Cloud Computing Business Strategy

Cloud computing is changing our world profoundly.

The leaders in cloud Computing like Amazon, Microsoft and Alphabet have chosen the Infrastructure as a Service segment and can in the not too distant future become the utility companies of the the internet age. Much like electricity and gas production and water distribution companies are the bedrock of our modern day world, Microsoft, Amazon and Alphabet are laying the groundwork for our even more mutually connected future by providing the computing infrastructure.

When I read an interview with a cloud computing evangelist in 2013 saying that internet companies like Amazon, Microsoft and Alphabet can generate the infrastructure for the internet much like modern day electricity companies produce electricity or telecommunication companies produce internet access, it was difficult to believe it. It just seemed too farfetched. Regular companies or even technology companies like Spotify or Snap Inc., Snapchat producer, trusting technology giants like Amazon, Microsoft and Alphabet with their basically information processing capabilities, seemed quite improbable. But it is already a fact that both the large technology companies Snap and Spotify do their computing to large extent via Amazon. 

Amazon, Microsoft and Alphabet have huge resources at their disposal from their existing business lines which they deploy aptly in their cloud computing businesses. That said, however, new relatively young technology startups liken GitLab and Hashi Corp are disrupting not negligible parts of the Infrastructure as a Service, IaaS, cloud business by finding clever solutions to existing problems with relatively limited resources. Actually, the IaaS business is now measured at close to 170 billion USD yearly revenue run rate and could surpass 700 billion USD in 7 years. Actually, the sheer size of the Infrastructure as a Service makes it possible the even newer young technology startups will enter the field successfully.

As the IaaS grows more and more niches will spring up which actually produce billions of USD in yearly revenues. And since the Infrastructure as a Service is quite scalable, net profit margins of above 22 % could be achieved as evidenced by Amazon's AWS business results.

Actually, Amazon, Microsoft and Alphabet are using the same predatory tactics Microsoft was using when it was trying to corner the internet browser market or the smartphone market. That is why Microsoft, Amazon and Alphabet all are vulnerable to able, agile, quick, resourceful and well intentioned competitors.

There has to be decency in business. Microsoft's past travails almost lead to the break up of the company. Now the same fate is threatening Facebook. Cloud computing, actually, could end up like electricity utilities where each and every country has its own champions. The leading cloud computing or hosting companies are considered key to national security in the USA, for example. That is why, it is very difficult for a truly global bank to emerge. Banking services, much like electricity, gas and water supply are key to national security.

The right strategy for the cloud computing champions like Amazon, Microsoft and Alphabet is simply to ride the momentum, inertia and try to keep a normal pace of innovation and adapt reasonably well to the environment. IaaS cloud computing challengers like GitLab and HashiCorp, however, have a much more exciting task before them. They have to out innovate the existing incumbents, be very quick, agile, with a groundbreaking technology edge and yet stable. Easier said, than done but the rewards could potentially  amount to hundreds of billions of USD.