Part 1: A closer look at cloud users. Who are they? What are their needs? What challenges will they face in the years to come?
Have you noticed the mass movement toward the cloud? Cloud computing is mainstream these days. The word “cloud” has even, like “internet”, lost its capital letter (1), a sure sign that it’s passed into everyday speech. The figures back it up: 68% of companies use the cloud today, according to IDC research (2). A third of these claim to be well advanced in this area. It’s not surprising, since 92% of companies polled by SolarWinds (3) are convinced that the cloud is key to their long-term success.
Five types of cloud users and their respective challenges
Companies may be migrating to the cloud, but they don’t all start from the same place. Their different needs create very different challenges, both for the users themselves and for cloud providers such as OVH. We kick off this series of articles about the future of the cloud – or the cloud of the future – by examining each of these user groups and the challenges they face.
Web hosting users
First of all, we have the users of web hosting or shared hosting services. Web hosting was one of OVH’s main focuses back in the early 2000s.
Although it’s still a huge market, growth has currently slowed to less than 10%. In contrast, market growth in Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) is over 30%. Behind the figures lies a hugely significant moment in the history of computing. It shows that users are switching to native cloud technologies like IaaS and PaaS, as well as going deeper into Software as a Service (SaaS) with innovations like Content Management System as a Service (CMSaaS).
It’s up to providers to handle the major task of migrating from older platforms to the newest technologies while keeping services up and running. No easy feat when you consider the huge volumes involved – OVH alone hosts 18 million web applications and manages 4 million domain names. OVH saw the cloud on the horizon at the end of the 2000s and decided to diversify its range of services accordingly. Providers who tried to play safe by remaining in the web hosting market are doomed to become niche players – or will have to be pretty quick about steering their core business towards more value-added professional services.
Selective/tactical IaaS adopters
The second group of cloud users made an appearance in the middle of the 2000s. We’ll call them “selective/tactical IaaS adopters”. These users don’t outsource all their infrastructure, but only certain parts. Which parts? Those they consider to have the least added value, such as backup, emails, virtual offices and storage (in fact, that’s how Amazon Web Services started). Now we’re at the stage of XaaS, or “anything as a service.” This has led to a rise in so-called “shadow IT,” hardware and software used by company employees without the IT department’s knowledge. So many solutions are now available at the click of a button, each one solving a specific need not yet well addressed by internal IT teams. IT managers have realized that their infrastructure is being broken apart, split between different providers and weakening their systems. Security, compliance, and cost control issues are spiraling.
The demand for XaaS is still strong, but companies are now looking to unify and streamline this area of IT which has slipped out of their control. They’re doing this by consolidating their services with a generalist provider that can cover all their needs. It’s this flexible, all-encompassing solution that OVH has been building over the years, taking advantage of its investments in data centers and global fiber-optic network. Its expertise in IaaS allows it to democratize services like Storage as a Service, on-demand Disaster Recover Plan (DRP) solutions, or even virtual offices.
Tactical/selective adopters are a particularly interesting market segment for providers, since they’re basically taking their first steps towards full migration to the cloud. Their priorities are currently focused on hosting applications and databases (DBaaS) and on storing both hot (frequently accessed) and cold (rarely accessed) data.
Startups and digital natives
In the third user group are startups, which by definition have no legacy – no existing applications running on aging infrastructure of their own. Startups are mostly run by digital natives starting from a blank sheet. Born and brought up in a world where digital technology is the norm, they don’t even consider kicking off their projects in anything other than the cloud. These young companies use the cloud to develop their ideas, deploy their services, and grow quickly.
Light and flexible, the cloud allows them to focus on innovation to better serve their users and customers. However, successful startups soon start to examine their infrastructure costs more closely in order to improve their business model. Many then realize that, although the deals of US cloud providers seemed attractive initially, in reality costs are difficult to predict and liable to soar. Could this be why, for example, Dropbox ditched Amazon Web Services in 2016 in favor of managing its own infrastructure? According to the CEO it has brought about “substantial economic value” (4). (At that time, OVH wasn’t yet offering an alternative cloud service to the US market.)
