The Rise of the Cloud Supermarket

Why mega-vendors peddling sophisticated, bundled products may soon dominate the rapidly expanding cloud services market.

Just a few decades ago, it was common for American shoppers to buy meat from the butcher, tools from the local hardware store, and produce from a green grocer down the street. Today, shoppers in most communities will likely purchase these same items—plus clothing, medicine, and a seemingly limitless variety of other products and services—from a single “big box” supermarket on the edge of town.

The same transformational forces that drove consolidation in the retail industry are now driving fundamental change in the cloud services sector. According to Chris Weitz, a director at Deloitte Consulting LLP who specializes in cloud technologies, companies are now buying cloud services from so many different vendors that managing supplier relationships and contracts is becoming challenging. “For this reason, enterprise buyers increasingly want more services from fewer vendors,” says Weitz. “In response, some vendors are moving beyond point solutions and are now taking a variety of sophisticated, integrated products to market. In effect, these providers are becoming cloud supermarkets.”

Weitz sees this transformation as a long-term trend. “The transition from a market of many small vendors to one dominated by a handful of mega-vendors will likely be neither clean nor quick,” he says. “But this is an inevitable, unstoppable phenomenon that occurs as markets mature, and it is clearly happening right now in the cloud services sector.”

Fueling this trend is the cloud’s growing popularity with business. According to International Data Corporation (IDC), worldwide spending on public IT cloud services topped $40 billion in 2012 and may approach $100 billion in 2016. Moreover, IDC forecasts that from 2012 to 2016, public IT cloud services will enjoy a compound annual growth rate of 26.4 percent—five times that of the IT industry overall—as companies accelerate their shift to the cloud services model for IT consumption.¹

Weitz says in the near future, successful cloud services vendors will likely broker diverse offerings that feature their own services bundled loosely with those of other vendors. The price for bundled offerings could go up a bit, but these integrated products would include more services—consolidation, integration, and aggregation services will likely be part of the package.

“As the cloud market consolidates, primary sellers may acquire the providers whose services they are bundling, or they may offer these services themselves,” says Weitz. “These major ‘supermarket’ players will likely broaden their offerings and move into new markets. Meanwhile, smaller providers whose products are brokered by large aggregators will be able to focus on providing specialized cloud services, rather than on maintaining a sophisticated retail operation.”

Weitz says enterprise customers will prefer “one-stop shopping” for cloud services—which may lead to fewer vendor relationships. “The product and service options will be more clearly defined, and the chaotic nature of the early market will give way to something more organized and stratified.”

Brokers offering specialized cloud services may need to operate outside the reach of the large aggregators. “There will likely be a vibrant niche market that might be local, regional or industry specific,” says Weitz. “Boutique brokers will likely maintain strong presences there.”

Weitz says that as consolidation proceeds in the cloud services market, CIOs should consider examining the services they now source externally, and try to envision a preferred structure that could provide the manageability, efficiency, and agility they need to address future strategic and operational needs. “As the market evolves, a smaller number of vendors will likely be able to offer that structure.”

The cloud market’s current transition may seem familiar to some CIOs. “This is where ERP was 20 years ago,” says Weitz. “Companies used to license 15 different pieces of software to run their back offices. Then integrated ERP suites appeared, and they eventually only had to license one solution.”

Source: Deloitte (http://goo.gl/xeyrr)