Cloud computing is boosting the share price and revenues of service providers such as Amazon, Microsoft and Apple, not to mention the fortunes of chip-making companies like Nvidia. So what exactly is cloud computing? Who uses it and how are companies making money from it?
It seems like forever ago that software had to be bought and either carried around or downloaded from a server to a physical computer. Now cloud computing in untethering that physical requirement has revolutionised the way we all work with computers.
For more than a decade now we’ve had the ability to gain swift access to computer resources via the Internet anywhere, at anytime.
On a personal level working away in the background when you send email; watch movies online; save your photos; edit your documents is cloud computing.
For businesses though the move to cloud computing is transformative; so many facets of IT business services that used to be a physical component are now available as a resource in a cloud including: servers, storage, databases, networking, software and analytics.
Who are the key cloud computing providers?
There is intense competition among the companies able to supply these cloud resources to individuals and businesses. There are others companies that are also benefitting tangentially from the revolution – such as companies that make software for mobile and cloud computing deployment.
The biggest names in the technology sector the almighty Apple, Amazon, Facebook, Microsoft and Google are at the top but by no means the only players in the sector. Old hands such as HP, Dell, Intel, Cisco Systems and IBM have had to change their business models to adapt to the new way of doing business and have done it with varying levels of success.
To underscore just how competitive the marketplace, for the past five years IBM has been busily shifting its old-line computing business model from a focus on just supplying software and business solutions to the business of the cloud and it has hit several air pockets along the way.
The Big Blue finds its way in the Cloud
IBM is trying to find territory within the cloud. It has shifted focus and money towards a greater share to the cloud. In May 2017, when IBM announced profit margins were under unexpected pressure in the first quarter, investors worried, in particular Warren Buffett’s Berkshire Hathaway which cut its holding following the news and cited the reason as IBM’s “big strong competitors”.
IBM has had to spend to keep up with its larger competitors with their deeper pockets. The company has seen consecutive declines in revenue and similar slide in share price.
However, there is still optimism for the tech company in the area of what is termed ‘public cloud’ where centralised services over the Internet can save companies from the expense of on-premises hardware and application infrastructure with more flexibility and efficiency.
International Data Corp (IDC) in its research shows that worldwide spending on public cloud services and infrastructure will reach $122.5bn in 2017, an increase of 24.4% from the previous year. It forecast overall public cloud spending will increase by 2020, to reach $203.4bn worldwide.
Public cloud can be a boon for IBM because as Glenn O’Donnell, an analyst at Forrester Research said in the FT: “IBM can’t fail [in the cloud] because it’s so central to everything they do,” adding, “It has to work. But it’s going to be painful for them.”
IBM’s existing clientele such as bigger companies and government will want to utilise the ‘public cloud’ and link it to existing infrastructure. Total revenue for the second quarter this year was $19.29bn. Cloud revenue, including cloud delivered as a service, for the quarter was $3.9bn, a 15% increase from the previous year.
Ginni Rometty, IBM chairman, president and chief executive officer said, "In the second quarter, we strengthened our position as the enterprise cloud leader and added more of the world's leading companies to the IBM Cloud." Still IBM’s share price since the start of the year has fallen over 15%.
IBM’s path may not be as straightforward as companies with a built-in advantage where there is the natural affinity of providing consumer services through the Internet. But as the FT pointed out recently that companies like Microsoft and Intel may come from different eras of computing but ahead of reporting earnings one thing in common unites them: “how well they are adjusting to the disruption – and opportunities – from cloud computing.”
Companies like Amazon and Google have the scale helped by very deep pockets. Amazon is worth $495m and Alphabet, Google’s parent company has a market cap of $649bn.
Amazon Web Services is seen as one of the leading cloud computing companies as well as Alphabet’s Google Cloud platform. Amazon Web Services is seen as a cloud computing leading provider as well as Alphabet’s Google Cloud platform. The competition is swelling. Alibaba, Oracle, Dell and HP all compete in cloud-computing arena.
Silicon Valley startup, Dropbox, is a smaller niche player that could go public. This cloud storage company began in 2007 and reached a milestone of over 500 million users worldwide, 200,000 business customers and in January it said it reached $1bn in revenue.
Dropbox is rumoured to be readying for an IPO. Although growing rapidly, it is up against the bigger players in the arena and its ambitions may be hampered by limitations of its size.