The stacked graph by service is as follows (click through for full size image):

And here is a slightly different view that unpacks the various services a bit:

Obviously the EC2 service, which encapsulates a number of sub-services (e.g. ELB, EBS, Elastic IP), has the lion’s share of updates, but every service is being touched on a regular basis.

Perhaps most importantly, in 2010, every single service had significant feature updates and releases.  This, I think, is the crux of one of Amazon’s key competitive advantages.  A fast-firing multi-service release cycle that allows them to continue to plow ahead of others in the market place.

In my Cloud Connect 2011 Keynote, I panned the so-called “enterprise cloud” model for building clouds.  This is the model epitomized by traditional (I prefer “legacy”) enterprise vendors who are trying to help cloud service providers capture the non-existent legacy application outsourcing market.

Perhaps enterprise clouds will ultimately be successful, but can anyone really see a legacy enterprise vendor providing this level of release cycle across 10+ services on a monthly, quarterly, or annual basis?  It requires a whole different kind of DNA; the kind we see in large web/Internet operators and cloud pioneers such as Amazon and Google.

Meantime, AWS continues to release feature after feature that reduce the impedance mismatch for legacy applications to adopt their cloud.  Mark my words, while greenfield apps are driving AWS today, legacy apps will eventually need clouds to move to and I suspect that by the time we see mass adoption (2-3 years out most likely) AWS will be as attractive a target as an ‘enterprise cloud’, but at a fraction of the price.

Spectrum of Cloud Computing Providers

There will soon be two major paths for cloud computing providers: commodity and premium.  If you read my series, Cloud Futures, you’ll know that I broke down cloud service providers into three major categories: service clouds, consumer clouds (previously ‘commodity’)[1], and focused clouds. In retrospect I realize now that there are possibly four, not three major categories. The missing category is premium enterprise clouds. Previously I had lumped these under focused clouds, but I now realize that, in fact, there are likely to be so many of these that they deserve their own category. I’ll go even further and suggest that in terms of markets targeted, there will really only be two ends of a spectrum: enterprise and non-enterprise.

Most clouds will fit towards one of this spectrum or the other. In essence, you’re targeting small businesses (startups, SaaS providers, and SMBs) or you are targeting larger businesses (SME or Fortune 2000). The former are extremely cost conscious while the latter may have a number of other equally important drivers, such as security (e.g. VPN access), high availability (HA), SLAs, application portability without modification[2] and similar. Clearly large enterprises will consume services at both ends of the spectrum, but they will have many use cases (mostly ‘production’) that can only be serviced by a premium service running VMware’s forthcoming vCloud product.

This means we will have a large bifurcation in the cloud computing space with two very different kinds of solutions. Clouds will either target commodity customers or premium customers.  Very few clouds will actually fit in the middle of this spectrum initially, although I expect providers on both sides will grow towards the middle.  In quite a few cases (AT&T and Rackspace come to mind) cloud providers will build two offerings at both ends of the spectrum, but we haven’t seen this quite yet.

Premium vs. Commodity

Ultimately, commodity clouds will be forced via pricing pressure to continue to drive down capital expenses and operating costs.  As we can already see in the public cloud space, providers have largely standardized on the Xen open source hypervisor.  This is the de facto standard because it is free.  In contrast, premium enterprise clouds will necessarily spend more on their infrastructure to provide advanced features like HA.  Their pricing will reflect this, but it also means they will use VMware’s products and hence have unique opportunities for integrating with internal clouds at large enterprises (more on this below).

This table summarizes the differences.

Enterprise Clouds Are Already Here

If you were paying close attention this year, you’ll have noticed that both Savvis and Terremark are working on or have delivered enterprise cloud offerings.  There are many  more on the way.  These providers are delivering VMware-based platforms specifically for enterprise customers and pricing reflects that[3].  Terremark even labels itself ‘The Enterprise Cloud’.  I had hoped to release a full review of Terremark, but due to time constraints haven’t been able to complete it.  If you click on the screenshot to the right it will take you to a set of Flickr photos that are an extensive tour of the Terremark Enterprise Cloud product.

What’s most interesting about this is that two major players have entered into this space and at the same time VMware’s vCloud is unreleased.  Nor are there any other shrink-wrapped software packages for building a cloud based on VMware.

VMware’s Dominant Position for Building Internal Clouds

But why VMware?  What’s so important about it?  For those of you who may not be aware, VMware’s enterprise-class hypervisor (ESX) is the de facto standard inside the enterprise, in much the same way the Cisco routers & switches are a standard.  This means that as enterprises move towards building internal clouds (an inevitability), they will be more likely to build clouds based on VMware’s ESX, which they are already comfortable with.

A-ha! Surely there is a startup or major player who has already delivered a software offering that allows enterprises to build their own internal clouds?

No. There is no credible contender to VMware’s crown.  Even though they did not see cloud computing coming, even though they are a large organization and slow to move, there is still not a single credible contender with a released product that manages the VMware ESX hypervisor and allows you to build a real self-service internal cloud.  Nada.  Zip.  Zilch.

