How big is too big to fail for a cloud provider?

How big is too big to fail for a cloud provider?

Recently Microsoft launched Azure in Australia, its product that competes with Amazon Web Services (AWS). Microsoft made some big claims about the quality key new features of their product and the endorsements they have from government and so forth. This brought AWS out making counter claims.

This week we have been told to look out for the Ponzi scheme that is cloud computing this is suggesting that with a player the size of Microsoft competing with AWS the writing is on the wall for AWS. With increasing expenditure on data storage and decreasing revenue due to competitive pricing, the model is not sustainable. The analyst, Tony Yoo of Canalys, is warning us that something has to give. He has estimated that AWS lost over $US2.8 billion over the last year and that it has reserves as small as $5 billion. While Microsoft may have a way to go to catch up on the investment side, Yoo suggests it has reserves of some $90 billion and is highly likely to emerge as a world leader.

Should AWS fail to turn this alleged trend around against its cashed-up competitors like Microsoft, Google and Cisco there is likely to be a mess or at least a strategic buy out by one of the big three.

If these giants are fighting it out on their way to the lowest dollar per cloud compute and storage there will no doubt be many smaller hosting firms who are at risk of being undermined. It is very important that you understand the financial metrics at play before you engage with any hosting provider.

Tony Yoo suggests asking them for their financial statements. That may be possible if you are a Fortune 100 client, but if you are a small business owner it just won’t happen. So if you are depending on business advisors to take you to the cloud, look very carefully at who they suggest you use. You should not be taking risks with where your data and IT systems reside to save a few thousand dollars a year.

When it comes to cloud there are still plenty of backyard operators through to global players racing to win enough business to pay off their ageing infrastructure before they have to replace it. Your recurring monthly fees may not be enough to complete this due to the emerging large players getting economies of scale that cannot be beaten. Certainly building your own server farm is looking like the expensive option these days. As broadband costs come down and your old servers are replaced with hosted platforms, I suggest you choose a big provider to partner with.

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