There was much discussion in 2015 about whether AWS had stolen such a lead in public cloud that would make it impossible for most rivals and all late entrants to catch up and compete. As we have covered before there are rarely new technology markets that provide true first mover advantage. Normally the winners are the fast followers that are able to learn from the mistakes of pioneers and improve on their offerings to deliver differentiated and therefore winning propositions. Examples of this include Google (not the first search engine), Amazon (not the first e-commerce site), etc.
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Two competing theories, described by the first and last letters of the Greek alphabet, illustrate the opposing theories and the spectrum between the two:
- The Alpha theory postulates that there is real first mover advantage this time resulting from the fact that AWS has succeeded in establishing such an impressive market share lead, innovating so quickly (which eliminates the rivals’ ability to differentiate), and keeping prices so low (to exploit its economies of scale and undermine the profitability of new entrants).
- The Omega theory postulates that there is still room for the right rival with enough financial muscle, enough of a hold over its corporate clients and enough of a differentiated approach to exploit its opportunity as the ultimate fast follower.
In case you hadn’t already guessed, in cloud while Alpha stands for AWS, Omega in this case stands for Oracle.
Alpha = AWS
OMEGa = ORacle
Famous for initially describing cloud as nothing but hype, Larry Ellison and his crew have now put all their energy into making Oracle the leader in cloud and to do what rival giants like Dell, HP and others have already failed to do – establish a public cloud offering to rival AWS.
Oracle certainly has the financial clout to make a significant challenge and its database dominance provides it with a lock-in and hold over its corporate clients – one that is the envy of many rivals. The big question is whether it can build a competitive and differentiated cloud proposition to challenge AWS.
This is a battle that Oracle has to win to survive, because over time, as things move to the cloud, databases will become commoditised and its hold over its corporate client base will be lost.
Austin Texas is the focus for Oracle’s massive investment in cloud infrastructure. It’s aim is to skip first generation cloud infrastructure and gain competitive advantage by moving directly to the next generation of technology with a container enabled infrastructure. It hopes that it can migrate its application portfolio and its database clients to this new cloud infrastructure before they find a way of loosening its hold over them.
AWS isn’t sitting still though. Not only is it exploiting its existing infrastructure to maintain a market share rivals over its rivals, but it is innovating at a fantastic rate as well as taking the battle directly to its rivals. In this case AWS’s database migration tools are seeking to provide the escape route that many Oracle database clients are after and in doing so to undermine Oracle’s core franchise before it can establish a public cloud one to rival AWS.
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So what are the Alpha and Omega characteristics that we should be looking for?
For the Alpha theory to prevail we need to see signs of real first mover advantage and the fact that this could be being converted into a dominant market position, such as:
- Economies of scale: AWS has a scale advantage of all its close rivals and a massive one over new entrants. It is using this scale to realise economies and lower prices to make life difficult for other players.
- Ecosystem support: the AWS marketplace has become the largest portal for services with most ISVs or service providers focusing on it as the primary platform for their offerings. Even the almost evangelical support for Open OS OpenStack hasn’t enabled it to rival the AWS ecosystem.
- Developer following: while others such as Google have made a big play of focusing on DevOps and Container friendly environments, the platform that ,most developers are focused on is AWS and the pool of AWS skills is the largest and fastest growing.
- Barriers to entry: with an enviable lead over its rivals in terms of both market share and growth rate Amazon not only has a data centre estate that is larger than its rivals combined, but it can afford to maintain investment at a level that rivals would find almost impossible to match. You need big bucks to be able to play this game and the ability to maintain an eye-watering level of investment.
For the Omega theory to prevail we need to see signs of real fast follower advantage
For the Omega theory to prevail we need to see signs of real fast follower advantage and the ability to learn from early mistakes or initial generations of technology to leapfrog and establish a new dominant market position, such as:
- New generation of technology: often we have seen newer waves of technology that have made previous technologies obsolete or redundant allowing a window of opportunity for new players – as with 2g, 3g and 4g mobile networks. However while containers and other new technologies have emerged, they have been evolutionary and can be rolled out across existing cloud infrastructures.
- Compelling differentiation: often fast followers, learning from the mistakes of pioneers, are able to add value to provide a compellingly differentiated proposition that enables them to attract clients in droves. However in the case of Oracle it has a dominant position in the database market and almost as many clients as it could have. These corporate clients are not as much looking to flock to Oracle as to find a means of loosening its grip on them in order to escape its clutches.
- Break-through enhancements: the last remaining tactic for fast followers is to alter the paradigm by changing the competitive dynamic with some form of break-through enhancement. If Oracle has any such break-through enhancement up its sleeve then it has yet to make this public.
- A proposition worth paying a premium for: finally any fast follower would need to be able to charge a premium, but in Oracle’s case as an insider recently disclosed to Infoworld “on 90 percent of our large deals. … [@Oracle #Cloud is] … being given away”. This is the road to ruin.
By now you’ll be sensing that the Alpha theory has much evidence to support it while the Omega theory looks implausible at best. Maybe Larry Ellison’s public cloud is nothing but a pipe dream, but only time will tell if he can succeed.
Bill is a tech industry veteran and experienced corporate marketing and communications professional with over 20 years spent working in blue chip organisations mostly in pan-European and global communications roles. He is also a regular commentator on #Cloud, #SocialSelling and #InfluencerMarketing, as well as a dad with a passion for technology, economics, politics & Arsenal FC.
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