Why Cloud Service Providers Are Fundamentally Changing and IT Vendors Need to Do The Same
Over the last year, IDC‘s Service Provider Pulse surveys have shown the increasing shift in service providers’ business models as more firms pivot to address the opportunity for cloud in the infrastructure, application, managed and professional services space. But the shift is not being seen equally: As pure infrastructure service provision loses its status as the key revenue-generating activity, other services become more attractive.
There has been a gradual move away from pure infrastructure service provision to PaaS, managed services and specialist cloud services. Much of this has been led by ISV’s, but also by VARs and distributors moving into cloud service brokering. The rise of cloud service specialists has also created further dynamism — whether via digital archiving, managed cyber disaster recovery as a service or a whole host of industry applications. Managed services attain higher profitability, application services address vertical needs and professional services bridge the gap left by vendors. Service providers are also becoming less clearly defined by type, associating more with what they offer — effectively blurring the lines between types of provider. The steady move to offering solutions that are multivendor and multicloud is apparent, reflecting the stated preferences of their clients.
The service-provider market globally is large, diverse and growing. While technologies and the vendors behind them have come and gone, many providers have maintained a presence in the IT market, while others have emerged to fill the gaps left by vendors’ inability to address go-to-market requirements and skill sets. Cloud is no longer a “special case”: It represents a burgeoning opportunity for service providers, while creating skill-set and delivery challenges across the supply chain.
Service providers are aware of this opportunity. IDC’s Service Provider Pulse surveys have shown that providers are increasingly optimistic about their business performance, with 64% of those surveyed in 2018’s fourth quarter expecting to exceed their plan in 2019. This is a small, but significant increase on 2018, where the 2,000 companies surveyed saw incremental cloud services revenue of around $3.2 billion globally.
The financial benefits are reflected in the current global economic cycle that continues to favor new service investment by service providers as a response to demand from their enterprise clients. IDC’s 1Q19 Cloud Pulse survey shows that IT spending by firms is diverse and encompasses many different technology areas. Research across IDC continues to show that we inhabit a multicloud, multivendor, hybrid-inspired world — one where vendors are expected to adapt their approach to cloud service ecosystem development if long-term partnerships are to flourish.
There are good reasons for some of these demands:
- Regulatory requirements — industry standards and regulations often require cloud vendor platforms and services to be certified for specific industries e.g. ISO, HIPAA, Basel III, G-Cloud and others in order to provide cloud services to that industry at all. Not every technology or platform can offer compliance, reducing choice of vendor and/or service provider.
- Location and privacy requirements — national, regional and federal privacy laws may require data hosted on a vendor’s cloud platform to be physically located in-country. If this is not explicitly available, vendor or platform choice may not be possible. For example, Google doesn’t have a Google Cloud region in France (it does have PoPs though), while Amazon Web Services and Microsoft Azure do. At the same time, Google has a region physically located in Switzerland, while the other vendors do not. Elsewhere, Spain, Eastern Europe and North Africa have a lack of dedicated data-center presence by most of the key cloud platform vendors except for IBM.
- Service Availability — application workloads requiring a specific cloud service are not available to all customers in all regions. For example, Google’s App Engine is not available as a service in its asia-southeast1 (Singapore) region, but it can be accessed via its asia-east2 (Hong Kong) region providing you don’t need to use Cloud Composer in that region. Other cloud vendors have similar variations in infrastructure service availability.
While it is understandable that not all cloud services will be available in-country to all customers in all regions, it does shed light on …