Peter Christy

Citrix Acquires Cloud.com -- What's the Market?

Today Citrix announced the acquisition of Cloud.com.  Cloud.com is clearly a leader at providing an alternative to VCloud, and one based on Open Source and standards. They aspire to be the "Red Hat" of OpenStack.  From this perspective, they fit will into the Citrix Cloud initiatives. But all that said and done, I think it's worth asking the more difficult question about the market. Who buys Cloud platforms and why?

Some years ago, Microsoft argued that there was only a need for a small number of Cloud fabrics because of the economies and market value of scale. Others argued that there would be tens of thousands of Cloud SP's, each serving some valuable niche based on platform (Iaas, PaaS, SaaS), locality and vertical. The later argument is the basis of the energy in the market. Clearly if Microsoft is literally right then there ultimately isn't much of a market for something like Cloud.com.

To try and understand this interesting question better, we've actually talked to a number of SP's. We found some SP's that hadn't thought about the nuances much but also quite a few that had. The knowledgeable ones didn't think that competing with Amazon for what AWS does well was an interesting business opportunity, viewing it instead as a "race to the bottom." They were pretty uniformly focusing insted on some more specific offering, often based on a higher level platform (e.g., supporting SaaS offerings) rather than offering rented VM's.

Now here is where it gets interesting. Many of these more sophisticated SP's also wondered whether over time it would make more sense to build those offerings on something like AWS or Azure rather than having their own under pining fabric. So it's possible that in an important sense Microsoft might be right. The world may only need a relatively few fabrics, just like we need a relatively few power grids or telephony systems. At the same time, those who argued that 10,000 SP's would bloom might be right too, presuming they build on those massive fabrics.

Citrix didn't disclose the price of the acquisition so it's fair to assume it wasn't literally a big deal since it isn't material to Citrix stockholders. If that's true, the industry also may aslo believe that ultimately the market for Cloud.com was limited.

 

It Should Be Quite a Week ......

Next week (July 8 - 12) should be exciting (hardly the summer doldrums). I'll be at Cisco Live in the fast part for their annual analyst event. It's going to be illuminating to hear what the story is now and how it's changed since they hit rough waters. In addition to problems in the core switching business, a lot of the organizational changes recently were motivated to fix the problems done with the goal of optimizing  innovation. So there is no easy answer: the core business has issues, and innovation is more important than ever.

Then, on Tuesday, VMware is making a major announcement about the next release of VCloud. Last time, the new additions in security came at some cost to their ersatz security partners. Presuming that this release incorporates additional "adjacent" functionality, it will be fascinating to see the new implications for the partner ecology. And you have to be curious about why the announcement is now rather than capping the upcoming VMworld meeting.

And on Monday Citrix is going to be talking (at least to the analyst community) about the Cloud. You have to wonder whether this is to keep from appearing reactive to whatever VMware is going to say.

Anyway, it should be an interesting week!

Yes the Cloud Will Cost IT Jobs

One of the topics that was gracefully skirted at Structure 2011 was the question of whether Cloud computing would cost jobs in IT.

The honest answer is of course jobs will be lost:

• Remember that IT is a cost center and cost savings is always good.
• Remember that Cloud technology (public or private) brings automation that replaces manual activity.
• Remember that the use of public Cloud offerings enable a trade between fixed and variable expenses that includes the use of permanent staff.

So it should come as no surprise that the increased use of Cloud technology and architecture will diminish the ranks of some the traditional admins in a data center. The story is by no means bleak for those who work in enterprise IT. The Cloud impact also includes a general up-leveling of people in the data center (e.g., a need for system admins who can understand, for example, application performance in a more complex and shared environment). And, as Randy Mott tells the HP story (Randy Mott's Secret Sauce), he was able to diminish overall IT spending considerably while at the same time increasing the amount spent on innovation and forward-looking activity. So less can actually be quite a bit more.....

 

Cloud Opportunities: The Willie Sutton Thesis

My "Big fat idiot" post has lead to lot of interesting discussions on why enterprise IT (the "Private Cloud") should or should not be considered to be "Cloud." My logic might be wrong, but couldn't be simpler: Just like what Willie Sutton said when asked why he robbed banks, it's "because that's where the money is."

