The battle for the cloud

Pure cloud providers have changed the game and traditional mega-suppliers must fight to keep up.

Traditional mega-suppliers such as IBM, HP, Oracle and Dell have ruled the world of enterprise IT for several decades. But with pure cloud providers such as AWS (Amazon Web Services), Salesforce, Google and Windows Azure stealing ground from them, can these mega-suppliers convince enterprises with their private, public and hybrid cloud offerings?

A quick glance at Gartner’s cloud IaaS (infrastructure as a service) Magic Quadrant for October 2012 reveals fascinating trends – while AWS is placed firmly in the leader quadrant, traditional firms such as IBM and HP are conspicuously absent.

“Traditional providers have enjoyed a very large enterprise installed base for many years, but cloud is changing that,” says Gartner’s vice-president for cloud, Gregor Petri.

“But there’s room for all in the big cloud world,” he says.

Despite its hype, the cloud still accounts for just 4.8% of the overall enterprise IT spend. Gartner estimates the worldwide market for public cloud services for 2013 to be at $129bn, representing less than 5% of the total IT market of $2.7tn in 2013.

Playing catch-up

HP, IBM and Oracle are rapidly building their cloud portfolio to take advantage of their large installed base when cloud is still nascent. Although late in the cloud game, they are racing to develop cloud tools faster than their customers can keep up, Petri explains.

Take IBM. While it has not featured in the Magic Quadrant, it acquired SoftLayer Technologies, which did feature in the “niche player” segment of the quadrant, for a reported $2bn.

Traditional providers have enjoyed a very large enterprise installed base for many years, but cloud is changing that.

Gartner’s vice-president for cloud, Gregor Petri

“It is a lot of money and that’s the price IBM had to pay to catch up in the cloud space,” says Randy Kerns, senior strategist at analyst firm Evaluator Group. With SoftLayer, IBM hopes to take on Openstack market leader Rackspace and meet its $7bn annually in cloud revenue objective by 2015.

At IBM Pulse conference in March 2013, the supplier announced its open cloud architecture and plans to base all cloud offerings on OpenStack. “IBM really needed that new culture and expertise in its DNA in the cloud era which SoftLayer can provide,” says analyst Greg Schultz.

“The traditional model of IT delivery had run its course and we had to make the transition quickly and that was the most challenging aspect,” says Jim Comfort, general manager for cloud development and delivery at IBM. “We have now moved from a product-first to a cloud-first and services-first mentality.”

He says that IBM realised in 2008 that cloud would massively transform IT and started looking at how it could develop its own cloud services.

“In the last five to six years, we have acquired around 1,000 SaaS (software as a service) companies and this indicates our understanding of users’ cloud demands.

“Fifteen years ago, we didn’t have a services model – we do now. Five years ago, we didn’t have a cloud model, but today it is a big part of our business,” says Comfort, insisting that IBM evolves with changing IT.

IBM reported its second quarter revenues in July revealing a 17% year-on-year drop in profit. In the first quarter too, its revenues and profit fell short of analyst forecasts. But its cloud revenue was up the highest (by 70%) in the second quarter.

Others are aggressive in their cloud push too. HP has developed a converged cloud strategy. “The world is moving to a hybrid environment,” says Steve Dietch, vice-president, worldwide cloud at HP. “No customer will be 100% on a public cloud or a private cloud. Users want choice and we are addressing their demands via our converged cloud.”

Reluctance to ditch expensive in-house infrastructure

Enterprises have made huge investments in their in-house infrastructure and many are reluctant to ditch their old IT for the cloud. “Our strategy is based on this heterogeneous, hybrid environment to support existing investment,” Dietch says.

HP has had “cloud-like services” which are more like managed and hosting services but just over a year ago, it launched its own cloud suite. “Its cloud offering is now a lot similar to AWS,” says Schultz.

But it needs to do more, say experts. “HP still needs to add services such as relational database, such as Hadoop or MapReduce, to widen its cloud capabilities,” says Schultz.

