July 24, 2013

The Cloud Computing Oligopoly

Written by

The cloud computing market is changing and expanding as more and more companies are offering their own cloud solutions. While entrance into the market is still relatively easy, there is speculation that as the front runners in the space gain momentum and popularity, there will be a shift in power to the bigger suppliers. It is unclear whether the market will transform into a monopoly, oligopoly, or stay as a place for perfect competition, but with high volume companies being thrown into the mix, a change is inevitable.

The dominance of the cloud computing marketplace may become more concentrated as large companies are moving to the top of the pile. Heavy hitters including IBM, Google, Amazon, HP, and Microsoft have been finding elevated success in the space that has left the smaller, standalone companies treading water. Although most cloud services are more or less identical, these big vendors have the financial cushion and market popularity to soften the blow when their investment in these services doesn’t live up to the predicted demand.

Straddling the fence between a monopoly and capitalist market, this group of companies could potentially share the reign, molding the market into an oligopoly. The business of cloud computing could be left to the bigger vendors which would ensure that the cloud services have ample resources to grow and develop.  This oligopoly group has the means to keep up with the wavering supply and demand, thus reinforcing their survival in this sector.

Owen Rogers, a senior analyst at 451 Research, recently noted in is research that “it’s not surprising that ….it would be limited to a few who can effectively compete in what is a high-volume commodity business. To compete in this space, providers need to rent entire counties to build gigantic data centers that can service hundreds of thousands of users 24 x 7.”

Because the cloud computing space calls for the software developer to play different roles, it is becomes harder for the small companies to compete because they do not have the funds, time, or experienced employees to pull off operating as a cloud computing company while still offering their other IT services.

However, not everyone believes that the market will be completely left up to the big players. HP’s own David Chalmers noted “I believe the market is increasingly competitive, but you will see competition at different levels.”  He does not necessarily think that his biggest competition will be the other large companies.  It may, in fact, be the smaller suppliers who will likely partner up to make new hybrid cloud programs that will pull together the resources of littler service providers to build a new service altogether.  He believes the competition will also vary in different geographic areas because of the differences in demand internationally. This would leave room for the smaller companies to seep through the cracks of the “oligopoly group”.

As the market changes and develops into a steadied list of providers, its new formation will be evident. Will it be an oligopoly of “big dogs” like IBM and Google,  or a constant flow of competition including multiple suppliers teaming up to create new, innovative solutions?