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'Everyone is losing money' thunders analyst

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Channels Forum 2013 Cloud service providers face a "devastating" crunch if they can't convert their incredible success at attracting customers into a viable business, an analyst has said.

Even Amazon, whose AWS offering towers over its rivals in terms of revenue, has yet to translate market growth into income, Canalys CEO Steve Brazier said at the firm's Channels Forum event in Barcelona on Wednesday.

The cloud specialists have proved that companies are prepared to effectively hand their infrastructure over to cloud providers such as AWS. But, Brazier, claimed, they have also proved that as well as keeping the cloud up, they are also rather expert at losing money.

Amazon's infrastructure as a service business will turn over $3.86bn this year, Brazier said, while its next five competitors will scrape through the $2.5bn barrier.

But to date, he said, this had been achieved by selling below cost: "We think everyone is losing money…they haven't proved this is a profitable business."

And yet, Brazier continued, "what they have done is scare everyone." It was the fear of a dominant Amazon that had prompted VMware to launch its own vCloud hybrid cloud service.

The inevitable result, he claimed, was that the industry is is heading for a "devastating cost crunch".

Customers couldn't be blasé about this, as the examples of 2e2 in the UK, and Nirvanix in the US, showed just how crippling the collapse of a provider could be. He cited the growth of "community clouds" where distinct industries agree a standard, or group around a designated provider as one way users would choose to protect themselves.

Brazier said there was one piece of good news for the channel: "The cloud service providers have discovered they can't sell direct."

How long these stays good news is another question, though. Partnering with the channel is all very well, but resellers do expect to see some return for their efforts – and will be just as wary of end users of being left in the lurch by an imploding cloud provider. ®

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