Cloud // Infrastructure as a Service
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7/15/2013
11:36 PM
Charles Babcock
Charles Babcock
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Cloud Oligarchy? Not Even Close

The cloud community is busy debating how Amazon and a few other large vendors will dominate cloud economics. But it's far too soon to count out the newcomers.

VMware Vs. Microsoft: 8 Cloud Battle Lines
VMware Vs. Microsoft: 8 Cloud Battle Lines
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Owen Rogers isn't exactly a household name, but his recent report for 451 Research has drawn plenty of comment. He tried to establish the fundamental economics at work in cloud computing in a July 8 piece titled: "Commoditization Brings Transformation: Cloud Economics Will Drive Change, Whoever You Are."

If you'll notice, that title isn't filled with judgments about the ultimate result. But when you tell people that change is coming, there's likely to be more than one interpretation that it's going to be bad.

Three days later, Forbes' contributor Joe McKendrick joined the discussion under the headline, "Cloud Computing Market May Become an Oligopoly of High-Volume Vendors." My InformationWeek colleague Kurt Marko added his analysis July 11, "In the Cloud, Goliaths Generally Thump David. Sorry Underdogs," citing some of the reasons why big vendors will overwhelm small ones in the cloud.

All of this is good discussion and echoes my own concern that cloud computing will give way to the pattern that we've seen in previous phases of computing: A few big vendors will come to dominate the new era, just as they did the old. The saving grace is that it's likely to be a new set of masters, I guess. But I'm going to flag down this train of thought right there. The cloud is different from the previous phases of computing. For one, it's dominated more than we realize by the use of open source code and low cost of entry-level, commodity parts.

Second, cloud computing isn't one thing, even though we keep referring to it as single entity. The essential thing about the cloud is that it's a new way of distributing compute cycles to end users that takes advantage of the network and commodity equipment. If the cloud were one thing, you'd be able to tell me what constitutes a cloud data center. From looking at them, I conclude there is no blueprint. They are simply the latest data centers that we can build that take advantage of commodity servers and low-cost operations.

[ Cloud services pricing remains an apples to oranges comparison for users. See Why Cloud Pricing Comparisons Are So Hard. ]

Granted Amazon Web Services enjoys first-mover status. It has a bold and aggressive parent company in Amazon.com and funding that springs from the cash flow of what is becoming the globe's largest retail business. Microsoft, with its Windows and Office desktop monopolies, is also a giant fully committed to providing cloud computing. IBM, a dominant player in the past, is coming more persuasively into the market with the addition of SoftLayer. And Google, with its dominance in search, became a potential giant of cloud computing when it announced Google Compute Engine.

"With large players coming online with similar types of services, we may be starting to see a consolidation of the primary cloud computing market into the hands of a few powerful vendors," wrote McKendrick in Forbes. "This may herald the emergence of an IT oligopoly," he concluded, citing 451's Rogers.

Marko wrote: "Even though the cloud services industry is still young, the low-hanging fruit has already been plucked. New entrants trying to compete on price or tailored services for specific markets are reaching for higher and higher, and thus sparser and sparser, limbs ... From this perspective, the cloud Goliaths with their rich and ever-expanding platforms trump the rock-slinging Davids hawking raw compute capacity."

These are good observations, just premature. We do not have a cloud oligarchy. We're not even close to one. Google didn't have a general-purpose cloud product until June 2012 and it's not clear to me yet that it's got the critical mass to compete with Amazon. IBM was so far behind that it had to buy its way in through SoftLayer, an acquisition that was completed a week ago and still doesn't mean IBM is the next member of the oligarchy. Microsoft is a cloud player, certainly for its existing customer base, but it's got its histrionics versus open source code to live down. Do you see open source developers flocking to Microsoft Azure? Well, the future cloud oligarch needs open source developers, lots of them, to call it home.

I'm more intrigued by Heroku, Engine Yard, Joyent, Red Hat's Open Shift, VMware's Cloud Foundry and newcomers like DigitalOcean, which went from 100 to 7,000 servers between December and June. How could the oligarchs allow it to get away with that?

For the last word on this, I turned to Cloudonomics author and Telx senior VP Joe Weinman, who has also read Rogers' 451 Research report and comes away with a more mixed conclusion. Rogers does suggest the commodity service economics of the cloud will create a few large providers who compete on economies of scale, he agrees. "But that doesn't mean there won't be a long tail of other providers, competing on other grounds." One would be proximity. A videoconferencing service needs a data center close to its customers to reduce latencies inherent in distance. Likewise, interactive gaming or video supply companies will seek ways to distribute their wares close to customers.

Weinman came up with an analogy: "Will the Marriott, Starwood and International hotel chains exist in the future? Certainly. So will bed and breakfasts," he said. If you read him carefully, Rogers is saying something similar, that a balanced system will emerge with a mix of large and small providers.

In my own view, today's leaders may one day be imprisoned in the cloud architecture that they so aggressively built out. A newcomer, taking advantage of technical breakthroughs and the benefits of Moore's Law, may be able to outflank them faster than they can rebuild.

