Thursday, January 21, 2016

OpenStack Cloud Bubble Has Started to Burst

It was a couple of years ago in march 2014 when we wrote about the small user base and penetration in the market of OpenStack, mostly compared with the investment made by vendors and VCs. At that time we estimated that the investment in OpenStack was approximately $300 million per year. This was quite conservative, there were other estimates above $0.5 billion per year, some reaching to $1 billion per year. These estimates mainly include development cost and marketing of upstream OpenStack community. Additionally, there are other direct costs from many companies also allocating resources to develop their proprietary OpenStack distribution, training or documentation, a big overhead in indirect costs, and of course opportunity costs.

Some months after this post, in September 2014, 451 Research made public a market analysis forecasting that OpenStack market was growing from $883 million in revenue in 2014 to $1.7 billion in 2016, with service providers with clouds enabled by OpenStack representing 73% of that revenue total. This revenue is relatively very small in comparison with the investment being made and the revenue of the market leaders such as VMware ($6 billion in 2014 ), AWS (now close to $7 billion a year) and Red Hat Linux (now close to $2 billion a year). Cumulative investment was disproportionate to any realistic return. It just does not seem feasible that there is room for several vendors to profit from OpenStack. There were sufficient indicators, for those willing to open their eyes, showing that OpenStack was in a bubble.

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