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Cloud Computing Market Analysis Summary

Introduction

As the cloud computing market matures, incumbents and innovators must adapt their go-to-market systems to meet evolving buyer needs. Currently, incumbents hold only about 20% of the market, signaling that early adopters and innovators have a significant lead.

Market Dynamics

The shift in value from providers to customers represents a fundamental change in cloud computing. Providers charge only for used resources, reclaiming value previously tied to unused capacity. Cloud services markets are growing rapidly, with SaaS acquisitions accounting for 16% of all software acquisitions in 2012, up from 2%. While on-premise models offered steady revenue, cloud economics often show lower margins and require customers to reach profitability after several months.

Go-to-Market Adaptation

Providers need to overhaul their systems—coverage, offerings, pricing, branding, salesforce, and service delivery—to focus on sales growth and customer retention. This adaptation is critical for success, as it underpins more than innovative offerings alone.

Customer Segments and Strategies

• Right Customer Focus: Providers must target the right customer segments for optimal growth. Five customer types exist: transformational early movers, opportunistic movers, balanced security optimizers, total cost minimizers, and slow adaptors.
• Four critical capabilities for providers include identifying target markets, developing winning value propositions, acquiring new customers profitably, and cross-selling/up-selling to existing clients.
• Different customer segments have distinct priorities, and pricing must align with these needs. Early leaders, like Amazon Web Services, have dominated infrastructure-as-a-service (IaaS), and others like VMware and Salesforce have expanded into broader cloud categories.

Pricing and Profitability

Effective pricing is crucial. Lower entry-level pricing can overcome adoption barriers for new customers, with tiered models that encourage up-sell. Companies who previously focused on large sales commissions for software licenses need to adjust compensation models to the recurring nature of cloud payments.

Sales and Partner Alignment

Direct sales teams and channel partners require retrained skills, motivated through incentives aligned with customer retention and expansion goals. Amazon and Cisco have successfully integrated cloud solutions by offering compelling, non-disruptive options.

Loyalty and Retention

• Providers should develop sticky platforms and ecosystems to encourage customer retention and cross-selling, increasing lifetime value.
• Pricing tiers, such as reserved instances, can foster longer-term commitments, while value-added services enhance relationships.

Future Outlook

The market remains open to early innovators. While early leaders may maintain dominance, incumbents can capitalize on their existing reach by integrating cloud innovations into new offerings. Companies must balance short-term cannibalization risks with long-term growth potential.