Cloud Wars: Who's Winning and why it doesn't Matter

Nine years of cloud computing and counting...

The year was 2006. While Andy Jassy and Jeff Bezos were inventing a whole new way of delivering technology over the Internet at Amazon, I was busy at HP trying to convince customers to move their applications from legacy IBM mainframe systems to UNIX systems. As you might guess, that didn’t go too well; I was stunningly unsuccessful convincing folks to move off mainframes. (Fortunately, I could consistently beat quota by helping customers deploy standard UNIX workloads like Oracle and SAP.) The re-platforming cost and risk was just too great and an IBM sales rep would always come in at the 11th hour with a low-ball offer and a reminder of the risk and lack of experience with the new platform - and the deal died. I learned an extremely important lesson from that experience:

Don’t underestimate the power of those leveraging resistance to change

Fast forward to 2015 and the IT technology world is radically different, but some things haven’t changed. Although declining gradually, IBM’s mainframe ecosystem is still generating billions in revenue. Corporate IT is now largely virtualized but most application architectures are unchanged from when they ran on physical servers. Companies like Uber, Airbnb, and Netflix that were “born in the cloud” are disrupting their respective industries with technology from Amazon, Google and others, but over 90% of the Gartner estimated $3.8 trillion in 2015 worldwide IT spend will still be on legacy systems and services to support those systems. Why?

The answer is that most technology decisions are rational and those decisions depend on both the value and cost of changing technology. More on the value part of the cloud equation and why many companies are missing the point in a future post.

What is the industry response to the AWS advance?

Meanwhile, IBM, HP, Microsoft, the EMC/VMware federation and other incumbents have taken notice and are investing heavily in new technology to help customers simultaneously achieve the business benefits of cloud computing, minimize migration risk and maintain platform stickiness. Case in point is IBM's acquisition of and further investments in Softlayer while rumors swirl about reducing overall headcount. Many of us recognized the same pattern in the early 2000’s when leading telecommunications providers maintained their status as incumbents by turning a potentially disruptive new cellular technology into a way to combat new entrants, an approach described in Clayton Christensen's book, Innovator's Solution.

The idea is that current leaders can minimize disruption if they recognize the threat early enough and invest aggressively in new technologies and business methods to protect their industry position, even though new players are deploying new technologies in a way that disrupts the industry's predominant business model. Oftentimes, this requires carefully staged self-cannibalization. HP, for example, addressed this by keeping its cloud services organization separate from its enterprise services business unit (the old EDS business).

How is cloud computing disrupting the IT sector?

The pattern we are seeing in cloud computing at the moment doesn’t fit the classic industry disruption model. Unlike their colleagues in the retail and media sectors, IT industry leaders are fighting back by evolving their business models, making new investments and rapidly co-opting new technologies.

By some, this could be seen as a provocative statement

Is the growth of cloud computing disruptive? Absolutely, but it depends on your perspective of who is being disrupted. We can expect to see continued turbulence where a number of IT companies will not navigate the transition to the as-a-service cloud business model, but most of the biggest players will be able to maintain their position as industry leaders (although the order will likely change in the shakeout)

Traditional IT leaders are starting to see the results of their cloud efforts

As we see IT industry incumbents invest heavily in new capabilities and technologies and co-opt cloud innovation concepts, we are also seeing them aggressively work to maintain and extend their platform ecosystems. Those efforts are starting to generate results. By some measures, Microsoft is growing its cloud revenue almost twice as fast as Amazon, and IBM is only 2 percentage points behind.


Case in point: Even though Amazon AWS is the clear market leader with up to 75% share of cloud platforms according to Forrester, Microsoft has grown its cloud business from low single digit market share 3 years ago to as high as 25% at the end of 2014.

This is because of the mature Microsoft ecosystem combined with the gradual maturation of Microsoft cloud technologies. The key word here is ECOSYSTEM. Microsoft has 10,000’s of partners, a large mature enterprise sales force and a .NET platform that is nearly ubiquitous with Fortune 1000 IT departments. Because of this, they can leverage the high ground to gain cloud market share from AWS, Google and other new entrants and protect their base. Other leaders like EMC and IBM are employing a similar strategy. Does this mean that IBM and the other incumbents are out of the woods? No, but they're fighting back hard and aren't going anywhere anytime soon.

The Cloud Biome: A set of ecosystems emerge

While the new players led by Amazon and Google are growing their cloud ecosystems organically, established players are re-purposing their existing ecosystems of developer communities, resellers, technology providers, integrators, and service providers. This takes work: There are new winners and losers and capabilities have to be evolved but the results are unmistakable. Taking a closer look, we see a key subset of cloud platform ecosystems emerge:

  • Amazon AWS
  • Openstack – IBM, HP, Red Hat, Rackspace
  • Microsoft Azure
  • VMware/EMC
  • Google

Other platforms may achieve critical mass in the future, but it’s clear these platforms are here to stay. One way of looking at this is to look at the number of jobs posted requiring competence with a particular platform. If you look at trends on the website, you will see skills related to all of these platforms in high demand. (Be careful how you read the results though, the high growth of jobs in the transportation sector skews the results.)

Do enterprises care who’s the biggest? No.

Every platform mentioned here has and will continue to attract its share of customers for the foreseeable future. Many enterprises will also standardize on multiple platforms depending on their current state, future state plans, and to spread out risk. Do we care which platform provides the best fit for any given situation?

Absolutely yes, but.....

I’d love to hear your thoughts; let me know what you think by leaving a comment below.