Cloud Computing as the Next Utility: Market Strategies for Cloud Service Providers

Cloud Computing as the Next Utility: Market Strategies for Cloud Service Providers

Alexander Bogislav Herzfeldt (Technical University of Munich, Germany), Hans Peter Rauer (Bielefeld University of Applied Sciences, Germany), Reimar Weißbach (Massachusetts Institute of Technology, USA) and Christoph Ertl (Technical University of Munich, Germany)
Copyright: © 2020 |Pages: 20
DOI: 10.4018/IJCAC.2020100103
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Cloud computing has become the dominant provisioning model for IT services. This research adopts the provider's perspective to explore profitable service provisioning strategies: industrialization and standardization vs. service individualization. Based on a survey and expert interviews among cloud service providers, the authors identify that focusing on service individualization does not pay off for cloud service providers. Instead, cloud service providers should adopt industrialization and automation. Even more, they find that exploitation mechanisms of organizational learning significantly improve the cloud service profitability.
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Cloud computing has become the dominant delivery model for IT services (Ahmed Nacer et al. 2019). It is “a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources […] that can be rapidly provisioned and released with minimal management effort or service provider interaction” (Mell and Grance 2011).

By now, literature regarding efficiency and profitability of cloud services focuses on technical aspects of cloud computing (cf. Stergiou et al., 2018; Psannis, Stergiou, and Gupta 2018; Al-Qerem et al., 2019) and for the most part view issues from a customer’s or user’s perspective (Satta, and Mostefai 2020; Ziebell et al., 2019). We find that research has not yet systematically addressed business aspects from a provider’s perspective (Böhm et al., 2010). Because of the high practical importance of service profitability, we take businesses’ and providers’ perspective to explore the question, “What are profitable market strategies for cloud service providers?”

With the cloud service market being highly attractive at first sight, we see more and more organizations entering the market. The cloud service market, moreover, is characterized by two unfavorable aspects for cloud service providers (CSPs): First, existing providers predominantly perform growth strategies and are willing to forego profitability for the sake of gaining market share (Vithayathil 2018). Second, cloud computing offerings – or at least parts thereof – are regularly highly standardized and transparent. Customers oftentimes choose cloud services based on prices. Given these characteristics, the cloud service market thus shows traits of a utility market where providers offer their service at marginal costs and where productivity gains are transferred downstream to customers (Carr 2003; Vithayathil 2018; Porter 1996).

With the market being highly competitive, CSPs need to find strategies to ensure long-term profitability (Herzfeldt et al., 2019). When reverting to literature for strategies, we see that research, however, has not yet systematically addressed cloud computing from a provider’s business perspective. From organizational learning literature, we find that organizations need to exploit existing resources and explore new opportunities to generate income (Herzfeldt et al. 2018; Santos-Vijande, López-Sánchez, and Trespalacios 2012). Additionally, from strategy literature in the field, we derive that organizations need to industrialize their service delivery. Hereby, industrialization comprises the automation, relocation, and modularization of services (Brax et al. 2017).

We infer from the definition of cloud computing that all cloud service offerings contain standardized components that can be delivered in an industrialized way. Up to today, however, there is little research on industrialization of cloud computing as a service delivery model including all types of offerings, e.g., Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS). In this paper, we therefore tackle the following two research questions to derive strategies for positioning providers in the cloud service market:

  • (1)

    What is the importance of industrialization for cloud computing as a general service delivery model?

  • (2)

    What are strategies for service providers to position themselves in the cloud service market?

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