Cloud giants conquered the data center. Now they aim to transform every industry
Truist Financial Corp. is on a mission to change the way banking is done, and it’s looking to cloud platform providers to help it along.
The firm, which was created when BB&T Corp. acquired SunTrust Banks Inc. in late 2019, is banking on a patent-pending cloud technology it created that gives customers of both of the pre-merger banks a common experience while the legacy systems are consolidated. To that end, it has enlisted all three of the biggest cloud providers — Amazon Web Services Inc., Microsoft Corp. and Google LLC — to help chart its path forward.
“We have most workloads running on AWS and we talk to them about creating fit-for-purpose offerings for financial services,” said Ken Meyer, Truist’s chief information officer for consumer technology. “We work with Microsoft in the insurance space and their financial services offerings go to multiple verticals. And we’ve leveraged Google’s Apigee platform because they’re leaders in open banking.”
That’s music to the ears of cloud platform providers, which increasingly want to be seen not just as purveyors of commodity infrastructure but as partners in transforming entire industries. “A lot of the public cloud providers are realizing they while they aren’t exactly hitting a wall, they can only go so far with horizontal features,” said David Linthicum, chief cloud strategist at Deloitte LLP.
Meyer has noticed the change. The big three “have gone to the largest banking institutions and risk organizations and hired people to help them understand the business more,” he said. “They’re no longer just about storage and compute. They’re getting more intelligent about what we need.”
Industry clouds are the hottest trend sweeping the infrastructure-as-a-service business and everyone is getting on board. AWS now has 20 industry-specific cloud offerings, including consumer package goods, financial services, energy, media and telecommunications. That’s up from 16 just a couple of months ago. Microsoft’s Azure targets a more modest eight vertical markets while Google Cloud matches Amazon with 20, although it slices the markets somewhat differently.
“It’s a concept that’s been gaining a lot of traction recently,” said Craig Lowery, a Gartner Inc. cloud analyst.
“For the hyperscalers, this will be the area of the most accelerated growth for the next five years,” Linthicum said. “I expect half the releases at the big cloud conferences this year will be about these partnerships.”
In their 2022 predictions, Forrester Research Inc. analysts Lee Sustar and Lauren Nelson said the growth of industry clouds will be one of the dominant trends of the year as infrastructure increasingly becomes a commodity. “Today, the hyperscalers’ core compute, network and storage services differ mainly by marketing, not functionality,” they wrote. The search for higher margins will naturally lure them toward more specialized services, particularly in highly regulated industries.
There are no estimates of the market size for industry clouds in large part because they’re so difficult to put a finger on. Hyperscalers’ websites have been festooned with case studies for years, but those have mostly been sales of infrastructure, databases and other general-purpose software. In most cases, they still are.
Meanwhile, industry-specific cloud providers such as Duck Creek Technologies Inc., Insurity LLC and Guidewire Software Inc. collectively book more than $1 billion a year in revenue delivering cloud software and development tools to the property and casualty industry alone.
The big platform players are betting that by developing industry expertise, they can tap budgets that were previously out of their reach and, as a byproduct, sell more infrastructure services. But doing so will bring them up against plenty of new competition — including with partners in some cases — and require significant investments in skills and software. Customers are welcoming the trend but cautious about committing this early.
“Not all [cloud platform providers] are ready for prime time right now,” Meyer said, “but if we don’t participate, we might miss out on an opportunity to change our industry.”
The industry’s transformation is already showing up in new product lines. AWS last November debuted IoT FleetWise, a service that collects and standardizes data across fleets of vehicles to enable automakers to perform remote diagnostics, improve autonomous driving systems and check safety features. At around the same time, Microsoft rolled out its Cloud for Financial Services, which includes features for banking customer engagement and churn modeling.
Financial institutions, which are struggling with a raft of born-in-the-cloud competitors and are eager to overhaul their legacy systems, are a prime target, Kash Shaikh, CEO of Virtana, which is the business name of Virtual Instruments Inc., wrote in a VentureBeat column last year. “These companies face a difficult choice,” he wrote. “Simply lifting and shifting applications to the cloud could result in sub-optimal performance. Yet rewriting or optimizing them for the cloud would be time-consuming and costly. Industry clouds have the potential to accelerate and take the risk out of their cloud migrations.”
