Cloud recap-2018

The past year has brought many surprises to our quiet cloudy harbor. It would seem that all the shocks are over: currency fluctuations are over, the bitcoin rate has dropped making GPU hosting for business even more popular. Further, one could only expect a growth of 20–40 % (depending on the cloud segment). But it’s not all that simple.

Opposition and collaboration

Since the beginning of the year, there has been talk of the “Chinese expansion” in the professional community: first, Alibaba Cloud “drove” into the DataLine data center, having rented a whole machine room, and secondly, the traditional ICT vendor Huawei was expected to enter the market with its cloud. Both of these events should not have had a strong impact on our isolated cloud market, had it not been for the “Durov teachings”, namely, the attempts made in early spring to block the Telegram messenger which is popular in some circles.

The confrontation between Roskomnadzor and the founder of VKontakte resulted in the blocking of entire subnets in Amazon, Microsoft Azure, IBM SoftLayer and Google public clouds. The blocking of pools of addresses first paralyzed the work of a number of resources which arrogantly exploited only global cloud scenarios. This, it would seem, should have led to an increase in the popularity and revenue of domestic cloud providers, but in reality they were not in a hurry to take “defectors” into the arms of their subnets. The fact is that those who tried to rent virtual machines from lesser-known cloud providers in the first place sought to bypass the blocking and earn money by selling VPN access to Telegram. Thus, they caused “barrage of fire” from Roskomnadzor and its “jet operators” on the subnets of innocent providers and their clients. And no AI would help here. Renting a virtual machine from an unblocked provider at the time, which has the capacity outside the Russian Federation, is the same as renting an apartment in Munich. The problem is not that it is expensive, but that it would not work without a recommendation. However, it all ended relatively quickly. All to whom the Russian and global markets are equally important have learned for themselves the new multi-cloud concept and built an architecture adequate to the new realities. According to expert estimates, due to the “training”, the popularity of Russian cloud providers has increased by about the same amount as the Telegram’s. In the end, it seems everyone is happy.

However, we have digressed. At the end of March, Huawei unveiled its collaboration with 3data’s “unique club data center network”. That, in turn, resulted in the project of the new cloud provider Huawei 3data Cloud, which offered the Russian market only a small part of the basic services available from the original Huawei Cloud so far. But despite the limited resource, by the fall all the capacities of the new provider were already occupied — first of all, by Chinese customers.

On the one hand, this collaboration takes a number of issues off the table, including licensing and workflow ones, which the Chinese company had to solve entering the overregulated Russian ICT market with new products. On the other hand, a bet on a niche player in the data center market of the Central Federal District means the absence of instantaneous and promising elasticity in relation to rack space. The latter, however, is quite compensated by the trend of most businesses to keep offices and clouds inside the Moscow Ring Road. The Chinese company has studied the Moscow business mentality well. However, is the target audience ready to switch to the Huawei cloud? The year of 2019 will show, although the new cloud has already got significant partners, for example, Syssoft (the leading provider of IT solutions) and LoudPlay (cloud games service).

But there is still no word about any commercial activity of Alibaba Cloud. Probably, this would last as long as the company’s cloud is used for the internal needs of Alibaba and to ensure compliance of its own e-commerce projects, AliExpress and Tmall, with 152-FZ. But it is possible that an active entry into the Russian market will not be long in coming. However, it can pose a threat only to the Huawei 3data Cloud project, but not to traditional players of the cloud platform market, which, I must say, makes up only 5 % of the domestic cloud pie, and this is largely due to vertical communication PaaS like ITooLabs and Voximplant.

Cloud platforms over Russia

This year, cloud releases of two new market players took place, which are capable of increasing the share of PaaS seriously. I’m talking about Mail.Ru and Yandex cloud initiatives. The largest players of the Runet have finally realized that it was they, despite the huge armies of haters and fanboys, who had the role of leading domestic developers into the cloudy future of total import substitution. Let the “development institutions” call for “go global!”, but our developers who are focused on the Russian IT market (or for whom low latency is important) will use these platforms.

These projects have different ideologies: MCS (Mail.Ru Cloud Solutions) is an Open Stack with own degree of “vanillity”, while Yandex.Cloud platform relies solely on its own developments, although being also based on open technologies. Both approaches have pros and cons, but it’s too early to judge who will be the leader. The teams of both projects are well-known, strong and experienced fighters in the cloud market, both have unique designs. Time will show, on which side the power is. Mail.Ru has an odd in an early start and in a white label project with MegaFon, but you can’t guarantee that Yandex.Cloud has no “jokers” — too little time has passed since the launch. In any case, with due patience, Mail.Ru Cloud and Yandex.Cloud are destined to become drivers of the development of Russian PaaS, as they have a balance between the audience of developers who trust the vendor and the monetization possibilities in the long term, which is not the case, for example, for telecom operators with their clouds.

Operators in the clouds

Speaking of the big four telecom operators in the cloud market, we should note that Rostelecom remains outside the focus of attention of cloud market researchers, which, with the largest capacity of data centers and the widest portfolio of hypervisors (compared to the leading market players), has long been a leader, though not disclosing information about its success. However, it cannot yet transform itself into a “single ICT point of contact” for its customers. The policy of curtailing high-level cloud and IT services for businesses and focusing on the service model for government customers is clear. Judging by the state procurement site, the national operator decided to equip its subsidiaries and affiliates to the utmost and to have time before the introduction of the transition to domestic developments.

