Major Cloud Service Providers slash prices… threaten smaller players’ existence

In the last week of March, major Cloud Service Providers (CSPs) across the Asia-Pacific region dropped their prices for core services dramatically.

As a result, IDC believes that this will make it very difficult for smaller CSPs to remain in business if they continue to rely on provision of basic, undifferentiated services.

“If the smaller CSPs are strong enough with decent customer bases, they will be acquired by larger providers,” says Chris Morris, AVP, Services Asia Pacific, and Lead Analyst, Cloud Services & Technologies, IDC Asia/Pacific.

“If not, then they’re road-kill. In any case, both of the above will drive consolidation amongst the cloud vendors.”

Morris explains that Cisco’s announcement of its InterCloud partnerships with several major SPs is based on differentiated Infrastructure-as-a-Service (IaaS) – differentiated by way of linkage of the Cisco technology layers (hardware and software) to provide a network service that aims to be the most efficient in terms of cost and flexibility in reacting to different workload demands.

“With its partners, Cisco will build out cloud services based on its reference architectures for different industries, including transportation and manufacturing. And that will become industry Platform-as-a-Service (PaaS) or iPaaS,” he adds.

IDC believes partners can then leverage this robust platform to build and deploy solutions for the verticals.

Morris adds that this will, in turn, lead a drive for the app developers, both new and old.

“With Google getting serious about the enterprise and beginning to capitalise on its huge developer partner ecosystem, the whole partner landscape could get a bit bloody as service providers including AWS, Google, Microsoft, Cisco, Oracle and HP all vie for the same partners,” he says.

One key factor would be that most of the vendors’ tech partners are already aligned with a vendor, but it is the owners of the IP related to a specific industry or business process that will be most sought after – their IP will enable the valuable apps to be built.

With LOB managers funding about 50% of the cloud spend, Morris points out that if cloud providers want to generate sales volumes to maintain economies of scale, they would need these business-oriented apps as they will drive consumption of the basic, low-margin services and trigger growth in adjacent markets.

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