State of the Clouds

It’s the state of the clouds! As we float further along into 2016, the overall state of affairs for cloud services remains very strong, with over fifty percent year-to-year growth being reported in the fourth quarters of 2014 and 2015. Moving right along into 2016, the absolute growth should continue, with the largest growth opportunity expected to be in the small and medium business and mid-market customers. This is followed by the large enterprises, which will continue the migration of services like email and databases into the cloud space. Cleveland Research published a sales comparison chart that shows the growth rate for 2015 and the estimated growth for 2016.

Cleveland Research Sales Comparison Chart

Amazon remained the king of the cloud as the largest cloud vendor in 2015, but it appears that 2016 could be the year when Microsoft’s overall commercial cloud business will overtake Amazon in sales. If so, it will become largest cloud provider, marking the start of the Microsoft’s cloud era as the new king of the cloud. This includes all of the Microsoft cloud products and services, among them Office 365, Dynamics, EMS, and Azure. The size of Microsoft’s portfolio is the key to its success. Its rise to the top of the cloud will propel Microsoft into becoming an even bigger Goliath of a company by the end of the decade. Currently, though, if we look at the Infrastructure as a Service (IaaS) business with Microsoft and Azure to make a like-for-like comparison, we find that Azure is the clear number two behind Amazon. Azure makes up only twenty to thirty percent of AWS, leaving Amazon as the clear leader in the IaaS space for the time being.

Microsoft Azure continues to grow within the commercial cloud space, moving at a solid pace with 140% year-to-year increase. Year-to-year growth in the third quarter of 2015 was 135%. Among the new Azure customers are NTT, Honeywell, NASA, and Dow Chemical, to name a few. Microsoft has singled out Red Hat, Dell, and HP as its main technology partners for infrastructure. As a side note, Microsoft has indicated that currently over twenty percent of the workloads running on Azure are Linux-based workloads. Microsoft’s Office 365 continues to be viewed as a key product, upselling other Microsoft products and services; its commercial revenue has grown nearly seventy percent year-to-year.

With Microsoft calling out Dell as one of its main technology partners, and Dell in the process of acquiring EMC and with it VMware, one is left wondering what kind of future is in store for VMware as a part of the Dell machine. There are rumors circulating that the Dell-EMC merger/acquisition is struggling to make it across the finish line. I have to believe that there are many people in the VMware camp who are secretly or even openly hoping that the Dell and EMC deal will fall through—that it will turn into just another speculative conversation on what might have been.

Meanwhile, VMware’s hybrid cloud business has slowed down to thirteen percent year-to-year growth in the fourth quarter of 2015, compared to a fifty percent increase year-to-year last quarter. One area of interest for VMware is managing different hybrid clouds, utilizing vSphere and NSX to manage and deliver workloads across public and private cloud environments, placing great emphasis on utilizing NSX to secure workloads delivered to both Azure and AWS from private clouds. Look for this functionality, which is slated to be rolled out sometime in 2016. VMware remains at risk from more workloads moving into public and vSphere alternatives. This risk emphasizes the need for VMware to truly own the hybrid cloud.

All in all, 2016 is looking to be another banner year for cloud services, with a chance for a shakeup in the top spot. It has been talked about for years, but now it seems this may be the year when it finally happens. At the same time, 2016 seems to be the year when VMware will need to find its space and call that space its own or find a way to rediscover the innovation mindset that helped catapult it into position as the pioneer and leader in the space.


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