Define the Industry – Cloud computing

The market for cloud computing worldwide was estimated to be worth 368 billion USD in 2021.From 2022 to 2030, it is projected to increase at a 15% annual rate. As more companies and employees use various online computer systems to manage their businesses and cut costs during the COVID-19 epidemic, the necessity for cloud computing has increased (Techradar, 2022). Cloud computing is simply the word for online provision of computing services like servers and storage (“the cloud”). In the past, companies had to spend money on hardware and software purchases in order to run their data centers, servers, and apps. Companies can access, for instance, mission-critical programs through the cloud using cloud computing without spending money on data servers, electricity for power, and cooling (Techradar, 2022).

The cloud computing market per company is as follows:

• Amazon Web Services (AWS):
  • Market Share in Q4 2023: 31%
• Microsoft:
  • Market Share in Q4 2023: 24%
• Google:
  • Market Share in Q4 2023: 11%

The Actors

With numerous players, the cloud computing market might be perceived as quite complex.
Google, Amazon, and Microsoft, however, are the three leading competitors.
The Gartner Magic Quadrant, which assesses vendors and their capabilities, includes these three as well.

With AWS, Amazon will be the market leader in 2020-, holding more than 41% of the market, more than twice as much as Microsoft. In 2020, it brought in almost 45 billion dollars (Statista, 2022).
Businesses can build their own IT infrastructure using the large range of services that AWS provides and their cloud ecosystem. Everything is available, including applications for computation, storage, analytics, developer tools, and security.In comparison to other actors, AWS has been on the market the longest. They are regarded as experienced providers with a wide range of options.

Security, Performance, Availability, and Scalability: When choosing a cloud provider, organizations must consider various factors such as security, performance, availability, and scalability. According to a report by The Futurum Group, Amazon Web Services (AWS) is recognized as the market leader among public clouds due to its leadership in silicon innovation, serverless computing, security, reliability, and a wide range of capabilities for running any type of application anywhere.

Efficient Infrastructure and Platform Services: AWS offers a comprehensive breadth of cloud infrastructure and platform services that are often considered the most mature in the market. With over 750 generally available compute instances, AWS provides customers with a wide range of choices to suit their unique workloads. Additionally, AWS collaborates with partners to enhance infrastructure efficiency for customers by introducing new technologies like NVIDIA GPU-based Amazon EC2 instances.

Data Security Across Environments: AWS prioritizes data security by delivering confidential computing through the AWS Nitro System. This system ensures built-in security to protect hardware and software against potential threats. Features like AWS Nitro Enclaves allow organizations to create isolated compute environments for securely processing sensitive data. The Nitro System enhances performance and security by providing customers with nearly all compute and memory resources from host hardware.

Serverless Computing Simplified: AWS revolutionized serverless computing with AWS Lambda in 2014, offering serverless services across various domains such as compute, storage, databases, analytics, and event-driven architectures. Lambda enables developers to run code without managing servers while ensuring automatic scaling and maintenance by AWS. Recent updates have made Lambda scale up to 12 times faster, catering to highly variable traffic demands efficiently.

Generative AI Capabilities: As generative AI gains prominence, AWS leads in democratizing access to this technology by offering custom-built silicon for training models and providing access to large language models like Amazon Bedrock. AWS empowers developers with innovative tools like Amazon Q – a generative AI-powered assistant designed to enhance productivity at work. By investing in diverse AI models and ensuring data security during model training processes, AWS offers customers a wide array of choices for AI applications.

Extensive Partner Network: Recognizing that no single cloud provider can meet every customer’s needs alone, AWS has cultivated a vast network of partners through the AWS Partner Network. With over 130,000 partners globally, including systems integrators and managed service providers, AWS ensures customers have access to specialized expertise and solutions tailored to their requirements.

In the digital era, Google has developed a strong brand recognition and holds a prominent position in the search engine and advertising sectors.Around 30,000 paying users are thought to be using Google’s cloud computing services. Their approach is based on offering open-source innovation with a developer-centric approach (Techradar, 2022).Globally used by developers are their compute services like Kubernetes and TensorFlow.
Statistics from 2020 suggest that Google Cloud revenue was 19 billion US dollars, or 7.5 percent of Google’s overall revenues, even though they don’t provide real revenue figures (Statista, 2022).

Google Cloud Platform stands out among other cloud providers due to its competitive pricing. It offers a monthly pricing plan with committed use discounts of up to 57 percent when committing to specific amounts of vCPUs and memory for one or three years. This pricing structure provides cost savings and flexibility for users, making Google Cloud a compelling choice for businesses looking to optimize their cloud spending.

Windows, Microsoft‘s operating system, is its most well-known product.It has shifted its attention in recent years to the cloud computing sector and introduced Microsoft Azure, which provides end-to-end cloud service solutions.Instead of concentrating on selling licenses for their operating system, its strategy now centers on a “cloud first” approach.In 2020, Microsoft’s cloud revenue of $19.1 billion represented approximately 39% of total sales (Statista, 2022).

Flexibility and Scalability

Microsoft Azure offers users the flexibility to choose from a wide range of cloud services, including compute, analytics, storage, and networking. This flexibility allows businesses to tailor their cloud solutions to meet their specific needs and preferences. Additionally, Azure provides scalability, enabling organizations to easily scale up or down based on demand without the need for significant upfront investments in infrastructure.

By leveraging Microsoft Azure’s flexible and scalable cloud services, businesses can efficiently adapt to changing requirements, optimize resource utilization, and drive innovation without being constrained by traditional IT limitations.

