Big cloud players may get the hype, but they aren't for everyone
The future of the cloud may lie with niche players, vying for specialized segments rather than market dominance.
The cloud market is maturing, and more companies are going "cloud native." Approximately 18% of organizations now have more than half of their workloads in the cloud, according a survey of 100 IT managers from Cohesive Networks.
A similar study from Capgemini involving over 900 organizations estimates about 15% now consider themselves cloud native. Cloud-native deployments in the enterprise will double over the next three years.
As it matures, the cloud market is also evolving. The overarching narrative of cloud giants vying for dominance still exists, but more niche players have emerged in the market since 2016, according to Gartner’s latest Magic Quadrant (MQ) report released in June.
While none of the companies in the 2017 MQ are new, Gartner included just 10 companies in the MQ last year because it was harder to distinguish beyond the top 10, according to Lydia Leong, vice president and analyst at Gartner. This year’s report, however, includes 14 companies, eight of which appear in the niche players quadrant.
Who are these niche players, and why are they on the rise? Given the dominance of Amazon Web Services, Microsoft and Google, companies have realized they have to specialize in order to survive, and some of the companies are doing a very good job of focusing on those specialties, according to Leong.
"It’s not so much there are new niche vendors, it’s that the niche vendors continue to survive, even in the face of significant consolidation around just a few vendors," said Leong. "Those niche vendors typically do something that the other vendors don't do as well."
Another way to look at it is to think about the software market. "Software markets typically have, in a given segment, a vendor that is highly dominant," said Leong. "But they also tend to support a bunch of smaller vendors, who do something highly specialized. That’s the case with cloud too."
So while companies may look to AWS, Microsoft or Google if they need a single vendor for a general cloud application — if they need a specialized solution — they turn to a niche player.
"Companies need to consider whether they are going to choose a solution that is broadly good for a lot of things, or maybe a best-of-breed for a narrower use case?," asked Leong.
Putting the pieces together
Owen Rogers, research director in the Digital Economics Unit at 451 Research, said he sees the big cloud players as Legos.
"Put the bricks together in the right way and you can build some really amazing things," said Rogers. "But not all enterprises have the ability and even desire to put all the pieces together; many would rather pass that job onto someone else, such as a niche cloud provider, who knows how to architect and manage a cloud application, together with its dependencies such as network."
While there is no question that AWS and Microsoft have the biggest collection of Legos with which to make applications — and the niche players have less capability — the niche players can still compete by keeping tight relationships with their customers, ensuring strong enterprise development and managed services capability and integrating network services.
"This can appeal to enterprises despite the lack of newer, sexier services such as serverless," said Rogers.
Leong points to Virtustream as an example. Virtustream, which was recently acquired by Dell EMC, specializes in purpose-built clouds for SAP and other applications that run well in cloud environments, or that don't run optimally in cloud environments.
"Because they've really done specialization there, they have managed to be successful defending that one particular niche," said Leong.
Skytap, too, is defending a particular niche.
Skytap's "specialty is really replicating things that look like on-prem environments in the cloud," said Leong. "So if you've got complex enterprise data center and you kind of need the ability to template and simulate a workload's existence for test development purposes, then Skytap does that very well."
Going the distance
Questions typically arise around the long-term viability of niche cloud players. Gartner’s MQ warns that although there are currently "thousands" of cloud IaaS providers, "buyers should be concerned about the long-term viability of non-market-leading offerings."
Already, some of the niche cloud players are moving to a hybrid cloud model to help cover their bases.
"If you look at CenturyLink or an NTT or Fujitsu, they are quickly saying, 'Hey, we're going to support AWS and Azure too. But if you want our solution, you can also buy that,'" said Leong.
Roger agrees that even the smaller niche players will need to evolve over time to support other cloud providers.
"The niche players will need to offer the building and management of applications using AWS and Microsoft’s Lego bricks in the future," said Rogers. "In this model, users benefit from access to a huge range of services on the hyperscalers, while still getting the hand-held development and management from a small niche player with whom they have a strong relationship."