The Cloud market is diverse and highly fragmented – typical of any market in its early stages. The broad range of cloud activities and the frantic pace of new products / services getting launched is driving the need to consolidate and unify cloud services for the end user and for the market as a whole.
This article tries to understand the business model of cloud brokers and its importance to the cloud market. Typically, almost all business models involve different levels in what are known as value chains or supply chains.
As per Wikipedia, a typical supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product / service that is delivered to the end customer. In sophisticated market systems, used products may re-enter the supply chain at any point where residual value is recyclable. Supply chains link value chains.
Value chains outline the activities involved in creating value from the supply side of economics—where raw materials are used to manufacture a product / service —to the demand side when finished products or components are marketed and shipped to re-sellers or end-users.
The value chain proposition in Cloud computing is simple as depicted in the figure below:
Currently, in the cloud market, the value creation activity is limited to a specific segment of the industry value chain (It’s changing very fast though). There are huge opportunities when we talk about the value system as a whole because the linkages are not just a compilation of activities that are independent of each other but it is a intricate system of activities that are highly interdependent because they are related by their linkages (often multi-dimensional).
Through these linkages, the performance of one activity affects the cost / performance / value of another. The cloud brokers business is all about exploiting these linkages and adding value to these linkages. Cloud market provides a unique opportunity in these linkages.
The "cloud broker" model, as discussed above, can be applied to various stages of the cloud value chain. Cloud brokerages bring together buyers and sellers of cloud services. The cloud broker market is being accelerated by the emergence of solutions that make it quick and easy to implement. Some of the activities that brokers in a cloud ecosystem are actively engaging in are:
- Facilitate and operate Business-to-business (B2B) transactions
- Facilitate and operate business-to-consumer (B2C) transactions,
The following diagram depicts a typical ecosystem and cloud
Conclusion:
Cloud brokers make a very strong case for faster cloud adoption and unifying the market. Other benefits such as cost reduction, better and faster discovery, lower transaction costs, finding new business, supply chain efficiency, monitoring demand and market trends are common. The big guns of the industry are already aware and are now trying to integrate and expand in all directions (vertically, horizontally and via alliances) which is in principal similar to the broker model. Whether they will be able to replace the brokers or they will lose their core competence remains to be seen (I will discuss this in a future blog...)
Bottom-line is that Brokers make markets in any industry and Cloud computing is no exception. Period.
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