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July 23, 2015

Is it pointless competing with Microsoft in public cloud?

Companies like Box don't really stand a chance unless they differentiate.

By James Nunns

Public cloud spending will reach almost $70bn this year as companies look to tap into Big Data analytics, mobile and social trends.

The continued growth of public cloud won’t come as a surprise to anyone as services like Microsoft Azure, Google Cloud Platform and AWS dominate the market and continue to grow.

Despite Microsoft’s poor quarterly financial report, the company yet again posted intimidating growth figures for commercial cloud, with revenue growing by 88%.

While other cloud companies such as Box builds its customer base with Twitter, Spotify, LinkedIn and Airbnb, the question has to be asked, does it matter?

Companies like Box are competing for a share of a market that is being completely dominated by three big names. These newcomers have more than an up-hill struggle to truly compete; they have several mountains to climb.

What makes Microsoft so formidable is that it was already in everyone’s office and home with Office 365, so by turning it into a cloud product they could effectively turn that office dominance into cloud dominance.

Yorgen Edholm, CEO at Accellion, told CBR: "Nobody can "out-Azure" Azure (that is: beat Azure at its own game). The company with the best infrastructure to do so is Amazon but Amazon doesn’t have the application strength that Microsoft has.

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"The fact that Microsoft has been able to cloud enable, through One Drive and Azure, its entire corporate product suite: Office, SharePoint, Exchange and Lync / Skype, gives Microsoft an unbreakable advantage when it comes to being the provider of choice for the general purpose business cloud."

This dominance doesn’t appear to put off new cloud companies from at least trying to grab a market share, even if it seems unlikely that they can compete with the market rules.

Satya Nadella, Microsoft CEO, summed up the dominance, saying on an earnings call: "As every company out there becomes a software company, beyond even our traditional reach through IT, everyone has a digital office inside the company.

"They are, in fact, doing things in advanced analytics and using machine learning, and that’s a place where we have some very unique capabilities. So that’s another place where we’re seeing wide adoption."

IDC predicts that the number of cloud-based offering on the market will triple over the next four to five years as more companies seek out one or many cloud vendors in their business.

In order to achieve a share of the market, these companies have to find something that differentiates them, or to add value to something like Azure, so that they can almost piggyback off of the success.

Box for example is heavily integrated into Microsoft Office and a company like Dropbox is trying to differentiate itself through other means. Edholm, said: "Box is hoping that it has built enough special applications in its echo system in certain verticals, such as healthcare, that Microsoft’s application advantage is neutralised in these verticals.

"If this is true, the partnership with IBM, where Box provides the cloud storage — the Azure component, may provide enough credibility and sales muscle to compete with Microsoft in these verticals.

Dropbox, having just acquired Clementine, a company which focuses on internal communications, is looking to add this capability to its services. Whether this is a futile attempt is yet to be seen, but the move represents a shift from cloud competitors to diversify their portfolio and become industry specific.

For companies like Accellion and others, it positions its cloud as a complement, Edholm, said: "A company like Accellion is not trying to compete with Azure. Only 3% of Accellion’s customers deploy in a public cloud. 97% of our customers deploy private cloud solutions where no data is co-mingled with other company’s data and no processes are shared.

"For companies who have problems with the US Patriot Act or who want to retain full control of their data, a Private Cloud is the best storage solution. However, we usually don’t position our Private Cloud against Public Cloud offerings. We position it as a complement."

The move to complement other clouds is an approach which is becoming increasingly common, as seen with Rackspace giving ‘Fanatical support’ for Azure while Google has made moves to get closer to private cloud companies.

Another avenue into the market for the smaller players could be a focus on customer-partner relationships, adding value in personalised relationships, something that perhaps Microsoft cannot achieve.

Eileen Smith, programme manager, Global Technology and Research Group, IDC, said: "Technology suppliers will continue to see significant demand for their industry-specific systems. It is important for these suppliers to develop strong customer-partner relationships with cloud/platform players to seize opportunities."

Perhaps for companies like Box, the ability to be more in-tune with customers than a Microsoft might be its way to cement a customer base, like the local butcher in a village competing with the new supermarket.

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