How Will Cloud Computing Impact IT Vendors?

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Includes: AMZN, CRM, CSCO, HPQ, IBM, JAVA, MSFT, ORCL, SAP
by: Dana Gardner

Welcome to the latest BriefingsDirect Insights Edition, Vol. 34, a periodic discussion and dissection of software, services, services-oriented-architecture (SOA) and compute cloud-related news and events, with a panel of IT analysts and guests.

In this episode, recorded Nov. 21, our experts focus on the impact that cloud computing will have on the large, established IT vendors. We really are only beginning to understand how the IT services delivery, data management, and economic models of cloud computing will impact the market. If this shift is as large and inevitable as many of us think, the impact on the current IT business landscape will also be large. Some will do well, and some will not. All, I expect, will need to adapt, and the shifts are certainly exacerbated by the deepening global recession.

Please join noted IT industry analysts and experts Jim Kobielus, senior analyst at Forrester Research; Tony Baer, senior analyst at Ovum; Brad Shimmin, principal analyst at Current Analysis, and Joe McKendrick, independent analyst and prolific blogger on ZDNet and ebizQ. Our discussion is produced and moderated by me, Dana Gardner.

Here are some excerpts:

Baer: In terms of who is best positioned for all this, I think it's a little too early to tell, because most of the large vendors are only just starting to put their feet in the water. Obviously, IBM, HP (NYSE:HPQ), and Microsoft (NASDAQ:MSFT) are making moves. SAP has actually had a couple of stumbles on the way there. Oracle (NASDAQ:ORCL) has sort of a sitting-on-the-fence strategy.

If we are going to talk about who has consistently positioned themselves as being the poster child, it has been Marc Benioff over at Salesforce.com (NYSE:CRM), where they have evolved from a customer relationship management (CRM) application that you access on demand to expand towards Platform as a Service (PaaS).

Gardner: Who can get kicked in the teeth by this thing?

Baer: Well, Microsoft clearly could get kicked in the teeth, and that's obviously why they've come out with their resource strategy and with their various live-office strategies. Microsoft clearly has the most to lose, because they've been very identified with the rich client.

Gardner: Yet Microsoft has an opportunity to shoot for the moon. They have all the essential pieces. They have a very difficult transformation to make in terms of their business. They have a lot of cash in the bank, and we're in a transformational period.

I think Microsoft has an opportunity to make an offer that developers can't resist -- and probably no one else is in a position to do it -- which is to say, "We will have at least one of the top three clouds. We're going to give you the tools and give you simplicity that Joe the plumber can develop, and we're going to make sure that you have a huge audience of both consumers and businesses that we're going to line up for you."

McKendrick: They've already made a lot of moves in this direction: Software plus Services, the Live offerings. They're already positioning a lot of their product line. They work with Amazon (NASDAQ:AMZN) and have offerings through the Amazon service as well. Microsoft gets into everything. Wherever you look, in the enterprise or in computing, they have some kind of offering there. Sometimes, the things don't take off for a while. They sit and bide their time, and eventually it takes hold.

... Thinking about the Microsoft plus Yahoo (NASDAQ:YHOO), it makes really good sense for them both to be a real powerhouse together in cloud computing. Earlier, I stressed that the providers who dominate the cloud world will be those that focus on extreme scalability, scale out, shared nothing, massively parallel processing being able to sift and analyze petabyte upon petabyte of data from all over especially of the Web 2.0 world especially clickstream information, and so forth.

Gardner: On the other hand, for those not shooting for the whole package, is this going to democratize IT?

Shimmin: When you look at the strategy vendors like IBM has, Sun (JAVA) will have, and Cisco (NASDAQ:CSCO) has, in terms of how they're rolling out anything that's in the cloud -- whether it's PaaS, infrastructure as a service, or SaaS -- they all seem to be doing two things.

One is that they are taking some point solutions that they are going direct with, like IBM with Bluehouse, for example. Secondly, they are going after an independent software vendor (ISV) market. They want to empower folks like amazon.com, Panorama, Pervasive, Peer1, Mosso, Akamai, Boomi, and all those guys. They're really looking to empower them to go out and deliver services.

What these companies are doing is allowing this broader feel, allowing this channel of service providers to exist, using their software and their services, and, in some cases, their actual data-center resources.

Gardner: I think you're saying that the organization that can provide the best ecology of partners and provide the best environment to thrive for many other players will do best, whereas, in the past, it seemed that, as an IT vendor, having the most installed base and the most lock-in offered the path to who did best.

Shimmin: Exactly.

Kobielus: I think you hit the nail on the head, Dana, when you pointed out that success in the emerging cloud arena depends on having a very broad and deep ecology of partners. I see the partner ecosystem as the new platform for cloud computing, being able to put together a group of partners that provide various differentiated features and services within an overall cloud-computing environment.

Then, the hub partner, as it were, provides some core, enabling infrastructure that binds them all together. Core infrastructures such as, for example, a core analytic environment or distributed data-warehousing environment that manages all of the structured, unstructured, and semi-structured data, manages all of the very compute-intensive analytical workloads, CPUs, and other resources that many or all of the partner solutions can tap into -- a basic utility computing environment.

Shimmin: When you look at a company like Microsoft, they seem to be slow to market, and then, once they enter the market, they go really, really fast. They seem to be going really, really fast at the moment with two things, because they have both. They have the infrastructure and they also have the apps. They're going to have both paths.

They have the Azure platform, which is truly a PaaS offering that you use to build your own applications. So it's a layer above the Amazon EC2 infrastructure as a service.

Then they have the full-on SaaS-type products with Microsoft Online Services, which has in it almost the entirety of their collaboration software. So, they have actually sort of leapfrogged IBM Bluehouse a little bit with that.