When we work with clients to help them understand emerging market opportunities, our ultimate focus is always to follow the money and understand how a new product or service delivers tangible value to the customer (i.e., is a good investment), and from that perspective, to help them understand in which vertical or use case the aggregate value is greatest. That's how I choose to look at Cloud opportunities as well: where's the money to be made?

In an earlier post (Why Clouds Exist) I argued that we've had a remarkable confluence of events without which neither Public nor Private Clouds would exist today, including these specific contributors:

• The consolidation of applications into data centers that started 10 years ago.
• The victory of Intel's X86 architecture.
• Virtualization enabling mixed platform X86 workloads to be run on a shared server.

But the Cloud isn't about virtualization; rather it's about how virtualization enables long-standing visions. In the Enterprise that means one thing:

• On demand computing: the ability to automate data center operations (take manual activities out of the provisioning loop). All of a sudden the management of many specific applications becomes much simpler, the application quality improves, and the cost of operations goes down.
• Service-Oriented IT: Automate what IT used to do (e.g., buying and racking a server; provisioning the O/S and software load). Automate everything possible. Let the business drive use. Focus on forward-looking enablement. By making this transition, IT becomes a more important part of the business.

Outside of the Enterprise the Cloud has very different benefits:

• Infrastructure as a service: AWS and a credit card eliminates the need to buy and operate computers. This takes capital spend out of new venture development. This is unquestionably a revolutionary change and utterly transforms how systems can be funded, built and operated.
• IaaS in turn enables whole new IT ecologies. iPhone or iPad applications with some server requirement would never have happened without the ability of App developers to exploit AWS for the backend.
• From this perspective, it's also true that applications designed for this new world have very different architectures (stateless, RESTful, ...) that is very unlike legacy application architecture.

I agree with my detractors that IaaS on AWS has very little to do with what is called the Road to the Private Cloud. But that's not my point. It seems to me that Willie Sutton would have chosen the Private Cloud because it seems to me that's where more of the money is. The Private Cloud is as important potentially to CIO's as AWS is to startup, albeit for entirely different reasons. But they are going to spend a boatload of money because that investment will save them even more money!

 

Why Clouds Exist

At times it can be hard to understand what part of the Cloud discussion has substance and what is just marketing fluff. What I want to do here is argue that over the last ten years there as been a "perfect storm" of events that collectively led to today's Cloud world. Clouds are not just yesterday's time sharing or ASP offerings with fresh marketing lipstick. Here's the story.

Consider all that has happened over the period time since the Dot Com bust:

