Happy (not so) little clouds - taking stock of a vintage year

The past twelve months are a year most people would like to forget, however, things couldn't have played out better for many tech titans that enjoyed a banner year as businesses and individuals migrated en masse to online applications, shopping and entertainment. I argued early in the pandemic that the disruption would accelerate many preexisting trends by highlighting their value or outright necessity. On cue, the new work-from-home (WFH) world turned several existing technologies from exploratory conveniences into business essentials.

Notable winners were all types of cloud services — infrastructure, development platforms and applications — remote SD-WAN networking and video conferencing. As financial reports have documented, much of the money people and businesses weren't spending on travel, entertainment, events and office supplies went straight to cloud operators and SaaS providers. As the following table illustrates, winners of the COVID sweepstakes put up impressive results, led by the platform for everyone's favorite tiresome pastime, Zoom.

A sure sign of a significant, lasting infrastructure transformation is when a $40 billion business like AWS is still on a pace to double its revenue every 2.5-3 years. Flexera's 2021 State of the Cloud survey illustrates the impetus for such impressive sustained growth, with 29% saying the pandemic caused them to increase cloud spending significantly higher than planned versus a mere one percent slamming the breaks on cloud usage. Indeed, 36%  of enterprises now spend at least $1 million per month on cloud services with about 15% spending that much at AWS or Azure alone.

Cloud usage: From an adaptive response to a permanent transition

Business leaders were unclear how long the disruption would last in the pandemic's early days and naturally reacted aggressively to minimize the disruption by closing offices and shifting workloads and applications to the cloud. However, with a "return to normal" still a mirage a year later, the initial coping mechanisms have been internalized, creating new, more efficient, flexible processes that will outlive any governmental restrictions.

Many companies have embraced what MicroStrategy founder and CEO Michael Saylor calls the virtual wave, in which automated, online processes and a mix of real-time and asynchronous communication replace manual workflows and physical meetings. Here's how he explained it on the company's Q4 2020 earnings call in reference to MicroStrategy's impending (at the time, since completed) customer event (emphasis added):

In the advent - in the air of the virtual wave, you can now zoom anywhere to speed of light and you can bend time and space. What are you going to do with that power? What it means to us is reach out to more of our customers more frequently, more effectively. ...

It used to be that our business was about collecting 2,000, 3,000, or 4,000 customers for a few days at some hotel in Vegas, Orlando, or somewhere in Europe. And they had to take three, four, five days out of their life to come. I estimate that probably between the expenses of MicroStrategy and the customer expenses, it was a $10 million operation to stage a MicroStrategy World. This year, we're going to have a [virtual] MicroStrategy World event, which will be better and be more comfortable for our customers. We'll have dramatically more attendees who'll spend an order of magnitude less money, and they will spend almost no money.

During his MicroStrategy World keynote, Saylor noted the superiority of replacing in-person sales calls and demonstrations with recorded sessions that can be viewed thousands of times at the viewer's convenience. These allow a few of the company's product and technology experts to multiply their effectiveness and reach at no additional cost by using online, asynchronous video. Many companies have found similar benefits by moving project meetings and issue tracking to online collaboration products like Slack, Basecamp, Wrike and GitHub. Indeed, Slack highlighted a 42% increase in paid customers over the past year in its latest investor presentation.

Although a small minority of workers find it more difficult to do their job in the WFH era, a report and survey from Arm found that for a significant majority, the work is just different, not more difficult. Simultaneously, 64% of Arm respondents said the pandemic has changed their business strategy, in many cases substantially. However, with executives like Saylor and the multitude of new Slack and Zoom customers seeing the value of video meetings, virtual events, streamed marketing and technical content and online collaboration and project management systems, companies are unlikely to return to their former ways.

Cloud usage evolving from infrastructure to services, tactical to strategic

Most organizations are well beyond first-order cloud scenarios as a cheaper, low-risk disaster recovery or test/dev environment. The pandemic accelerated the move towards application and platform services and a nuanced assessment of the cloud's value and how to maximize it. There is evidence of this evolution in both the Arm and Flexera surveys.

For example, the most commonly used services among Flexera respondents are databases and related applications, managed container clusters, serverless functions, push notifications and search, with many laying the groundwork for more advanced services like ML/AI, stream processing and mobile app backends. Among the Arm survey cohort, three of the most popular use cases for cloud services are HPC, EDA (electronic design automation) applications and CI/CD (continuous integration and deployment) software development platforms.

Cost analysis and savings remain the most widely used benchmark for assessing cloud effectiveness, however, a sizeable majority of organizations also now use more thoughtful, strategic measures like:

• A decrease in the time needed to deliver new products and services
• An increase in competitive advantage (however that is defined for a particular market) and innovativeness.
• Value to business units (both financial and competitive).

My take

Providers of rentable cloud-based infrastructure and applications have been the big winners from the pandemic as individuals and organizations shifted to online processes and venues to mitigate the disruption to their business and personal lives. As I wrote in the early days, organizations that used the crisis as an opportunity to reassess business processes, workflows, communication methods and sales channels could turn lemons into lemonade by accelerating the work necessary to compete in the digital, virtual economy.

A year later, data shows the increasing maturity of cloud usage as organizations build product development and delivery strategies, business processes and marketing outreach around cloud platforms. The coming year will see the cloud-savvy pioneers refine their plans to include multiple infrastructure providers (multi-cloud), distributed infrastructure (edge/distributed cloud), managed network fabrics, autonomous, managed business applications and development platforms and cloud AI services.