Reminder: The Cloud Computing Sector Has Robust Competition That Drives Innovation, Productivity And Lower Prices For Small Businesses, Start Ups And Governments
The space for global IT services is vibrant—defined by continuous innovation, choice, and versatility. Competition is thriving as numerous cloud computing companies provide a variety of services and pricing models that are flexible and customized to the needs of small businesses, start ups and governments. These companies are providing data storage, analysis, AI solutions and more, while competing with traditional IT services. But these traditional IT services seek to lock in customers with licensing terms that don’t promote choice and ability to use multiple providers. Fair licensing practices are crucial for customers to be able to use or switch between different cloud providers, which is harmed by legacy IT companies entering the cloud space and locking down customers with restrictive terms, inhibiting competition.
As the FTC seeks comments for its new Cloud RFI, here’s what you need to know about the state of cloud competition:
The Global IT Services Space Is Diverse, Innovative, And Promotes Competition At Home And Abroad In Both The Private And Public Sectors
UC Berkeley Professor Steve Weber notes that “nothing has been more significant to reducing the costs of start-up innovation.” “The single most important development in the digital economy over the last decade has been the architectural transformation from on-premise servers and software to ‘the cloud,’ including computing and software as a service. Nothing has been more significant to reducing the costs of start-up innovation, enabling rapid scaling up and down of computing capacity in sync with demand and making progress on cybersecurity. This cloud-enabled digital infrastructure will be essential to making next generation machine learning applications broadly usable across the economy — which, in turn, is our best bet to generate the productivity we need to escape the risk of stagflation as we emerge from the COVID-19 crisis.”
Not only has cloud helped optimize IT, McKinsey notes that 75% of cloud’s predicted value comes from boosting innovation. McKinsey research values cloud’s contributions to IT cost optimization, risk reduction, and core operations digitization at $430 billion, and values its contributions to innovation-driven growth, faster product development, and hyper-scalability at $770 billion.
McKinsey research also finds “most companies use two or more cloud service providers” and do so simultaneously “as a hedge against price increases or service degradation,” increasing cybersecurity and cloud competition. “The varying needs of developers as well as more strategic considerations have led companies to spread their work across different cloud providers, a dynamic that may become more pronounced in the coming years as the major cloud providers further differentiate themselves with new services. Several participants noted that working with multiple cloud providers served as a hedge against price increases or service degradation.”
The benefits extend to the public sector, referred to by Accenture’s Ryan Oakes and Valerie Armbrust as the “cloud imperative for public service.” “After all, cloud is the means to the end of future service delivery models. Consumption can be dialed up and down on demand, which allows agencies to monitor spend closely, while creating more insight-driven services. It’s all in the service of better, data-driven decision making and to enable a more personalized user interface.”
— They continue by expanding on the overwhelming benefits for costs and innovation when public sector agencies choose to adapt to the cloud. “When public service agencies use cloud to build services and solutions that accommodate community needs, it gives citizens faster access to vital, current information and resources. This, in turn, increases the perceived value of these agencies and the services they provide. While such transitions require time and the support of trusted partners, the outcomes are well worth the effort.”
The Center for Strategic and International Studies (CSIS) notes that the U.S. cloud sector is key to driving competition with China. “Decisions by governments, companies, and consumers about which cloud providers to use will shape commerce, global influence, and international security. There is a growing competition between China and the democracies over who will provide the infrastructure, technologies, and services that will drive the economies of the future. Societies depend on the cloud (even if they are sometimes unaware of this) for key services, and it has become a battleground for international influence in the contest between democracies and authoritarianism.”
Cloud Services Provide A Myriad Of Benefits To Consumers And SMBs
Karthik Narain and H. James Wilson of Accenture explain that businesses “are seeing substantial gains from their continued cloud engagement.” “Our global survey of about 4,000 global business and IT leaders found nearly 65% of respondents saw up to 10% in cost savings, on average, from moving to the cloud. But that’s just one upshot. A small subset of the companies we surveyed—about 12-15% of respondents depending on region—are seeing substantial gains from their continued cloud engagement. They’re benefitting even amidst global disruptions because they recognize the cloud as a launchpad for innovating and new ways of operating.”
McKinsey observes that for companies undergoing digital transformation, “becoming a cloud-first business” means “faster time to market, simplified innovation and scalability, and reduced risk.” “The pandemic demonstrated that the digital transformation can no longer be delayed—and can happen much more quickly than previously imagined. Nothing is more critical to a corporate digital transformation than becoming a cloud-first business. The benefits are faster time to market, simplified innovation and scalability, and reduced risk when effectively managed. The cloud lets companies provide customers with novel digital experiences—in days, not months—and delivers analytics absent on legacy platforms.”
Forbes Council Member Gaurav Aggarwal brands the cloud as “the new age innovation booster.” “The cloud has proven to be a turnkey tactic that helps businesses derive insights from real-time data, enhance decision-making and capitalize on new opportunities — all to disrupt and differentiate with expedited innovation. The cloud can be deemed the new age innovation booster, central to system resilience, infrastructure modernization, amplified agility and future-ready competitive advantage.”
Unfair Licensing Practices By Legacy Providers Inhibit Competition
UC Berkeley Professor Steve Weber explains that legacy providers’ unfair licensing practices allow them to “determine on its own that full stack competition is not permitted.” “Competitive markets are not places where you get to choose who you compete with. That is for the market to sort out. No firm should ever be in a position to determine on its own that full stack competition is not permitted by virtue of its unilateral practices.”
According to a senior Defense Department official, legacy providers like Microsoft’s unfair licensing practices combined with security vulnerabilities lead to “an unacceptable level of risk.” “It scares the heck out of me that we’re vertically integrating the endpoints, the software, the cloud, and now the security stack with a single vendor. To me, that’s an unacceptable level of risk.”
Ryan Triplette of The Coalition for Fair Software Licensing has called out anticompetitive practices by legacy providers for causing “repeated financial harm” for consumers. “Cloud customers around the world have long been subjected to repeated financial harm as a result of legacy providers’ restrictive software licensing practices.”
Craig Gaurente, CEO of consultancy Palisade Compliance, adds that such unfair practices aim to “lock out competition and innovation.” “While many promote ‘cloud freedom,’ in actuality they are employing tactics designed to lock out competition and innovation while increasing profits for themselves at the expense of their customers.”
As one of the most important developments in the digital economy of the last decade, the cloud provides critical flexibility, cost savings and security to consumers. That’s why it is important to understand the threat that unfair licensing practices pose to cloud competition—driving up costs, and stifling innovation and solutions for all.