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January 6, 2016updated 31 Aug 2016 10:51am

How to run a successful cloud business? Learn from the mistakes of others

Analysis: While Amazon reduces prices for EC2 for the 51st time, other cloud aaS offerings are closing down - what does it take to compete in the cloud market?

By James Nunns

Big or small, niche or broad reaching, the cloud market is becoming a lot more difficult to compete in, with several notable closures of cloud services having been observed over the past year.

The cloud market faces continuous upheaval with even the largest tech vendors struggling to keep their heads above the water.

The New Year is barely underway and we already have our first casualty of the competitive cloud market. Maintaining a successful cloud business is proving to be extremely difficult as price, added value and other differentiators don’t necessarily equal success.

Square Enix’s decision to shut down its cloud-based gaming service Shinra Technologies comes after losses of 2.2 billion yen, which equates to around a $16.8 million loss.

The company cited a lack of investment while challenges related to latency and the necessity for a strong connection meant that the platform never really took off.

Competition with a host of other cloud-gaming platforms will have also played its part; Microsoft offers its own service on Xbox and Sony has one for its PlayStation consoles, while the PC market has Stream.

Shinra Technologies closure is only one example of a cloud casualty; 2015 saw Adobe kill off its cloud photo storage offering, Revel, while Wuala a peer-to-peer cloud storage company also closed down after seven years of operations.

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Further examples of closures came from HPE; in October the company revealed that it would be calling it quits in the public cloud arena with the Helion Public Cloud ceasing to exist at the end of January 2016.

Bill Hilf, GM, HP Cloud, said at the time: "In order to deliver on this demand with best-of-breed public cloud offerings, we will move to a strategic, multiple partner-based model for public cloud capabilities, as a component of how we deliver these hybrid cloud solutions to enterprise customers."

HPE has chosen to focus on supporting major public cloud players such as AWS and Microsoft Azure but the message is clear that it is incredibly hard to compete against the big names in cloud.

The price factor is a major contributor of these closures, competing with the likes of AWS and Microsoft Azure, Oracle and Google on pricing is near impossible.

Today for example AWS has lowered the pricing of EC2, making it the 51st price reduction from the cloud giant.

The 5% reduction in pricing for C4, M4 and R3 Instances is being rolled out to a number of its regions including Europe (Ireland), Europe (Frankfurt) and US regions East (Northern Virginia) US West (Northern California) and US West (Oregon).

As the price of storage continues to fall it is increasingly difficult to forge a path in the cloud market, with even adding value on top a risky route to take that doesn’t necessarily equate success.

Istvan Lam, CEO of Tresorit, said: "But what constitutes enough added value?"

Wuala were offering zero-knowledge security, something that major cloud players are yet to figure out, it’s a technology that prevented even their own administrators from accessing data.

Of course there are plenty of cloud success stories that have seen added value work and you don’t necessarily have to compete with the likes of AWS to be in the public cloud space.

Box for example doesn’t compete on storage with AWS, it simply doesn’t sell it. David Quantrell, SVP and GM, EMEA, Box told CBR: "People come to Box based on what are the additional things to do, so it becomes more of an app discussion or platform discussion for what they really come to Box for, we just really don’t have dialogue about storage."

So there are ways to operate as a public cloud and be successful without competing head on with the major players.

Despite this, many fail and 2016 is likely to see more closures as more workloads move to standardised and cheaper cloud platforms.

Clive Longbottom, founder of business and IT advisory firm Quocirca told CBR: "A lot of early clouds were built on proprietary software. Supporting this, against the rise of more standardised clouds based on OpenStack, or against those clouds that have the benefits of economies of scale (such as AWS, Azure, etc) just doesn’t make sense.

"So, yes, we can expect to see a lot more clouds shut down, with their workloads either dying away (more showing a lack of business case than anything else) or being ported onto a more standardised cloud platform."

Longbottom went on to say that 2016 will be a year of consolidation, perhaps suggesting that this year will see companies re-addressing what cloud services they offer and what is worthwhile to continue with.

If you look at Adobe’s closure of Revel, an important element of that was to move customers into its Creative Cloud, or more specifically the Adobe Creative Cloud Photography plan.

The company had moved past the more basic Revel and had a newer service that could do what Revel did and more, so what would be the point of keeping open Revel?

Similarly with HPE, while it struggled to compete on price, it realised that it could effectively consolidate its cloud offering through a hybrid path, considering this a route to remain in some ways involved with public cloud.

As with any business, tech companies offering services need to decide what is worth continuing with, if it’s not successful then it could be better to close the service or look for a way to better compete.

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