Tuesday, August 11, 2009

Is the Cloud Game Already Over

From January 25, 2009

This is the thought that crossed my mind a few weeks back as I pondered Amazon's beta release of the Amazon Web Services Console. The reason the game might be over is because Amazon is apparently so far ahead of the competition that they can now divert their engineering attention to the management console instead of core platform functionality. To me, this signals a competitive lead so vast that absent quick and significant re-direction of resources and potential strategic acquisitions of capability, Amazon's competitors are doomed in the cloud space.

I saw this dynamic once before during my time at Red Hat. Red Hat had such a lead in the market with almost total mind share for the platform (Red Hat Linux, now Red Hat Enterprise Linux), that the company could launch a strategic management technology, Red Hat Network, while others were grasping for relevance on the core platform. Note that in the case of Red Hat, no one else has come close to their lead in the Linux market space. And no one else has really gotten around to building out the management technology that was offered by Red Hat Network 8 years ago.

Consider these other challenges facing Amazon's competitors:

1. Lack of machine image definitions - Amazon published the AMI spec for EC2 about 2 years ago. To my knowledge, all of the competitors that use virtualization (Amazon uses Xen) are still requiring customers to boot a limited set of approved "templates" which must then be configured manually, and subsequently lose their state when retired.

2. Proprietary versus open - when you require the customer to program in a specific language environment that is somewhat unique to a particular "cloud" platform (ala Google with Python and Salesforce with Apex), you dramatically limit your market to virtual irrelevance out of the gate. Amazon doesn't care, so long as you can build to an X86 virtual machine.

3. Elastic billing model - until you have a platform for billing based upon the on-demand usage of resources, you don't have a cloud with the key value proposition of elasticity. You simply have hosting. To my knowledge, most competitors are still on a monthly payment requirement. Hourly is still a long way away for these folks.

Perhaps I am wrong, but I bet I am not. If I am right, the day will come in the not too distant future (after the equity markets recover) when Amazon spins out AWS as a tracking stock (similar to the EMC strategy with VMware) with a monster valuation (keeping this asset tied to an Amazon revenue multiple makes no sense), and the valuations on the technology assets that help others respond to Amazon go nutty (witness the XenSource valuation on the day VMware went public). I say "Go, Amazon, Go!"

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