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'Too big to fail' cloud giants like AWS threaten civilization as we know it

Canalys chief warns traditional hardware skills could die out

Canalys Channels Forum 2016 The world’s largest cloud players are in danger of becoming too big to fail, the boss of Canalys warned today.

This is a problem because the list of potential trip hazards for the likes of Azure, AWS and Google is growing ever longer – and at least one of them is going to stumble and fall, taking customers' off-premises systems with them. With traditional hardware skills in danger of dying out, it’s not like we can do anything about it.

The dual warning came in Canalys founder Steve Brazier’s keynote address to the audience of resellers, distributors, and vendors at the firm’s Channel Forums bash in Barcelona, which kicked off with a scorecard of channel performance so far this year.

Brazier said that traditional sectors had done poorly. EMEA storage revenues were down 5 per cent in the first half of this year, as were server revenues. PCs had plummeted 12 per cent, while smart phones were up 1 per cent, only because of strong sales in Africa.

On the upside, sales of hyperconverged systems were up 74 per cent, detachable tablet sales had skyrocketed 150 per cent, and flash storage was up 100 per cent. However, he warned, these were largely accounted for by shifts of revenue from the traditional markets.

Just to drive home how channel economics had changed, he said that only three years ago, 25 per cent of server sales were direct, with the balance going through the channel. Now, just 40 per cent went through the channel, with 35 per cent of sales going to the public cloud, and the balance going to managed service providers.

The villains in all of this were the major public cloud vendors. Canalys said that AWS had grown 59 per cent, while Azure had grown its revenues a whopping 98 per cent and Google was not far behind with 89 per cent growth. Together those three accounted for over 50 per cent of the public cloud, which grew 50 per cent overall.

Brazier said the cloud firms were waging a massive PR war over the benefits of running your business in the cloud, which traditional vendors had yet to truly respond to. In the meantime, he said, Amazon was close to “crossing the chasm” to have its business model considered “established” and not at all flakey.

But, he continued, there were two possible dangers to this breakneck growth. The first was that customers would find themselves increasingly locked in to one of three armed camps. He said that cloud marketplaces had struggled, in part because they were rarely able to offer services from more than one cloud provider.

Far more sinister though was the prospect – which may become apparent in two years, or 20 – that these organizations could simply become “too big to fail.” And depending on when this happens, the potential consequences for all businesses could be catastrophic.

“If one of these companies goes down, hundreds of thousands of other companies go down too,” Brazier warned.

The likes of AWS were potentially vulnerable to financial shocks – a hike in interest rates for example – or a cyber attack that would wreck its business AND those of its customers. They were also subject to a range of other catastrophic risks – for example power grid failures or natural disasters – with the fallout propagated worldwide. He cited AWS’ hiking of its UK prices post-Brexit as an example of how quickly customers could be affected.

Of course, the simple answer to this is for companies or service suppliers to build their own infrastructures. However, Brazier had a final sting in the tail, pointing out that young techies were overwhelmingly focused on coding as a career.

Hardware engineers were getting increasingly old, as a workforce, and there is a genuine danger, he claimed, of the skill set dying out.

It was down to service providers and vendors to “encourage people to go down the hardware route.”

Of course, this is all speculative. Brazier also said that established markets were subject to increasing numbers of shocks and unpredictability. It was hard to predict the course of the UK and European market as Brexit takes shape, he said. Then there is the clincher ... Trump in November. ®

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