Oracle’s cloud strategy is gaining momentum too. It has collaborated with Salesforce to integrate their and Oracle clouds. As part of the alliance, will standardise on Oracle’s Linux, Exadata, Oracle Database and Java Middleware.

But analysts at Ovum urge enterprises to continue with a business-as-usual attitude for their IT procurement plans. “There is nothing in this Oracle/Salesforce announcement that would indicate a shift in the marketplace for enterprise applications or datacentre hardware,” says Ovum’s Carter Lusher.

Oracle has also released its first cloud-ready database – 12c – which, it says, forms the foundation of its public cloud services. The new multi-tenant architecture offers customers cloud capabilities such as simplified provisioning and cloning without requiring major application changes.

The 12c release will make it easier for customers to consolidate their databases onto the cloud, Michelle Malcher, president of the Independent Oracle Users Group (IOUG), said at 12c’s launch. Oracle’s cloud strategy aims to offer a single stack of technology, so users can either build their own private cloud or use Oracle’s public cloud. As it uses the same set of technologies, Oracle says it will be easy to switch workloads running on private cloud to public cloud.

“It is about giving customers choice because enterprises do not know where they want to be in three years’ time, says Richard Garsthagen, director for cloud business development for Oracle in Europe. “Do they want to have a private cloud, a public cloud or a hybrid IT? We want to give them a pathway now, so they can choose what they want when they are ready.”

The main reason enterprises look at cloud is to deliver IT as a service (ITaas). “IT delivery is tedious with current enterprise IT. We will help enterprises do ITaaS more efficiently,” Garsthagen says.

HP too believes in a hybrid IT model, flexibility and interoperability for its customers and insists its cloud tools are compatible with other available cloud services to give users the choice they need.

Experts give a nod to suppliers’ hybrid approach. “Enterprises are not moving everything to the cloud. They want to integrate their existing IT with the cloud. And those that are heavily invested in IBM are looking at its cloud offerings while those with a Dell, VMware or HP infrastructure are exploring theirs,” Schultz says.

Uphill struggle for traditional vendors

IBM’s Comfort admits that new cloud providers such as AWS and Google are profoundly changing IT. “But they are still not enterprise-ready and the distributed IT world is not going away anywhere.”

But Gartner warns that traditional providers are in denial and ignoring AWS, Google and Salesforce’s ability to serve enterprise needs. “AWS is well aware of customers’ onsite infrastructure and is picking up rapidly to become a viable enterprise-IT player,” Petri says.

They can do hybrid cloud too. Traditional suppliers must not think that they have an exclusive cling to the hybrid cloud world,” Petri adds.

The dynamics of the enterprise world are changing too. On one hand there are new large enterprises such as Netflix that are rapidly adopting the public cloud and standardising on new providers’ platforms, but others from the financial sector or public sector organisations are looking to tie their in-house IT with cloud.

Mega-suppliers locking horns for the cloud

“It is bitter out there,” Schultz says. “Oracle and IBM are heading nose-to-nose in the database as a service (DbaaS) segment, while HP, Oracle, VMware and IBM are all battling out in the server sector.”

HP’s Dietch points out the loopholes in Oracle and IBM’s cloud strategy: “Oracle is inflexible and IBM, while a formidable competitor, is going in a weird direction.”

Dietch was referring to IBM’s rumoured plans to sell its x86 server business. “What does that mean to its customers banking on its private cloud services?” he asks.

Oracle strikes back by saying most suppliers have a big focus on IaaS when what typically runs inside the infrastructure is what matters. “We offer database as a service. You can do DbaaS with IaaS but it is too tedious and that’s what our competitors are doing. With our cloud, IT can do all that independently and quickly,” says Garsthagen.

In the increasingly cloud-first world, businesses are assessing cost, compliance and security, and weighing all cloud products for a good bargain. But traditional suppliers are not giving up the fight yet and are luring their existing customers with rosy cloud promises such as multi-tenancy, elastic cloud, ease to move workloads, hybrid IT and choice, insisting these are not all provided by pure cloud suppliers.

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