Why the Public Cloud Will Win in the Enterprise Cloud Wars

The land grab for enterprise cloud computing is only in the early innings, and as price and security issues are addressed, adoption of this technology will continue to grow. Tech bellwethers like Google, Microsoft and Amazon are all vying to capture as much enterprise cloud market share as possible, and as these three Cloud Service Providers (CSPs) scale their cloud offerings, they are able to aggressively cut prices thanks to economies of scale.

Many enterprises simply can’t keep up, which is why they are already starting to adopt public cloud computing networks instead of running their own costly onsite data centers.

As the pricing point of major CSPs continues to decline, more and more enterprises will opt to run parts or all of their data centers from the cloud. Security is still the primary obstacle from mass market adoption of the public cloud, but once this hurdle has been addressed — and it will be — then we will see CSP adoption materially accelerate.

When we reach this point, running your own data center onsite will make about as much sense as creating your own email service rather than using existing cloud email service providers like Gmail. Which is to say, not much.

Amazon has already slashed pricing on its Amazon Web Services (AWS) computing platform dozens of times in the last eight years. The aggressive price cuts from AWS have forced Google and Microsoft to also continue cutting the pricing points of their cloud offerings, which is fantastic for enterprise consumers and has only helped to grow the CSP market.

How can the major CSPs afford to keep cutting prices? For one, the cost of hardware and components drops almost weekly and will continue to plummet. In addition, it’s in Amazon’s DNA to be a low cost provider. And Microsoft is taking AWS so seriously that its new CEO, Satya Nadellla, was promoted directly from leading Microsoft’s cloud efforts.

Given this competitive dynamic, I expect overall margins for the major CSPs will also drop over time.

Currently, the main issue facing CSP adoption is that private clouds are more secure than public clouds, but this will change. Public clouds will also become much more cost effective than private clouds given the aforementioned CSP price cuts.

Eventually only a handful of companies, such as Facebook, will be price competitive with their own private clouds, and that’s only due to the company’s massive scale of operations that already exist in the cloud. Not many enterprises already have this type of infrastructure in place.

That fact is, most enterprises can’t match the price savings of outsourcing portions of their computing, storage and data center needs when compared to the major public CSPs. Offerings like AWS, Azure and Google Compute have material economies of scale advantages and, as a result, continue to lower their respective pricing points.

Most enterprises simply don’t have the ability to scale their own private clouds while remaining price competitive with the major CSPs. At the end of the day, public cloud adoption will make the most sense, and adoption will become the norm once the security issue has been addressed.



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