All growth must end eventually. But it is a brave person who will predict the end of growth for the public cloud hyperscalers. The hyperscaler cloud revenues have been growing at between 25-60% the past few years (off very different bases – and often including and counting different revenue streams). Even the current softening of economic spend we are seeing across many economies is only causing a slight slowdown.
Looking forward, we expect growth in public cloud infrastructure and platform spend to continue to decline in 2024, but to accelerate in 2025 and 2026 as businesses take advantage of new cloud services and capabilities. However, the sheer size of the market means that we will see slower growth going forward – but we forecast 2026 to see the highest revenue growth of any year since public cloud services were founded.
The factors driving this growth include:
- Acceleration of digital intensity. As countries come out of their economic slowdowns and economic activity increases, so too will digital activity. And greater volumes of digital activity will require an increase in the capacity of cloud environments on which the applications and processes are hosted.
- Increased use of AI services. Businesses and AI service providers will need access to GPUs – and eventually, specialised AI chipsets – which will see cloud bills increase significantly. The extra data storage to drive the algorithms – and the increase in CPU required to deliver customised or personalised experiences that these algorithms will direct will also drive increased cloud usage.
- Further movement of applications from on-premises to cloud. Many organisations – particularly those in the Asia Pacific region – still have the majority of their applications and tech systems sitting in data centre environments. Over the next few years, more of these applications will move to hyperscalers.
- Edge applications moving to the cloud. As the public cloud giants improve their edge computing capabilities – in partnership with hardware providers, telcos, and a broader expansion of their own networks – there will be greater opportunity to move edge applications to public cloud environments.
- Increasing number of ISVs hosting on these platforms. The move from on-premise to cloud will drive some growth in hyperscaler revenues and activities – but the ISVs born in the cloud will also drive significant growth. SaaS and PaaS are typically seeing growth above the rates of IaaS – but are also drivers of the growth of cloud infrastructure services.
- Improving cloud marketplaces. Continuing on the topic of ISV partners, as the cloud hyperscalers make it easier and faster to find, buy, and integrate new services from their cloud marketplace, the adoption of cloud infrastructure services will continue to grow.
- New cloud services. No one has a crystal ball, and few people know what is being developed by Microsoft, AWS, Google, and the other cloud providers. New services will exist in the next few years that aren’t even being considered today. Perhaps Quantum Computing will start to see real business adoption? But these new services will help to drive growth – even if “legacy” cloud service adoption slows down or services are retired.
Hybrid Cloud Will Play an Important Role for Many Businesses
Growth in hyperscalers doesn’t mean that the hybrid cloud will disappear. Many organisations will hit a natural “ceiling” for their public cloud services. Regulations, proximity, cost, volumes of data, and “gravity” will see some applications remain in data centres. However, businesses will want to manage, secure, transform, and modernise these applications at the same rate and use the same tools as their public cloud environments. Therefore, hybrid and private cloud will remain important elements of the overall cloud market. Their success will be the ability to integrate with and support public cloud environments.
The future of cloud is big – but like all infrastructure and platforms, they are not a goal in themselves. It is what cloud is and will further enable businesses and customers which is exciting. As the rates of digitisation and digital intensity increase, the opportunities for the cloud infrastructure and platform providers will blossom. Sometimes they will be the driver of the growth, and other times they will just be supporting actors. But either way, in 2026 – 20 years after the birth of AWS – the growth in cloud services will be bigger than ever.
“Cloud is universal – everything is going to be on the cloud soon! If you are not moving to the cloud, you are going extinct! AWS, Microsoft and Google are going to rule the world!” This has been the hyped narrative for some time now. But watch out New World – the Old World is fighting back!
Traditional vendors like HP Enterprise, Cisco, and Oracle are all deploying strategies to remain relevant in the new world. For these vendors – especially for HPE and Cisco that come from a predominantly hardware background – the future is hybrid. They picture a world in which the data centre – either on-prem or in a co-located facility – thrives on, in tandem with the cloud. This is a reasonably good bet. For most large enterprises with a huge repository of applications and data sitting in the data centre, migrating everything to the cloud is a nightmare – fraught with risk and very expensive.
