Startups | Can they disrupt cloud oligopolies

It’s official, Oracle is finally submitting to the cloud, and it’s no wonder why. Gartner recently revealed that the public cloud services market is projected to grow 21.4 percent this year to $186.4 billion, up from $153.5 billion in 2017. Can startups take some of this market share?

 

The war for cloud dominance is raging; Microsoft and Oracle’s challenge to Amazon on a recent $10 billion cloud contract is evidence of this. The focus, for obvious reasons, has been on these large incumbent players, but this is misplaced.

Until recently, Oracle offered a closed property management system (PMS) for hotels, a one-stop-shop doomed to inefficiency. However, with nascent cloud companies snapping at it’s heels, Oracle has finally grasped that customers now demand on-going service innovation and technical expertise, albeit years after nascent cloud companies arrived on the scene. In the cloud industry, and the tech sector more generally, it is very often the startup challenges that force the large corporates to evolve.

 

David, meet Goliath

Oligopolies are nothing new, however, in recent years technology has emerged as the tool that can enable the contemporary David to face down Goliath. The US entertainment industry is a prime example of this, with six Hollywood studios currently controlling over 85 percent of the film industry.

This market dominance is potentially set to be exacerbated should Disney win the bidding war for 21st Century Fox assets, a contest which has been raging since last December. Late last month Disney agreed to a deal that valued Fox’s entertainment assets at a staggering $71.3 billion, a far cry from the paltry $4.05 billion it used to acquire LucasFilm in 2012.

Disney’s ardent pursuit is fuelled by the growing success of alternative online streaming providers disrupting the space. Netflix has disrupted the space to such an extent that the streaming service was actually valued more than Disney in May, albeit for a brief moment.

Oracle has now mustered the courage to move to the cloud just as the likes of Disney and Time Warner have succumbed to the power of online streaming; this transition though is fraught with dangers for Goliath and ripe with possibilities for David.

 

The opportunity for startups

Oracle has been on the wrong side of history for a while now, and once we consider the sheer size of Oracle’s infrastructure, the problem is compounded. To put it simply, they cannot re-orientate their offering in the same way nimble startups can.

Major transitions such as these provide a rare opportunity for startups to really go after legacy customers; just look at what the likes of fintech players such as Revolut and Monzo have done to disrupt the banking industry. We need only look to the former, who recently announced that 2 million users have signed up to its platform, just months after it announced it hit the 1 million user milestone in November 2017. And what about Goliath? Well, many TSB customers are still unable to access their accounts, presenting yet another opportunity to aggressively seize market share.

Startups in the cloud space must do the same, lest face a market filled with only a few quasi-oligopolies. In some aspects, market consolidation has already begun; major vendors such as Amazon, IBM and Microsoft have cemented their positions, and late last year Oracle hit the $200bn valuation mark. However, the world of software has changed; no longer can you simply provide a solid stand-alone product. Customers expect more, they expect on-going service with access to technical expertise, when and where they want it.

Take property management software (PMS), an entire sector that has had to be dragged kicking and screaming into the 21st century. Until recently hoteliers had to rely on closed one-stop-shop solutions whose fundamentals remained unchanged for years. This Luddite attitude towards the hospitality sector has allowed disruptive players to thrust forward in an industry traditionally dominated by giants.

Startups must be wary of resting on their laurels – the sheer size of these quasi-oligopolies means they have access to alternative growth and development options – such as M&A – which companies early in their life cycle simply do not. Just look at the slew of acquisitions Bob Iger, CEO of Disney, has made over the last decade. The likes of Oracle, Amazon or IBM can do the same – but they have one key weakness, the inability to swiftly incorporate a new infrastructure without suffering immense transition pains.

The opportunity is there, startups in the hospitality sector, and the cloud space more generally, simply need to take notice and make the leap.

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