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Friday, Dec 31, 2010

The Race to Zero. My Cloud Prediction for 2011

Instead of hedging my bet and making the customary ten predictions for the coming year, I’m going to make just one.  It’s not that I don’t envision at least ten significant cloud-related developments occurring in 2011, it’s that there is one prediction that I believe is so impactful that anything else I might project pales by comparison.  When realized, this prediction will impact businesses worldwide, forever change IT delivery models, lead to widespread industry consolidation, and leave some companies that are just too slow to respond in its wake.

 

 

So, what is it?  Well, before blurting out my lone prediction, I’d like to explain my rationale for arriving at this game-changing prognostication.

 

 

First, try and recall the state of the Cloud one short year ago?  Was it the subject of business news? Was it widely discussed in forums or conferences?  Was it even on the radar for the majority of companies?  Was its impact global in nature?  For the most part, the answers to these questions is likely “no.”  Certainly, there was strong awareness of the Cloud and movement to it, but run a Google search for technology predictions 2010, and you can see that on the last day of 2009, Cloud was not the focus.  Today, run that same Google search for 2011 predictions yields predictions that almost all include the word “Cloud” in the top 3. – a clear indication that something dramatic is happening that goes beyond the world of I.T.

 

 

The last time I witnessed this kind of technology bubble was when the Internet arrived on the business scene in the mid 90’s.  I’m certainly not comparing the Internet’s impact to the Cloud – nothing can compete with its society-changing clout – but I do see very strong parallels in terms of the rapidity in which both technologies were grasped by the market.   The Internet went from business people taking public seminars in 1993 on how the Internet could benefit their companies, to a pervasive global presence.  It transitioned from the subject of the best-selling business book in 1994 (The Internet Handbook, by Jim Carroll and Rick Broadbent) to a household word, and a worldwide phenomena.  Still, the Cloud is carving out its own unique destiny.

 

 

In 12 short months, the Cloud has transitioned from “interesting opportunity” to “must-have/must-engage/must-do” disruptive technology.  As happened in the early 90’s with the Internet, companies of all shapes and sizes throughout the globe have been forced to aggressively and decisively develop and move on their Cloud strategy.  Those that haven’t, or have been just too slow to react, will be buried by a wave of analyst/industry criticism and market rejection, and as happened in the 90’s, many companies will simply disappear.

 

 

During the past year there were several announcements that I believe provide guidance as to what we can expect in the Cloud space in the coming year.  Some of these announcements received huge publicity while others fell under the radar, but all I believe have dramatic implications.  They are as follows:

 

 

  1. Amazon Announces Free Compute and Storage Resources: Mid-year 2010,  Amazon - the largest Cloud compute and Cloud storage company worldwide - announced that it would provide compute and storage instances to developers, or those looking to build applications, for free for an entire year.  Free, as in “come and get it.”  As if the continued downward price pressure provided by Amazon in the industry weren’t enough, Amazon pounded through the floor, providing Cloud Compute and storage for nothing.
     
  2. Rackspace Announces OpenStack: Mid-summer, RackSpace - one of the largest Cloud Compute and Hosting companies - announced OpenStack, its “give-back” to the Cloud industry.  Essentially, RackSpace dispensed with licensing its platform for providing Compute and Storage on demand, and rendered it “Open Source” allowing everybody to use and modify it for free.  To those building out platforms to provide compute and storage this must have been one of those announcements that bowled you over. How can anybody expect to compete with “free?”  Especially with the growing list of sponsors and supporters of the OpenStack project including NASA, Citrix, Dell Intel, AMD to name a few of the larger ones.  There’s nothing on the market that beats “free.”
     
  3. Apple Announces the Mac App Store: In an October media event that seemed to create little buzz, Apple’s Stephen Jobs announced that on January 6th 2011 his company was launching the Mac App Store, modeled on its wildly successful iTunes store.  You’ve probably heard of that first App store.  It’s the one that has over 325, 000 applications available for the iPod, iPhone and iPad platforms and as of September 2010 has had over 6.5 Billion Apps download (yes that’s Billion).  If the shear numbers alone don’t startle you the average “App” selling price of $4.04 (one time!) should. 

    If Apple’s new Mac App Store has a tiny fraction of the success that the initial App store has garnered, I believe that the software industry will experience a tectonic shift, as the ability to immediately access a Mac-approved application of your choice for pennies to dollars will reshape the industry.  Many agree, based on the numerous postings and discussions I’ve read which project many software shops disappearing because of this dramatic market development.

     
  4. Salesforce Acquires Database.com: Late fall Salesforce.com, a recognized innovator and leader in the Cloud, acquired Database.com with little fanfare or ensuing discussion.  Database.com is labeled as an enterprise competitor to Oracle DB’s, but built in a Cloud-enabled model that allows developers to use it effectively, and efficiently.  How much does it cost?  You guessed it. With a starting price of free, users are able to forgo the huge capital expense of Oracle databases by engaging a Cloud-based on-demand and cost-free service.

 

With cloud resources costs plummeting and in some instances disappearing, and a certainty that continued commoditization will occur, what will push leading organizations to further develop Cloud technologies?  Will we continue to see billions of dollars spent on Cloud enabling-technologies, as we did in 2010?

 

Here’s my assessment.

 

We are now in what I call the “race to zero” – the time when commodity pricing is driven so low that the only way to drive continued market value is by focusing on the value over and above the core commodity offering – the applications the commodity enables.   And when the applications start to drive the industry growth, and not the application-enabling technology, mass adoption invariably follows.

 

My 2011 Prediction:  The Cloud will transition from a proven commodity-focused marketplace to
one driven by value-added business applications, entrenching itself as an essential technology for companies in all industries worldwide.

 

 

Think about it.  We have seen this kind of industry metamorphosis before.  Consider the large incumbent telecom companies that have been repeatedly overwhelmed by the “race to zero” for their core commodity offerings, when everything from copper-based phone lines to long distance services to broadband networks to mobile phone fees was subjected to immense price competition from new entrants, dramatically drove down pricing.  What did the telcos look to for a source of new revenue?  Applications.  While prices plummeted from home-lines, revenues rose through introduction of value-added services like voicemail, called I.D., and Call forwarding.  When price pressures mounted in the mobile market, applications like text messaging emerged.  And where do they see deriving future value from their massive mobile customer base?  In video and further applications, and their inherent capabilities. 

 

 

The “race to zero” is well underway, and the continued commoditization of compute and storage infrastructure technologies will lead to massive investment in value-added services in 2011, layered on top of the Cloud’s resilient infrastructure.  Many companies, like Amazon, RackSpace, Apple and SalesForce.com are rising to this challenge and opportunity.  Many aren’t, and will surely pay the consequences.

 

 

I sincerely hope that your company is one on the right side of this equation.

 

 

Wishing you and yours a very happy, healthy and prosperous New Year.
Joshua Geist.

 


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