Ecosystm research shows that 32% of organisations have deployed containerisation – and this percentage will only grow. The ability for firms to toggle between data centre bare metal based applications and completely on-the-cloud ones is becoming more manageable by the day. This enormous flexibility allows a firm that has large compute needs to keep some stable workloads in a data centre, whether on-prem or co-located, while simultaneously using cloud-based workloads, optimising spends and performance.
Here is a glimpse into the strategies of three key vendors.
HPE’s ‘as-a-service’ Messaging is Spot on
Two years ago, Antonio Neri boldly went where no HPE CEO had gone before, promising that HPE’s entire portfolio would be available ‘as-a-service’ within 3 years. At the recently concluded HPE Discover event, there were a flurry of announcements to showcase that GreenLake is indeed on its way to meet that ambitious goal in 2022.
HPE’s recent announcements show customers that GreenLake is an end-to-end solution for managing their IT infrastructure moving forward. It ticks all the boxes: providing flexibility and scalability; the advantage of using both data centre and cloud; and high manageability and security with a full suite of applications.
Examples are the partnership with Azure Stack HCI, to add to earlier ones with leading vendors like SAP, Citrix, and VMware. HPE is building a platform that provides customers with the comfort that they can adopt GreenLake and pretty much have access to any application they may choose to implement – offering full coverage from the Edge to the Cloud. It is extremely interesting that GreenLake allows the option of switching on and switching off processor cores as needed, and the customer pays based on usage. This is surely a first for the industry!
Another example is Lighthouse, which allows the customer to rapidly configure, and provision workloads based on dynamic needs. While all the hyperscalers provide similar services when the workload is on the cloud, Lighthouse allows the same flexibility and speed for cloud services which can be run in the data centre, on-prem, co-located, or even at the Edge.
A third example was the announcement of Project Aurora which will add an additional security layer from validating the input data all the way to verifying the workload at the start and then as it is running. It appears to use an AI/ML system that checks for unexpected behaviours to detect any kind of malware.
It makes good sense for HPE to push GreenLake and move to offering ‘everything-as-a-service’. As one of the incumbent enterprise hardware business leaders, this is a good response rather than to watch one’s business continue to shrink YoY. GreenLake is HPE’s way of futureproofing themselves and making sure they stay relevant in the new cloud world.
Cisco Secures the Hybrid Workplace
Cisco has been active launching Cisco Plus earlier this year, as their bridge to the as-a-service model with a network-as-a-service (NaaS) offering. Somewhat like GreenLake, Cisco Plus offers flexible consumption for compute, storage, and networking. They are committed to offering most of their portfolio as-a-service over time.
Cisco has shown some resilience in terms of revenue but has still been struggling to grow. After a steady growth since 2017, the revenues dropped by 7% in 2020 almost as a direct impact of COVID-19. The post-pandemic world has the potential of being a bigger threat for Cisco. Many estimates show the number of people working from home is likely to go up dramatically and Cisco’s key networking offering could rapidly become redundant. However, at Ecosystm we believe that the hybrid work model will be predominant.
Cisco is also betting on a hybrid world. No matter where one works from, there are networking needs. Cisco’s focus, therefore, is on security – this will be on the mind of virtually any enterprise as it chalks out its future strategy. With a hybrid environment, making everything secure becomes more complex while continuing to be vital. Cisco has a heavy emphasis on Secure Access Service Edge (SASE) – the idea that the security envelope now has to be a flexible form that has a presence everywhere that the enterprise needs to be. This will make a lot of sense to most enterprises as they tread the hybrid path.
Cisco will offer a portfolio of tools to make it increasingly easier for customers to use multi-cloud, multi-vendor environments, offering the best of both worlds.
Oracle Incentivises Cloud Migration
Oracle has a different approach because they are trying to solve a different problem. They are competing with the hyperscalers, while fully acknowledging a hybrid world. However, as a company with less legacy in hardware, it makes sense for them to focus on migrating to cloud rather than on hybridisation. Oracle has just announced that they will subsidise existing customers who add cloud workloads with them, by providing discounts on the existing licensing fees that the customer is paying Oracle. This discount appears to be around 25% to 33%. In essence, this means that if a customer spends about USD 100k with Oracle on licensing and decides to start moving workloads to the Oracle Cloud worth somewhere between USD 300-400k, they can potentially write off the entire license fees they are currently paying!