Competition Analysis

Five vendors control 80% of the global market for cloud computing, according to research firm Gartner. As mentioned above, the cloud computing industry created a new kind of sales income for the listed corporations.The ability of enterprises to regulate and use price as a competitive market and the capacity of firms to generate above-average profits over the long term are two factors that Keat and Young (2014) claim define competition.These three players are engaged in a strong pricing competition in the cloud computing sector.Actors provide cheaper pricing to attract or retain clients in an effort to bind them to their service ecosystem. AWS has the benefit of a sizable market share and has had the advantage of being around far longer than the other players due to the fact that both Google and Microsoft entered the cloud computing business later than AWS.

1. AWS Pricing:
   • AWS follows a pay-as-you-go pricing model where customers only pay for the services they use.
   • It offers three main pricing models: On-Demand Instances, Reserved Instances, and Spot Instances.
   • Additional tools like Cost Explorer, Budgets, and Discounts & Savings Plans help customers manage costs effectively.
2. Azure Pricing:
   • Microsoft Azure provides customized services and solutions for organizations.
   • Azure offers a pay-as-you-go model where businesses pay for what they use without upfront expenditures or termination fees.
   • Reserved Virtual Machine Instances are available for long-term commitments with significant discounts.
3. Google Cloud Platform (GCP) Pricing:
   • GCP focuses on modern app development and data analytics.
   • GCP’s pricing model includes discounts for sustained usage, making it more cost-effective over time.
   • Custom machine types in GCP allow users to tailor resources to their specific needs.

• An overall picture of the companies in the industry

Since a small number of very large companies own the majority of the market share, the cloud computing sector can be viewed as an oligopoly.AWS dominated this market with a share of more than 40%. We have eleven vendors with a combined market share of 18% after the big three. The oligopoly market, according to Keat and Young (2014), is characterized by a small number of major enterprises and frequently standardized products.Their scale or market domination gives them market power.Additionally, when there are few sellers on the market, each seller constantly analyzes the pricing of the other and keeps an eye out for pricing patterns. Furthermore, price leaders usually solidify their position as the price leader in an oligopoly market by being the first to disclose any price increases (Keat & Young, 2014).

• Potential competition analysis entrant

We can utilize the Porter Five Forces analysis to examine the prospective competition evaluation for new entrants.The top three giants have increased their relative market strength among consumers in the current environment. Customers sometimes find it difficult to merge several hybrid models or switch between cloud computing providers. The competitive market environment is viewed as an oligopoly, meaning there is some market appeal in terms of developing competing solutions, but in this environment the lock-in effect of, for example, AWS is significant, making it challenging to win over clients.For new entrants, it would necessitate significant capital expenditures, infrastructure (servers and storage) spending, and a personnel with a high level of education.Therefore, it is quite challenging for new competitors to enter this industry and compete with the main three titans. Established players like Amazon Web Services (AWS), Microsoft Azure, and Google Cloud have already captured a substantial market share, making it challenging for new entrants to differentiate themselves and gain traction. Additionally, building trust with customers regarding data security and reliability is crucial in this highly regulated industry.

• Current competition analysis incumbent

The battle to dethrone AWS is becoming more fierce among the top three titans described above.The industry generates enormous revenues, and the various providers compete with one another for business.
Each of the three actors makes an effort to regularly upgrade its support, software, and infrastructure.
Once a buyer makes a cloud computing investment, it is difficult to withdraw their money. To ensure that customers are using their ecosystem services, all three players attempt to exploit lock-in effects.
Since it has been on the market for a longer time, Amazon Web Services (AWS) has more developed products. They also perform a wide range of huge organization support tasks, which the other two players do not.Three categories—Infrastructure as a service (Iaas), Platform as a service (Paas), and Software as a service (Saas)—have arisen as a result of the three industry titans’ shifting product lineups (Techradar, 2022).

• IaaS (Infrastructure as a Service):
  • IaaS provides self-service models for accessing, monitoring, and managing remote datacenter infrastructures like compute, storage, networking, and networking services.
  • Users can purchase IaaS based on consumption, similar to utility billing, instead of owning hardware outright.
  • Users are responsible for managing applications, data, runtime, middleware, and operating systems while providers manage virtualization, servers, storage, and networking.
• PaaS (Platform as a Service):
  • PaaS offers a framework for developers to build or customize applications quickly and cost-effectively.
  • Developers manage the applications while enterprise operations or third-party providers handle OSes, virtualization, servers, storage, networking, and the PaaS software itself.
  • It reduces coding needs, automates business policy enforcement, and aids in migrating apps to hybrid models.
• SaaS (Software as a Service):
  • SaaS delivers applications over the web managed by third-party vendors with client-side access through a web interface.
  • Applications can be run directly from a browser without downloads or installations.
  • Vendors manage everything from applications to infrastructure components like runtime, data, middleware, OSes, virtualization, servers, storage, and networking.

Customers can buy products from all three product categories from the incumbents. The companies using Infrastructure as a Service, need to purchase servers, hardware, and storage. In this area, Amazon AWS is the market leader due to the size of its global network.As a result, they can somehow reduce server costs through economies of scale (Techradar, 2022).More security measures will be necessary in the future to protect data from cyber-security risks, and all three actors are attempting to develop new services in this area.

References:

Keat & Young  Managerial Economics (2014): Economic Tools for Todays Decision Makers, 4th

Microsoft Azure (2022). What Is Cloud Computing? A Beginner’s Guide | Microsoft Azure. [online] azure.microsoft.com. Available at: https://azure.microsoft.com/en-us/overview/what-is-cloud-computing/#benefits.

Techradar. (2022). 2021 saw a major cloud spending surge. [online] TechRadar. Available at: https://www.techradar.com/news/2021-saw-a-major-cloud-spending-surge [Accessed 1 May 2022].

Statista. (n.d.). Google cloud revenue by quarter 2021. [online] Available at: https://www.statista.com/statistics/1254388/google-cloud-revenue-by-quarter/.