I fully expect an oligarchy one day to form in cloud services. The problem is, I only see one sure member of it at this point. This is a young industry, with many options still being tested. As Rogers noted at the end of his analysis, "The problem with forecasting the future is that nobody knows for sure what will happen next."

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cbabcock
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cbabcock,
User Rank: Strategist
7/17/2013 | 10:08:51 PM
re: Cloud Oligarchy? Not Even Close
Microsoft would qualify as a cloud oligarch if you could tell how much of its infrastructure was devoted to IaaS versus Office 365, Bing, Sharepoint and various other entrenched, Windows-related services. Applications of the future that will run in the cloud are not necessarily being developed with Microsoft technologies. On the contrary, they show a distinct prejudice toward employing open source... IBM would qualify as a cloud oligarch if it were truly devoted to the commodity, x86 market but a huge part of the company is still devoted to producing the last chip architecture, Power, which competes with x86. That doesn't mean IBM consultants aren't smart enough to figure out how to help many enterprises implement various forms of cloud computing. It just means half the company is competing with cloud and the other half supporting it. Future cloud oligarch? Maybe, but I doubt it. By rights, Google ought to be a cloud oligarch. And it may be one day. But it isn't yet. Anybody care to explain to me why?
Owen Rogers
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Owen Rogers,
User Rank: Apprentice
7/18/2013 | 2:16:13 PM
re: Cloud Oligarchy? Not Even Close
I wonder if Google initially focussed its cloud efforts on PaaS (App Engine) and SaaS (Gmail, Google Docs), hoping to attract a high volume of greenfield enterprises seeking easily-implemented applications, thereby providing Google with a high degree of lock-in. Perhaps the PaaS market didn't live up to expectations (therefore not delivering the volume or lock-in) and so Google were forced into trying to "steal the show" back from AWS with the introduction of Compute Engine.
David F. Carr
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David F. Carr,
User Rank: Author
7/18/2013 | 12:23:38 PM
re: Cloud Oligarchy? Not Even Close
Excellent point about cloud being "more than one thing" -- the SaaS, PaaS and IaaS businesses are very different from each other, even though some vendors play in more than one segment, and the approaches are widely varied. Everyone is trying to figure this out as they go.
cbabcock
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cbabcock,
User Rank: Strategist
7/18/2013 | 4:24:46 PM
re: Cloud Oligarchy? Not Even Close
451 Research's Owen Rogers in his comment below suggests Google might have put misplaced emphasis on PaaS with App Engine, instead of going straight to Compute Engine. I agree. But why did it do that? It's heart clearly wasn't in competing for the infrastructure as a service market market at the start. It did for cloud users what was good for its own developers, and not a lot more. It was slow to supplement its preferred Python with a second language, Java. So is Google's heart in it now? Google answers yes, but serious cloud users appear to be taking a wait and see how much more Google does before they commit to it. Google can accomplish what it chooses to in cloud computing -- it's an undisputed innovator in the field -- but even so, cloud users are trying to be sure they know Google's mind is made up after seeing periodically that its changed it. Charlie Babcock
ChrisMurphy
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ChrisMurphy,
User Rank: Author
7/19/2013 | 9:01:40 PM
re: Cloud Oligarchy? Not Even Close
All the big established vendors shot past as the cloud infrastructure market. They saw commodity and wanted to start up the stack, I suspect. Amazon saw cloud infrastructure was what buyers wanted.
cbabcock
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cbabcock,
User Rank: Strategist
7/24/2013 | 12:31:58 AM
re: Cloud Oligarchy? Not Even Close
I'm adding a comment on Joe Weinman, Telx senior VP and author, cited in this piece. It comes from 451 Research's Owen Rogers, "Joe Weinman's hotel analogy excellently
communicated my view of the future cloud (or at least IaaS) world. I believe a hotel analogy for IaaS is far better than the old electricity consumption analogy, in fact I used such an analogy in a couple of open-access reports published last month on cloud pricing." Owen Rogers
dericktownsend
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dericktownsend,
User Rank: Apprentice
7/30/2013 | 5:50:59 PM
re: Cloud Oligarchy? Not Even Close
The future of cloud is hybrid and multi-vendor. Knowing this, it will be quite some time before a cloud oligarchy emerges, especially as enterprises seek ways to effectively manage security, governance, and compliance to scale. At the end of the day, cloud computing canG«÷t provide much value without policy enforced governance compliance and security in addition to automation. Until enterprises get serious about managing hybrid cloud governance they will not realize the true benefits and no oligarchy will change that. For more: http://www.servicemesh.com/res...
Multicloud Infrastructure & Application Management
Multicloud Infrastructure & Application Management
Enterprise cloud adoption has evolved to the point where hybrid public/private cloud designs and use of multiple providers is common. Who among us has mastered provisioning resources in different clouds; allocating the right resources to each application; assigning applications to the "best" cloud provider based on performance or reliability requirements.
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