Is Multicloud the Future? Desirability of Compatibility in Cloud Computing Market

Leading online service providers, as major customers of cloud computing services, are increasingly adopting a multicloud strategy to enhance service delivery across different locations. However, compatibility issues among various cloud platforms complicate the implementation of this strategy. To address this challenge, cloud providers can offer a multicloud management platform that acts as a bridge between distinct cloud environments. Although such a platform can enhance customers’ multicloud experience, it also entails additional costs for the cloud providers. Our paper examines cloud providers’ compatibility decisions and the impact of compatibility on competing cloud providers and their customers. Our findings reveal that, when compatibility is established in equilibrium, cloud providers consistently set higher prices for their resources than when compatibility is absent. Additionally, we find that a cloud provider with greater market dominance always attracts more demand, whereas the rival with smaller market dominance may experience a demand decrease. Interestingly, when a cloud provider establishes compatibility in equilibrium, the competitor’s profit always increases, although customer welfare can decline under compatibility. These insights, along with other findings presented in the paper, can support cloud providers in deciding when to establish compatibility and how to price their resources effectively. Furthermore, we provide guidelines for policymakers on when compatibility could enhance customer welfare, supporting effective implementation of compatibility strategies. This paper was accepted by D. J. Wu, information systems. Funding: S. Kumar thanks Temple Center for International Business Education and Research for partially supporting this research. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2023.01359 .