The recently announced strategic partnership between Microsoft Corporation and Chinese tech giant Huawei is set to bring more of Microsoft's enterprise applications to the Huawei cloud. Relying on its vast infrastructure and a burgeoning database of telecom clients to help them compete with the likes of Amazon and Google, Huawei is about to enter a risky, volatile market already affected by a pricing war. Will the partnership succeed? If it does, how will it affect the future of the cloud ecosystem? Let’s look at the challenges the partnership faces in the current global landscape.
Jumping from Hardware to the Cloud
The best way to know whether or not something will succeed is to look at the outcome of previous attempts. As an established hardware maker, Huawei has always competed with companies like Cisco and HP. In 2014, Cisco launched a similar initiative called “intercloud,” which it shut down in March 2017, citing an evolution in “its cloud strategy from federating clouds to helping customers build and manage hybrid IT environments.” HP also tried to bridge the gap between hardware and the cloud with its Helion Public Cloud offering, but closed it down in January 2016. It seems traditional hardware makers have not yet figured out how to thrive in this domain. This could be because running a public cloud requires a different set of skills than manufacturing hardware, and the skills don't translate.
Global Ambition, Cloud Growth, and Pricing Wars
After unveiling the partnership, Huawei’s executives announced that the company is aspiring to become a top five global cloud computing company. The move puts Huawei up against global giants like Amazon Web Services, Google, and IBM, as well as Microsoft itself. In China, it will be up against Alibaba and Tencent. Given the clout of those industry veterans, the target is ambitious. And these companies have the additional advantage of having their big digital businesses — such as shopping for Amazon or search for Google — drive their cloud business.
To create opportunities, Huawei is likely counting on the rapidly growing cloud market. Gartner forecasts the global public cloud market will grow 18 percent this year to $246.8bn, with IAAS racking up the biggest increase at 36.8 percent to $34.6bn. The company has a large pool of customers to tap from its telecom business and a firm infrastructure backbone on which to pin its hopes. Still, the partnership exposes Huawei to a sector in China that is at great risk of losing money as storage companies rush to sign up customers. Propelled in part by a new cyber security law that came into effect on June 1 of this year that requires citizen data and other sensitive information to be stored onshore, new companies have been aggressively expanding their storage capacity as they fight for a piece of the market.
To add to the challenge, Huawei will have to deal with the ongoing pricing war between Amazon, Google and other companies trying to claim the biggest market share. Alibaba, for instance, the dominant domestic player, has been slashing its prices, leading to a loss of $4 for every $100 in sales. Although Huawei is counting on the scale of its business to cushion its risk, it is already suffering from wafer-thin margins in its smartphone division after expending large amounts of marketing money to edge out Apple and Samsung.
Penetrating the “Great Firewall”
Given Huawei’s big footprint in China, the partnership offers Microsoft instant penetration into a huge market that is usually protected by the “great firewall.” This could be a significant win for the company, allowing it to reach a large number of enterprise level customers in China. Microsoft China CEO Alain Crozier stated: “Our increased collaboration will drive innovation as we build a seamless platform to benefit customers through industry-leading technology. Together, we are confident that we will lead, and win, in the era of digital transformation.” For Huawei, the partnership could mean expanding its footprint in the United States. The company’s director of marketing, Catherine Du, commented that Huawei’s planned approach to the US enterprise market is that of one step at a time.
AI Opportunities, Security Challenges
Besides sharing resources and providing access to previously untapped markets for both companies, the partnership opens new vistas for expanding the reach and robustness of AI. With Microsoft releasing plans to turn Azure into an AI cloud and Huawei launching its AI mobile with Kirin, the move signifies a pivot from “smart” to “intelligent” for both companies. They also face more complex security challenges, including increasing Distributed Denial of Service attacks (DDoS), ransomware, and abuse of online devices, specifically those connected to the Internet of Things (IoT). These difficulties, however, can be turned into opportunities if Microsoft and Huawei rise to the challenge of engineering more secure infrastructures without compromising the advantages of connectivity.
Success through Agility and Adaptability
With growing connectivity and more players entering the cloud space, the downward pricing trends will likely continue. At the same time, we should expect the emergence of new, innovative service models such as Amazon's Lambda, which are priced in time intervals versus the virtual machine model. Furthermore, the growth of edge cloud computing could signify an enormous boost to the cloud’s already vast sprawl, with smart devices plugging into the grid and doubling as storage.
The long term success of the partnership will depend on its agility and ability to adapt and lead the way. The outcome will likely set the stage for similar initiatives in the future. If Huawei fails to meet its ambitious goals, other companies will likely refrain from trying a similar initiative. If it succeeds, we can expect other hardware makers to follow suit.
Marty Puranik, Founder, President and CEO of Atlantic.Net
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