There are some prospects like Platform’s ISF[4] that could be contenders, but by the time they are released in the wild, VMware’s vCloud will also be released.  The window of opportunity for making significant inroads into the enterprise is closing quickly[5].  Once VMware’s vCloud is released, who will risk averse IT managers and CIOs in enterprises go to?  A new player or someone already trusted and embedded like VMware?  There is no doubt.  They will largely select vCloud unless VMware fails to execute.

Can VMware Fail to Execute?
Is it possible for VMware to fail to execute in it’s sweet spot?  It’s area of expertise?  Yes.  Is it likely?  No.  If you look at the DNA of the business they already have the kinds of talent necessary for building a strong product in their acquisition of Akimbi, the folks upon whom the VMware Lab Manager product was built.  That team already knows how to build a self-service portal and a large scale VM deployment system including scheduler as these were integral for the lab manager product.

In other words, the writing is on the wall.

The Power of Internal + External Clouds
For many smaller business, moving everything to the cloud will always be a very compelling solution, but for the enterprise it will never be acceptable.  For various reasons (regulatory, political, legal, and others) enterprises must maintain a certain amount of infrastructure.  Also, I’ve heard fairly compelling arguments that large enterprises have sufficient scale to build and operate their own clouds at a cost advantage to external clouds.  Regardless, some capacity will reside outside of the firewall.

The usage of external clouds will largely be dictated by use case and in order for enterprises to derive maximum value from both internal and external clouds they will want a single internal portal that manages both.  They will want minimal friction for internal customers to be able to pick the best cloud for the job/cost.  It will also be important to allow some amount of portability (moving VMs and their workloads across the firewall).

While this doesn’t require a VMware hypervisor on both sides of the firewall, it will be greatly facilitated if that is the case.  Tools written against the vCloud API will likely work with vCloud-based external clouds without modification.  There is simply far too much synergy possible once both internal and external clouds are based on the same cloud platform.

Summary
There will be two paths for clouds: premium & commodity.  Premium clouds will focus on the enterprise and delivering value they are concerned about.  Commodity clouds will largely be forced to compete on pricing and features irrelevant to the enterprise.  VMware’s vCloud will be the dominant player behind the firewall because there is no credible contender.  The synergistic effects of internal & external clouds being based on the same vendor’s software will provide powerful and compelling reasons for enterprises to adopt those external clouds.  Enterprises will use commodity clouds, but mostly for batch processing and non-production workloads that are pricing sensitive.  The bulk of enterprise cloud spending will be on vCloud-based public cloud providers.

1. Virtualized
2. Outsourced
3. Utility Charge Model (pay by the hour, with no contracts)

My purpose in this particular post is not to pick on George.  He’s a super sharp guy, who literally wrote the book on Cloud Application Architectures (with an Appendix by yours truly).  George has a point of view that is worthy of consideration; however, I disagree with it and I want people to understand why internal clouds are still ‘cloudy’.  More importantly, I’d like them to know that internal clouds are going to be where some of the biggest game-changing in the cloud computing space happens.

The Problem with the Outsourcing Argument
The fundamental issue with the outsourcing argument is the perspective viewpoint.  It’s best summed up, again by @GeorgeReese as “not my problem“:

@samcharrington Not having hardware or assets to manage is the most interesting part of the cloud (not my problem)

What I think George means here is that from the perspective of the cloud consumer a primary value proposition of the cloud is that it abstracts and hides away the details and pains normally associated with delivering these services.  He argues this is why you can never have an internal cloud, because you own the hardware, you must deal with the ‘pain’ associated with managing those assets, both operationally and fiscally.

This is where the argument breaks down.  If I’m a developer in a departmental team inside a large enterprise and I can go to either a public cloud or an internal cloud and the experience is just the same then from my perspective they are both clouds.  Both are “not my problem”.

One can argue that from the perspective of that particular business it’s clearly got ownership and as an entity that means their internal cloud is ‘not cloud’, but if we spend only a few seconds looking at this it breaks down quickly:

• What if the ‘internal cloud’ is run by someone else (like IBM)?
• What if it’s part of a separate business unit that is spun out into a separate business?

The notion that outsourcing is special about cloud is wrong, but the notion of “it’s not my problem” is spot on.

It’s Not My Problem
Perhaps one of the more interesting arguments of the anti-”internal cloud” crowd is the “it’s not my problem” claim.  I think this is just another way of saying ‘self-service‘.  Again, as is becoming a mantra for me, self-service means on-demand, pay-as-you-go, and use-only-what-you-need.  The consumer of cloud services does not want to deal with the pain of running the service itself.  They simply wish to consume those cloud services quickly and efficiently.

This holds true whether the cloud is internal or external.

What Problem Does the Internal Cloud Solve?
There is an imminent issue for large enterprises around how they deliver IT services internally.  The problem is that they are now under increasing competitive pressue from external services such as public clouds and Software-as-a-Service (SaaS) offerings.  This trend will continue, but it’s extremely unlikely that the CIO and internal IT folks are going to give up the ghost and walk away from their jobs.  It means that they are going to get competitive instead.

