Sourcing executives are set with their strategic directions for 2017 and see the growing importance of IaaS as a key strategic move for their firms. The market for cloud infrastructure as a service (IaaS) is in a state of upheaval. Suppliers vary significantly in their features, performance, costs and business terms. A mix of market, technology and sourcing aspects need to be studied carefully before any cloud IaaS decisions are made.
The cloud intervention in the IT infrastructure stack has been noteworthy, with buyers actively exploring IaaS space. The growth in IaaS segment is not net new growth – it is heavily driven by increased cannibalization of traditional infrastructure service offerings such as Data Center Outsourcing. Buyers who are aware of the benefits of moving workload from premise-based to cloud and require business transformation are adopting IaaS in an accelerated manner – in some cases, time from pilot to adoption is as brief as a year. Typically, buyers adopt cloud infrastructure services in stages with multiyear adoption cycles, which usually spread across two to three years. As the hybrid cloud continues to gain traction, multi-cloud also emerges as a viable option. Multi-cloud allows buyers to choose a mix of IaaS suppliers, where the primary service provider is expected to have a wider breadth of use cases, while the secondary service provider is expected to have superior capabilities in a specific use case. Multi-cloud approach within IaaS can be adopted when applications differ widely in terms of their requirement from the cloud.
Cloud IaaS’s impact is very real – it has disrupted the supplier landscape and has impacted buying decisions on infrastructure offerings. There are hundreds of service providers who offer cloud IaaS, but the market share remains disproportionately concentrated with a single provider – Amazon Web Services (AWS). Amazon, along with Microsoft, Google and IBM, occupy the major chunk and more than 70% of cloud IaaS deals are won by these four service providers.
The demand for innovative solutions and modernization has increased and will increase further. Today, suppliers are following various growth strategies for the long run, such as developing a new feature set, merging or partnering with a promising solution provider and, last but not least, growing inorganically by acquiring a specific cloud feature or cloud solution specialist. As a rich suite of features sets drives adoption, we expect the larger suppliers to acquire niche/specialized suppliers to bring/add-on automation ability for self-service enablement.
Public cloud services are increasingly seen as enablers of business agility and speed and, among IT enterprise decision makers, public cloud adoption has emerged as the preferred delivery method. A survey of over 6,000 IT organizations by IDC shows that nearly two-thirds of respondents are either already using or are planning to use public cloud IaaS by the end of 2016. Increasing usage of public cloud IaaS has also created new service opportunities around adoption and convention of public cloud resources. With transformations at the architectural, infrastructure, and operational layers, public cloud IaaS is anticipated to slowly transform the enterprise IT value chain.
Since cloud IaaS is yet to be commoditized, pricing models for cloud IaaS offerings can be grouped into four different types: pay-as-you-go, fixed charge (with no or partial upfront costs), tiered pricing and spot pricing. The former two remain the more popular models among sourcing managers. While IaaS has laid the foundation upon which managed services offerings are built, the concept of managed services and IaaS go hand-in-hand, and we expect the IaaS suppliers to abandon their channel strategy and incorporate other services beyond IaaS. For now, the adoption of outcome-based pricing approach remains low but, as this space will increasingly commoditize with the intervention of managed services, IT Infrastructure buying centers will push for outcome-based pricing model. On the contrary, buyers typically expect a wide variety of price ranges from different hosting and IaaS suppliers, but we do not see wide variances between pricing propositions from different suppliers. However, due to the overlap between IaaS and PaaS capabilities, we expect suppliers to offer both and bring different value and cost propositions. As these markets continue to mature, the overlapping will increase further, and will open the space for more customers.