Although cloud transformation has been underway in the telecom industry for five years, carriers still rely on reselling cloud offerings and technologies from vendors and expanding the market through one-off projects.
Some carriers have started to develop cloud technologies and build cloud platforms, but they are still much less competitive than AWS, Microsoft Azure, or Alibaba Cloud, all of which have successfully monetized their cloud offerings on a global scale. As mobile Internet evolves to industrial Internet, breakthroughs in vertical industries will be essential for carriers to thrive in the cloud market.
In this article, we analyze the successes of the three vendors and provide targeted suggestions for carriers' cloud service transformation.
I. Development track of the successful cloud vendors: Streamlining the vertical value chain
As well as the three most successful vendors, Siemen's Cloud also provides useful takeaways. Other powerful players, such as Google, are still trying to make breakthroughs
Figure 1: AWS, Azure, and Google Cloud: Industry penetration and performance (Complied by Caijing)
The big three have adopted a "being integrated" strategy. They have technical advantages in IaaS, PaaS, and SaaS, and possess the infrastructure needed to support cloud strategies that target vertical industries. AWS and Azure work as a platform, and profit from offering PaaS and SaaS to verticals. Alibaba Cloud pursues an aPaaS model.
1. AWS: Leading in Infrastructure + PaaS
AWS dominates the PaaS market with its performance, efficiency, cost-effectiveness, security, and openness. Governments, banks, and top OTT providers work with AWS to achieve cloud-based digital transformation. The US government, top large enterprises, and OTT providers have the capacity to upgrade towards AaaS and SaaS systems. As integrators, they integrate AWS's PaaS system to streamline the industry value chain and iterate and operate applications and services. The support of top customers is essential for AWS to achieve profitability with PaaS. Its B2B business is developing in a virtuous circle.
Figure 2: AWS VS Azure: The "being integrated" strategy from PaaS to SaaS
2. Azure: Leading in Platform + SaaS
In 2021, Microsoft's revenue from its public cloud service Azure was US$67.784 billion, surpassing that of AWS.
Azure's growth depended on its full-stack solutions that integrate Azure and its self-developed software systems, forming SaaS solutions for enterprises that opened up the market. These solutions include the office collaboration platform Teams, the Power Platform and Dynamics development platforms, ERP and CRM products, Office Enterprise, Windows Enterprise, and LinkedIn Talent Solution (Enterprise). The revenue of this segment was US$12.2 billion in 2021, and the total revenue of Microsoft's cloud business (Azure + productivity and business processes) exceeded US$80 billion.
Based on SaaS, Microsoft provides Power Platform, an open platform for application innovation. Industry customers can use this platform to develop applications with a top-down approach. Integrating Microsoft's SaaS to form new solutions for the B2B vertical market helps Microsoft make breakthroughs in AaaS.
3. Alibaba Cloud: Innovating in aPaaS to achieve breakthroughs in the B2B market
In China, Alibaba is the best example of replicating AWS's model. In addition, Alibaba has worked with the Zhejiang Provincial Government to create the Zhejiang Government DingTalk service, which is another typical example of cloud innovation.
DingTalk penetrates the B2B market through Alibaba Cloud's PaaS capabilities. Alibaba provides DingTalk video applications and the Alibaba Cloud platform. It has also created YiDA, a low-code development platform that supports direct application development, achieving innovation in new business forms.
Figure 3: Alibaba Cloud + YiDA for a "no-code development" aPaaS platform, enabling open innovation of new government applications
The aPaaS model simply links the original SaaS systems of the industry rather than fully and systematically upgrading and transforming SaaS. Its use cases and value are limited, and its competitiveness has room for improvement as it does not touch the core software of the industry.
Drawing from the strategic practices of the three vendors in the cloud domain, the development of cloud services must enable breakthroughs and innovation in new services in vertical enterprises and industries, and industry leaders must select and integrate the technologies and platforms of cloud vendors during cloud transformation. Leadership in cloud technologies is the foundation of the profit model.
II. Takeaways from Siemens: The intelligent digital transformation of industries
Powerful integrators that lead innovation were critical to the success of AWS, Azure, and Alibaba Cloud. How can leaders in vertical industries break through the ceiling of strategic cloud-based upgrades to achieve success? Siemens provides an answer.
Siemens's strategic practices are an example of the inside-out and top-down Application + SaaS solution innovation model.
Figure 4: Siemens's industrial intelligent solution
Siemens's intelligent manufacturing solution is driven by the IoT applications used in its own manufacturing activities. The company possesses powerful industrial SaaS platforms and capabilities. To achieve intelligent digital transformation, Siemens developed MindSphere, an innovation platform for IoT applications. Different types of industrial IoT devices, such as intelligent control robots, robotic arms, AGVs, and sensors, can be developed on this platform to form Application + SaaS platform capabilities.