Many vendors, right now, are gearing up to deliver offerings that will allow IT departments to deliver competitive internal cloud services, including VMware’s vCloud, EUCALYPTUS, Nirvanix, ParaScale, and many, many more.  CIOs everywhere are already engaged in evaluating and understanding these new software packages that they can use for internal cloud offerings and yet this is simply the tip of the iceberg.  It’s imminent that enterprises (and others) will adopt these technologies and capabilities in order to remain competitive.

So what is the problem the internal cloud solves?  As a wise person (@samhahn) once said to me, there are only a couple of reasons someone buys a new product: to get a promotion or to keep their job.  Internal clouds allow CIOs to remain relevant and IT departments to compete against external services.  This is a great thing!

… and from the internal enterprise consumer’s perspective, it’s still “not their problem”.

(Re)defining Cloud
I’m certain to provoke more controversy with this since so many folks can’t agree on what ‘cloud’ is.  Originally, I was inspired by a hallway conversation turned blog post of James Urquhart’s assertion that cloud is really “just an operational model”.

For me there are two aspects to this operational model: one from the perspective of the consumer and one from the perspective of the cloud operator.

From the perspective of the consumer, any cloud service is a self-service offering that they can consume as they desire.  Meaning that there is minimal or no lock-in.  They can pay as they like (utility pay-by-the-hour model, pay one year in advance, use a PO, use a credit card, etc).  There are no or minimal contracts so they can leave any time.  The services consumed this way are always on-demand and the consumer can get up and going with little or no interaction with a human.  In effect, consumers get instant gratification.

From the perspective of an operator, clouds must be highly automated, requiring minimal operational overhead.  How else can they deliver the self-service that their consumers desire?  If you need to pick up the phone to call a sales person the operator has #failed.  If you need to spend a week reading the documentation, the operator has #failed.  As on-demand services, clouds must be delivered in a highly automated and relatively[1] easy-to-use fashion.

Those are the two aspects of the cloud operational model in my mind:

1. self-service operational model for consumers
2. highly automated, low opex, operational model for operators

The Sum of the Parts Argument
Jumping back to the earlier twitter thread, George Reese, in particular, argued that while outsourcing, virtualization, and the utility charge model aren’t individually ‘cloud’, together they are more than the parts and create a ‘cloud’.  Hopefully my definition above rings true with you.  If it does, then it’s clear how adding these three components together doesn’t create a cloud.

Virtualization is simply a means of creating multi-tenancy in clouds.  People like Google and Salesforce.com don’t use virtualization at all.

The utility charge model has been a red herring about the cloud from day one.  Many people do want to pay by hourly usage, but just as many want to pay in advance for a year and receive a discount.  In fact, that model is even possible for some real world utilities, such as gas and electric, but it’s often overlooked by people’s zeal.  Hourly pay models aren’t new or interesting.  They are simply cost effective and in fact, provide one aspect of ‘self-service’ by allowing the customer to be in control of their payment model.  Control is what’s important to the consumer.  The utility charge model is just one aspect of control and hence a sub component of ‘self-service’.

Conclusion
Cloud computing is an incredibly disruptive force that is going to provide the first real competition to internal IT resources ever in the short history of modern computing as we know it.  Pressures will increase, forcing CIOs and IT departments at large and small businesses alike to compete effectively.  Consumers will look to both internal and external cloud resources based on needs and both corporate & security policies.

Some folks think that there is no such thing as a ‘private’ cloud.  By definition all clouds are public.  Unfortunately, some times the confusion is around whether a cloud exists internally or externally rather than if it’s public or private.  Yet, even in the case where this confusion doesn’t exist, the notion of a private cloud is sound.  What it means is that there is value in cloud technologies being deployed behind the firewall in a corporate environment.  Why is this?

It’s because cloud computing provides it’s primary value through self-service.

Enterprise IT, Utilization Rates, Hoarding and the Procurement Nightmare
Today’s average enterprise IT shop has arcane interfaces for getting help, usually through some kind of help desk ticketing system.  I once saw the ticketing systems for Microsoft.  There were at least 4 or 5 different systems and it was never clear which one to start with.  This is a very common issue.

Combined with procurement times that some times reach into the 6 month range, any request to get your own IT infrastructure can become a show stopper for your department’s project.  Even virtual machine requests can take days to weeks as there is usually no self-service method and if there was, no usage metrics or charge back mechanisms exist.

Typically this leads to hoarding where departments and managers purchase far more than they need to make sure resources are available when needed.  Is it any wonder that the recent McKinsey cloud computing report predicts that even with virtualization enterprise datacenters can’t exceed 39% utilization?

Internal or Private, It Matters
The CIO must learn how to drive new efficiencies into corporate datacenters while showing how IT can provide direct business value.  The primary strategy, despite McKinsey’s bleak assessment, is to embrace the notion of self-service, preferably in the form of internal cloud computing resources.

This is the future.  This is the way to make IT the corporate star instead of the corporate cost center.