Crystal Balls and Great Expectations 

Back in May, following the OpenStack Summit in Vancouver, I said that: “… many of the main players in OpenStack only really play in the private cloud space – HP for example let slip that it wasn’t really a player in public cloud, before rapidly withdrawing the comment and claiming that it was, when in reality it isn’t. So it is getting increasingly easy to picture a future in which a handful of players dominate public cloud with their own proprietary stacks, while OpenStack becomes the de facto standard for private cloud.” 

[easy-tweet tweet=”It is easy to picture a future in which a handful of players dominate public cloud, with #OpenStack the de facto standard for private cloud”]

Rackspace decided that it would offer managed public cloud services instead of commodity IaaS cloud. IBM scrapped its SmartCloud Enterprise public cloud product when it bought public cloud player SoftLayer. Dell got out of the market some time ago, although it now has an ‘arms-length’ presence again via VMware – which it inherited from its $67 billion EMC purchase. And finally HP announced last week that it wasn’t serious about public cloud after all.

As predicted that leaves us with a handful of players dominating public cloud with their own proprietary stacks – although SoftLayer is largely OpenStack compatible and Google is keen to work more closely with OpenStack. It also means that OpenStack has effectively become the de facto standard for private cloud (VMware being expensive and having its on-going independence and therefore survival questioned).

Buoyed up with a false sense of infallibility, I thought I’d stick my neck out and make a few further predictions:

Open standards, security and great tech won’t provide competitive advantage for OpenStack

OpenStack groupies often claim that open standards, security and great tech make the open cloud OS the natural choice over its proprietary, public cloud rivals. They are kidding themselves. Claiming that being open brings competitive advantage is futile. If this were true then Linux would have decimated Windows. The fact is that AWS may be proprietary, but the lock-in issues can be overcome by using good application architecture, as well as by using new technologies such as containers. Besides there are enough companies on the AWS marketplace with competing services in any area that clients have enough choice within the AWS ecosystem without looking elsewhere. On the security front AWS continues to add security innovations and enhancements – and it beat IBM in the bid to run cloud services for the CIA. OpenStack has its own security challenges in any case. As for great tech and the ability to build complex systems for complex needs, more and more of the best tech is being built for multiple platforms (such as container technology), as companies find OpenStack skills in short supply, as more developers focus on AWS and as tech firms seek to spread their bets between AWS, OpenStack and elsewhere.

Private cloud/OpenStack won’t be a safe haven

It’s competitive enough in the public cloud between just three main players, but the private cloud/OpenStack world will be one that is far more fragmented, and will be one in which it is exceedingly hard for players to differentiate themselves or to maintain margins. At the same time Amazon is not afraid of taking the fight to the opposition, just ask Walmart, Etsy or any of the tech vendors. AWS already has a major private cloud client in the CIA. Don’t assume that it won’t decide at some point either to provide close API integration with OpenStack and drain business from its private cloud rivals or to take them head on with a private cloud offering of its own. Even if this doesn’t happen and containers simple take off – they’re a whole lot cheaper to run right now on AWS.

The private cloud/OpenStack premium will hinder growth

The OpenStack skills shortage and poor usability are two sides of the same coin. If you could reduce complexity then the skills issue would be less of a problem and vice versa. Until this is cracked the cost of skills and complexity combined will continue to be a major overhead for OpenStack. At the same time OpenStack is just part of the whole private cloud market that is worth $8.9bn and is growing at 35% (IDC), whereas AWS alone is not only already bigger than the entire private cloud market but it is growing at 78%. AWS therefore has a scale advantage that is increasing rapidly. In addition all of AWS’s profits are reinvested in infrastructure and innovation for AWS, whereas OpenStack profits are spread across a fragmented community and reinvested in often duplicated or competing development initiatives.

[easy-tweet tweet=”While private cloud is growing, it is actually falling as a share of the overall cloud market ” user=”billmew” usehashtags=”no”]

All of this puts private cloud and OpenStack at a major cost disadvantage meaning that there will always be a price premium for private cloud – even before you start to tailor a solution for the needs of a particular client. While private cloud is growing, it is actually falling as a share of the overall cloud market (as public cloud outpaces it) and it is also failing to match the loss of traditional tech revenues that are being eroded from the traditional tech players. It is not hard to see private cloud revenues starting to shrink once the cloud sector matures and the private cloud/OpenStack premium becoming less sustainable (you’ll be able to read more about my opinions on that in my long term forecast tomorrow).

Old tech giants: From Dominance to Relevance

In this environment the tech giants that until recently were tussling for dominance in the market, now find themselves struggling for relevance. Take HP for example: it is a company with a great history, some talented staff and some fantastic technology, but even with all its skills and resources it could not get a competitive OpenStack public cloud off the ground. As I’ve mentioned before, in public cloud AWS is benefiting from a real first mover advantage. Firstly the capital costs and barriers to entry in public cloud are significant. AWS has had to spend about $1 billion each quarter building out its cloud platform.

[easy-tweet tweet=”HP and others have not dropped out of public cloud because they wanted to, it is because they were forced to” user=”billmew” usehashtags=”no”]

Secondly differentiation is hard to achieve in cloud, meaning that fast followers are struggling to overcome AWS’s scale advantage by offering obviously improved offerings – usually the approach that fast followers make. HP and others have not dropped out of public cloud because they wanted to, it is because they were forced to. What they do now and how they maintain their relevance within a small and potentially shrinking private cloud market will define their future, but the industry’s future will be defined by others.

Check back tomorrow for my cloud weather forecast.