MTS is seen as an absolute competitor of Rostelecom in the infrastructure and cloud market among operators. The company has all the components of success: resources, recently purchased data center, and new services competence center — MTS Innovation Center, which focuses on the development of its own cloud solutions. Its success is confirmed by the launch of a proposal based on Azure Stack in the shortest possible time. In addition, MTS has a b2b-marketplace for business with the ability to create communication services offers including marketplace services. However, as of December 2018, there is no link to the products of the b2b-marketplace, which is very much of the “operator-style”.

Beeline brought BeeCloud to the market this year, which is based on Ormuco technology (a special Open Stack cooking recipe).

The cloudy success of Sbercloud is not particularly remarkable yet. Like for Rostelecom, in the light of the prescription for the accelerated transition to domestic developments, it will be more difficult to Sbercloud to compete with commercial players. Now Sberbank is actively reducing margins in the supply chain of accounting, CRM and other business applications, providing them almost or completely free of charge to individual entrepreneurs and small businesses that have subscribed to banking services. The strategy is correct, but detrimental to the market.

The 20 % case

The most important event of the end of cloudy 2018, however, may be considered the preparation for the entry into force of the law on “tax on Google”. On the one hand, this initiative has caused only a few assumptions about how this will affect the ICT market, on the other — “the training on blocking the Telegram” left no doubt about the efficiency of our legislative initiatives. Most of foreign cloud providers decided to register with the Federal Tax Service: Google, Microsoft, Amazon, Alibaba and Hetzner did it as early as in 2017. In December, DigitalOcean LLC and IBM faltered and registered. The loophole, which allowed telematic (in their essence) services to be provided as a license for software without VAT, was closed. This is a kind of gift under the Christmas tree for Mail.Ru Cloud and Yandex.Cloud, because they will accept customers who do not want to pay the 20 % VAT to AWS, Azure and DigitalOcean any more.

There is a certain justice in this. Now all hosters are in equal conditions. This will not affect large customers who can “reclassify VAT”, but for SMBs and individual entrepreneurs who, as a rule, use the simplified taxation system, the attractiveness of Russian clouds will increase dramatically. Most of all, this is likely to have an impact on Office 365 as the most popular office suite for SMBs. It is no longer available for direct sale to new customers from the Microsoft site. Now the package can be purchased only through channel partners who will receive more revenue, but it will become more difficult to sell these clouds. It is expected that the growth rate in this segment and its profitability which is not very high will eventually decline. Unfortunately, there are no decent alternatives for SMBs yet.

The trend of the coming years will be market consolidation. MTS bought its tenth data center — Avantage, one of the largest in Russia, for 8.9 billion rubles. Rostelecom, realizing that it will not be able to compete with the data center in Udomlya alone, is preparing to acquire DataLine; it has already used its capacities for a number of projects. Probably, the deal will be announced early next year. I must say that Rosenergoatom, Rostelecom’s partner in Udomlya, has also entered upon the way to the digital transformation. It plans to enter the market of data center and cloud services, and if such a model succeeds, export the bundle of NPP +Data Center outside Russia.

IT as a service for the public sector, and not just for it

In the light of the state program “Digital Economy of the Russian Federation” and the focus on the IT service model for federal and state authorities, certain innovations await us in the public sector. The concept of the “civil servant’s           automated workplace” is becoming increasingly relevant, despite the fact that no one has proposed an integrated working model so far. Attempts to assemble a service model of an automated workplace based on VDI founder on the economics of the technology itself, and practical implementations are far from clear from the point of view of import substitution, although all the components for success seem to be already in place in the Register of domestic software. However, the success of this concept will largely depend on the position of the Ministry of Communications.

The development of the IT service model is likely to lead to an increase in the demand for the Desktop-as-a-Service model, which extends the concept of a typical AWP to the business segment. A similar scheme with the rental of Apple and HP equipment is actively promoted by Softline. This approach is a growth point for the same Big Three operators, who, in the light of the 5G implementation, will be able to offer a mobile workplace based on a laptop, cloud and local software provided under the subscription model. And this is the very “single ICT point of contact” for business, and with a huge lifetime customer value and a guaranteed three-year service contract. Unless, of course, the OIBDA goals prevent it from being realized.

Global platforms, local players

It is worth noting that neither AWP, nor DaaS will not be able to significantly increase the growth rate of global cloud platforms, such as AWS, Azure or Softlayer. Despite the fact that they are expanding their partnerships, especially in the channel of Russian distributors going to the clouds (Merlion, Treolan, MONT and OCS), the overall market conditions is against them and beneficial to local players. These players also get new overseas customers, due to the demand for compliance with 152-FZ from foreign companies. The share of foreign clients in the market is 2.2 % on average; that of IaaS providers is about one third.

At the same time, the share of foreign cloud platforms in the all-Russian cloud pie is small. AWS and Azure hold about 80 % of the services of foreign IaaS/PaaS consumed in Russia, and their shares are about the same. AWS has such important customers as Bitrix24 and MegaFon, but Telegram locks have greatly reduced the number of the platform’s fans. Azure has suffered less in this regard, but the introduction of VAT will obviously have an impact on the demand. At one time, Microsoft was actively distributing Azure within BizSpark, an international program for startups. Many of them have not yet outgrown the “LLC using the simplified taxation system” stage, which means that an unpleasant surprise is ready for them since January 1. Google Cloud Platform has not yet managed to firmly establish itself among Russian developers, despite the efforts of its key partner in the Russian Federation — Softline. On the other hand, projects that initially target global markets actively use AWS and Azure, largely due to their maturity and a wide range of tools available for working with the increasingly popular IIoT and AI segments.