A critical juncture for public cloud providers

Public cloud providers are expensive, and I’m not alone in that opinion. Civo, a company specializing in public cloud services, recently published a report on the state of the cloud market. Civo surveyed more than 500 professionals in the cloud industry to analyze current trends. Their report focuses specifically on Microsoft Azure, Google Cloud Platform, and Amazon Web Services, the three largest cloud providers. According to their analysis, this year’s cloud computing market now faces “significant challenges.” Prices are becoming more of a burden for enterprises than a cost-saving opportunity.

Cloud was never cheap

One of the main points of my last book was that cloud computing never was and never would be cheap despite being marketed as a less expensive alternative to traditional on-premises deployments. It took most of us a calculator and a few minutes to realize that. This does not mean cloud computing offers no benefits to enterprises. One is agility, or the ability to provision and change IT systems on demand. Another is the ability for those systems to scale up quickly via virtual services versus pallets of servers sitting at the loading docks of your data center.

However, if you can’t find the business value, the cloud will not be the best solution. Indeed, droves of enterprises and software companies have returned to on-premises deployments due to hardware price reductions that cut costs by as much as one-third. That works if your usage is stable, and your business doesn’t gain much value from the cloud’s agility and scalability. For most enterprises, those are the primary value drivers.

The core question for enterprises is, “When do you use the cloud?” The core question for the cloud providers is, “What can the public cloud market do to drive more value for its customers, who are now running almost 40% of their workloads on public IaaS or SaaS providers?”

The evolving cloud landscape

Public cloud providers often use the word “optimization.” For good reason; they also understand what the customers are doing, either via their feedback or by voting with their feet.

Cloud providers have long touted improved service offerings to justify increased prices. However, this rationale is no longer sustainable in a market where enterprises have become proficient at managing multicloud deployments. In many cases, the multicloud architectures and deployments I’ve created provide choices for enterprises that want to ensure they have other options than their existing provider.

Companies are more adept at navigating diverse cloud environments, enabling them to opt for more cost-effective solutions. For public cloud vendors, reducing prices is not just a strategic choice but a necessity to prevent erosion of their market share.

Enterprises are no longer limited to a single provider and can strategically distribute their operations to optimize costs and performance. This multicloud mastery reduces dependency on any specific vendor and emphasizes cloud providers’ need to offer competitive pricing alongside robust service offerings. There is something very wrong with how cloud providers are addressing their primary market.

The rise of alternative solutions

As enterprises explore their options, the appeal of on-premises solutions and smaller cloud providers becomes increasingly apparent. These alternatives, which I’ve been calling microclouds, often present customized services and transparent pricing models that align more closely with economic objectives.

Indeed, with the surge of interest in AI, enterprises are turning to these smaller providers for GPUs and storage capabilities tailored to the AI systems they want to develop. They are often much less pricy, and many consider them more accessible than the public cloud behemoths roaming the land these days.

Of course, Big Cloud quickly points out that it has thousands of services on its platform and is a one-stop shop for most IT needs, including AI. This is undoubtedly the case, and many entrepreneurs leverage public cloud providers for just those reasons. As I’ve said many times, public cloud providers are the path of least resistance for building, deploying, and operating most IT solutions, certainly AI.

This convenience comes at a cost that most enterprises are getting tired of paying. CEOs and boards are asking tough questions about ongoing service fees. The CIO needs better answers than, “Everybody is using the cloud because it’s the best solution.”

Where to put limited funds?

Remember that money handed over to big public cloud providers is no longer available for R&D or market expansion. Many C-level leaders are seeing these limitations and will soon push for action. For example, laying off people as part of cost-cutting efforts doesn’t look good if much of the money that could be paid for salaries is going to cloud providers.

The cloud computing industry is at a pivotal crossroads. For major cloud providers, maintaining relevance in this competitive landscape means acknowledging the need for financial adjustments. By realigning prices with customer needs, cloud vendors can preserve their leadership while fostering growth in a dynamic digital ecosystem.

Who’s first?