Technology markets go through a predictable pattern. First there is discovery, then development of a product, the creation of a market with multiple products, and finally consolidation around a market leader.
Clouds are the first enterprise computing platform to be delivered in the age of open source, so as we enter the third phase (multiplicity), open source bonafides become a selling point.
At the center of any cloud is a process called virtualization, which lets something written for Windows appear to be Windows but actually run under a Linux cloud architecture, or vice versa. The software product that does this simulation is called a hypervisor.
Control of hypervisor technology is seen as just as important as control of the operating system was in the PC days. No one wants to make the mistake IBM made back then, allowing a kid with a clue to take the prize and run off with it, as Microsoft (NASDAQ:MSFT) did with Windows.
In this case the kid with a clue is VMWare (NYSE:VMW). While you can buy VMWare stock, it is 90% owned by EMC Corp. (EMC), a much older company that began in the data storage business over 30 years ago.
EMC has steered VMWare into an early position of cloud leadership. Its hypervisor is called vSphere, and it's proprietary. But EMC figured it had nailed down the open source problem last year by offering a free version. The company also pursued its open source bonafides by buying key open source players Springsource and Zimbra through VMWare.
But vSphere is not open source, and EMC's data storage rivals – HP (NYSE:HPQ), IBM, and Intel (NASDAQ:INTC) – are intent on letting you know that. They are backing a rival hypervisor, KVM, which is also used by Red Hat (NYSE:RHT). All four, along with Linux vendor Suse, cloud software vendor Eucalyptus Systems, and BMC Software (NASDAQ:BMC), formed what they called the Open Virtualization Alliance last week.
The target here is not VMWare but its EMC parent, which now leads both HP and IBM in the data storage market. HP and IBM are backing the virtualization used by Red Hat to try and stop the EMC train, seeing Red Hat (which doesn't make hardware) as neutral ground. They know that this space will consolidate in time, and they don't want it consolidating around technology owned by a rival.
The move would seem to benefit Red Hat, but the question remains whether hardware or software is the key decision for CIOs. The answer is it's usually hardware (which still costs more)-- meaning EMC, which has been pulling back lately from all-time highs-- remains the force to be reckoned with.
One more point. The lack of clarity in the hypervisor market (I haven't even mentioned Microsoft's Hyper-V or Citrix' Xen in this post) means there will almost certainly be a market for connecting disparate clouds through something like SnapLogic's SnapReduce. The era of cloud multiplicity will continue.
Disclosure: I am long IBM.
Additional disclosure: My IRA holds 100 shares of IBM, with dividends reinvested, purchased early in the last decade.