On top of MindSphere, Siemens provides Mendix, a low-code development platform for IoT applications to open up MindSphere capabilities. This helps its partners develop customized applications and services based on factory scenarios, forming an ecosystem-based application environment for factories. At the IaaS and PaaS layer of the basic cloud, Siemens integrates leading and standardized cloud capabilities from Amazon and other vendors to streamline the entire ecosystem from connectivity to applications.
Siemens's intelligent digital strategy identifies and focuses on high-value IoT application scenarios, and implements solutions for new services and applications based on a technology maturity assessment. After developing a new business model that can be expanded commercially, Siemens accumulated capabilities for horizontal expansion. This scenario-driven, value-oriented, and step-by-step strategy has helped Siemens surpass GE to become a model for the intelligent digital transformation of the industrial Internet.
III. References for telco cloud: Scale-up and new breakthroughs
Telecom carriers can draw on the experience of the above vendors to develop new strategies for cloud services. The following four models can be used for reference:
Figure 5: Cloud strategy analysis
1. Expanding the ecosystem-based aPaaS innovation model, i.e., the Alibaba model
Carriers can use the PaaS capabilities provided by cloud to make breakthroughs in new application innovation in low- and medium-level scenarios. However, as this bypasses the core software systems, growth potential is limited.
2. Expanding the "being integrated" model based on Platform + SaaS, i.e., the Amazon and Microsoft model
Carriers can identify industry leaders like Siemens for strategic collaboration and embed their cloud into streamlined vertical industry solutions to achieve breakthroughs in new business forms and applications.
In the absence of integrators and software leaders in the industry, carriers must assume the responsibilities of industry value chain leaders to identify application scenarios that can be streamlined, lead joint innovation, and achieve innovation breakthroughs and implementation in vertical domains.
3. Building new SaaS capabilities in new industry domains, i.e., the China Mobile model
Huawei has launched the open-source OpenHarmony and cloud-based openEuler to adapt to IoT. With the number of HarmonyOS users at 320 million, Huawei has made breakthroughs in software localization and promoted the upgrade of local clouds to evolve from PaaS to SaaS. China Mobile has worked with Huawei to innovate applications in IoT based on OpenHarmony.
4. Inside-out breakthroughs based on Application + SaaS, i.e., the Huawei and Siemens model
Carriers integrate cloud based on application scenarios and systems to achieve solution penetration and value-based breakthroughs. For example, Huawei is planning to integrate its internal IT processes and application systems with its own cloud PaaS to form internal Application + SaaS systems. This is to support the intelligent digital transformation of Huawei's business units (BUs) and frontline sales organizations to improve efficiency, optimize costs, and build new competitiveness. Like Siemens, Huawei has combined its internal manufacturing system with Huawei Cloud to form an intelligent manufacturing system based on Application + SaaS.
Carriers can also plan to integrate enterprises' IT systems and production and operations (OSS/BSS) systems with the cloud top-down to achieve breakthroughs in E2E industry solutions and value-based innovation with their advantages in application scenarios.
Figure 6: China's cloud growth path and suggestions for carriers' cloud transformation strategies
IV. Telco cloud's four steps to achieve new breakthroughs in China
In China, the telecom industry must shift from being driven by technology and strategy to being driven by scenario-based applications and value to make breakthroughs in cloud services. The path to achieving breakthroughs can be divided into four steps:
The first step is to replicate and extend Alibaba's aPaaS model based on the maturity of the Chinese market and solution feasibility to achieve new application and value-based breakthroughs. The aPaaS model does not have much potential for growth. To drive industry development, carriers must help the market segment of IT software systems achieve cloud transformation. This segment, including basic enterprise software and specific industry application software, accounts for more than 90% of the value.
The second step is to focus on core software systems of enterprises and industries to build SaaS solutions and platform-based leadership. According to current industry development and capabilities, carriers can initially replicate Microsoft's enterprise software suite, i.e., the model comprising Windows, Office, LinkedIn, and Azure. The Chinese market, for example, has the mature HarmonyOS, Office software such as Kingsoft, and video conferencing and social software such as WeLink and DingTalk, which can be combined with existing PaaS capabilities to achieve SaaS1-based transformation of basic enterprise software.
The third step is to deep dive into vertical industry software systems to upgrade, reconstruct, and integrate them using cloud. Huawei and Siemens's SaaS practices can be used for reference.
The fourth step is to build industry-leading new Application + SaaS solutions and platforms, providing low-code development, ecosystem-based, and open innovation platforms similar to Siemens Mendix. This can realize the sustainable development model consisting of Application + SaaS platforms and ecosystem-based innovation.