The myth of the cloud service broker

We hear quite a lot these days about the need for ‘cloud service brokers.’ In fact, industry analyst 451 Research  has named the role of the cloud service broker as a key trend in 2017. It’s defined as a third party who can act as an intermediary between cloud service providers and buyers. Whilst public cloud continues to boom, a huge majority of businesses still have some or all of their services on-premise. As such, many organisations are grappling with the complications of a hybrid environment. Whilst there is plenty of hype around the ‘cloud service broker,’ the reality is that this role remains a fiction in today’s market.

Global spending on public cloud services will soar by 25 per cent this year, says IDC,  as more organisations move their workload to the big (‘hyperscale’) cloud service providers such as Amazon, Microsoft and Google. There’s already a constituency of very successful, fast growth, billion dollar companies —such as Uber and AirBnB — whose business is built entirely on cloud platforms; many longer established businesses are also looking to move services to the cloud.

Estimates of the global market vary. IDC says worldwide spending on public cloud services and infrastructure will reach $122.5 billion in 2017 . With annual revenues of around $13 million, Amazon Web Services is the acknowledged leader of public cloud services. It has doubled revenues every year for the last eight years — but not this year.  Although AWS continues to grow apace, this slight slowdown in growth rate could be an early indicator that the market is beginning to mature. AWS and the other public cloud providers still only account for a small percentage of the total spend. This suggests that despite the excitement about public cloud services, a huge proportion of enterprises still prefer to use other, smaller suppliers or on-premise private clouds for some or all of their computing services. 

So where does the idea of the cloud service broker fit into all this? Traditionally, the broker model belongs to a marketplace that freely trades high-volume, identical commodities such as natural gas or coffee. In this market, pricing is transparent and instantaneous.  The role of the broker is threefold: to source/locate the best deal, to facilitate a relationship with another provider and aggregate services to make a simple offer. It makes sense that businesses would hope for the existence of a broker to get them the best deal when venturing into public cloud and ease the process of building a hybrid environment.  

However, few of the attributes of a traditional broker apply to the cloud services market. Not one of the big cloud players offers their resources on a commodity basis; they preserve the right to negotiate contracts with each customer and they offer wraparound service to differentiate for each deal. Brokers can only exist in a commodity market. Whilst that might be where the likes of AWS and Alibaba are heading, the cloud computing market is not mature enough to be considered a commodity. It’s possible to draw parallels with the evolution of the energy market during the industrial revolution, but with cloud we’ve not reached the other side.

Broking only works in a price sensitive market and while CIOs will certainly spend carefully, cost is not their only decision factor when it comes to building the right cloud environment. What’s more, the types of commercial agreements that allow for broking in financial markets do not exist in the IT marketplace. In short, there is no commercial opportunity for broking in cloud services. The cloud service broker will remain a mythological beast for a while yet.

However, there is a broader market opportunity. Aside from cloud native start-ups all organisations have legacy IT assets, so a complex integration process and a hybrid environment come part and parcel with the attractive benefits of cloud. It is clear from the talk about cloud service brokers that CIOs want help to build a successful hybrid IT environment and manage it effectively. They will welcome expert guidance - especially in the highly specialist areas of integration, security and troubleshooting. And they’d definitely like more commercial flexibility, such as the ability to have a single contract and consolidated invoice that covers multiple services. The ‘cloud services integrator’ is less sexy than a ‘cloud service broker’ but much more practical. 

Corporate CIOs want to build a cloud eco-system that is unique to their business and its strategic priorities. Amazon, Microsoft and Google have a role to play in that, but they are far from the only players. Hybrid clouds will dominate for the foreseeable future. Their success will depend on blending legacy and digital technologies in private and public clouds and CIOs will increasingly turn to the networking and integration partners with whom they already have solid relationships. Whilst there remains hype around the idea of a cloud services broker, for now at least, it remains a myth.  

Ashish Gupta, President, UK and Global Banking & Financial Markets, Global Services, BT
Image Credit: Everything Possible / Shutterstock