IBM Corp.’s Cloud for Financial Services launched last year with a set of security and compliance features that were developed in partnership with Bank of America and IBM’s Promontory Financial Group subsidiary. “One thing that’s unique about our approach is to have trust and security be at the heart of what we’re doing down to security modules and encryption,” said Hillery Hunter, chief technology officer for IBM Cloud. “The structured conversation around data protection is resonating in other domains, including healthcare and automotive. The relevance of the technology is quite broad.”
IBM has enlisted more than 125 financial services partners and has the benefit of Promontory’s more than 800 professionals focused on that industry. The company has since launched a telecom cloud and last month acquired telco consulting services provider Sentaca Inc. to bolster its services there.
Most cloud providers haven’t yet gone as far as IBM has in buying industry expertise, but that’s a natural path for them to take. “This will be a competitive environment where specialized providers know the industry well and the big horizontal providers will play catch-up,” said Arun Ramchandran, corporate vice president at Hexaware Technologies Ltd. “I believe there will be acquisitions, particularly when they can’t build the skills.”
All the big cloud firms say they’re sharpening their skills and bulking up partnerships with specialty software firms. Amazon’s initiatives, including AWS for Automotive, Health, Industrial Manufacturing and Media & Entertainment, “offer curated AWS services and the largest partner network for thousands of industry-specific customers globally,” Kathrin Renz, vice president of business development and industries at the cloud giant, said in a written response to questions. AWS has also recently inked partnerships with Nasdaq, Pfizer Inc., Stellantis NV, Volkswagen AG and Carrier Corp., saying the deals were meant to transform entire industries.
But the carefully crafted language of these announcements leaves little doubt that the industry partners will be the ones doing most of the transforming. In most cases, Amazon is digging into its deep arsenal of technologies for edge computing, machine learning and over-the-air software delivery technologies but doesn’t claim to be doing much of the application development work. The exception is in areas such as fleet and warehouse management, where its retail operations give it deep expertise.
Nasdaq intends to collaborate with AWS to evolve and deepen our capabilities and create new offerings in data and analytics, anti-financial crime technology and market infrastructure solutions,” said Nikolai Larbalestier, senior vice president of enterprise architecture and performance engineering at Nasdaq, in a written response to a reporter’s questions.
However, Larbalestier’s carefully worded response left little doubt that AWS’ principal role will be to deliver compute and networking rather than domain expertise. “This partnership is about taking the best-in-class infrastructure and leveraging infrastructure-as-code and global networks, bringing that together with the technical expertise that supports and powers exchanges across the globe,” he wrote.
“A lot of what is happening with industry cloud right now is marketing,” said Gartner’s Lowery. “There is some innovation being built into the platforms, but it’s fairly small. It is being oversold.”
Do cloud platform providers have the industry knowledge to meet the soup-to-nuts needs of customers in a wide variety of industries? “I would say that the market tells us no, that they do not,” said Bola Rotibi, research director for software development at CCS Insight Ltd. The current offerings “are not new vertical-specific products, but configurations of existing products based on typical vertical use cases – shortcuts to development.”
But the offerings will improve, and most observers think customers will welcome them. “Customers are very much open to these solutions,” said Nicholas Merizzi, a principal in Deloitte Consulting’s cloud strategy offering. “There is confusion about the definition, some hesitation around lock-in, but I do think there’s an overarching segment of customers who are saying, ‘Let’s stop talking about the cloud as a technology and talk about how I can use it for trade execution and claims processing.’”
Customers seek value
Accenture Plc is seeing customer attitudes toward cloud platforms evolve as infrastructure becomes a commodity and they pursue benefits beyond cost savings. “Many, many of our clients are shifting the conversation from migration to how do they rewire our industry value chain and use the cloud to create new business models and improve customer experience,” said Ashley Skyrme, senior managing director at Accenture. “Early on, customers wanted to pick a public cloud provider. Now they want best of breed for infrastructure, edge and industry.”
Google is leveraging its expertise in analytics and artificial intelligence to go after big industry-specific problems such as spotting money-laundering activity and improving demand forecast. But it isn’t getting into core line-of-business applications, said Lori Mitchell-Keller, global leader of industry solutions at Google Cloud.
