The cloud computing market has realized less than a half-percent of its total opportunity. For cloud providers
to exceed that and produce substantial profits, cloud computing trends will have to align with real market needs. The industry is poised in 2012 to outgrow the hype and tone down the cloud washing, driving a new phase of benefits-driven adoption based on concrete and sensible customer deployments.
Five key cloud computing trends will usher in this evolution in 2012, and it's these trends that will shape the cloud market for the rest of this decade.
1. Going up the stack: From IaaS to SaaS
As customers seek more value from cloud services, the dominant cloud business model will move away from Infrastructure as a Service (IaaS) and toward Software as a Service (SaaS) throughout 2012. Although nearly any business may be enticed to consume IaaS, these services essentially provide nothing more than virtual hosting -- the lowest savings for buyers. That means a cloud provider's potential for profit is lower, and as competition mounts, many pure-play IaaS providers will be driven out of the market because the total profit in IaaS can't sustain the cloud provider's investment and marketing.
SaaS is a complete alternative to internal IT -- displacing the most costs for customers -- and thus offers the highest profit potential for cloud providers.
By contrast, SaaS adoption will be one of the key cloud computing trends this year because the technology yields the biggest benefits for cloud providers and their customers. SaaS is a complete alternative to internal IT -- displacing the most costs for customers -- and thus offers the highest profit potential for cloud providers. Platform as a Service (PaaS) presents another lucrative opportunity for cloud providers, as enterprises believe that PaaS provides a better means for offloading applications during times of peak usage. Whereas traditional methods of alleviating this overflow might have required IT to add more servers, the cloud enables enterprises to scale up with little capital investment -- and only when it’s needed.
IaaS market leaders aren't immune to these cloud computing trends. Increased competition and pressure to grow profits will motivate them to expand into the SaaS and PaaS markets. The next generation of cloud applications -- apps that link business mobility, social behavior and context-based IT support -- will be borne out of the SaaS model. Thus, we may see Amazon launch cloud services beyond IaaS in 2012; its Beanstalk product, a packaged version of a Java framework, could be seen as an indication that Amazon is moving toward PaaS even now.
2. Network and device integration drives service assurance
The second batch of cloud computing trends affecting providers this year will be increased integration among cloud offerings, network services and user devices. Part of this momentum stems from the desire to expand the cloud business model , as offering more of the pieces of a total cloud package creates more opportunity for profit.
The other issue driving this trend is customer demand for service assurance and service-level agreements (SLAs) in the cloud -- enterprises and small- and medium-sized businesses (SMBs) want their application experience assured. And because that experience is tied to user devices, networks and cloud data centers, providers that can package all three of these are in a better position to guarantee their service. Most cloud providers will support Internet access to their services, and even more will add virtual private network (VPN) services or bundle VPNs and cloud services with one blanket SLA.
3. Cloud federation: Bigger footprint, smaller investment
This next component of the top five cloud computing trends of 2012 is the explicit recognition of and support for federation of service elements among various cloud providers. Large network operators and smaller cloud providers share a common trait: Their geographic footprint is often limited. And because cloud buyers are often global enterprises, serving these customers efficiently means having some cloud hosting capability wherever the buyer operates. Rather than investing in data centers everywhere, cloud providers are looking to partner with each other to share resources -- a process called cloud federation.
Cloud federation also lets providers quickly test a new market area before making a direct and often large investment there. Cloud federation and infrastructure-sharing by cloud providers also make multiprovider cloud deployments easier for customers to manage. All of these factors point to more providers offering this capability in 2012.
4. Want mission-critical app contracts? Drop cloud data pricing
Major changes in cloud pricing and profit models represent the next of the five cloud computing trends affecting providers in 2012. These changes will create pressure on incumbent cloud providers and opportunities for newer ones. If you look at cloud service pricing today, you see a pricing model that clearly draws from simple Web hosting, rather than a model tailored for "computing" in general.
High data storage and transfer costs, in particular, make the cloud unattractive for the very applications on which enterprises spend most of their IT budgets -- the "core" or "mission-critical" ones. As cloud providers try to tap those more lucrative opportunities, they will be forced to significantly drive down cloud data prices. Some incumbent cloud providers may not want to chase these new market opportunities and will become niche players, targeting development and pilot testing applications, for example. For everyone in the market, 2012 will be the time when the cloud provider must either invest significantly to stay on the cusp of opportunity, or fall behind and become specialized.
5. Rise of the virtual cloud operator
The last of the cloud computing trends affecting providers in 2012 is the emergence of the cloud provider as the "virtual network operator" model of the future. In telecommunications, a virtual network operator is a service provider that buys wholesale capacity from a facility-based carrier and launches its own services. As the definition of "services" shifts from "transport and connection" to higher-layer applications, platforms and features, the so-called capacity that a virtual network operator buys wholesale is more likely to be space in a cloud than on a network.
It's this last of these five cloud computing trends of 2012 that may have the greatest significance for cloud providers. Prior to the cloud, the barriers to deploying servers and storage would have been impossible for all but the largest competitors to overcome. If "cloud VNO" models are combined with cloud federation, then every application developer has the potential to be a cloud provider on a global scale. How many new services or features could be easily created and supported by this internetworked cloud infrastructure? The result could be an explosion of innovation that remakes the whole relationship among consumers, business users, networks and IT. This transformation may begin in 2012, but it will take years to complete, and in that time the opportunities it generates for profits may reshape the whole cloud provider landscape.
About the author: Tom Nolle is president of CIMI Corporation, a strategic consulting firm specializing in telecommunications and data communications since 1982. He is the publisher of Netwatcher, a journal addressing advanced telecommunications strategy issues. Check out his blog, Uncommon Wisdom, for the latest in communications business and technology development.