Why Did the Cloud Business Begin?

Previously, I’ve covered topics like PC servers, server rooms, data centers, virtualization, and blade servers in detail. Yet, a fundamental question remains: Why and how did the cloud business start?

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The pioneer of the cloud business was Amazon Web Services (AWS), a subsidiary of Amazon. Interestingly, Amazon itself began as an online shopping platform. Naturally, running an e-commerce business required a robust IT infrastructure. Features like product browsing, order processing, and logistics operations simply couldn’t function without it. Being a global enterprise, Amazon needed a powerful IT system capable of supporting worldwide operations.

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In e-commerce, seasonal events such as Christmas, graduation seasons, or Black Friday bring surges in traffic and order volumes. To handle these spikes, retailers invest in additional IT infrastructure to prevent system crashes or performance degradation during peak times. However, once these events end, much of that additional infrastructure becomes underutilized, resulting in inefficiencies and wasted investment.

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To address this, Amazon came up with a groundbreaking idea: Why not sell the unused resources to other companies? Leveraging its expertise in managing e-commerce systems, Amazon transformed surplus resources and operational know-how into a new business—AWS. Through AWS, Amazon started offering services that catered to other companies’ IT needs, converting its internal innovations into external solutions. AWS provided services like Infrastructure as a Service (IaaS) and Platform as a Service (PaaS), built upon the technologies Amazon had already refined for its own use.

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The emergence of cloud services drastically reshaped the IT landscape. Small and medium-sized enterprises (SMEs) struggling with limited server room capacity, startups aiming to minimize costs, gaming companies requiring rapid deployment, and e-commerce platforms with fluctuating transaction volumes quickly adopted cloud solutions. Initially, some businesses hesitated, but as it became clear that IT was shifting towards the cloud, competitors began entering the space. Today, Microsoft (MS), Google, and Oracle are prominent players in the global cloud market, fiercely competing with AWS. In South Korea, companies like Naver, KT, and NHN actively lead the domestic cloud business.

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Microsoft's Cloud Journey

Microsoft entered the cloud market later than some of its competitors. For a long time, the company thrived on selling licenses for Windows and Microsoft Office, enjoying stable and significant cash flow. This reliance on traditional software licensing made Microsoft slow to recognize the need for cloud-based services.

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However, the appointment of Satya Nadella as CEO in 2014 marked a turning point. Nadella introduced the vision of “Cloud First, Mobile First,” signaling a strategic shift. Entering the cloud market was not without challenges. Cloud customers often preferred open-source servers and subscription-based database environments, reducing demand for Microsoft’s proprietary operating systems and databases. To overcome this, Microsoft partnered with the open-source community and embraced collaboration.

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One notable milestone came on September 19, 2023, when Larry Ellison, Oracle’s chairman, announced at the Oracle Cloud World event that Oracle databases would be available on Microsoft Azure. This collaboration was unexpected, given the historically competitive relationship between the two companies, but it underscored Microsoft’s commitment to expanding its cloud offerings.

Google’s Role in the Cloud Market

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Google has also become a key player in the cloud business, leveraging its extensive global network and infrastructure. With experience running services like YouTube at massive scale, Google has developed world-class capabilities in delivering stable and reliable services worldwide. Beyond consumer-focused services like Gmail, Google brings expertise in AI and software development to its cloud platform, supported by a wealth of specialists across diverse fields. While Google initially focused on B2C services, it continues to enhance its B2B offerings to compete in the broader cloud market.

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The evolution of cloud services, sparked by AWS’s innovative approach, has transformed IT across industries. From small startups to global corporations, businesses now rely on cloud solutions to reduce costs, improve scalability, and adapt to changing needs. As competition intensifies, the cloud market continues to evolve, offering ever more innovative and efficient solutions for a digital-first world.

Figure 10: Gartner’s Magic Quadrant for Strategic Cloud Platform Services

 

Oracle’s Late Entry into the Cloud Market

Oracle was a latecomer to the cloud industry. However, as shown in Gartner’s 2023 Magic Quadrant (Figure 10), Oracle successfully entered the Leaders quadrant that year. For context, Gartner’s Magic Quadrant is a valuable tool for assessing the market position of service and solution providers. The horizontal axis represents completeness of vision, while the vertical axis indicates ability to execute. Companies positioned in the top-right Leaders quadrant are considered highly competitive and innovative.

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Until 2022, Oracle was placed in the Visionaries quadrant (bottom-right). However, through aggressive investment and strategic focus on its cloud business, Oracle ascended to the Leaders quadrant in 2023. This achievement can likely be attributed to Oracle’s strength in the database sector, which it effectively leveraged to differentiate itself in the cloud market.

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Cloud Regions and Domestic Data Centers

Today, most global cloud providers operate regions (data center locations) in South Korea. In the past, however, local businesses had to rely on data centers in Japan or Singapore due to the absence of domestic options. This created challenges such as slower network speeds and concerns about storing domestic data on overseas servers, which sparked debates around data sovereignty.

Industries like finance, public services, and defense face stringent compliance requirements, making it difficult to adopt global cloud solutions. In response, domestic cloud providers such as Naver, KT, and NHN have tailored their offerings to meet the regulatory needs of these industries, positioning themselves as strong competitors in the Korean market. While their scale is still smaller compared to global providers, domestic players are actively expanding their cloud services.

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A Changing Cloud Landscape

Recently, even public sector organizations in Korea have begun opening their doors to global cloud providers. This shift in policy could significantly impact the competitive dynamics of the market. It remains to be seen how the cloud landscape will evolve as global and domestic providers vie for a greater share of this growing industry.

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(Excerpted from Next Digital)

 

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Haejin Jeong TV, 정해진TV