Archive for the ‘Cloud Computing’ Category

How Network Effects Are Likely To Power The Cloud

November 6, 2008

The recent posts about the economics of cloud computing between Nick Carr and Tim O’Reilly (here and here) and the panel at this week’s Web 2.0 have created a lot of buzz. The central question is of great consequence: will the emerging “cloud” operating system generate the monopoly rents and industry control that Microsoft enjoyed with Windows? For the sake of argument, let’s assume VMware is leading in private enterprise clouds and that for now Amazon leads public ones with Google, Yahoo, Rackspace, and Microsoft as contenders. It seems likely so far that Microsoft will have a significant advantage in private clouds, though not to the same extent as with Windows. Public clouds seem years further out, so they’re harder to handicap.

But at the center of the argument is whether dominance in either variety will come via Web 2.0 style “harnessing collective intelligence” or the more traditional “network effects.”  I believe we will see Microsoft emerge as a leader in private clouds in 3-5 years and it will be on account of the more traditional network effects.  Market share won’t accrue to the leader by virtue of capturing more information every time someone uses the cloud.  Instead, it will accumulate the way Windows steadily accumulated application and device support over time.

The two critical success factors in cloud computing: virtualizing the hardware and managing the software components

There are two key assets to leverage success in this market. VMware and Microsoft are likely to share self-reinforcing leadership to the first. That is the ability to make a sprawling and heterogeneous collection of servers, storage, and networking look like a single machine. Through automation interfaces, this capability dramatically changes the economics of administering data centers. The other key asset to leverage for success in this market is the ability to combine infrastructure and applications management. That is the critical requirement for turning an IT operation into a private cloud that can deliver rock solid online services.

Leveraging network effects to make the hardware infrastructure look like one big machine

As Tim explains, the cloud has multiple layers. But the bottom-facing utility layer sits on the hardware infrastructure and uses this generation’s equivalent of device drivers to make it look like a uniform pool of resources to the software above this layer. This is VMware’s strength by virtue of its lead in virtualization. Market share begets network effects at this layer in terms of device support, such as the widest range of storage devices and access to all their unique features. However, over time, it’s hard to imagine how Microsoft will fail to leverage its Windows Server and associated Hyper-V unit volume to achieve similar device coverage. So although the utility layer intrinsically has low value add, vendor concentration in private clouds will probably preserve prices and margins to some degree.

Leveraging network effects to deliver end to end application service management

In order to be able to deliver end to end online services, the upward-facing cloud software layer has to orchestrate and manage an untold number of application components, many from third parties, some from corporate developers. VMware has some leading-edge management technology that automatically wraps around applications (courtesy of the B-hive acquisition). But as long as commercial and corporate developers primarily target Windows as their application deployment platform, Windows will have a self-reinforcing advantage relative to VMware.

Microsoft’s self-reinforcing advantages are twofold, building on its leadership both as a deployment and development platform.

  1. First, since it accounts for roughly 80% of X86 server unit shipments, software developers of just about any stripe have to do at least some work to wrap Microsoft management tools around their applications.
  2. Second, because Microsoft is the leading provider of development tools on Windows, it will be able to capture even more management information about the subset of applications that use their tools. Even if both of these structural advantages haven’t yet been exploited by Microsoft, it’s hard to see that situation lasting as they roll out their Dynamic Systems Initiative.

VMware’s best potential for upside in this market is threefold.

  1. First, the extent to which commercial or corporate software developers use development platforms that are independent of Windows likely means neither company has an advantage in collecting management information. Examples of these platforms include J2EE, PHP, Ruby On Rails, Spring, and Hibernate. Some of these platforms don’t require any conventional operating system.
  2. Second, the extent to which VMware proliferates its platform ubiquitously, it may have more of an advantage in managing the infrastructure it sits on and the applications that sit on it.
  3. Third, virtualized environments make it possible to deploy applications in “appliances” that include all the bits required to run, including operating system, middleware, and multiple application components. Today, all these appliances are deployed using Linux because of Windows licensing restrictions. If appliances take off independent of Windows, that would help VMware tilt the platform competition in its favor.

