Welcome to the Era of Great Data Center Consolidation – Fortune

"Friends don't let friends build data centers," said Charles Phillips, chief executive officer of Infor, a business software maker, about two years ago.

His remarkwhich launched a flood of T-shirts came at an Amazon Web Services conference in April 2014, when he announced that Infor would move all of its IT operations into AWS data centersand out of its own.

That was a bold statement at the time, and it presaged a change in how big software companies are building and distributing their products.

Since then, a slew of these software companiesincluding Box ( box ) , Salesforce , NetSuite , Tableau ( data ) , Workday, and SAP ( sap ) have all announced plans to use a public cloud (like AWS) as a deployment option for their own software.

A public cloudreferred to within the industry as Infrastructure-as-a-Service (IaaS)consists of massive quantities of servers, storage, and networking owned-and-operated by one company, and then rented out to others.

Box and Workday , for example, are turning to AWS and IBM ( ibm ) SoftLayer to run specific types of software. Salesforce has signed on to AWS for its Internet of Things Cloud Suite and other new products. NetSuite named Microsoft Azure as its " preferred cloud partner ." (Although now that NetSuite has been bought by Oracle ( orcl ) , which has its own public cloud ambitions, that could change.) JDA Software, which offers supply chain management software, is using Google Cloud Platform.

None of these companies are going as far as Inforat least not yet. But unless these announcements are 100% marketing hype, they indicate that much more software power will be concentrated in fewer, albeit bigger, data centers owned and operated by just a handful of cloud computing giants.

The arguments seem sound: Let the big cloud providers pull together hundreds of thousands of servers, petabyte upon petabyte of data storage, and networking at their data centers around the worldand software companies can just piggyback on that. That allows the software maker to concentrate on features and functions for customers, not racks of servers and power supplies in the data center running either in a dedicated corporate data center or in facilities owned by third-parties like Equinix ( eqix ) , Digital Realty Trust, or Dupont Fabros. But build or no build, that's a major expense.

And, if a U.S. software company throws in with a cloud provider with data centers around the world, it won't have to eat the expense of operating a data center in a country with strict data sovereignty laws requiring that local data stay in country. That is no small benefit.

Get Data Sheet , Fortunes daily tech newsletter.

But isn't there concern about relying so heavily on a small handful of huge playersnamely Microsoft, Amazon, and Google? Some software executives admit there is. Privately, they worry that their cloud provider might end up being as competitor as well.

Microsoft ( msft ) , for example, offers its own cloud-based applications, which compete with offerings from many other companies. Amazon ( amzn ) keeps adding higher level software to its infrastructure as well. Who knows where that will end?

Marc Benioff, chief executive of Salesforce( crm ) , downplays the concern, noting that there is no shortage of competition in cloud. Aside from Amazon, Google , IBM, and Microsoft, Benioff cites the various telcoslike Deutsche Telekom, BT , and NTTthat also offer cloud services.

And, Salesforce is not leaving its own data centers behind. "Our infrastructure remains our primary focus as public cloud is still too expensive for many of the primary markets we are in," Benioff tells Fortune via email.

So while Salesforce is working with AWS in Canada and Australia, it will keep using its own data centers as well.

"This is not a one-size fits all solution for infrastructure," says Benioff.

David Clarke, senior vice president of technology development at Workday ( wday ) , which specializes in financial and human resources software for big companies, agreed that expanding geographic reach is a big reason to consider public cloud. Amazon, Microsoft Azure, and IBM SoftLayer maintain data centers all over the world.

"Our first production workload will go on AWS in Canada this year," Clarke tells Fortune . "Whether or not you like running data centers, it's expensive and being able to offer geographic diversity without having to build data centers everywhere is a benefit." Workday itself has three primary data centers in Ashburn, Va.; Portland, Ore.; and Dublin, Ireland.

For more on Dropbox's infrastructure move, watch:

Another factor is that big businesses have grown more comfortable with the use of massive public clouds, and may push other software suppliers to put services in the customer's cloud of choice.

SAP offers versions of many of its productslike SuccessFactors human resources and Concur travel and expense accounting softwarefrom various cloud partners. Right now, however, SAP's new public cloud-based SAP S/4Hana manufacturing and financial management software runs only on SAP's own public cloud infrastructure. However, the company will consider "the usual suspects" among the giant public cloud playersif demand warrants it, Darren Roos, president of the company's S/4Hana business unit tells Fortune .

As many SAP customers already run some software in AWS or Azure, they may want to "co-locate" the new SAP software there as well, Roos suggests.

But there are some in the tech industry who say that there are many companies of sufficient size with specialized needs that would be better off running their own data centers, but in a cloud-like manner. In this "private cloud" model, all of the computing gear is devoted to one company, but still offers internal users flexibility in adding or deleting resources as needed. And each department or user can be charged for what capabilities they use.

"There are plenty of companies big enough to operate their own data centers," Bryan Cantrill, chief technology officer of Joyent said recently. And that is likely one huge reason Samsung Electronics bought Joyent for its cloud expertise last year.

And then there is Dropbox, the popular file storage and file sharing company that ran almost entirely on AWS until it quietly moved 90% of that workload into its own data centers over the course of a few years. Companies like Dropbox say they know their own needs better than a public cloud provider, and that they're big enough to make the economics work. Their argument is that once a company's workload gets big enough and stable enough not to need all that public cloud flexibility, it is cheaper to run your own data center gear.

Still, it seems that if the public cloud is a viable option, more corporate workloads will flow in that direction. Oracle co-chief executive Mark Hurd has said he expects 80% of corporate data centers to disappear by 2025. Even if he's a little bit off, that's a considerable estimate.

This shift could be generational. A company like Boxfounded in 2005, a year before AWS launched its first cloud servicedidn't have much of a choice but to provision its own data centers. If the content management company were starting out now, Box chief executive Aaron Levie says that would likely not be the case.

When asked if it was hard to rely on a huge cloud provider that might end up competing with Box, Levie replies, "You know what's harder? Building data centers!"

Originally posted here:
Welcome to the Era of Great Data Center Consolidation - Fortune

Related Posts

Comments are closed.