Crazy Eddie prices to traditional IT services. One result is that a large number of established IT companies are at risk, says a report from Morgan Stanley research.
"Most at threat are VMware and Red Hat," the Morgan Stanley authors concluded. "To the extent companies move workloads from private cloud type environments to AWS, the $4 billion virtualization market could face headwinds," the report said.
But Oracle, SAP, Microsoft, IBM and Brocade are also at risk. EMC and NetApp are likely to gain share in the storage market from server vendors, such as IBM, the report said. It should possibly have included Dell and HP as well, since all three tend to sell storage associated with servers. Brand name server vendors in some cases are being replaced by no-name, white box server manufacturers, such as Quanta and Wistron, the report said.
VMware is at risk because some observers think server consolidation in the data center is just a transition phase to the larger movement to greater use of public cloud services. VMware is dominant in data center server virtualization. But server sales for data center installation are slowing, while server sales for cloud use are picking up.
[ Analysts think Amazon will ultimately spin out AWS. See Amazon Unlikely To Spin Off AWS Cloud Unit. ]
VMware's recent statements show concern, if not nervousness, about whether it will be able to transition virtualized data centers into cloud computing. On May 21, it announced four IaaS locations in the U.S. to interoperate with its customers' data centers. The move was meant to provide a VMware-compatible public cloud alternative and stave off the Amazon threat.
The Morgan Stanley equity research by Scott Devitt, Keith Weiss, Ehud Gelblum, Simon Flannery, Katy Huberty, Joseph Moore and Adam Wood was the subject of a long report in Barron's Tech Trader Daily by columnist Tiernan Ray. Amazon is "an emerging IT mega-vendor," and it could take away 3% to 17% of spending with traditional IT vendors as it matures, Ray wrote.
That's 3% - 17% of what they describe as a $152 billion market, which includes compute, storage, networking, database service and application deployment and management. Seventeen percent of $152 billion is nearly $26 billion. The writers pegged AWS's revenue as likely to reach $24 billion by 2022.
Why Red Hat was named as an IT vendor at risk is not clear. It plays a much smaller role than VMware in data center virtualization through its KVM hypervisor and related virtualization software. KVM, on the other hand, is the default hypervisor in OpenStack clouds, which may prove one of the few long-term competitors to Amazon. It's also possible the Morgan Stanley authors didn't understand that many of the workloads sent to Amazon's EC2 are running under Red Hat Enterprise Linux.
Oracle is at risk because Amazon is seeing some uptake of its database service offerings, which include MySQL, SQL Server and Oracle itself. Whatever gains Oracle may see in the public cloud may be offset by losses to AWS's SimpleDB or the AWS NoSQL system, DynamoDB.
Microsoft is also likely to see database revenues erode if cloud-based systems catch on. Oracle, SAP and Microsoft are all exposed to the possibility that online applications from software-as-a-service specialists will replace their CRM, ERP and other applications.
AWS's content delivery system, CloudFront, is expected to exert "pressure on premium solutions operating at the high end of the market over time." The Morgan Stanley authors specifically mentioned Akamai Technology.
Consulting and systems integration vendors, on the other hand, will experience at least short-term benefits due to "the increased need to link on-premises workloads with those sitting in the public cloud," the authors said.