Public clouds are likely to be more diverse, like a set of services, but with the core or anchor services having similar economics

Windows Azure has all the economic characteristics of a private cloud – masking the infrastructure, managing the application services – but with the margin-depressing overhead of tightly-integrated data centers. It will clearly have higher-level services like SQL Services, Exchange, and .NET, but it will be easy to integrate premise-based software as well as third-party services such as’s or Google Adwords.  In other words, if Microsoft delivers on its promise, it will be an anchor platform at a higher value, higher margin layer than Amazon, but with bridges to other services.  Considering how it appears to build on Microsoft’s on-premise software tools and interfaces, it appears likely to have a leading market share.


Controversy over Cloud Adoption and Economics

October 24, 2008

The Economist came out with an excellent special in its Oct 25 edition entitled ‘A Survey of Corporate IT’.  A series of articles explore the future of cloud computing.

The public’s excitement though around cloud computing overrates what is happening and under-estimates the dramatic impact that internal and external clouds will have in the medium term.

Hopes too high on pace of adoption

Our own research with customers indicates that businesses are slow to adopt the public cloud (outside of SaaS of course).  Top concerns are data protection (security, privacy) and lock-in to one cloud provider (lack of standards).  Early enterprise adopters are those with spiky traffic (e.g., media and entertainment) where the cloud provides low baseline cost with infinite scalability.

Our survey also indicates that enterprises are building private internal ‘clouds’ right now which are enabled through virtualization (see prior post just below).

We have heard repeatedly that joining these with external clouds is a few years out, though we are encourged that it’s on VMWare’s roadmap.

Profound impact on IT industry not well understood

Mark Stahlman of Gartner is quoted in the article that “hardware always wins when new demand for computing is uncovered.”  While we agree that lower cost and complexity will drive new applications for computing, we see significant disruption to the IT industry as we know it once cloud computing gathers pace:

  1. Server and storage vendors will face lower margins and a period of lower growth.  Customers move from ‘just in case’ forward buying to a ‘just in time’ capacity on tap model, which is a roadblock to unit growth.  Moreover, concentration of buying power in the hands of a handful of big clouds is a negative for margins, witness the recent Amazon – EMC deal.  We are not confident that the extra demand which Stahlman sees will compensate for that fairly tangible downside
  2. Cloud technologies in the enterprise, growing out of virtualization and service-oriented management, promise at least an order of magnitude greater administrative productivity.  Today, one IT administrator typically manages 20-30 physical servers.  By contrast, these emerging private clouds can manage far more sophisticated and scalable application services without growing staff.  At the extreme, public clouds like Microsoft’s and Google’s leverage one administrator across several thousand servers.
  3. Cloud computing will not provide material profit upside for the providers of large clouds anytime soon (e.g., Microsoft, Google, Amazon.  Rackspace is the only pure-play in the group.)  Cloud provision will be a commodity business except for niche clouds, e.g., ‘high security’ for regulated industries or government customers where you need to prove or restrict the physical location of the data
  4. While Windows may appear to be consigned to the history books today, Microsoft will attempt to change that with its announcements at the Professional Developer Conference next week.  We expect them to create a new set of tightly integrated online services that resemble Tim O’Reilly’s much talked about Internet Operating System.  It is likely to deliver not only dramatically higher administrative productivity for their internal operations, but dramatically higher developer productivity than any of the competing cloud platforms.  Microsoft shouldn’t be counted out yet.
Here’s a view of one of the seven Economist articles, contrasting our view with those of others on the topic.  I encourage our readers to check out the full special report at newstands or online (subscribers only).

Is VMware’s Hyper-Growth Phase Over?

October 19, 2008

VMWare’s Opportunity to Expand Into and Potentially Disrupt Adjacent Markets

By George Gilbert and Juergen Urbanski

We’ve talked to a fair number of VMware customers and investors over the past few weeks.  In the process, we’ve repeatedly been asked whether VMWare is done with its phase of hyper-growth.  While it isn’t likely to grow anywhere near triple digits again, it is likely to grow into a strategic platform provider for both data centers and desktops, though this will require solid execution in a tough macro environment.  Its opportunity comes from its chance to both expand and disrupt a series of large adjacent markets.  The ripple effects of this sea change in computing will also affect many markets which VMware has no plans to compete in, though that will be fodder for future posts.  (Disclosure: the authors own shares in VMware)

VMware’s biggest near-term challenge is that it over-sold both units and high levels of functionality with their enterprise license agreements.  These ELA’s were an attempt to encourage customers to deploy more virtual servers with richer functionality ahead of Microsoft’s entry into the market this past summer.  While this may have had some success in making adoption of Microsoft technology more challenging in some accounts, it has actually had unintended side effects.  It left VMware competing with its own inventory of licenses already on the shelves of its customers.  While VMWare works its way out of that near-term hole, some have lost sight of the bigger picture opportunity.