• The Intel architecture "won."  If you were planning a Dot Com venture your funders would probably tell you to use an Oracle database on Sun Solaris. In 2000, many businesses had strategic investments in the IBM Power Architecture (or HP's proprietary architectures). Today there is widespread agreement that Intel's X86 is good enough. Intel won the microprocessor battle. Without that architecture convergence there would be no Cloud.
• The network got a lot better. Broadband access wasn't common ten years ago. It is now. Without modern connectivity and bandwidth there would be no Cloud.
• Wireless networks expanded. Wireless build-out during the period was remarkable on a global basis bringing developing areas immediately into the networked world, bypassing entirely the wired phase.
• Mobile devices became powerful and smart. With Apple's iPhone deal with AT&T, mobile applications escaped the control of the mobile carriers. The evolution in wireless and mobile devices (and the rapid rise of consumerism -- employee chosen devices) has really changed the enterprise application and design model. This transition is an ideal time to also transition the front-end parts of the application to a Cloud implementation.
• We consolidated server applications into data centers. During the Dot Com boom, businesses spent profligately for IT, fearing that otherwise they would be "Amazoned." When the bust came there was broad retrenchment in IT spending (it's a cost center, remember). One of the easiest ways to reduce IT cost is to consolidate diverse applications into data centers where the administration and support can be local and shared. This cost-driven consolidation was an important precursor to today's Cloud world.
• Google demonstrated the promise of very large scale commodity computing. Ten years ago if you suggested building "mission critical" applications on anything other than "enterprise class" servers and storage you would be laughed out of the room. Google changed the game entirely. They showed that the most powerful systems in the world could be built from high-volume, commodity parts, and operated with high availability at remarkably low cost. In part the drive to the Cloud is motivated by the radically improved cost structure clearly visible downstream.
• Intel adopted multicore microprocessor design.  For years Intel converted semiconductor design and process improvements (the train under "Moore's Law") into faster CPU's by making the CPU's more and more complex.  In the end complexity yields diminishing returns. Early in the decade progress looked threatened: new processors got the same task done more quickly, but required more energy in the process. Finally Intel followed AMD and adopted a multicore strategy in which technology improvements are used to put more independent processors on the chip (more "cores") rather than to build more complex processors. It was a risky decision. It wasn't clear how many cores a desktop PC could use productively and the same problem existed in the data center where Windows servers were commonly built to each run on an separate server. The adoption of multicore designs enables a rapid increase the power of a data center of a given size and with a given power budget.
• VMware created commercial quality X86 virtualization and server consolidation occurred. Virtualization abstracts a workload from the specific details of the hardware on which it runs and enabled the shared use of a virtualized server by many X86 workloads with no requirement that they all ran the same "stack."

Virtualization is the magic lubrication that brings it all together: we consolidated applications into data centers; the victory of the X86 architecture and virtualization enabled running many disparate workloads on a shared server; multicore enabled an uptick in performance and power efficency improvements; Google proved that large scale data centers could be built from commodity technology and operated with amazing economics. The rapid evolution on mobile access and devices are transforming the requirements for enterprise applications providing a high-value motivation to change application front end architecture, just at the right time to leverage Cloud implementations.

There is hype and fluff in the Cloud discussion but underneath that there is a remarkable confluence of independent technology waves. In this case the substance is far greater than the hype.

The Cloud Crashes

Just when things were looking so good Amazon suffered a major outage in its Virginia data center. The cause was simple and classic: during a network upgrade an admin fat-fingered a configuration and took the network down. Then the real problem began and in many ways it was like the problem that brought Skype down a couple of times: software design. The critical elements of AWS are all designed to deal with failure and elasticity, but didn't deal gracefully with the shock of a lot of things failing at once. In fact the programmed remediation strategy under these conditions created more load, and made things worse. The AWS team had to take over operations almost manually, and carefully breathe life back in the system over a painfully prolonged period of time. Is this an indictment of the whole idea of Cloud computing: surely not. Crap happens and the worst kind of crap is always what you forget to think about (Cheney's infamous "unknown unknowns"). Over time the AWS design will change less rapidly as more is added and things like this will happen less often. But it was probably a good call to action to the system designers to go back and carefully consider their assumptions in other areas (now that it's a "known unknown:)") .

The Exchange in the Clouds

(If you squint your eyes just right it looks like a bull!) The NYSE, in conjunction with VMware and EMC, announced a Financial Services Cloud offering. This is a really good example of what IBM introduced generically some time ago — an industry specific cloud. What's significant about this announcement is the participation of an industry segment leader (NYSE) and that it's built on VMware/VCloud, not what IBM would have used, not built on Microsoft Azure (although in some ways it is probably the more suitable platform). As I noted in the last issue with respect to Hyper-V, VMware is the putative winner in data center virtualization. Given that the enterprise data center is getting more enterprise attention than the public cloud, it stands to reason that VMware is going to have significant influence in what gets build in public clouds (perhaps multi-tenant clouds would be a better term), and that is certainly the case today. Many other vendors want to ignore this because it may not speak well to their future success (e.g. as a security provider) but that won't make VMware's success and influence go away.

