Leading cloud computing vendors are diversifying into new product and service areas, as well as expanding into new geographic territories in an effort to stave off up-and-comers, according to new research.
The moves reflect a maturation of the cloud computing industry, which Technology Business Research (TBR) analysts say is a transitioning from vendors differentiating by their technology offerings to separating themselves via business strategies, such as which new markets to enter.
Stalwarts of this developing industry have begun spreading into new service areas in an effort to extend their reach into the enterprise. Salesforce.com, for example, has broadened beyond just sales management tools and into application development; Amazon Web Services (AWS) has moved from being a virtual machine rental service to hosting entire databases in its cloud. Meanwhile, hosting providers are looking to South America and Latin America, as well as Asia and Pacific nations, to expand their reach.
Even with all these shifts, TBR estimates that only three companies - Salesforce.com, AWS and Microsoft - have crossed $1 billion in annual revenue for cloud computing, showing that the market is still in its early days.
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The shifts in the market are perhaps most clearly seen by two of the earliest, and now biggest vendors in the public cloud: Salesforce.com and AWS.
Started in 1999 by former Oracle executive Marc Benioff, Salesforce.com has been a pioneer in not just Software as a Service (SaaS), but cloud computing in general. When the company's IPO launched in 2004, it had revenues of $176 million per year with about 1,400 customers. This year, Salesforce is expected to cross the $3 billion revenue mark with 120,000 customers. "Although we do see competitors creeping in... Salesforce is here to stay," says TBR analyst Jillian Mirandi, who predicts 30% year-over-year growth for the company in the near future.
Even with the tremendous growth, Salesforce is aggressively moving to differentiate its offerings beyond its core CRM tools. "Cloud CRM is no longer a differentiator," for SalesForce, Mirandi says, noting the emergence of Oracle, SAP and other vendors attempting to grab their share of the market. In response, the company has, naturally and appropriately in TBR's opinion, attempted to extend its reach in the enterprise.
Salesforce.com spent more than a billion dollars over two years to purchase Radian6 and Buddy Media to create services aimed at marketing professionals to monitor and interact with customers through social media sites like Facebook and Twitter. It has a human resources cloud through its Work.com platform and its 2011 acquisition of Rypple. It's Force.com and Heroku Platform as a Service (PaaS) offerings signal an effort to augment its SaaS business with cloud-based application development platforms.
These moves put Salesforce in a strong position, TBR believes, but it does create some new challenges. Most notably, it means the company is now competing against some companies it used to consider partners. Its HR platform competes with WorkDay, a former partner. SalesForce ChatterBox, a collaboration tool, is competing with Box, another one-time partner.
"For SalesForce and other public cloud pure plays, this maturation ... is grounded in the strategy that you can't be reliant on one offering for too long," says Allan Krans, another TBR analyst. Salesforce's ability to cross-sell these new platforms into its existing customer base makes the company a formidable player in the market though.
Amazon has made a similar transition with its Web Services division. Expanding outside of the company's core virtual machine (Elastic Cloud Compute or EC2) and storage (Simple Storage Service or S3) offerings, AWS has stretched into database management, software hosting and PaaS, with its Elastic BeanStalk tools. These offerings represent additional points of entry into developers and enterprises.
Amazon has been forced to expand into these new areas because of the rapid onslaught of competitors trying to knock the company from its market leading Infrastructure as a Service (IaaS) position, TBR suggests. Companies like Joyent, GoGrid, Terremark, Rackspace and others are all contenders.
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Each of those vendors is attempting to stake out its own niche. Verizon, through its Terremark cloud division, for example, has begun to market to specific vertical niches, creating a cloud offering that is compliant with the healthcare industry's HIPAA regulations, and the federal government's FISMA mandates. HP and Dell are attempting to make similar moves to grab market share through specific vertical industries, with HP targeting airline and communications providers and Dell turning to retailers.
It's not just new products and services that companies are using to expand their market reach - they're also going global. Many cloud providers focused their initial push in the United States and Western Europe, but during the past 12 to 18 months there's been a significant ramp-up of investments by cloud providers looking to emerging markets. Verizon has built new data centers in Brazil. IBM has announced a $70 million investment in Mexico, including a new data center. ServiceNow, an IaaS provider, has announced expansion plans into Asia and Latin America following its IPO. HP and Fujitsu have also turned to international locales.
Combined, the moves represent the new lengths that providers are going to in order to differentiate their offerings and either hold their market share, or attempt to steal business from the leading providers.
Network World staff writer Brandon Butler covers cloud computing and social collaboration. He can be reached at BButler@nww.com and found on Twitter at @BButlerNWW.
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