Conclusion
There is a strong effort from every vendor right now to retain and consolidate their customer share and build a vision that convinces the customer that they are the way to go. For the traditional hardware players that vision is of a hybrid world – attractive to today’s large enterprise. For the likes of AWS, Microsoft, Google, and Oracle it is all about moving the customer to their cloud. The assumption of course is that moving someone to your cloud will lead to more of your apps being used by the customer. For the hardware vendors like Cisco and HPE, it is all about moving the customer to their own platforms which empower hybridisation. In all cases, a necessary component is to offer ‘everything-as-a-service’ upending the traditional models of selling.
In my opinion, with time the IaaS portion of the cloud is likely to gradually devolve into something like a utility. There will be a lot of upheavals and market disruption before we get there, but eventually, software and other services are likely to stand separate from the infrastructure provider. All the vendors are therefore depending on capturing the customer at the platform-as-a-service (PaaS) level, but even this is likely to get commoditised over time. Eventually, the winners will be disparate providers of the best applications for different functions. Meanwhile, we are in for an extremely interesting ride as we see all the vendors jockeying for space!
Alibaba has been actively expanding its global reach over the last year. There have been several announcements this year to indicate that the cloud provider is looking to benefit from the recent uptick in cloud adoption and support the global recovery initiatives. In April, Alibaba announced its plans to invest USD 28 billion, focusing on infrastructure and technologies related to operating systems, servers, chips and networks, over the next three years. Later in June, Alibaba announced the intention to recruit 5,000 people globally showing serious intentions to become a global cloud player. It is also strengthening capabilities in markets where they already have a strong market presence. By 2021 Alibaba intends to have 64 availability zones with 21 regions across the globe.
Consolidating Partnership with Equinix
Alibaba’s partnership with Equinix, the interconnection and data centre company dates back a few years. In 2017 the partnership started providing enterprises with direct, scalable access to Alibaba Cloud via the Equinix Cloud Exchange in 5 of their global data centres.
Last week the partnership was further strengthened by Equinix extending the reach of Alibaba Cloud via its network of Equinix Cloud Exchange Fabric (ECX Fabric) Cloud interconnection platform. The deal will widen Alibaba’s cloud reach in the US, EMEA, and the Asia Pacific region for customers to privately connect with Alibaba’s cloud. Under the partnership, Alibaba will integrate its API with Equinix ECX Fabric to facilitate direct and secured connections to Alibaba Cloud, across these regions:
- 9 US metros. Chicago, Dallas, Denver, Los Angeles, Miami, New York, Seattle, Silicon Valley and Washington DC
- 5 Asia Pacific hubs. Hong Kong, Jakarta, Singapore, Sydney and Tokyo
- 3 hubs in EMEA. Dubai, Frankfurt and London
The deal also gives Alibaba direct access to Equinix’s interconnected ecosystem of over 9,700 customers including enterprises, cloud and network operators, and IT service providers.
The Hybrid Cloud Push
In the last 18 months or so, the industry has seen a greater push in private/hybrid cloud or multi-cloud adoption. Ecosystm Principal Advisor Andrew Milroy says, “As enterprises move to hybrid cloud infrastructures, the world’s leading IaaS providers, including Alibaba Cloud, are expanding their private cloud and hybrid cloud services.”
Many of these IaaS providers may not have the capabilities to provide a hybrid cloud offering at a global level. Partnerships such as the one between Equinix and Alibaba Cloud may well be the solution. Milroy says, “Equinix offers interconnection services from multiple sites across the globe. These interconnection services are necessary for the provision of private and hybrid cloud services, on a global scale, offering the level of performance and security that organisations want.”
“In order to compete with AWS, GCP and Microsoft, Alibaba Cloud needs to be able to scale its private and hybrid cloud offerings globally. Equinix can enable them to do this. At the same time, Equinix will also benefit from Alibaba Cloud’s growth into newer markets, which will lead to an increased demand for its interconnection services.”