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Cloud as a concept has been discussed for years. While it has often been misunderstood, one of the persistent themes has been that cloud is about ‘infrastructure on tap’, like water or electricity.

A public cloud consumer, an enterprise or SME hosting apps in the cloud has a basic expectation that its cloud provider supplies pretty much unlimited infrastructure, without a long term contract. The customer just pays for however much capacity it uses. That goes against the traditional service provider business model, which is largely based on long term recurring contracts, and an expectation that only 40-60% of the infrastructure paid for is actually being used. Overselling is very common, and a fundamental part of how the industry works.

That all changed with the cloud. Suddenly the model was turned upside down, and service providers actually had to ‘undersell’ services, keeping large amounts of infrastructure idle for users to scale into, or fail over into. In the traditional model, 40-60% of capacity was being sold and monetised, but not consumed. In the cloud, 40-60% of the infrastructure was sitting idle, and not being monetised.

Why cloud makes it harder to compete

This put immense CAPEX pressure on service providers, and as a result made it really hard to compete with the mega-hosters on pricing. The mega-hosters (Amazon, Microsoft, Google) have unlimited access to capital and look at this from a very long-term strategic perspective. This is where scale is really key.

Geographical reach is a related effect of scale. The mega-hosters all focus on offering infrastructure world-wide. There are many reasons why this is important, chief among which are performance in local markets, in terms of latency and throughput; and data locality/sovereignty, which, with new local legislative data barriers popping up all the time, is becoming more and more of an issue. SaaS businesses have global client bases, and need worldwide infrastructure to provide the service their customers want.

Just like scale, it is really hard for the traditional service provider to compete on reach. It’s simply too expensive and risky for most of them to launch new points of presence, so they can offer infrastructure and services from multiple locations world-wide. Once more, access to capital is key.

Enter… the cloud sharing economy

Is it the end for any cloud provider without the capital of the mega-hosters? Far from it. There are tens of thousands of cloud providers around the world, and while individually they may fall short of the mega-hosters, they more than make up for it as a collective. 

By sharing their infrastructure they are able to offer more scale and reach than the mega-hosters combined. Each provider connects their cloud to a central marketplace where they buy cloud infrastructure, on demand, to add scale and reach to their local cloud, and sell their local infrastructure to monetise that 40-60% idle capacity when it isn’t being used.

This approach is the only one that makes sense if providers are to stand a chance against the mega-hosters, regardless of the technology their cloud runs on. Sharing infrastructure gives access to global scale without CAPEX. It provides a way to increase the overall utilisation of local cloud infrastructure, and it gives access to cloud locations all over the world. Sharing infrastructure means providers can host apps wherever their customers need them, and control where data and applications live to help them deal with data sovereignty issues.

Airbnb for cloud

It’s the same approach companies like Airbnb have taken to compete with the world’s largest hoteliers, another industry which requires large amounts of capital to build infrastructure (hotels) and in which a large percentage of their capacity (hotel rooms) lies dormant most of the time.

This ‘Airbnb for cloud’ approach is turning the market upside down. Just as Airbnb offers more ‘infrastructure’ in San Francisco than Hilton offers world-wide, any one of the world’s cloud providers can now offer more scale and reach than giants like Amazon.

What about the benefit for end users? It’s the same in both cases. Whether they’re buying cloud infrastructure, or buying somewhere to stay for a few days, the federated/sharing economy model means they get closer to where they need to be, much more choice of infrastructure, and many more options for price and features.