Where two are fighting, the third wins— A case for the Hybrid Cloud
By: Adrian Barwicki
Tags: IBM, AWS, Cloud, Hybrid Cloud, Digitization

This article is not about what a Hybrid Cloud is. It is about why it is the next “Big Thing”.

Cloud computing took off about 15 years ago, as companies started to outsource their web-hosting, data centres, core computer systems and many applications to a few big providers. Cloud computing was popularized with Amazon releasing its Elastic Compute Cloud in 2006. Now, Amazon remains the major player in the cloud market.

Growth towards the clouds

The cloud market size is at $371.4 Billion in 2020 and expected to grow to $832.1 Billion by 2025 at a growth rate of 17.5% a year [source].

This is already a huge market and a growing one. The pandemic has shown just how critical the cloud has become. The shift towards the cloud will rather accelerate due to digitization, with the economy’s main functions depending on it, a wide range of e-commerce sites and applications that let you work from home.

Cloud Wars

At the moment, there are three main cloud providers: Amazon Web Services, Microsoft Azure and Google Cloud. We can add to this list if we are to include the Chinese market as well.

Amazon remains the biggest player, with Microsoft and Google putting up a fierce fight increasing its market share. Looking at China, Alibaba and Tencent are the companies controlling the market over there. Even though the field is already highly competitive, more companies are coming to the fight, with IBM recently announcing it would spin off part of its services business to focus on the cloud and AI; and Oracle’s bidding for TikTok in an effort to secure an anchor-customer for its new cloud operation.

The fact is that the market remains fragmented and the cloud providers are fiercely fighting for this market.

A case for an “uber” Cloud

Yet individual firms can benefit using more than one cloud provider based on multiple reasons:

- Avoid vendor lock-in

- Exploit price differences across providers

- Use provider-specific features

- On-premise infrastructure as backup and recovery capability

- Compliance with data-localisation requirements

The boom in the cloud market and fierce competition means more choice and lower prices for customers.

In this market though, it’s rather unlikely that “network effects” will play a bigger role with a winner taking it all. The mix of on-premises, public cloud, and private cloud systems is the most pragmatic approach to cloud adoption because it enables organizations to make the best use of technologies optimized for costs, security and compliance restrictions.

The basic idea behind hybrid cloud is to create an overarching, unified platform — a cloud of private and public clouds. It combines a customer’s own computers with the ones operated by AWS, Azure or Google and it allows to combine resources hosted by all of them simultaneously and access them through one common interface.

Where two are fighting, the third wins

According to Bain research, 90% of companies still rely on a single cloud provider. Generally speaking, if the arbitrage costs remain higher than the arbitrage itself, this statistic may well continue.

It’s rather unlikely though, as companies left behind in the cloud race seem to put forward strategies to exploit the fierce competition between the biggest cloud providers and treat their offerings just as commodities. With this prospect, profit margins may fall for infrastructure cloud providers and shift towards enablers of the hybrid & multi-cloud “control points”.

One example of such a turn around can be IBM. Staying behind in the cloud race, IBM revenues have been consistently falling for the past decade. However, IBM still manages the on-premise architecture behind credit card payments and major telecoms — other words, it manages mission-critical systems. The company is now well-positioned to rip benefits helping its clients with legacy systems to commoditize the cloud. The execution has been put forward, most notably, with the acquisition of Red Hat.

Another company — VMware - has announced a series of new solutions, services, and innovations for its multi-cloud portfolio. The company announced several new native capabilities for delivering a platform for unifying multi-cloud management and operations and empowering cloud providers. This will allow companies to shift computing workloads easily from one provider to another, depending on things like price, reliability and distance to the customer.

Cloud Wars?

It is also fair to say the real cloud wars might just be getting started. Google responded to the IBM strategy shift to Hybrid Cloud with its own offering for a multi-cloud solution — Anthos — for writing code once and deploying in any cloud. Amazon is also joining the party with the AWS Outposts, marketing it as ideal for workloads that require access to on-premises systems.

Personally, I think that the companies best positioned for the hybrid race that are most incentivised to commoditize the cloud resources. And these are the current underdogs in the cloud race — IBM, Oracle and VMWare.