Buried in this piece on Cisco doing some public cloud stuff is this little description about how the shift to public cloud creates a strategic threat to incumbent vendors:
Cloud computing represented an interesting opportunity to equipment companies like Cisco, as it aggregated the market down to fewer buyers. There are approximately 1,500 to 2,000 infrastructure providers worldwide verses millions of businesses; reducing the buyers to a handful would lower the cost of sales. And, as cloud sales picked up, reducing on-premises equipment spending, those providers would represent an increasing share of sales and revenue.
The problem with this strategy, as companies like Cisco Systems and Juniper Networks discovered, is the exchange of on-premises buyers to cloud buyers is not one to one. Cloud providers can scale investments further than any individual enterprise or business buyer, resulting in a lower need for continually adding equipment. This phenomenon is seen in server sales, which saw unit shipments fall 6 percent last year and value fall nearly twice as fast.
This re-arranging of one of Porter’s forces (the buyers get more power because there are fewer of them) is one of the reasons I go on about “IT - SaaS = what?”; namely, selling to SaaS/cloud companies is not going to be as fat as selling to the more numerous and inefficient (read: spends more money) on-premises market.
A nice illustration of the problem shifting your customer base from on-premises to public cloud