When it comes to the world of computing, the cloud is the next big thing that’s already here.
The cloud — which enables sharing computing resources over the Internet — is nothing less than a paradigm shift that is affecting virtually every hardware and software company, and their business customers.
“Cloud computing has been called one of the most disruptive innovations ever,” Robby Powell, principal product manager for cloud and platform technologies at business software company SAS, wrote in an email.
The advent of the cloud is creating both “a shift in revenue opportunities” and “a shift in how IT is viewed within businesses today,” said Krista Macomber, senior analyst at Technology Business Research.
For example, corporate information technology departments can be much more agile, she said. That’s because, with cloud computing, a company can ramp up its processing capabilities without making a large investment in new computer hardware. Instead, it can access extra processing on a pay-as-you go model from public cloud providers such as Amazon, Google and IBM.
Just as electric utilities charge only for the electricity a customer users, these cloud providers charge only for the computing power used by business customers.
“Pretty much everything is focused on the cloud now – public or private or hybrid,” said Mike Ferris, senior director of business architecture at Red Hat. A private cloud is one created by a company exclusively for its own use; a hybrid cloud combines the operations of a private cloud and a public cloud operated by third parties.
Cloud computing has been positive and negative for IT companies, with the impact varying widely from company to company.
Here’s a closer look at how cloud computing is affecting three IT companies that rank among the Triangle’s largest employers.
Raleigh-based Red Hat hit a significant milestone in its recently completed fiscal year: Revenue from companies that provide public cloud services, such as Amazon, exceeded $100 million. That’s up about 90 percent from a year earlier and represents about 5 percent of the company’s total revenue.
But that revenue – derived from business customers using Red Hat’s flagship operating system, Red Hat Enterprise Linux, or RHEL, over the public cloud – is just one piece of the company’s cloud business.
“Every product that we have is either available on the public cloud or it powers the public or private cloud,” said Ferris.
That includes a host of cloud-centric products that Red Hat has introduced, including: OpenStack, for building private clouds; OpenShift, which makes it easier for software developers to create applications that are cloud-ready; and CloudForms, a cloud management tool.
Although revenue from these products is “fairly small” today, said Mizuho Securities analyst Abhey Lamba, the fact that Red Hat has invested in an array of products for the cloud makes it both more appealing and a good strategic fit for business customers. No one really knows where cloud computing will be five years from now, but businesses can rest assured that “wherever the infrastructure landscape ends up, Red Hat will be there to support it.”
In addition, the future revenue prospects for Red Hat’s cloud products are significant.
“There has been a lot of buzz around these products and what they might mean,” said analyst Steven Ashley of Robert W. Baird & Co. “Do I think these products can be hundreds of millions of dollars in revenue? Yes.”
Meanwhile, Red Hat is thriving. Revenue has risen for 56 consecutive quarters, and in each of the past five quarter, revenue has risen more than 20 percent, after adjusting for currency fluctuations.
In the past, Red Hat was the interloper that had to steal market share from more established companies like Microsoft.
“It was like Normandy,” Ashley said. “You had to fight your way onto the beach because someone else was there.”
But the competition in the cloud arena encompasses virgin territory. “No one is there,” Ashley said. “Everyone is racing.”
The cloud has left its imprint on SAS’ sprawling headquarters campus in Cary.
In 2010, the company’s $70 million, 38,000-square-foot cloud computing center opened. And, in the fall of 2015, employees moved into a 220,000-square-foot building that houses SAS Solutions OnDemand, which develops and supports cloud products.
The privately held company reports that, powered in part by new product introductions, revenue from the cloud rose 24 percent in 2014 and 20 percent in 2013. But in 2015, cloud revenue rose a more modest 6 percent.
“Now we’re picking up again this year,” said spokeswoman Shannon Heath, who noted that cloud revenue enjoyed double-digit growth in the first quarter.
Customers use SAS’ business intelligence and analytics software to analyze their operations and predict trends.
Analyst Michael Schiff of MAS Strategies, who says SAS is “still the company to beat in predictive analytics,” is convinced that over the long haul, SAS will benefit from the cloud. The reason: Companies that wouldn’t consider SAS software in the past because of “the large upfront investment” in hardware required to run its software now can afford to do so.
SAS hosts its own cloud service for customers, enabling them to use its software without buying hardware. Or customers can use SAS software in their own private clouds or on public clouds. Customers also can hire SAS experts to run complex analyses for them over the cloud.
Two years ago, SAS teamed up with the dominant public cloud company, Amazon, to improve customers’ ability to use its software on Amazon Web Services.
As part of that partnership, the two companies are working together to “serve customers who either come to SAS asking about AWS, or who come to AWS asking about SAS,” said Powell.
Last year SAS also made “a fairly heavy investment” in developing new cloud offerings “to keep growing the cloud business,” Randy Guard, chief marketing officer, said in an interview earlier this year.
The growing popularity of the cloud is one of the factors that pushed data storage giant NetApp into turnaround mode.
Analysts say NetApp’s revenue has suffered in part because businesses are increasingly turning to public cloud providers such as Amazon to handle their data needs. These providers tend to spurn buying systems from companies like NetApp, instead developing their own software and purchasing commodity hardware from Taiwan.
“They definitely do not have very good traction with players in the cloud,” said Macquarie Research analyst Rajesh Ghai. “That is definitely hurting them.”
But, he added, it’s a problem “not just for NetApp, but also for other data storage players with older technology.”
As a result, equipment sales of the major data storage companies fell 7.7 percent last year, according to Technology Business Research.
“These transitions are quite natural in the technology industry,” NetApp CEO George Kurian, who was named CEO last summer, said in an interview.
But it’s far from an easy transition. In February, NetApp announced it was laying off 12 percent of its workforce of 12,000-plus workers, which came on top of layoffs that affected about 4 percent of its workforce last year. NetApp isn’t saying how those layoffs affected its Research Triangle Park site, which employed 1,772 workers at the end of 2014.
NetApp is banking its future on a portfolio of newer “strategic” products, including cloud products. It also recently spent $870 million to acquire SolidFire, bolstering its offerings that rely on flash memory rather than hard disks.
“We are in the process of transitioning our customers from one technology set to another,” Kurian said.
But its problem, so far, is that the revenue of its strategic products – which grew a robust 26 percent in the latest quarter – hasn’t been growing fast enough to offset the decline of its older products.
Moreover, Ghai views the rate of growth of the strategic products as misleading because some of that growth comes from cannibalizing sales of older products.
“It’s not that they are maintaining the pie. The pie is shrinking for them,” Ghai said. “If they are losing their footprint in the market, if they are losing customers, it doesn’t matter if the strategic side is growing. ... Overall you’re seeing their presence decline in the market.”
But Kurian is upbeat about the future.
“We think we’re really well-positioned,” he said.
Still, he isn’t projecting a quick turnaround.
“We’ve said fiscal 2017 (which begins shortly) will be the year of stabilization and that fiscal 2018 will be ... where we look for accelerating the growth of the company,” Kurian said.