Cloud Is In The Eye Of The Beholder

Lots of cloud chatter this week.  A couple of good industry events.  An interesting new startup offering a cloud operating system for private clouds.  Even the ever-outspoken Werner dissing private clouds as "false clouds".

A lively debate, to be sure!

Time for me to offer up another attempted level-set in this discussion.  It's easy to become lost in the details, and more difficult to see what's really happening here -- or, at least, what I think is happening.

Disruption Is In The Air

Clouds disrupt three aspects of technology: how it's built, how it's operated and how it's consumed.  Other than that, it's business as usual :-)

There's excitement in the air, but also certain degree of fear.  The deck chairs are starting to get re-arranged in the IT vendor world.  Hot winds of change are blowing through enterprise IT organizations.  And vast piles of capital are flowing into the new intermediaries -- the service providers.

As all of this happens, I'd encourage everyone to remember the golden rule.

The Golden Rule?

Yes.  I got this from Dick Egan (founder of EMC) many years ago.

To paraphrase: he who has the gold makes the rules.

By this, I mean it's all up to what customers are willing to spend money on.  One dollar equals one vote.  Get enough votes for your world view or proposition, you win the election.

Arcane protestations around "best" or "open" or "scalable" or "true" or whatever your angle might be are completely subservient to this underlying hard and cold fact. 

Fail to garner enough votes, you may be theoretically "right", but you lose -- or at least get marginalized fast.

So, let's translate this into market opportunity, shall we?

Where Are The Big Piles Of Money in IT?

The first big pile of money is a relatively small number of large enterprises: banks, retail, manufacturing, etc.  You've got a highly concentrated number of very large budgets.  They tend to have very strongly held views on their unique requirements.

You either give them what they want and need, or they won't give you any money.  You don't get their votes, and you lose the election.

The first round of cloud offerings from some familiar names (Amazon and Microsoft come to mind) ran into this brick wall with a resounding thunk.  They pitched hard to this crowd, and almost no one voted for them.  They didn't even make the primaries, using the election metaphor.

They appear to be regrouping at present.

The second pile of money is a relative large number of smaller enterprises.  Their IT needs are pretty much the same across the board.  You've got a ginormous number of relatively small budgets.  Surprisingly, many of their IT needs are pretty much the same -- there's not a lot about their requirements that are especially unique or special.

Give them something that meets their needs, is easy to consume and doesn't make their life more complex -- and they're in.  Reaching them is a bit of a challenge, but there's the potential of size and scale at the end of that rainbow.

I can point to a number of cloud-like offerings that are starting to succeed in that second world.  We'll see more growth undoubtedly.

And the third group are the specialized vertical industries.  They not only want to consume infrastructure as a service, they want applications (and embedded expertise) to run their organizations.  And there are many, many examples of successful "cloud providers" to go look at here.

Private Cloud vs. Public Cloud

I spend a lot of time on the first group (large enterprises), and am decently familiar with the other two as well.

So, let's look at the advantages of a private cloud model from the larger enterprise perspective.

One of the things that differentiates private clouds is the control model -- the enterprise is in control, regardless of where the application might run -- internally or externally.  Public clouds, by comparison, generally offer far less control to the enterprise.

I have yet to meet an IT leader who is willing to hand over IT control to an external entity without a whole bunch of checks, balances and assurances.  Especially if they've had a bad experience with outsourcing :-)

Fail to grasp that basic truth, and you'll lose the election with this segment -- plain and simple.

Another thing that interests large enterprise execs is leveraging existing investments.  They've spent a lot getting virtualized already (think VMware) -- this investment simply rolls forward to its inexorable conclusions. 

Compare this with an explicit "do over" on existing applications and associated investment for many of the public cloud models.  Not so attractive from the large enterprise perspective.

Finally, this enterprise group likes choices.  Choices as to whether to simply cloudify existing apps, or write new ones in a tool of their choice.  Choices as to how much to run internally vs. externally that can change quickly.  Choices around which external service providers they'd like to work with, and on what basis.

Choice is good, especially when you're talking very large IT investment bets.

Multiply the number of large enterprises who are pursuing a private cloud approach times their aggregate IT budget and it's already a very large number.  We most certainly will have at least one clear winner in the cloud primaries -- the private cloud model, mostly based on VMware.  It's hard to argue otherwise -- especially if you understand how these people think about the world.

Other Segments?

The large number of smaller IT consumers appear to be actively considering external IT services (e.g. cloud) on an increasing basis.  They'll go for anything -- private, public, etc. -- that meets their needs.

However, since their needs aren't that unique, it's going to be increaslingly harder for service providers to differentiate and thus make decent margins.  They may be a contender in the revenue election, but may find it difficult to make a decent showing in the profitability runoff.

Especially since there's at least one major vendor who essentially competes using "free": Google. 

And it's getting increasingly difficult to argue with "free".  It's not hard to imagine all the usual collaboration and productivity stuff simply going there for this crowd.  And those that compete against free will have to work the space of value-added services above this baseline.

By comparison, the verticals are a completely different story.  The winners here are providing a valuable service that can't be effectively matched using internal IT resources.  Cloud, schmoud -- as one person put it -- it's just a better way of running your business.

If the best way to perform a critical business function was only available as a service, there'd be a compelling argument to consume it that way.  It worked for Salesforce.com, and it's working for literally hundreds of vertical players.

Understand Your Customer

So much time and effort is spent debating amongst ourselves over this term, or that concept.  We -- as an industry -- tend to breathe our own exhaust, almost to the point of being comedic at times.

At the end of the day, people buy stuff and sell stuff.  Find something that someone wants, they'll buy it -- no matter what label we're debating putting on it: private, public, internal, external, hybrid, community, etc.

Because -- at the end of the day -- the ones who win the cloud wars will be the ones that attract the most money -- and win the election.

Have a good weekend, everyone!

Comments

[John Hansen]

I completely agree, when the product you are trying to sell is wanted by consumers, then it will sell. Specifics don't always matter, so long as the product is in demand. Always keep the consumers in mind.