to more than 150 by the end of 2018, and exceed 250 EB of data.

Finding partners in a particular industry and building a specialized cloud for specialized problems with them is a good way to start building a large and profitable business.

Turn Enemies into Partners

Everyone has probably heard about Rackspace. One day, Rackspace decided to stop fighting with the biggest cloud providers and become … a trusted partner for AWS and Microsoft Azure. Rackspace now offers managed services for companies that use AWS and Microsoft Azure. With hundreds of certified engineers, it provides customers with options. A Rackspace customer can choose whether they want to use AWS, Azure, or dedicated hosting, as well as other cloud services available directly from Rackspace. If you can't beat them, join them.

It’s a popular model and we see new companies following this trend. They still sell and offer standard solutions, but they have also decided to build services and dedicated support for clouds like AWS, Microsoft Azure, Google Cloud Platform, IBM Bluemix, and Oracle Cloud. This approach opens up new markets and provides many partnership benefits.

And one Last Thing

I still meet with companies that make decisions based on gut instinct. But there is a better way — use DATA. Work with companies like IDC to acquire data and to make the best possible decision for your company, for your market, and for your niche. It may be a smaller market, it may be an industry cloud, or it may be a partnership with a major player. We can help you make the best possible decision for your business.

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about idc

International Data Corporation (IDC) is the premier global provider of market intelligence, advisory services, and events for the information technology, telecommunications, and consumer technology markets. With more than 1,100 analysts worldwide, IDC offers global, regional, and local expertise on technology and industry opportunities and trends in over 110 countries. IDC's analysis and insight helps IT professionals, business executives, and the investment community to make fact-based technology decisions and to achieve their key business objectives. Founded in 1964, IDC is a wholly-owned subsidiary of International Data Group (IDG), the world's leading media, data and marketing services company. To learn more about IDC, please visit www.idc.com.

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