The hyperscale cloud community, which counts Amazon, Microsoft, Google and Alibaba among its members, appear to have taken the Covid-19 coronavirus-induced surge in demand for their services in their stride.
Given the resources these companies have at their disposal, that should not necessarily be a surprise. While they have been under immense pressure, they have the expertise, technologies and equipment needed to adapt quickly and scale their operations.
Smaller cloud companies, however, do not have the same resources, and – like many other small and medium-sized enterprises (SMEs) – may be impacted by the coronavirus to a far greater degree than their bigger counterparts, particularly as they do not have the same cash reserves, or the same quantity of customers to rely on for income.
But that doesn’t mean they can’t compete. In fact, as demand for cloud technologies grows throughout the pandemic, it has placed greater demands on companies both big and small.
“Overall, we’ve seen usage of our service increase in this time and our staff have been busier throughout lockdown than they were in the three months prior,” says Ed Butler, CEO and founder of Amito, a cloud, colocation and connectivity services business.
The company, which provides infrastructure-as-a-service (IaaS) to both small enterprises and SMEs, has even had to hire one extra member of staff during lockdown to cope with the increase in demand.
But not all cloud suppliers are providing the same services to businesses.
David Friend, CEO of cloud storage company Wasabi, suggests data storage is not an optional area for businesses to cut back on because of the pandemic, and so his business is continuing to see significant increases, because firms are storing more and more data all the time.
“We haven’t seen a lot of impact from coronavirus,” he says. “People still have to back up their computers, whether it’s weather satellites sending images, or hospitals storing MRI and X-ray images, organic growth in storage among our customers is greater than 50% a year.”
However, Friend believes other areas of cloud that may not be considered as much of a utility are likely to be affected more.
“Changing an old accounting system or an old CRM [customer relationship management] system to cloud alternatives are projects that are very easy to kick down the road,” he says. “While the new one will be better, companies will think they don’t really want to invest in things that aren’t urgent.
“And so those [cloud] companies are suffering, and I know there’s some pretty big cloud companies in Boston that are laying people off.”
Creating a differentiator
As CIOs shift towards cost-cutting and efficiency, they will be on the lookout for cloud providers that can give them more for their money, and that may mean providers with multiple specialities coming out on top – again providing bigger cloud computing companies with an edge over their smaller rivals.
“The very difficult economic climate over the next 12 months will cause companies to look for more for less,” says CCS Insight analyst Nick McQuire. “Companies that are struggling may demand that the hyperscalers provide bundles of services or financial plans, and this could put specialist providers in a difficult predicament as they have to justify why it makes sense for a company to spend on a particular area.”
But that doesn’t mean they can’t compete – it just means it will become clearer which smaller firms have a truly differentiated product.
Read more about cloud providers and Covid-19
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- Microsoft reveals how pandemic forced it to adopt 24-hour new hardware deployment schedule in datacentres to keep up with the surge in demand for services across its cloud portfolio.
These smaller companies often use price as a negotiating tactic – but McQuire suggests they will need to provide further economic incentives to lure new customers in or even retain existing clients.
IaaS provider Cloudtrack has, for instance, offered customers a free period to help them through this uncertain time.
And if smaller cloud companies do not act, they could see an increase in customer churn.
“Even before the pandemic, a customer churn rate of around 5% plus might be expected in smaller cloud companies,” says Renat Zubairov, CEO and co-founder of platform-as-a-service (PaaS) integrator elastic.io. “As their customers also tend to be SMEs, small cloud companies will be impacted by closure and downsizing of their customers’ operations. Customer churn, as a result, could easily increase to 10% and beyond.”
However, Zubairov expects the pandemic to be more of a “pause” than a complete standstill for smaller cloud companies.
A cloud with many different layers
It is not just smaller companies providing cloud services that are affected – managed services providers, integrators and cloud migration companies will also be impacted by the pandemic.
Adrian Overall, CEO of cloud migration company CloudStratex, says that on a business and financial level, “it’s mostly business as usual”.
His company has not had to furlough anyone and the pandemic has had little impact on its operations. In fact, he says the firm has even won some of its biggest contracts during lockdown. But Overall remains apprehensive.
“We have to strategise carefully because a wrong decision in the current environment will prove very costly to us as a young business with little capital to waste,” he says. “Part of this means regularly considering the needs and health of our clients and partners.
“If their businesses are impacted, then ours will be also. That means it is imperative that we are constantly looking to secure new opportunities, enter new markets and pitch different services, because if we remain comfortable doing what we’ve done, we’ll end up extinct.”
Some smaller firms in this space see an opportunity to do things that the hyperscalers may not be able to do. “Unlike larger providers, we are better placed to reach out individually to each of our customers to see where we can help them and the impact that Covid-19 might be having on their business,” says Aidan McCarron, managing director of Cloudrack.
Green shoots ahead
Carlene Jackson, CEO of Microsoft partner Cloud9 Insight, suggests that as the lockdown eases, many businesses are already thinking about what they need to do next with their technology stack, as weeks of heavy reliance on it may have highlighted shortcomings in the infrastructure.
“Because of this, I think for a lot of cloud businesses – as long as their brand is good and they haven’t had to furlough people – there is a lot of opportunity for them right now,” she says.
Meanwhile, Amito’s Butler doesn’t believe it’s a question of survival – at least when it comes to cloud hosting, colocation and datacentre companies.
“My observation is that the good-quality businesses have been thriving before this and during this pandemic, so I think the question they may be asking themselves is ‘are we going to grow less than we were expecting?’,” he says.
The same observation could be made for providers of SaaS, IaaS and PaaS. Although there may be customer churn, and delays with certain projects, there is still big demand for cloud services overall. If businesses adjust and show how they are uniquely placed to help businesses, they will not just survive, but could thrive in what is an unprecedented economic climate.