gE Blog Series: Cloud Computing Part 3 - Winners & Losers

One of the great things about capitalism is that it encourages entrepreneurship and fuels the creation of disruptive technologies. The tech industry has been a breeding ground for these new technologies and one of their latest creations is cloud computing. Like any new technology, early leaders benefit greatly - usually at the expense of slower, older competitors. Cloud computing touches many industries within the technology sector and each one will be affected in different ways.

Hardware & Networking Equipment

As companies start to realize the significant benefits that cloud computing offers, chief information officers are shifting spending away from on-premise servers to externally managed servers. Companies that provide the products for these data centers or facilitate the data transfer to these centers will be the biggest beneficiaries. Hewlett-Packard and Dell could be the biggest losers in this shift because their high-end servers will face increasing pressure from Asian ODMs, Quanta and Wistron. These companies will be able to produce servers at lower costs and ship their products straight to service providers, thus removing the need for branded products. The storage market will not be as affected from the shrinkage in on-premise servers because the growth of cloud storage and general data storage will compensate for the loss.

Companies will need to get their data to these servers which is where networking companies come into play. Juniper Networks has geared its products line towards cloud computing service producers and large data centers. Its QFabric solution has a significant first-mover advantage over Cisco who is still catering primarily to the on-premise market. Semiconductor companies such as Broadcom will also benefit as they cater to data centers and provide the switches necessary to run these data centers.

Software

Software was one of the first industries to take advantage of the cloud and is a relatively mature industry. Despite the maturity, software firms will continue to be a large beneficiary of the shift to cloud computing. Experts are expecting a 50% compound annual growth rate (CAGR) in public cloud workloads and companies such as Salesforce.com and SuccessFactors who are able to offer suites of products will be the greatest beneficiaries. VMware, which sells virtualization software, will benefit as virtualized servers experience a 20% CAGR. Microsoft and Red Hat are currently more leveraged to on-premise servers, but both companies have taken steps to balance their products lines and allow themselves to profit from cloud computing.

Services

As companies move their data, software and computing power to the cloud, they need companies to help make this switch and also host their external servers. IT Service firms such as Accenture and India-based Infosys are well positioned to profit from the continued growth in cloud computing due to their strong customer relationships and expertise in cloud computing. Companies are also looking to outsource their computing infrastructure such as processing and storage. Amazon and Rackspace are both well positioned and analysts believe cloud computing will drive significant growth for both firms.

As one can see, cloud computing is changing the landscape of many corporate IT departments and as this switch continues, companies will have to keep up or risk being left on the ground.

Source: Morgan Stanley Global Research