As Competition Intensifies, How to Differentiate The Cloud

When your margins are vast and your competition is limited you can make lots of money. And when newer, well-financed rivals appear you still have capacity to cut prices in order to buy or maintain market share.

But then what?

That is the question many tech overlords are asking as resistance to The Cloud proves increasingly futile so that differentiation of services and quality of outcomes becomes more important to sustaining competitive advantage.

Most of the players in this game appear to be emphasizing the core strengths in which they are already heavily invested: consulting if you're IBM, scale if you're Amazon. But as the following article explains, that only works so long as the market and the design of services available evolves less quickly than you're own capacity to anticipate demand. JL

Mohana Ravindranath reports in the Washington Post:

The idea is initially, you’re basically in land-grab mode.

Earlier this month, Hewlett-Packard announced it was investing $1 billion in a new set of Internet cloud-based products, including an open-source software project called OpenStack. In January, IBM committed $1.2 billion to its own cloud division.
As investments and competition among Internet cloud providers heat up, tech giants are finding new ways to distinguish their offerings. Amazon, Google and Microsoft recently engaged in a pricing war that drove down the fee for their public cloud services. HP is trying a different tack — emphasizing its open-source approach and encouraging businesses, its main customers, to use its product to create their own cloud services instead of relying on others.

Cloud services allow people and companies to store their information in such a way that it is accessible by the Internet, instead of marooned on one machine.
Competition is likely tightening in response to increased demand for cloud services from business customers. Spending on cloud services and technology is projected to grow by 25 percent in 2014 to reach more than $100 billion, according to a recent report from the research firm IDC.
Toward the end of March, Google senior vice president Urs Holzle announced the company’s plan to reduce its cloud services prices by 30 to 85 percent. “[O]ver the past five years, hardware costs improved by 20-30% annually but public cloud prices fell at just 8% per year,” Holzle wrote in a blog post for Google. “The cost of virtualized hardware should fall in line with the cost of the underlying real hardware.”
A day later, Amazon announced it was slashing prices for Amazon Web Services, cutting many of its offerings by 36 to 65 percent, its 42nd drop in price since 2008. The following week, Microsoft said it was slashing prices for its cloud service, Azure, by 35 to 65 percent.
“We recognize that economics are a primary driver for some customers adopting cloud, and stand by our commitment to match prices and be best-in-class on price performance,” Steven Martin, general manager at Azure, wrote in a blog post in March.
For these cloud giants, “it becomes the race to scale — how many customers can you sign up, and how much are your hardware [costs] going down, that can allow you to scale out,” said Morningstar analyst Peter Wahlstrom. “And the idea is initially, you’re basically in land-grab mode.
“The way [other] companies are trying to differentiate themselves [is] by layering services . . . or they’re trying to offer consulting engagements,” he said.
If they can’t compete by slashing prices to gain market share, cloud service providers might start focusing on niche markets, tailoring their software to particular industries, he said. HP, for instance, is focusing on private clouds — cloud networks that businesses use to store their own data and applications, instead of applications that would be used by the public.
In early May, HP said it would dedicate $1 billion over the next two years to cloud products and engineering products, renaming all its cloud offerings “Helion.” HP Helion includes products based on OpenStack, a version of which it is offering free to customers to test pilots, develop proofs of concept and perform basic production tasks. HP will also help others resell OpenStack-based cloud services.
The Palo Alto, Calif.-based company plans to provide these services in 20 data centers globally over the next 18 months; it also pledged it will protect customers using OpenStack code from patent and copyright infringement claims related to the code.
As part of its most recent investment, HP said it was creating a new practice made up of HP’s consultants, engineers and technologists to help customers implement and maintain cloud services.
HP’s recent announcement, which regrouped its existing and new cloud offerings under Helion, was “something that [competitors] are already doing, so it’s kind of a catch-up and it’s what needs to happen,” Wahlstrom said.
For HP, “cost is just one part of [the] equation” for business customers, said Bill Hilf, vice president of product management for HP cloud. (Hilf joined HP from Microsoft’s Azure division last year.)
“What we hear as critical requirements are security, reliability [and] openness in a hybrid setting that allows enterprises to build the right clouds for their business.”