Not all clouds are equal. The public cloud is by its very nature a multi-user infrastructure and physical resources are shared between several customers. Whether or not this is the best solution depends on what stage the project is at. At the start, a project needs a highly scalable solution with a low – or even better, nonexistent – barrier to entry. This drastically reduces time to market. As the project matures, however, it might make more sense to consider a solution like the private cloud, in which a single-tenant user has access to all its resources, all the time. This may help to control costs via a consolidation strategy that might also include dedicated servers. It may also better meet users’ compliance requirements. We’re convinced it’s valuable to offer different types of cloud, not just one. And we’ve seen how the smartest infrastructures combine these different cloud-based resources. That’s why OVH developed vRack (virtual rack) in 2009. This service allows users to isolate their critical servers from others and build a private network combining dedicated servers as well as private and public cloud services. Unique in the market, vRack is popular with both digital natives and established users migrating their legacy infrastructure.
Digital natives are a fast-growing market segment, not just across Europe but the whole world. Among these startups are the Googles and Facebooks of tomorrow. OVH introduced its Digital Launch Pad program at the end of 2015. Its aim is to encourage and provide practical support to startups in prototyping and building their solutions. It’s proved massively popular and already supports more than 800 startups from 45 countries.
Let’s turn to “cloud migrants,” companies whose IT still mostly relies on legacy systems in which they’ve often invested heavily in the past. These businesses, big and small, have started to realize they need to migrate to the cloud. For sure, this is partly for cost reasons. But it’s also to boost their agility and defend themselves against startups threatening to disrupt their business models.
IT is not the only cause of this type of upheaval, of course. Startups can succeed in taking over market share from established competitors thanks to an innovative idea, a unique answer to user needs or simply because the old business model is breaking down. This is happening in every sector, from banking to transport to health. But by freeing themselves of the baggage of “traditional” IT thanks to the cloud, young companies can get ahead in the race. Handicapped by their legacy systems, established companies find it harder to catch up. The desire for agility, in particular accelerating the time to market by deploying new resources rapidly, has become the main reason businesses migrate to the cloud. It’s an even more important factor for some than cost reduction. There are a few hurdles, though. Fears about cloud security have largely disappeared. Nowadays, it’s the fear of not having the right skills which holds some companies back. Only 27% of those surveyed by SolarWinds (3) said that they have the required skills for migrating to the cloud and managing a hybrid legacy/external cloud environment.
Fortunately, there are solutions. “Cloud migrants” are a massive source of growth for the IaaS market. That’s why providers and digital services companies are working together to support these businesses’ transition to the cloud and provide them with the necessary skills for managing a complex hybrid environment. In this context, OVH’s recent acquisition of vCloud Air makes perfect sense. This hybrid technology allows “hot” migration of virtual machines from one data center to another, without any interruption of service and retaining the same IP addressing scheme.
Last but not least, are software companies who have made the move to SaaS, after either correctly anticipating the trend or giving in to it. These editors are experiencing a profound transformation in their business model: from license sales to subscriptions and pay-per-use schemes. It’s not just their business model that has to undergo such a revolution, but their technology. After years of commercializing on-premises solutions, they now have a big leap to integrate the cloud. They not only have to build technical platforms for their applications but make them available globally, offering the best possible performance to all users wherever they are in the world.
This forces editors to fully understand rules and regulations in the different geographical areas in which they operate, in order to guarantee the best possible data security for their clients. For example, by not forcing European users to have their data stored in the US and therefore subject to the Patriot Act. Another hidden risk is that SaaS solutions may become trivialized in online superstores, or mega marketplaces. These take over control of the customer relationship and transform SaaS services into mere commodities.
Examining the profiles of different cloud user groups gives us insight into the history of the cloud. It may be a short history, but it’s incredibly rich thanks to the rapid pace of technological change. Check back in a few weeks from now, when we’ll be examining possible synergies between players in the IaaS and PaaS sectors. We’ll also explore the consolidation of the IaaS market, in which we expect to see a great number of mergers leading to the emergence of tomorrow’s leaders. Watch this space!