The point is that these vendors are really looking at their portfolios and seeing which ones fit either of those two models. They're not committing to one or the other, Dana. They're really trying to tackle both ends [the infrastructure and the apps].

McKendrick: Just about every small ISV coming on the market now is offering a SaaS model. This is the way to go with the emerging smaller software-development companies.

For the larger developers, ISVs that are already well-established, it's now another delivery mechanism, another channel to reach their customer base. There are a lot of efficiencies. When you have a cloud model or are working with a cloud model, you don't have to worry about making sure all your customers receive the latest upgrade or deal with problems customers may be having with conflicting software. It's all done once. You do the upgrade once, test it, ensure the quality, deliver it, and it's all done in one location. It makes their job a lot easier.

Kobielus: What the whole trend toward SOA started was the gradual dissolution or deconstruction of the underlying platforms, as you mentioned -- OSs, development environments, and the declarative programming languages. This is all buggy-whip territory now in terms of what large and small software vendors are developing to. Pretty much everyone is now developing to a virtualized SOA, cloud environment.

Most of the large and small vendors that I talk to ... are really looking at more of a flex-sourcing approach to delivering solutions to market. ... Most of the vendors that I talk to now have three broad go-to market delivery approaches for flexible delivery of applications or of solutions. They have everything as a service approach, the appliance approach, and the packaged, licensed software approach.

If you look at cloud computing as a Venn diagram, with many smaller bubbles within it, one of the hugest bubbles is this notion of flexible packaging and sourcing of solution functionality.

The "Chinese Wall" between internal hosting and external hosting is dissolving, as more and more organizations say, "You know what. We want to do data warehousing. We'll license a software from vendor X. We might also use their hosted offerings for these particular data marts. We also might go with an appliance from them, for either our data warehousing hub, a particular operational data store, or another deployment wall where the appliance form factor makes most sense."

Baer: The vision of SOA is that it runs both ways. You publish services and you consume services. ... Through SOA, perhaps companies can look at increasing capacity or tapping into capacity as needed in a grid like fashion, either with each other, or with a provider out there such as Amazon or IBM.

Shimmin: When you look at companies like IBM and Microsoft -- Microsoft with their Software plus Services, and IBM with their Foundation Start Appliance, coupled with their Bluehouse software as a service, coupled with their on-premises collaboration software -- you're talking about a solution that spans those three delivery mechanisms.

The pressures I'm talking about that are making that so for the enterprise buyer is that you don't want to have a full SaaS deployment, and you don't want to have a full appliance deployment. When you consider issues like ownership of data, privacy of that data or SOAs, even transaction volumes, there are facets of your enterprise application that are best suited to running in an appliance, in your data center, or in the cloud.

So, these vendors we are talking about here clearly recognize that need, and are trying to re-architect their software so it can run across those three channels in different ways.

McKendrick: The underlying architecture that a lot of vendors are moving toward to enable that degree of flexible deployment of different form factor -- hosted service, appliance, and packaged license software -- is the notion of shared nothing, massively parallel processing for extreme scale-out capabilities and extreme scale up as well.

In a federated model, where you have different clusters that can be internal, external, or in combinations specialized to particular roles within the application environment, some might be optimized for data warehousing, some might be optimized for business-process management and workflow, and others might be optimized for the upfront delivery, Web 2.0, REST, and all that. But, having shared nothing, massively parallel processing, with a federated middleware fabric in an SOA context, is where everybody is moving their platform and strategy.

Gardner: How about Amazon? That would be in my thinking a pretty good candidate for prom queen right now. Perhaps there will be some polygamy at the prom, because Amazon could team up potentially with say an Oracle and a Salesforce. Can you imagine such a pairing?

Kobielus: Yeah, because Oracle, a couple of months ago, announced that you can now take your existing Oracle database licenses and you can move them to the Amazon EC cloud and the Amazon storage service. So, to a degree, that partnership foreshadows possibly a larger relationship between those two companies going forward.

I think its really an interesting pairing of Oracle plus Amazon. Once again, I always have to hit the analytics thing on the head, because I think database analytics or cloud-scalable analytics is going to be a key differentiator for most application vendors.

Shimmin: With regards to Microsoft's channel, as you and Jim were saying, Microsoft is definitely going to be the queen bee and they are definitely going to make it beneficial to this channel to work with them in their cloud initiatives. At the same time, it's also Microsoft's greatest risk.

When you look at their PaaS with Azure, that makes sense for the channel, because how the channel differentiates is by the services they provide their customers directly, and that comes from developing code. But, when you talk about Microsoft's online services, Office Live, and those things, they are in a very precarious predicament of undercutting the values that their channel partners provide.

They're literally saying, "Hey, why do you need a channel partner for the SMB market, just come right to us and give us your credit card, which you can do for a certain number of dollars a month, and you are running."

Gardner: Right, so perhaps Microsoft has the golden opportunity but the transition is perilous, and execution has to be perfect. Just as we had back in the "anti" days, when all of the Unix vendors got together and created what they called the "anti-Microsoft coalition," all these other cloud providers, ISVs, developers, and all the PaaS people are going to get together and try to provide more of a marketplace, in order to if not staunch Microsoft, at least create that democratic approach to cloud.

Shimmin: I can’t believe I'm saying this -- Microsoft has really done something spectacular here, because it all comes back to the developer. What the developer does drives what software you run on the server, in many cases. What Microsoft has done with the Software-plus-Services program initiative, right now, today, using the 3.5 .NET framework in Windows 2008, you can write code that can be dropped in the cloud or on the desktop automatically. You can just write a rule that says, "If I reach a certain service level agreement (SLA), just kick this piece of code to the cloud."

Gardner: So Microsoft and not the business becomes the arbiter.

Shimmin: Exactly.

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