Monthly Archives: November 2009

Amazon Adding Active Directory Support (mini-scoop)

I was surprised to find an Amazon Web Services booth at the Microsoft PDC yesterday.  They had nothing specific to say regarding additional Windows support or capabilities – at least not officially.  What I did get was a wink-wink, nudge, nudge when I commented on Azure’s integration with Active Directory and other touchpoints.  “This is coming soon,” I was then told.  Then they saw that I had a media badge and that ended the discussion…

Looks like the enterprise is the battleground – which was only a matter of time.  Following the great enterprise roadmap preview I saw last week at the RightScale user meeting in Santa Clara, this is quickly becoming a great market for business computing.

Azure Owns the Enterpri$e

ScreenHunter_08 2009.11.17 20.18

I had a “discussion” on twitter a few weeks ago where I predicted that Microsoft’s Windows Azure would be “the one to beat” in the enterprise. It’s nice that companies are using Amazon and other clouds, but for the 80-90% of Windows/.NET applications that run your typical enterprise, Azure will be king.

I’m at the PDC in LA today and in packed sessions of enterprise developers and ISVs who are genuinely excited about moving their Windows workloads to the cloud. Azure is not targeted towards the big SaaS/Web 2.0/Facebook app crowd. Instead, they are going after the enterprise users who drive the bulk of spending in the tech market.

Consider the following factors:

  1. Microsoft Owns the Platform: Sure, most enterprises have used VMware to virtualize their Windows apps, but they’re first and foremost Windows apps.  VMware should be afraid of losing this dominance as workloads move to the cloud.  After all, if you’re not managing the virtualization, do you care who provides it (as long as it works and is secure)?
  2. Microsoft Owns the Tools:  Nearly all Windows apps are written with Visual Studio and most run on SQL Server.  You can guarantee that there will be tight integration between the Azure platform and the Windows tools.  Deploying your apps to Azure will be WAY EASIER than deploying to any other cloudd.
  3. Microsoft’s ISV Base is Huge: Did  you know that most SAP installations run on Windows?  If  you sell business apps to mid and large enterprises, you probably run on Windows first.  Microsoft is aggressively pursuing ISVs to move to a SaaS model on Azure with great tools and support that will only get better.

Face it – despite their very slow start, Microsoft knows that Azure is a make-or-break situation.  They are innovating, listening to customers, and pouring $ billions into the cloud. They will be happy to let the Web cloud crowd use Amazon, Google and others.

What does this mean for VMware and the VCE Consortium?  I actually believe that VMware will be a survivor in this business, but perhaps with less influence than they have today.  There will always be a need for higher-end solutions for complex deployment scenarios, and VCE is well-positioned for this.  Where you need a lot of customization, transition services, and other help for your more complicated applications (like the aforementioned SAP), a VMware-based cloud will be a great fit.  The topology for a typical SAP application, for example, may be challenging for Azure but is perfect for a VMware cloud (such as Verizon, Unisys, Terremark, and others).  And VMware has a lot of friends.  Lastly, VMware can make workload migration from like-to-like hypervisors easier than moving from them to Azure.  Don’t count them out!

Azure’s not perfect (SQL Azure has serious scaling challenges for analytic workloads), but it’s a strong solution for the bulk of those 2,000-4,000 regular applications that run a business.  And that’s just fine with Microsoft.

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Predicting the Great Cloud Shakeout – Don’t Become CloudKill

Setting aside the shameless cloud-washing that’s going on from some vendors, there are a lot of cloud service providers (CSPs – providers of cloud) today.  Many of those listed in Sys-Con’s Top 150 report are CSPs, while others are providing extensions, tools or services for clouds.  Everybody’s a cloud provider these days – and as Larry Ellison recently said “All boats are cloud boats.”

Every telco, every hoster, every data center outsourcer, most systems providers and many, many startups are becoming CSPs.  After all, there have been thousands of hosting providers over the past several years competing for your business.  A few were huge, several were large, and most were small but often profitable.  I’m convinced this time it might be different — the cloud provider market will be increasingly consolidated with fewer opportunities for new entrants or profit from the tier 2 or 3 CSPs.  The APIs, data center economics and proprietary platforms will make cloud a much more consolidated market.

The chart below depicts the scenario that I see taking place over the next few years, where the number of new entrants and the hyper-efficiencies gained by the biggest (Amazon, Google, Microsoft) result in razor thin margins that can’t be met by most of the players going forward.  The pricing curve will drive adoption, solidifying the economies of scale by these mega CSPs.

GreatCloudShakeout

One of the ways that the biggest guys will get scale is through completely proprietary cloud stacks that have a marginal cost of $0 to deploy new customers.  Contrast that with the vendor stacks from VMware, 3tera, Enomaly, and VMOps.  If you have to pay money to others based on the number of servers you have, the number of VMs or other components, it puts you at a disadvantage.  You can still win, but your profits will be lower and it will be harder to find the capital to invest to stay competitive.

There are the open source alternatives such as Nebula and OpenNebula, and the VMware-free version of Eucalyptus.  Some will go this route, innovate around the core, and survive.  Others will rely on the vendors or community to keep them competitive and some may not be happy with the results.

This goes back to the excellent recent post by James Urquhart on differentiation.  There are many ways that CSPs can differentiate their offerings, but price is probably not one of them (unless you’re in the mega category).  That said, your premium needs to be reasonable – selling cloud VMs at 5x the price of Amazon is not sustainable in the long run.  Relationships, custom services, security, applications, and other content that’s harder to commoditize needs to be part of your strategy.

I predict that there will be many new CSPs over the next 18 months, but even before the new entrants stop coming many companies will exit the cloud business.  Some exits will be via consolidation/merger, but many will just pull out of unprofitable businesses in the face of blistering competition.  My take is that the great shakeout will be in full force in the 2012 time frame, with a bottom reached over the following 5-10 years.

So, will you be a survivor, or will you be cloudkill?

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