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.

Happiness in Business

If you can’t be ‘best‘ or ‘cheapest‘, that only leaves being ‘first’ (see Pt. 1: Service Clouds and Pt. 2: Commodity Clouds).  Since Amazon Web Services (AWS) clinched the ‘first’ and ‘best’ titles for the general marketplace, your best bet is to pick a subset of the market to focus on.  Focused clouds find a sweet spot and exploit it.  This is really Business 101 for Startups.  A diagram I saw recently by Ben Caddell brought this into focus and provides a very simple to understand reminder for those of us who may have forgotten (see right).

Let’s look at some of today’s focused clouds.  I’ll mostly talk to Infrastructure-as-a-Service (IaaS), but also touch on Platform-as-a-Service (PaaS) and Software-as-a-Service (SaaS) briefly.

Horizontally-Focused Clouds
By ‘horizontal’, people usually mean a longitudinal slice of the general market focusing on either a stakeholder (e.g. QA, IT, business management) or a business size (e.g. large enterprise, small/medium enterprise (SME), small/medium business (SMB), startups, or individuals).  A horizontal focus, by definition crosses multiple verticals  (e.g. financial services, health, etc. — see below).

We have some interesting examples of these available to us today.  I’ve picked just three to highlight my point: SkyTap, Terremark, and EngineYard.

SkyTap
Perhaps my personal favorite is SkyTap.  SkyTap focuses tightly on providing a unique experience for those in Quality Assurance (QA).  They allow a rich workflow experience that greatly facilitates deploying and saving the state of multi-server applications.  A QA person can find a bug that affects multiple servers in a complex application and literally save the entire system for reuse or re-play by the affected developer at any time.  Combined with easy replication of multi-server environments and other great features designed for this segment only, SkyTap, even though technically an Infrastructure-as-a-Service (IaaS) play is generally under the radar when folks talk about infrastructure clouds.

Terremark
A relatively new entrant into IaaS, Terremark is making it’s mark by focusing on the enterprise.  In fact, their offering is called simply The Enterprise Cloud, showing where they plan to focus.  Terremark uses VMware, which hasn’t had a lot of traction in the public clouds to date.  Presumably this is because they plan to offer some of the more advanced enterprise-class VMware features like HA and DRS.  From my sources at VMware I’ve heard that the Terremark cloud product is quite good and they have developed quite a bit of secret sauce on top of VMware. [1]

Regardless, by picking an area of the market that has been under-served by the heavyweights I think they have a good opportunity.

EngineYard
It’s quite a bit easier, as you move from Infrastructure to Platforms and Software to differentiate and focus on a particular target market.  EngineYard (and their close cousin Heroku who I have mentioned before) focuses on providing a fully managed and automated Ruby-on-Rails (RoR) stack to web startups.  This has already distinguished them amongst the platform crowd and allowed them to ramp up a very respectable business in less than 2 years time.

Vertically-Focused Clouds
If you can’t go horizontal, go vertical.  A vertical focus is an industry focus, be it financial services, health, construction, high-tech, life sciences, energy, or other.  A vertical focus tends to be more solutions-oriented.  When you put together a package that focuses on a single industry it is rarely transferrable, without major changes, to another industry.  However, this kind of focus can be very beneficial for a smaller cloud trying to make a mark early.  This also means it can be rather hard to build a vertical infrastructure cloud.  An example might be someone building a cloud that was highly secure and HIPAA compliant for the medical industry.  Or one that focused on PCI compliance for financial services companies.

Outside of infrastructure, many Software-as-a-Service (SaaS) businesses focus tightly on a given industry.  I don’t know of any current IaaS clouds who are vertically focused and the list of SaaS providers who are vertically focused is too long to list.  A couple of brief examples:

athenahealth
athenahealth provides doctor and patient management services online.

BankServ
BankServ provides online payment processing specifically for financial institutions.

Focus, Focus, Focus

As you can see, if the general market already has dominant players who are ‘first’, ‘best’, and ‘cheapest’, then picking a subset of the market that is not currently served and being ‘first’ there is a great strategy for any new cloud.  In the final part of this series I’ll talk about the particular importance of focus for those players currently in the general market who need to compete on value, not price to survive.  Ultimately, the best way to make money is to help your customers.  Don’t help them on price.  Provide value instead.

[1] If Terremark wants a full review, perhaps they could give me a trial account? <hint>

Service Clouds
I’m borrowing this notion from Alistair Croll (linkedin, twitter, blog), because it’s smart, can be bent to my needs, and makes the most sense in the end game.  By end game, I mean that eventually, most clouds will probably be service clouds.  Why?  Because service clouds offer the best opportunity to expand your market.  Let me explain.

Service clouds shy away from the notion that you must be either Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), or Software-as-a-Service (SaaS).  They provide a slice of on-demand services that include all of these as shown in this diagram:

The best examples of service clouds are Amazon, Google, and Microsoft.  All three either provide, or are in the process of providing, a complete ecosystem that includes elements of infrastructure, platform, and software (applications).  Service clouds are also ‘cloud platforms‘ (not to be confused with PaaS).  Platform in the same sense that an operating system is a ‘platform’.

Service clouds are the future.  All cloud computing providers will eventually converge towards this model … for the most part.

Market Evolution
I can’t locate the original blog posting, but I once read that there are essentially three ways to be #1 in a given market:

1. first
2. best
3. cheapest

I think everyone understands this at least on an intuitive level, which means that most cloud players are going to try and stake out a territory as either first, best, or cheapest.  If we assume for now that service clouds are the ‘best’ way to deliver cloud services, then surely it’s important to understand what ‘first’ and ‘cheapest’ might mean.  I’ll take a stab and say these are probably ‘targeted clouds’ and ‘commodity clouds’ respectively.

Targeted clouds are usually smaller cloud players who realize that since the Amazon’s and Google’s of the world are already ‘first’ to the general market they better be first to a specific market segment.

Commodity clouds are larger businesses that may not be able to compete with Amazon or a Google on innovation, but command enough buying power to shrink wrap solutions using best-of-breed software and price everyone else out of the market.  Think ‘utility computing’.

We’ll cover both targeted and commodity clouds in Pt. 2 & Pt. 3, and then wrap up some predictions in the final installment.