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Top1. Introduction
Since the market launch of Amazon Web Services in 2006, organizations have been increasing their use of cloud service to gain access to virtualized IT resources in terms of infrastructure, applications and data, and related service over the years (Oliveira et al., 2014). The continuation of this trend is forecasted by a current study of Gartner (Costello & Hippold, 2018), according to which the worldwide public cloud service market is projected to grow 17.3 percent in 2019 up to a total market value of USD 206.2 billion. Similar growth rates are expected for 2020 and 2021 (Costello & Hippold, 2018).
Provisioning cloud service leads to several challenges for the providers: First, cloud providers require profound expertise in both technical infrastructure concepts and the design and management of service-oriented business models (Iyer & Henderson, 2012; Marston et al., 2011). In practice, it can be observed that cloud providers have particular difficulties to effectively design suitable business models. This is the reason why many cloud providers are still experimenting with a variety of business models aiming to establish a sustainable and profitable position within the cloud computing ecosystem (Clohessy et al., 2016; DaSilva et al., 2013; Habjan & Pucihar, 2017). Second, a clear understanding of the customer’s business needs is a mandatory prerequisite to design a cloud service, which can be easily integrated in the customer’s existing business processes and IT landscape (Böhm et al., 2010; Floerecke, 2018). Third, a cloud service has to implement special characteristics such as self-service, pay-as-you-go pricing and scalability, which distinguishes it from its traditional counterpart, the on-premise IT (Mell & Grance, 2011). Fourth, customers tend to have a lower willingness-to-pay for a cloud service than for a traditional IT service (Oliveira et al., 2014). In practice, this is, however, not achievable in all conceivable service scenarios with continuous cloud operation (Herzfeldt et al., 2018).
With these challenges for providers in the cloud ecosystem, some providers are significantly more successful than others with regard to the profitability of their service model (Henkes, 2017; Henkes et al., 2016; Smith et al., 2018). The literature’s understanding of the reasons for this difference is, however, still very limited (Floerecke, 2018; Labes et al., 2017; Trenz et al., 2017). Cloud service can be distinguished between Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS) service models. These three service models form layers which are interrelated, each building upon the former (Marston et al., 2011; Mell & Grance, 2011). According to this threefold division, the current market situations differ:
Successful IaaS providers have highly standardized IT infrastructure and processes in place that they managed to build some years ago (Lynn et al., 2017; Penzel et al., 2017). Recently, basic IaaS service has become a commodity, similar to electricity, water, gas and telephony, whereby the price has turned into the most important decision criterion for customers (Floerecke & Lehner, 2018b). As not all providers will be able to keep up with this strong price competition, a further market consolidation, particularly among the small and medium-sized locally operating IaaS providers, is expected (Cisco, 2018; Floerecke & Lehner, 2018a). Whereas Amazon Web Services is the leading IaaS provider, controlling about 44 percent of the sector (Moore & van der Meulen, 2018), others, such as Cisco, Verizon, Dell and Hewlett Packard Enterprise are examples for providers that already shut down their own public IaaS service. If the market consolidation continues at the present pace, the IaaS segment is expected to become subject to governmental regulations, similar as in other utility markets. Otherwise, the remaining hyperscalers might use their dominance for arbitrary pricing (Floerecke & Lehner, 2018a).