“We’re trying to focus on problems that haven’t been solved yet but are big problems,” she said. “Working with customers to figure those out is our source of differentiation. I don’t want to be in a dogfight with an SAP or an Oracle.”
Like other cloud platform providers, Google is building its industry expertise incrementally and hiring from the industries it targets. The head of its financial services cloud in the Americas came from Capital One Financial Corp. and TD Ameritrade Clearing Inc. The head of its consumer packaged goods cloud is a former Amway Corp. and Kimberly-Clark Corp. executive and the head of his retail unit was previously the chief digital officer at Neiman Marcus Group Inc. “Every person in my organization that covers an industry is from that industry,” Mitchell-Keller said.
The company’s vertical push also goes beyond cloud services. Last summer Google released a managed version of the Google search engine customized for their retailers’ digital properties. It’s aimed at replacing the notoriously awful search engines that are common on e-commerce sites.
Mitchell-Keller is transparent about her operation’s ultimate objective, which is to sell more cloud services. By enticing customers with solutions to big, hairy analytics problems, it hopes to also sign them up for a wider range of platform services. Google Cloud CEO Thomas Kurian has pledged to grow the cloud business 50% annually. “We can’t continue to do that without selling industry solutions,” Mitchell-Keller said. “I think this is going to be the fastest-growing part of the company.”
Partners or rivals?
Partners are currently a major part of the equation, but the question is for how long. All of the major cloud platform providers have marketplaces with hundreds of specialty vendors that they pull along on sales pitches for industry-specific business.
“The top benefits of industry clouds are access to partner ecosystems, partnering with industry specialists, better integration and accelerated speed to market,” said Eddy Wagoner, digital CIO at real estate technology firm Jones Lang LaSalle IP Inc. “Partnering with providers and industry specialists is critical to hyperscaler-provided industry clouds.”
However, there’s no guarantee that cloud providers won’t eventually move into some of their partners’ markets and displace them, said Gartner’s Lowery. It has happened before. “With Microsoft Windows, we saw that the core provider did more and more in the product that obviated what their partners did,” he said.
Deloitte’s Merizzi, who has researched industry clouds, sees some conflict as inevitable. “The lines will get blurrier,” he said. “The hyperscalers are increasingly competing with [software-as-a-service] providers.”
It also isn’t a slam dunk that customers will hand over ownership of mission-critical applications to a partner that may co-locate them with competitors on the same servers. “We’re not really fine with sharing everything,” said Truist’s Meyer.
And some industries may never be big cloud adopters. “I often hear from healthcare leaders that the additional security risk and performance latency outweigh the benefits of cloud hosting for patient care applications and workloads,” said Joseph Wolfgram, chief technology officer of the U.S. healthcare division of hyperconverged infrastructure maker Nutanix Inc. Nevertheless, the company’s recent Healthcare Enterprise Cloud Index study for that cloud adoption in healthcare is expected to nearly double to 51% over the next three years.
Even a hosting provider that is certified as Health Insurance Portability and Accountability Act-compliant can “still employ a multi-tenanted architecture where an organization’s protected information and applications reside on the same servers as other organizations who may be less secure,” he said. “Not all digital services for care-provider organizations are good candidates for the public cloud, even with a tailored offering.”
Some people also doubt that any company can develop enough internal expertise to serve 20 different vertical markets. “Hyperscalers provide many benefits, including speed to market for implementation, decreased development costs, and enhanced regulatory compliance and risk management,” said JLL’s Wagoner. “But these benefits won’t replace the expertise that organizations have in their specific industry.”
“Could a bank run entirely on AWS? Yes. Is it realistic today? No,” said CCS Insight’s Rotibi. “Would the client need to go outside of the provider’s vertical offering to other parts of their portfolio? Yes.”
But there’s no doubt that AWS, Microsoft and Google are in the game for the long term and benefit from a receptive market. “CIOs are warm to any idea that brings them more assurances about operating a business in the cloud that meets their parameters for cost, performance and security,” said Gartner’s Lowery.
Even if they don’t transform industries, said Truist’s Meyer, “at the end of the day, the speed of innovation these companies create is a positive for all of us.”
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