Back in 2009 I posted about the “Great Cloud Shakeout” and the coming market consolidation into a few very large clouds. Nearly 5 1/2 years later and it’s about (long past?) time I took another look to see how I did. Back then I predicted that the market would be dominated by “mega CSPs” by the name of Amazon, Google and Microsoft. Note that this was during a period of Cambrian Explosion in the CSP market – it seems like everybody in the hosting business wanted to be a cloud provider.
Every telco, every hoster, every data center outsourcer, most systems providers and many, many startups are becoming CSPs. After all, there have been thousands of hosting providers over the past several years competing for your business. A few were huge, several were large, and most were small but often profitable. I’m convinced this time it might be different — the cloud provider market will be increasingly consolidated with fewer opportunities for new entrants or profit from the tier 2 or 3 CSPs. The APIs, data center economics and proprietary platforms will make cloud a much more consolidated market.
Further, I talked about a chilling scenario for all but the biggest players:
… where the number of new entrants and the hyper-efficiencies gained by the biggest [providers] will result in razor thin margins that can’t be met by most of the players going forward. The pricing curve will drive adoption, solidifying the economies of scale by these mega CSPs.
Over the intervening years I can happily (for me, not for most CSPs) report that my predictions were spot on.
I predict that there will be many new CSPs over the next 18 months, but even before the new entrants stop coming many companies will exit the cloud business. Some exits will be via consolidation/merger, but many will just pull out of unprofitable businesses in the face of blistering competition. My take is that the great shakeout will be in full force in the 2012 time frame, with a bottom reached over the following 5-10 years.
Clouds came and went, but the mega clouds from the “Big 3 Cloud Providers” continue to grow and prosper. Other cloud providers may remain and have a chance to survive – but only if they develop strong niche positions (market, capability, etc.).
p.s. note also the news recently about HP coming to terms with their inability to compete with AWS in the public cloud space.
John Treadway 