What’s happening in the cloud market? It seems (from stories in both the technology and financial press) like growth in public cloud service revenues is slowing, and some have suggested the market is nearing a plateau. The truth is more complex (as usual), because there are a number of forces acting on the same market and all its players, and some relatively new forces acting on the cloud buyer. The cloud market overall has two parts, each of which have multiple phases. It’s the interplay of all this that we have to be thinking about.
The two parts of the cloud market are the startup cloud and the enterprise cloud. In the early days of cloud computing, we focused on the enterprise cloud opportunity, and on “migration” of applications to the cloud, largely as a part of the server consolidation trend. At the time, my modeling was saying that the most we could hope for from the migration story was about 23% penetration into enterprise IT spending, and in point of fact we’ve not reached that yet. The big early growth driver was the startup cloud part.
Social media, content, and other web-centric or “over-the-top” (OTT) startups need massive online capacity but the venture capitalists who fund them don’t want to spend money on building gigantic server farms. As a result, these startups turned quickly to public cloud services, most often from Amazon, and this became the big driver of cloud computing. In large part that was because there was an OTT-social startup wave that corresponded to the early deployment of public cloud services. The startup-wave market segment and phase has been our cloud opportunity source—up to this year.
Enterprises, as early as 2017, had been framing their public cloud use differently. Rather than “migrating” applications to the cloud, they were migrating the front-end piece of applications to the cloud. This was more easily justified because the growing mobility trend was demanding better integration between business applications and mobile devices, particularly smartphones. The back-end transaction processing stuff that creates all the compliance risk and migration cost wasn’t part of the cloud picture, so this released a barrier and launched the “front-end” phase of the enterprise cloud. Microsoft’s Azure was the big beneficiary of this, since they’d focused on hybrid enterprise applications from the start.
We’re in the enterprise front-end phase now, in parallel with the startup-wave phase on the other side. However, we now face a well-known phenomenon on both sides—the “low-apple” problem. Everyone knows that projects require a cost/benefit analysis, and everyone knows that the early target projects tend to be the ones where cost/benefit is the clearest and biggest, meaning those proverbial low apples. Like all low apples, the cloud ones have been getting picked, which means that the remaining projects have lower ROIs and are often more complex to implement and deploy. This is slowing the growth of cloud computing, both because of the extended project cycles and that lower ROI. Were this the end of the phases of the startup and enterprise cloud pieces of our puzzle, we could in fact expect to see a plateau.
It isn’t the end. We have, in fact, about nine hundred billion dollars in potential incremental spending on the cloud yet to be realized. The question, obviously, is what’s going to realize it, and the answer (using the modern term, which I realize is always dangerous) is cloud native.
Cloud-native is an evolution of the conceptual foundation of front-end enterprise cloud. The front-end model works because pulling out the web-like elements of an application from the old-line monolithic transaction processing models of current applications lets the front-end take better advantage of the things that the cloud does differently, and better. The cloud-native model is a movement to define a software architecture that takes full advantage of the cloud, and that can be applied to new application development across the board. That means enterprise and startup, front-end and transaction processing. It also means things that are practical in the cloud and would not be practical in the data center, things like contextual applications and IoT. This is what’s going to put those nine hundred billion dollars per year on the table.
Not right away, though, which is the important truth behind our so-called “plateau” in cloud spending. Right now, my model says that fewer than four percent of developers and two percent of software architects can really say they can do “cloud-native” development. In order for the cloud-native wave to really get going, we need ten times those numbers. We also need better development management, starting with the team level and moving upward to the CIO and even the CEO and CFO.
The challenge for both the startup and the enterprise sides of the cloud opportunity is to address the new missions of the cloud, not the cloud way of addressing the old data center missions. That shift involves rethinking the relationship between computing and its users. As I’ve pointed out in previous blogs (most recently HERE), there have been three waves of spending since 1950, corresponding to three decisive changes in the relationship between computing and its users. Technologists alone couldn’t drive IT spending growth to 1.4 times GDP growth or more, it required significant management buy-in, and not just to sign the checks. We needed to rethink how workers work, how consumers buy, and that’s outside the realm of IT.
In a realistic sense, this means that the cloud-native movement and its financial benefits are going to arrive slowly, but we have some control over just how slow “slowly” really has to be. The open-source software community is doing a good job of framing the right tools the right way, and I’ve talked to many CIOs who really understand what “cloud-native” means. The only problem is that the pace of progress in cloud-native technology is literally breathtaking, and education in the space isn’t able to keep up.
The cloud-native ecosystem is made up of a mixture of middleware tools, several mixtures in fact. Containers are a universal element, and the container orchestrator Kubernetes is near-universal, but there are management, monitoring, networking, load-balancing and development tools added and mixed up by various sponsors. What’s most important in today’s world is the growing interest among cloud-native prospects in a complete ecosystem from a single source. IBM, with its acquisition of Red Hat, wants to be that source, and of course so does VMware and other companies. Just this week, Mesosphere (the commercial front of the Apache Mesos project) changed its name to D2IQ and will now focus on cloud-native and Kubernetes-ecosystem developments.
The single-ecosystem approach is critical because it offers both a set of comprehensive architectures for buyers to pick from, and organizations to promote those architectures and raise the visibility of cloud-native. It would be naïve for me to suggest that this will automatically give rise to market education on the grounds that it’s difficult to differentiate within a topic that buyers don’t even grasp as a whole. Still, it would be nice, because it would shorten this apparent plateau in cloud spending growth.
There’s plenty of money to be had here, but to get at it, we’ll need to develop stuff and not just move or tweak it. The necessary skills and tools are evolving, but the inertia of current software is considerable and the pool of labor that needs to be educated is too. The benefits are also considerable, fortunately, and I think we can expect to see the pace of cloud spending return to its past trajectory in a year or so.