Amazon Web Services is the dominant player in the IaaS market, which could have significant consequences for further innovation and future entrants into the space.
Back at the end of August, Gartner released their 2013 Magic Quadrant for Infrastructure-as-a-Service. The IaaS market is still a very volatile and competitive market that’s growing steadily, so changes on the relative positions of the market players are to be expected from one year to the next, but the dominance that Amazon Web Services has displayed is simply incredible, and raises some interesting questions related to the future evolution of the cloud market as a whole.
According to Gartner, AWS today has overwhelming market share. What do they mean by overwhelming? More than five times the compute capacity than the aggregate total of the other providers considered in the study. Not only that, but at the end of the report they state that the gap between the share leader (AWS) and the others is widening due to increasing customer expectations and the broadening of use cases. Are we headed towards a one-player cloud computing market?
Dominance and market evolution
For the past years, the cloud market has been very dynamic. We’ve consistently seen new players come into the market, both in the form of traditional companies who launched cloud offerings and entirely new companies that were built from the ground up to provide cloud services. We’ve also seen the existing providers launch dozens of new services and functionalities, cut prices, and generally evolve their services at a very fast pace.
As one player starts to dominate the market, we may see a decrease in evolution speed. Yes, AWS released a record number of new features in 2012, and is on track to break that record in 2013, but what is their motivation to keep doing so once they have no-one to compete against? And, perhaps more importantly, how does the emergence of a dominant player affect the evolution of existing services? It is entirely possible that the other players in the market may choose to focus on specific market segments or niches, instead of trying to compete over the entire market. Reduced competitive pressure will invariably lead to a slowdown in innovation.
And it’s not only innovation from existing players that may slow down. As AWS becomes more dominant, entrance barriers to the market become greater, making it harder for new companies to launch their services and gain market traction. Furthermore, as existing AWS capabilities become “what customers expect when looking for a cloud provider”, new companies face an increasing challenge to enter the competition.
This is yet another interesting aspect of AWS’s market dominance: it’s slowly becoming an unofficial standard for cloud providers. As more and more companies migrate their systems to the AWS cloud and start relying on AWS functionalities to run their applications, these functionalities (and the APIs that give us access to them) become essential to the day-to-day operation of these companies. This means that any competitor has to replicate the same functionality, with APIs as similar as possible, in order to keep potential customers from being locked-in to AWS due to a lack of compatibility and functionality.
Beyond the market dominance
Regardless of the current dominance that AWS is displaying of the IaaS market, the fact remains that this market is highly competitive, and that the situation may change very fast. I believe there are several concurrent trends that can have a large impact on how the market evolves from now on. Two in particular come to mind. First, we have the evolution of the hybrid cloud market: as companies seek to integrate public cloud offerings with their existing infrastructure, this new market is starting to grow faster. A company that gains a footing here could rapidly expand this to a decent share of the public cloud market, since its clients are most likely to stick with the same provider on both situations.
Second, we are starting to see a move on the part of clients from the most basic IaaS services (computing, networking, and storage resources) to higher level, PaaS-like services, such as databases-as-a-service, queue and notification services, and so on. Unlike what happens at the IaaS layer, the market for these services lends itself to a much higher level of vendor lock-in, which means that companies have the opportunity to capture customers much more effectively.
While Amazon’s surge to the lead was perhaps the most important aspect of the Magic Quadrant, it also offers plenty of additional data points and information on other cloud providers that make it a worthwhile read. From details such as advantages and disadvantages of each provider to recommended use cases, the report gives an excellent overview of the top cloud providers operating in the IaaS space today.