This past week Microsoft, Amazon, and Alphabet (Google) all reported earnings, and all announced impressive growth (116 percent, 55 percent, and “the highest percentage growth of all its product lines,” respectively) in their public cloud businesses. That, however, isn’t all they announced.
These same companies announced major investments into the infrastructure powering their clouds, investments that no single company can hope to match. Does this mean your private cloud is a second-class cloud citizen? Almost definitely. You simply can’t innovate fast enough.
But I can run like Google!
It used to be that server-huggers argued that a wide array of enterprise workloads wouldn’t go to the public cloud due to security, performance, or other concerns. These concerns keep evaporating, leaving apologists to declare, “Well, savvy enterprises can run their infrastructure more efficiently and save money over the public cloud.”
Sure, it’s possible that you’re awesome at efficiently managing hundreds or thousands of servers at scale. If so, good for you. In a summary of a 451 Research report, Brandon Butler of Network World notes, “Generally speaking, if any organization has the expertise to manage a large number of servers at a high level of utilization, then on-premises, customer-managed private clouds can have a total cost of ownership (TCO) advantage compared to public clouds.”
Ultimately, there's no way you can keep up with the relentless economies of scale of an Amazon, Google, or Microsoft. As RedMonk analyst Stephen O’Grady has called out:
[Public cloud providers'] variable costs decrease due to their ability to purchase in larger quantities; their fixed costs are amortized over a higher volume customer base; their relative efficiency can increase as scale drives automation and improved processes; their ability to attract and retain talent increases in proportion to the difficulty of the technical challenges imposed; and so on.
This translates into more and better hardware, software, and people. Google, for example, revealed that “cloud [will] be one of our largest areas of investment and head count growth” in 2017, also stating that the company will add eight new regions next year. Microsoft, for its part, has 38 regions and will add France in the near future. The company also announced it's spending heavily at the expense of higher profits: “Given the growth opportunity in cloud, we increased our operating expenses by 21 percent ... to fund cloud engineering, sales capacity, and developer engagement.”
And Amazon? It dwarfs them all.
But “economies of scale” isn't merely about the ability to buy more hardware for less. As Randy Bias concludes, “The rate of innovation and development at these public clouds is where the true economies of scale reside.” Want a taste of what he means? Check out the impressive open source and/or research projects these companies keep releasing, a hint of the R&D that goes into their datacenters. (Here are Google’s.)
I don’t care how big your company is -- until you spend the years building up that institutional cloud DNA, you simply cannot hope to match the public clouds. As Amazon’s CFO Brian Olsavsky stressed on the company’s earnings call, “We've been in this business a long time, longer than anyone else, and we've used that time to make our products and services better.”
Still not budging
That said, you might not be convinced. Undoubtedly there are valid reasons to keep workloads within your datacenter, even if you can’t hope to keep up with the public clouds' agility or innovation. As such, you may consider investing in OpenStack, which as Forrester points out is the default for private clouds and finally a “safe bet.”
Unless you’re a telco or Walmart, however, you’re probably going to stick with dev-and-test workloads on OpenStack, with 89 percent of enterprises recently surveyed using OpenStack to service fewer than 1,000 users. Yes, dev-and-test workloads are important and help breed confidence in the cloud, paving the way for production workloads. But for all the hoopla around OpenStack, it hasn’t come close to finding the broad audience that AWS or Microsoft Azure have.
Nor will it -- OpenStack serves the ever-shrinking base of people who believe they need to own their infrastructure, akin to the manufacturers at the turn of the last century that felt they needed to own their power plants.
There are legitimate needs for private datacenters, but when a company like GE announces it's moving 90 percent of its workloads to the public cloud, it’s probably time to start setting the default to “public cloud” instead of “private cloud.” They’re going to out-innovate you every single time.