How VMWare And Cisco Might Bring The Nexgen Data Center Closer

September 14, 2008

Rumors of an alliance between Cisco and VMware have been swirling with varying levels of intensity for some time.

What’s the business problem that a potential alliance needs to address?

1) The most obvious one is that current VMware Distributed Resource Scheduling (DRS), Disaster Recovery (DR), and High Availability (HA) functionality built on core capabilities like VMotion are incomplete. It’s hard to move the Virtual Machine (VM) for spare capacity or to deal with downtime to any random server and maintain the connections to the same isolated data and storage area network (SAN). Instead, administrators either have to open up the network so any server can see any other server and any storage device, a security risk, or they have to manually remap the connections.

2) The less obvious and more speculative problem to be addressed is the management and automation of business services across resources and applications. It is still primitive, though the big 4, CA, BMC, HP Openview, and IBM Tivoli are all hard at work addressing this, and CIOs are looking for the provider of a strategic, new provider.


Economic Fallout From Virtualization In The Data Center

September 1, 2008

This is our first set of hypotheses about how virtualization is impacting each of the layers of the IT stack. We will elaborate and refine them as we continue to collect insights from vendors and our upcoming survey of IT decision makers.

The Ultimate Objective

· It’s more than just the savings from server consolidation and more than just greater flexibility in managing planned (VMotion) and unplanned downtime (disaster recovery, high availability)

· Ultimately, it’s about automating the data center in order to make it easier for companies to deliver online business and consumer services. The iconic example of an online service that complemented a traditional business was the Sabre travel reservation system born in the ‘60s. It was based on purpose-built infrastructure that required intense collaboration between the customer, American Airlines, and the vendor, IBM. More recent examples include Fedex package tracking or the familiar services from Amazon, eBay, and Google. In order to make it easier for businesses to build or assemble end to end services from existing assets, technology vendors have to convert “assets” into “pools of services” using virtualization at every layer of the IT stack.

Looking at the IT Stack Layer by Layer


The Possible Paths From Today’s Virtualization To Cloud Computing

May 26, 2008

George Gilbert

From Virtualization To Cloud Computing

Virtualization and cloud computing have been getting a ton of buzz. But there has been less discussion about how virtualization, now known mainly for its server consolidation capability, will morph into cloud computing. For that to happen, servers, storage, and networks have to all fuse into one virtual machine from a developer’s and an administrator’s perspective. If the rumors that Cisco will buy EMC (and by extension its majority stake in VMware), the industry will have the first vendor who has a credible shot at putting together all the pieces. This post and the one that follows attempt to layout the different ways this transition could unfold. (Disclosure: I’m an investor in VMware).

Cloud computing, previously known as utility computing, is where all computing resources in Internet data centers look to users, developers, and administrators like one giant computer. It offers seamless scalability and radically reduced administrative overhead. There is more than one path from today’s virtualization to tomorrow’s cloud computing, and they’re not necessarily straightforward.

Ray Ozzie highlighted the importance of the transition from virtualization to cloud computing as one of the “three core principles that we’re using to drive the reconceptualization of our software so as to embrace this world of services that we live in… Most major enterprises are, today, in the early stages of what will be a very, very significant transition from the use of dedicated application servers to the use of virtualization and commodity hardware for consolidating apps on computing grids and storage grids within their data center. This trend will accelerate as apps are progressively refactored, horizontally refactored, to make use of this new virtualization-powered utility computing model. A model that will span from the enterprise data center, and ultimately, into the cloud…”


Elaborating On The Scenarios From Virtualization To Cloud Computing

May 25, 2008

George Gilbert

In the last post, I outlined why virtualization was morphing into cloud computing.  In this post, I elaborate on the potential paths it could take.

