Who is Still Not in The Cloud?

Now that cloud computing technology is on the rise and shows no signs of slowing down, there’s bound to be a big shake up in the industry, with cloud itself turning into a more common utility that has a great influence over IT suppliers.

Like any big industry shake-up, there will be losers and winners once Cloud fully matures and becomes firmly entrenched in the IT landscape. The winners are more likely to be companies that can deliver the requirements and needs of huge infrastructure operators, such as Amazon and Google, or those that can provide advanced software tools for businesses who want to save on hardware costs.

What’s more important is that there will be a lot of losers, particularly companies that are still dependent on legacy technologies that were developed in another time and more suited to a bygone era. Below are some industries or segments that might not exactly be benefiting from the cloud.

Low Bandwidth Countries

To date, there are still a lot of countries or provinces in certain countries that don’t enjoy the same internet connection speed as most first world countries. As first world countries continue to advance, the gap between them and those with low bandwidth access is widening. The divide is growing stronger and the crowd will do little to advance their cause.

The cloud will only further widen the gap between countries who can access the cloud seamlessly and the countries who can’t.

This is a business opportunity for first world countries, of course. However, any economist knows that the only way business can really grow is if it operates in a robust market. That means that if some countries are left behind while others are running ahead, it will eventually implode.

Conservative Governments

Thailand is famous for banning YouTube. China doesn’t allow access to many different popular sites because of the possible content that their citizens may access that may lead to a revolution. The cloud offer its citizens a quick and, possibly, anonymous way of accessing these sites.

For China, a Virtual Private Network is becoming their bridge towards the outside world. VPNs offer everyone a chance to access both private and public clouds.

Established Hardware Makers

OEMs like Dell, EMC, HP, and IBM will most likely face great challenges due to two important reasons; first is the fact that the trend for small companies to shift towards cloud services will affect their businesses, which is selling datacentre equipment, and second – the datacentre infrastructure market will be disrupted by the move to equipment commodification.

Gartner reports that companies that will migrate to the cloud for cost saving reasons will cannibalise on-premise equipment spending. The premise is simple, once companies go for cloud-hosted services, like going to Gmail from Microsoft Exchange, the need to spend on on-site equipment and servers will also disappear, which in turn will affect OEM companies’ bottom line.

One of the more noticeable outcomes of Cloud computing’s rise in popularity is that modern enterprises are now spending more on client devices and cloud services than the middle layer consisting of network, server, and storage gear as well as on-premise computers.

What’s even worse for OEM manufacturers is that the world’s largest infrastructure operators – Facebook, Google, Amazon, and major banks have all decided to design their own datacentre equipment instead of sourcing from third parties.

Facebook, for example, designs their own storage and server gear using parts from other continents including Australia and Asia such as Quanta, Foxconn, or Wistrom. Google, on the other hand, is already designing stripped down servers on their own for many years. Amazon is said to be doing it as well, having recently launched a low cost cloud storage technology named Glacier that’s believed to be based around custom Amazon designed equipment.

The Biggest Entertainment Companies

It’s a double-edged sword for these companies. On the one end, record labels and TV stations know that public cloud like social media is an additional marketing channel. There have been a lot of contents and talents which were born through social media. Blairwitch Project, arguably the first movie promoted through social, is a great case study. With no marketing budget, the producers had to rely on other people sharing their website to their friends. It worked.

However, it is also this same media that’s giving their contents away for free.

Companies That Do It On Their Own

By manufacturing their own infrastructure, cloud companies are usually able to avoid  usual requirements and save some money. Not only are they able to decrease the number of their target audience available to large OEMs, it also bites into the margins of OEMs as they tend to buy fewer components in order to get lower price reductions.

Response from the Industry

The OEMs that stand to be affected by the shift towards Cloud computing are not oblivious – in fact, they have been attempting to stem the tide by trying to service large cloud customers through the production of their equipment using specialized divisions, like Dell’s DataCentre Solutions Unit. They are also starting to target SMEs that would normally go to the cloud.

The OEMs’ shift in strategy manages to address the commodity hardware shift in 2 ways. First is that the specialized divisions manage to target large infrastructure buyers with products customized around their needs, and next is that the appliances are sold to smaller companies that want to migrate to the cloud, but don’t have the required expertise or manpower to build their own gear.

The risk with their strategy is that they could enter into a competition that is based on price against Asian ODMs on datacentre equipment, which is a war of attrition that they will most likely lose since the Asiam ODMs have cheaper production and operational costs. There is also the danger of smaller equipment being more vulnerable when using fee software,which means small businesses can just create their own items instead of buying items from and then deploying a mature open source software on top.

Chip Companies

Chip Companies also stand to be affected negatively, but to a lesser extent. Basically, the cloud reduces the need for companies to buy ever larger amounts of chips, which will affect the general margins as these buyers usually demand volume discounts during massive purchases.

It is the reason why Intel is starting to invest in hard to commodities areas. However, while these areas are starting to become more specialized after a period where pure commodity processors managed to edge out the custom designs of early supercomputers, the market size is not yet enough to compensate for the loss of mainstream enterprise.

AMD, on the other hand, is now using RISC processor that requires lesser power so they can encourage companies to be more conscious of their datacentre operators that have the means to plug their applications to RISC. Intel is also making some headway in this sector thanks to their Atom processors, however the momentum is clearly with ARM due to their near total dominance of mobile and embedded technologies.

One comment

  1. Very intriguing in need, especially for those that are still skeptical when it comes to the Cloud… The question remains, which cloud do you recommend? My choice of preference is Amazon and especially a service called Zoolz that made my life simpler..Cheers to the new year…

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