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Revenue Growth Defeats Multitenancy in Most Recent Cloud Battle

Jones,Stanton
by Stanton Jones November 22, 2013

I’ve always been fascinated by medieval warfare. As a kid, I could not get my hands on enough books and movies about cavalry, archers, siege engines and fortifications. Given this, I tend to think about what’s happening today in cloud like a medieval battle: the enterprise is waiting it out in a well-fortified castle, while the cloud invaders use speed and cunning to try to overrun it.

One of the primary things each side is fighting for is how to deploy technology — dedicated or shared. The enterprise defenders have relied for years on dedicated technology to meet their requirements. The cloud invaders have built revolutionary platforms based on the idea that the technology works best when it’s shared amongst customers.

I’ve been talking a lot lately about the opportunities in using multitenant platforms in the enterprise. Specifically, how shared, multitenant platforms create strategic advantages for IT organizations that are routinely spending more than half of their budgets on maintenance. The shared nature of these platforms allows CIOs to turn their attention from maintaining and upgrading to building and integrating.

However, multitenant deployment models are not without challenges. The shared nature of these platforms creates significant security and compliance challenges for enterprises that are accustomed to dictating security and compliance requirements to their vendors. Legacy security policies, mixed with a bevy of external compliance requirements, create moats, gates and inner walls that are not easily breached by upstart cloud vendors, especially when mission-critical data is in scope.

Castle sieges aside, companies that offer shared software and infrastructure platforms are growing like gangbusters. Check out the top-line growth for some leading cloud suppliers compared to their more traditional single-tenant brethren:

Revenue Growth of Leading SaaS Vendors

What’s fascinating here is the recent change in battle tactics: two leading multitenant providers, Amazon Web Services and Salesforce, recently announced dedicated offerings. Amazon is building a private cloud for the Central Intelligence Agency, while Salesforce is partnering with HP to deploy single-tenant instances to large enterprise customers. This is a jarring about-face for these public cloud trailblazers.

Here’s Andy Jassy, senior vice president of Amazon Web Services, in 2010:

“If you look deep into what [private cloud vendors] are offering, you will see that it’s basically an internal data center that is virtualized and has some management tools. Organizations that have private cloud systems will have missed out on all the advantages and benefits of going into the cloud,”

And here’s Marc Benioff, CEO of Salesforce.com, also in 2010:

“The false cloud is not efficient, is not democratic, is not economical and is not environmental”.

According to Benioff, a “true” cloud must have zero hardware and software costs, update automatically, be scalable, be democratic and have access apps marketplaces.

The dedicated software and infrastructure solutions that Amazon and Salesforce recently announced are completely at odds with their positions from three years ago.

Why?

I think it’s about growth. High double-digit revenue growth is sustainable on a small base; it’s much more difficult to sustain as revenue grows. I think the leading cloud vendors see that to continue to maintain revenue growth that investors expect (often at the expense of margins), they will need to bow to pressure and sell dedicated instances of their platforms to further penetrate the large enterprise and government sectors.

Will the siege engines of shared cloud break down the walls of dedicated cloud? For now, it appears that the enterprise defenders have won a reprieve from the cloud invaders. But it’s only a matter of time before the walls are breached.

About the author

Stanton helps enterprise IT and sourcing leaders rationalize and capitalize on emerging technology opportunities in the context of the global sourcing industry. He brings extensive knowledge of today’s cloud and automation ecosystems, as well as other disruptive trends that are helping to shape and disrupt the business computing landscape. Stanton has been with ISG for more over a decade. During his tenure he has helped clients develop, negotiate and implement cloud infrastructure sourcing strategies, evaluate and select software-as-a-service platforms, identify and implement best-in-class service brokerage models, and assess how the emerging cloud master architecture can be leveraged for competitive advantage. Stanton has also guided a number of leading service providers in the development of next-generation cloud strategies. Stanton is a recognized industry expert, and has been quoted in CIOForbes and The Times of London. You can follow Stanton on Twitter: @stantonmjones.