How can investors make informed decisions about the cloud service providers and their supply chain?
- Which cloud suppliers are gaining or losing share overall and at which cloud service providers?
- Which regions are cloud service providers investing in?
- What capabilities are cloud service providers deploying to meet customer demand in each region?
Cloud service providers such as Amazon Web Services (AWS), Microsoft Azure, Google Cloud Platform (GCP), Alibaba Cloud (Aliyun), IBM Cloud, Oracle Cloud Infrastructure (OCI) and Tencent Cloud have redefined the enterprise computing landscape over the past few years.
Traditional IT industry analyst firms are playing catch up. They have spent the past few decades estimating data center supply chain sales output in terms of revenue and the number of things that IT manufacturers sell into enterprise IT data centers.
The emergence of public clouds and computing-as-a-service broke the traditional IT industry analyst model.
How did/do we measure enterprise IT today?
In theory, IT industry analysts field surveys to measure enterprise IT supply chain productivity and health. These surveys are designed to measure supply chain costs, unit shipments and inventory movement, and resulting revenue at different points in the supply chain.
For example, IT industry analysts map the server processor chips that AMD and Intel sell to server manufacturers to the number of servers that Dell EMC and HPE then sell to enterprise IT customers, and then to the number of software licenses that ISVs sell to run on those enterprise IT customers’ servers.
But getting to that map is difficult. IT industry analysts spend a lot of time on the phone, in email, and in fielding surveys into the supply chain. It is an expensive, labor-intensive process that requires experience and relationships.
So why don’t IT industry analysts simply ask enterprise IT buyers what they are buying and what they have deployed?
Supply chains contain far fewer organizations to track and survey than the enterprise IT customer base. Plus, supply chain vendors (for the most part) want to tell customers how they are doing. However, there is a catch.
Sworn to secrecy
Surveys are the life blood of quantitative industry analysis. The challenge for cloud industry analysts is that cloud service providers don’t answer IT analyst questions or surveys regarding suppliers or deployed infrastructure. Larger clouds also hide regional distribution channels as they buy directly from component and system manufacturers.
Cloud service providers consider their supply chain relationships and their deployed infrastructure to be trade secrets. They guard their infrastructure trade secrets with non-disclosure agreements (NDAs) backed by a lot of purchasing power.
The legal and economic repercussions for violating a cloud service provider NDA keep the cloud data center supply chain very quiet. In terms of Porter’s Forces, cloud service providers concentrate a huge amount of buying power into a few major data center infrastructure customers. Cloud data center suppliers might state the percent of their products that ship into cloud service providers, but that is not useful for assessing the cloud service provider competitive arena.
Very few enterprise IT customers publish exactly what type and how much IT infrastructure they deploy. It doesn’t provide them with any economic advantage to do so. The information gets stale and would have to be refreshed. And like the large cloud service providers, it exposes a (perhaps damaging) glimpse into how efficiently an enterprise IT shop operates.
Lifting the veil
AWS, Google and Microsoft all evolved into the cloud service provider business. At some point, internal agile IT and customer self-service grew into modern cloud services, and these companies started offering merchant cloud computing services.
However, like any other type of merchant, cloud service providers must tell shoppers and customers what services are available to rent.
This is where investors can begin to gain some transparency into the cloud industry.
Cloud service providers offer public menus of services available in each region they operate in, along with pricing and service level agreements (SLAs) for those services.
There are two versions of these menus: web pages and software-accessible application programming interfaces (APIs). There is a massive amount of information available.
But there’s a catch.
Capturing that information from the public web pages is a losing proposition from a number of perspectives, including simple data entry mistakes when capturing large data sets.
Capturing services and pricing from the software accessible APIs is a much better option. Data collection can be automated and scaled. Software automation eliminates many types of data entry and survey errors. That increases the reliability and accuracy of the data.
The challenge is that collecting public cloud data through APIs requires cloud software developers and data scientists, as well as IT budget to run the software automation.
A little transparency
Automated collection of public cloud service data through software APIs enables fair comparisons of public cloud services. This approach is still in its infancy. However, as cloud services continue to erode the market for enterprise IT on premises deployments, new market research and industry analysis techniques will be needed to understand the cloud services supply chain.
Enumerating public clouds through software automation will not expose internal-only capabilities within a cloud’s other businesses and internal operations. However, cloud service providers eventually leverage their internal high-volume purchases to offer similar services to their external public cloud customers.
So, enumerating public cloud services is a good start to achieving transparency.
This article was written for Forbes, the original article can be found here.