Levente Varadi - Fotolia

Forrester warns CIOs of cloud market consolidation risks and rewards

Market watcher's latest cloud report outlines how the consolidation of the cloud software and infrastructure market can mean good and bad news for enterprises

Cloud market consolidation is more likely to have an adverse impact on software as a service (SaaS) subscribers than infrastructure as a service (IaaS) users, according to IT analyst house Forrester.

Both the public cloud infrastructure and SaaS markets could be considered to have oligopoly status, whereby two-to-three providers are responsible for generating around 70% of the sector’s overall revenue, said Forrester’s The Coming Consolidation of Cloud report.

For CIOs working out where to place their cloud bets, keeping tabs on the consolidation occurring in both the cloud software and infrastructure markets should be a top priority to ensure their organisations can avoid the risks and also reap the rewards, the paper continues.

In fact, the paper suggests market consolidation brings greater risks and fewer rewards for cloud software subscribers than off-premise infrastructure users.

The former group is more susceptible to supplier lock-in and seeing the services they rely on starved of investment by profit hungry suppliers as time goes on, the paper explains.

“At some point, cloud suppliers like Salesforce will become so large that, like IBM today, they can’t grow faster than the overall technology market. When that happens, investors will expect these suppliers to deliver profits,” said the report.

“That’s when suppliers with dominant market shares will quietly crease to compete on price and reduce their [research and development] investments.”

Read more about cloud market trends

This process is most likely to initially blight organisations in the CRM space, but is likely to affect other SaaS suppliers in the years to come, the report warns, and – in turn – have knock-on impact on the affected company’s ability to innovate.

That is not to say consolidation is all bad news, as the report also suggests the SaaS delivery model lowers the barrier to entry for new market entrants, prompting the old guard to rethink their approach to securing enterprise IT spend.

“Incumbent suppliers can’t rest on their laurels or increase their prices too much, because a new SaaS supplier with a better value proposition could come along and take customers away. So leading SaaS suppliers tend to avoid complacency,” said the report.

Price war a positive for cloud users

Where IaaS is concerned, market consolidation brings far more benefits, with Forrester referencing the ongoing price war between Amazon Web Services (AWS), Google, IBM and Microsoft as an example of one area where it has a positive impact for cloud users.

Along these lines, many of the public cloud platforms now offer users access to bundled pricing, whereby they get a better deal if they mix and match offerings from the same providers’ infrastructure and software portfolios, which is another tick in the box for customers.

Supplier lock-in, while still an area for partial concern at the service layer, is less of a worry for cloud infrastructure users, because all the major providers now support a much wider range of development environments.

“Today’s cloud platform leaders don’t seek to divide and conquer developers by preferred environment anymore. Few choices of development environment or tooling preclude any customer from building and running custom-built apps in any of the global megaclouds now,” said the report.

One area where relying on cloud infrastructure services carries a partial risk is around outages, and the wide-scale effects downtime is liable to cause to organisations that run the bulk of their IT in the cloud.

“Despite having availability rates and security controls orders of magnitude greater than nearly any corporate datacentres, cloud platforms will fail, and they will be breached at some point. The fewer there are, the greater the potential impact,” it concluded.

CW+

Features

Enjoy the benefits of CW+ membership, learn more and join.

Read more on Infrastructure-as-a-Service (IaaS)

Start the conversation

Send me notifications when other members comment.

By submitting you agree to receive email from TechTarget and its partners. If you reside outside of the United States, you consent to having your personal data transferred to and processed in the United States. Privacy

Please create a username to comment.

-ADS BY GOOGLE

SearchCIO

SearchSecurity

SearchNetworking

SearchDataCenter

SearchDataManagement

Close