1.  VMware manages compute virtualization, Cisco manages network virtualization, and another vendor such as EMC or Network Appliance manages storage virtualization:

In this scenario, VMware provides the developer and management interfaces for making all the servers look like a single machine.  But customers adopt Cisco, which recently introduced its Nexus line of switches, as the network virtualization layer.  This product creates virtual networks and connections between computers and storage networks out of a physical switch. There are a variety of approaches to storage virtualization, but for the sake of simplicity let’s say companies choose to deploy EMC or NetApp.  Again, developers and administrators see only one logical device.  The downside of this approach relative to one vendor owning all the virtual resources end to end is twofold.  Software developers have to write to three separate interfaces to work with the cloud.  Second, administrators also have to work with three consoles to make sure software can deliver on its SLAs.

2. VMware becomes the end to end infrastructure:

Today VMware only offers virtual compute infrastructure.  It would still need to offer file system virtualization and network virtualization.  And of course, it would have to build the whole policy-based management infrastructure, or at least a framework other vendors could plug into to complete the platform.  The challenge with this scenario is that VMware has the reputation of being somewhat closed.  So the burden of the storage and network virtualization work, which is non-trivial, would fall mostly on VMware.

3. Microsoft manages end to end virtual and physical resources for Windows shops:

Microsoft has made a lot of noise with its Hyper-V server virtualization product and the emerging suite of management tools it is promising that go along with its management tools for physical resources.  Although it also supports SUSE and Red Hat Linux, it’s possible it could spread its footprint in the Windows environment to support storage and network virtualization with the proper hardware partnerships.  For Windows-only shops, managing all the physical and virtual resources with one set of interfaces for developers and administrators would be ideal.  I don’t know how difficult it would be to accomplish the storage and networking portions.

4. Red Hat or Citrix could do the same as 1 or 2 for Red Hat Linux shops

Although XenServer supports more Linux distributions than Red Hat, plus Solaris on X86, it’s hard to see application developers and system administrators committing to another distribution for end-to-end deployment.  The challenge with a Red Hat deployment as platform for end to end virtualization is that they’ve lost control of their virtualization technology to Citrix.  And it’s hard to see application developers committing to API’s promoted by a firm known for terminal services.

5.  HP Openview or IBM Tivoli manage both virtual and physical infrastructure in mulit-vendor shops:

At the beginning of the decade, this was the default assumption held by industry analysts and probably most customers.  The core assumption for this scenario today is that these are the incumbent vendors for multi-vendor shops and they are the only ones who can bring order to the chaos.  The challenge they face is that they appear to have almost no presence in the market for virtualization infrastructure right now.  Their server businesses are among VMware’s biggest partners.  They are in no position to define the developer interfaces to virtualization products.  A more likely scenario is that they integrate their management tools with VMware, Xen, and Microsoft’s Hyper-V.

6.  Individual vendors like Oracle and SAP write their own policy-based virtualization into their infrastructure:

Oracle already announced support for the Xen server but SAP’s plans for multi-tenancy are less clear.  But in this scenario, each vendor builds virtualization support into its own products.  In Oracle’s case, presumably this would be the database, application server, and the business applications that support them.  In SAP’s case, this would probably mean its NetWeaver application server and the related business applications.  This vertically integrated approach has some challenges of its own.  Customers running SAP on top of Oracle infrastructure, for example, would have conflicting policy-based administration layers trying to ensure SLAs.

7. Cloud computing vendors create their own purpose-built virtualization infrastructure

Rather than adopt the commercially available products, the major cloud computing vendors such as Google, Microsoft, Yahoo, Amazon, and, etc. all build technology specifically for their platforms.  So far, all but Microsoft seem to be pursuing this path.  However, only Microsoft is talking specifically about seamless scalability from running software hosted on the customer’s premise to cloud-based deployment.  If customers are interested in seamlessly migrating their enterprise software into the cloud, other than Microsoft, they’re going to have trouble working with these vendors.  More likely, these vendors are going to be the platforms for a new class of consumer-facing Web software.  Microsoft and other yet to emerge vendors are likely to be the cloud platforms of choice as today’s enterprise software migrates to the cloud.