In a deal expected to be worth $400 million over four years, last week’s news that Salesforce.com selected Amazon Web Services (AWS) to be its preferred public cloud infrastructure provider was a big win for both companies. Salesforce.com benefits from having access to global data centers that will allow it to bring new infrastructure online more quickly and efficiently in select international markets. Meanwhile Amazon, in addition to the expected revenue influx (cha-ching!), gets the endorsement of the grandaddy of Software-as-a-Service providers.
According to this The Street article, Fred Moran, director of research at Burke & Quick Partners LLC, said “Amazon is on a roll when it comes to servicing the market for cloud computing. The partnership with Salesforce.com is another confirmation that AWS is dominating the cloud computing market with a broad platform of products and services.”
The enterprise market will continue to see increased adoption of the cloud due to the increasingly mobile workforce and requirements for faster speed-to-market. According to a report from IDC, worldwide spending on public cloud services will grow at a 19.4% compound annual growth rate (CAGR) — almost six times the rate of overall IT spending growth – from nearly $70 billion in 2015 to more than $141 billion in 2019.
Story Behind the Story:
But let’s peel back the onion a bit and take a closer look at this Salesforce.com/Amazon deal and what it means for the future of cloud computing. While the public cloud is experiencing explosive growth, private cloud is not dead. Salesforce.com is not abandoning its huge investment in existing data centers. What this recent move demonstrates is the continued trend towards a hybrid cloud infrastructure consisting of both public and private clouds.
While Salesforce.com will certainly continue investing in its own data centers to support its services, the company said it will turn to AWS to get services online more quickly and efficiently in select international markets.
Despite Amazon’s huge success and continued upwards path towards cloud dominance, some companies are pulling out of Amazon and bringing their infrastructure back in-house. Earlier this year, we wrote about Dropbox – the online file hosting service –announcing it was moving much of its storage away from AWS and into its own private cloud infrastructure. Dropbox now stores 90% of its users’ data in-house.
Dropbox still uses AWS to keep files in specific geographic regions where they don’t have their own infrastructure. This is particularly important in countries where government rules and regulations around “data sovereignty” require customer sensitive data to be kept within their own country (or European Union) borders.
It appears that Salesforce.com is following in Dropbox’s playbook in hybrid cloud deployment. There is no doubt that AWS offers the greatest geographical reach when it comes to cloud computing, which makes global expansion easier for companies from both from a cost and speed to market perspective.
Salesforce.com was a pioneer of the SaaS model having built their infrastructure PaaS for business processes, Salesforce.com, CRM/apps and a host other offerings. If there is anyone who should be comfortable building their own data center it should be Salesforce.com.
However, Salesforce.com is investing in public cloud providers like AWS to test new markets before it invests heavily in its own global infrastructure. The question is does this represent a potential move by SF.com to shift more of its portfolio to AWS and reduce its data center footprint? Or is this deal all about speed and reduced risk to explore international expansion opportunities with minimal upfront investment in infrastructure.
The real proof will be five years from now once Salesforce.com has reached critical mass and needs to scale up in these regions. At that point, it may be more cost-effective for them to develop their own data centers in those regions. Or will they continue to scale with AWS?
For more perspective on the move to hybrid cloud and the challenges of cloud adoption and management, check out these resources: