The landscape of cloud computing is changing significantly as enterprises question the value of public cloud solutions. This shift marks a departure from previous years when the public cloud was widely regarded as the panacea for all technology and infrastructure needs. Companies are now reconsidering the efficacy, cost efficiency, and strategic alignment of public cloud computing in their IT frameworks. We’ve also been discussing this topic here in recent years.
It’s one thing to stand around and complain. It’s more beneficial for experts to suggest new paths that cloud providers should follow. Providers that adjust their strategies to better meet the needs of a changing landscape will help themselves and the enterprises they serve. I suspect these conversations are occurring already, so let’s see how close I get to the conclusions cloud providers are reaching on their own.
The shine dims for public clouds
Initially, the public cloud was heralded for its potential to slash costs and streamline processes. The allure of cheaper, faster, and more agile solutions drove widespread adoption. Everyone from the government to larger enterprises declared a “cloud-first strategy.” As the market normalized, the more prominent enterprise software players were left standing, namely AWS, Microsoft, and Google.
However, the anticipated productivity gains and cost savings have not materialized, for the most part. The promised efficiencies did not translate into significant improvements in operational productivity for many organizations, and cloud platforms cost at least twice as much as traditional systems.
The sharp decline in the costs of on-premises computing and storage servers during the past decade exacerbated the situation for public cloud providers. This threw a monkey wrench into the savings that the cloud promised over traditional on-premises systems.
Companies move back home
37signals, a software firm, saved more than $1 million and dramatically improved its profitability by moving away from cloud services. Their move underscores a growing realization among enterprises: The direct costs of buying hardware and hosting in shared data centers can be substantially lower than the ongoing expenses tied to public cloud services.
It’s an open secret that many enterprises are quietly moving workloads back to enterprise data centers and colocation providers, trying to downplay the mistake of moving to the cloud in the first place. However, let’s remember that many enterprises did not invest in refactoring and reengineering their applications for cloud providers; indeed, the “lift and shift” movement created self-inflicted wounds by misusing cloud resources.
What should cloud providers do?
Looking at current trends, no one needs to panic. Public cloud providers will continue to grow due to artificial intelligence. The massive movement to AI and the fact that public cloud providers are the path of least resistance to get there will propel much of the cloud growth of the next few years.
Cloud providers are now faced with “cloud exit” issues while focusing on AI growth. Their market continues to stagnate as enterprises find that a mix of on-premises and cloud platforms is perhaps more cost-effective, considering the operational costs of AI. In other words, AI is delaying the reality they would otherwise likely face in the short term.
So, how can cloud providers find new growth in the market?
First, stop using a “single cloud-only” approach. Many public cloud providers promote their own specific systems, such as security, databases, application development, containers, and serverless computing systems. The technology can’t be used with other public clouds or on-premises systems, and customers are stuck working within that cloud silo.
Enterprises are no longer willing to operate like that. They want to leverage every heterogeneous and autonomous platform, where security, operations, governance, and application development also need to span those systems. Providers need to create and sell openness rather than tools that only run on their single cloud.
Second, find ways to reduce prices. The No. 1 complaint I get from cloud users looking to exit the cloud is that the costs are too high. They have a point. Hardware prices have dropped, and the price of cloud services has remained relatively the same. Of course, I’m not in those meetings where cloud providers talk with the investors who have been with them for up to 15 years and insist on a good ROI. There may be a compelling reason that vendors are not reducing prices.
The days of enterprises buying cloud systems in haste left too many to repent at leisure. Vendors must better understand what enterprises should pay to find value and thus reduce the exodus to colocation providers, managed service providers, and enterprise data centers. Those that offer these three options excel at providing cost-effective platforms, prompting enterprises to opt for them. Cloud providers don’t need to wonder why: It’s basic math.
Yes, I understand the soft values of agility and speed to market, but in many instances, those attributes don’t consistently hold value within an enterprise. Again, the cloud alternative has gotten pretty good at “cloud emulation” and thus offers almost the same value at a significantly reduced price.
Of course, the AI boom is now upon us. I suspect the cloud computing conferences will continue to be AI-focused for a few years, with sales that follow suit. My warning to providers? Eventually, even AI-driven new sales will come to an end, and businesses will seek more affordable and practical options.
I realize public cloud providers can read the writing on the wall as well as the rest of us. They know that current cloud exodus trends will continue. What’s next?
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