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Thoughts on cloud IaaS market share

As part of our qualification survey for the cloud IaaS Magic Quadrant, we ask providers for detailed information about their revenue, provisioned capacity, and usage, under a very strict nondisclosure agreement. We treat this data with a healthy dose of skepticism (and we do our own models, channel-check, talk to contacts in the financial industry who’ve seen disclosures, and otherwise apply a filter of cynicism to it), but post-scrubbing, there are a number of very interesting data points that come out of the aggregated whole.

Three teasers:

Growth is huge, but is disproportionately concentrated on a modest number of vendors. Obviously, everyone knows that Amazon is a behemoth, but among the other vendors, there are stark differences in growth. Obviously, some small vendors post huge growth on a percentage basis (we went from $100k to $2m! yay!) so raw percentages aren’t the right way to look at this. Instead, what’s interesting is relative market share once you eliminate Amazon from the numbers. The data suggests that to succeed in this market, you have two possible routes — you have a giant sales channel with a ton of feet on the street and existing relationships, or you have excellent online marketing and instant online sign-ups. A third possible route is that you make it easy for people to white-label and resell your service.

Most vendors are still not at scale. Despite huge growth, most vendors remain under $10 million in revenue, and even the club above $20 million in revenue in pure public cloud IaaS revenue is only 20-odd vendors. Even that club is often still at a scale where Amazon could probably casually provide that as spot capacity in one AZ. By market share, Amazon is a de facto monopoly, although this market doesn’t have the characteristics of monopoly markets; the sheer number of competing vendors and the early stage of the market suggest shake-ups to come.

Customers love dedicated compute nodes. An increasing number of vendors offer dedicated compute nodes — i.e., a guarantee that a customer’s VMs won’t share a physical server with another customer’s VMs. That can be done on temporarily-dedicated hardware (like Amazon’s Dedicated Instances) or on an allocation of hardware that’s contractually the customer’s for a lengthier period of time (often a dedicated-blade option for vCloud Powered providers). For most providers who offer this option, customers seem to overwhelmingly choose it over VMs on shared hosts, even though it represents a price premium. Note that in most of these cases, the network and storage are still shared, although vendors may label this “private cloud” nevertheless. (We believe Amazon’s DI to be an exception to this, by the way, due to its very high price premium, especially for small numbers of instances; this is an effect of DIs being spread out over many servers rather than consolidated, like other providers do it.)


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