Cirtas: Here Today; Gone Tomorrow

In a remarkably few months Cirtas went from being a very hot start-up, well-funded with a new and experienced CEO to a rumored sale. There has to be an interesting story here and in fact there is. We won't try and recount all the details here (some need to be saved for the HBO movie!) but at the root of what happened is a strategic morality play. Cirtas was building an appliance for convenient use of Cloud storage. The Bluejet appliance sat on an enterprise SAN and looked and functioned like a SAN device. At the "back" it also connected to a set of different Cloud storage offerings over the Internet, and intelligently migrated the data to the Cloud while keeping the most used data on local disk caches. The core Cirtas team came from Citrix through the Orbital Data acquisition and they were really strong in the WAN issues. They reasoned that an initial product that was very good at dealing with the WAN would provide market differentiation, and the SAN parts (which they didn't have similar background in) could be fleshed out over time, assuming that they could find and focus on specific use cases rather than general SAN use. The reasoning turned out to be basically flawed: the SAN part has to be feature rich from the start. In contrast, the WAN parts can be learned piecemeal and improved over time. Underestimating the time and expertise required to build the SAN front-end proved to be fatal when it became clear that discreet, high value use cases didn't really exist. What the market wanted was a general purpose device that bridged on-premise SAN storage into tier 4 storage in the Cloud. As the old saying goes, if you're a carpenter who is very adept with a hammer everything looks like a nail. If you're a WAN expert cloud storage looks like a network problem. Being wrong may prove to be fatal.

Microsoft Does CRM

This week Microsoft rolled out Dynamics CRM 2011. Microsoft Dynamics (the old Great Plains product) has never been a strong market force in ERP but clearly Microsoft has much bigger ambitions here. CRM 2011 is being rolled out first as a Cloud offering (40 markets, 41 languages) and with an on-premises offering following very soon. Microsoft has aggressively invested in tools to move customers from "legacy" systems (including explicitly Oracle and SalesForce.com) with partner incentives to do those conversions (even though the product ultimately is a Cloud offering). The offering will be cheaper than SalesForce.com as well ($35/user/mo). Microsoft emphasizes integration with Office and Outlook (including Lync and of course Excel for analytics) and other Microsoft technologies like Silverlight. I'm sure it will be well integrated with Azure as well. The Dynamics business has been led by Kirill Tatarinov who drove the first five years of the System Center evolution, and has been driving this offering for the last three years. Of course the proof of the offering will be in the competitive encounters with SalesForce.com. I'm sure Marc Benioff won't take this sitting down. It should be a fun battle to watch. 

"Ticket to Ride"

The Butcher, Baker and Candlestick-Maker Clouds? In the most recent IBM's quarterly Cloud updates for the analyst community, a lot of the discussion was focused on the idea of an industry specific Cloud. IBM provided substance and the focus is quite different from an "Amazon" discussion. The idea is to create synergies with real monetary return when the Cloud tenants share an industry focus: (1) Basic workflow synergies: industries share common subsystems and use common middleware. Consider the advantages if all of this already exists as a service in a Cloud platform. (2) Application structure synergies: For some time IBM has been working to standardize application templates. For all commercial applications there are only a few tens of general templates required, and within a particular industry, only a subset of those. IBM believes there is great value in herding customers and application suppliers toward the use of these standard forms. An industry specific Cloud will include specific support for these templates (application componentization, industry specific middle ware, industry specific SaaS elements). This in turn would reduce the cost and complexity of the applications and their use, and increase the opportunities for cost-effective integration. (3) Security and Compliance: Security and compliance are usually given as inhibitors to the use of Cloud solutions, but IBM argues (quite correctly) they can be solution accelerators. An industry specific Cloud would (by definition) encompass applications and services that were all subject to the same externally imposed security and compliance requirements. IBM will provide a technical and management architecture that is designed to meet these requirements (IBM has extensive experience in this because of all the architecture and development services performed for their customers). Just as Terremark argues correctly that they win Government business because of the security services they imbed in their Cloud offering, IBM is right in seeing this as a real plus rather than a minimized liability. All in all this is a very interesting offering especially building on IBM's business franchise. It wouldn't make much sense for Amazon to offer industry-specific Clouds but neither would it make much sense for IBM to offer an Amazon like service since they choose to focus on higher contribution components.