Cloud pursuits moving slowly

The Cloud Sector Remains In A Nascent State And Service Differentiation Is Poor

Almost $8bn was committed to cloud-related pursuits by service providers in the first six months of 2011, yet the sector remains in a nascent state and service differentiation is poor.

The analysis comes from Informa Telecoms & Media’s Telecom Cloud Monitor, an analytical tool evaluating service provider’s cloud strategies, tracking 90 groups worldwide, including their interactions with more than 240 cloud-related equipment, software and services vendors.

Informa believes that recent acquisitions won’t boost cloud revenues overnight and the analyst house estimates that the typical Cloud Services Provider (CSP) generates less than five per cent of its enterprise revenues from annuity cloud services. Despite growing customer wins, some providers need to muster ten-fold growth to hit publicised cloud revenue targets.

On the M&A front, of the ten acquisitions and 21 investments announced in the first half of 2011, 80 per cent involved data centres, highlighting CSPs’ desire to bulk up on physical assets to sell virtual goods.

“Recent multiples paid for so-called cloud assets aren’t at Enron Era levels, but they are generous,” said Camille Mendler, principal analyst at Informa. “More worryingly, the companies acquired – although growing – generate a sixth or less of their revenues from pure cloud services.”

On current performance, Informa concludes that many CSPs are swapping their dumb-pipe problem for a dumb cloud. Around 70 per cent of the 88 cloud services launched in the first half of 2011 were generic productivity and storage applications, often involving partners claiming a major share of the takings.

“Software as a service is a loss leader for most CSPs: Partners like Google, Microsoft and Salesforce offer great tools, but they want their pound of flesh,” said Mendler. “Profitable differentiation lies in securing seamless access to enterprises’ digital assets, not just SaaS resale.”

Informa warns CSPs not to squander their powerful differentiators in the cloud marketplace. They must: