What's a Cloud Play?

 |  Includes: AMZN, CTXS, GOOG, RAX, RHT, VMW
by: Dana Blankenhorn

Cloud is the computing technology of the moment. During a technology's moment, everyone tries to identify themselves with it, to gain the halo effect. This was true for open source when I covered it in the 2000s, it was true for Internet and e-commerce in the 1990s, and I'm old enough to remember when it was even true for DOS.

But not everyone deserves the halo. When I wrote recently about Bob Muglia moving to Juniper (NYSE:JNPR), the context was that he was an enterprise software guy, now claiming to be a cloud software guy, and that there were a lot of other ex-Microsoft (NASDAQ:MSFT) executives doing the same thing.

Fact is, enterprise computing and cloud computing are different beasts. Cloud computing is a very specific technology which combines distributed computing, virtualization, and shared network storage into a single system that can deliver its power to any single application which needs it. Google (NASDAQ:GOOG) spent much of the last decade scaling its data centers to make them clouds. The race is now on to commercialize the technology, and the tools used to create it.

When a vendor just delivers this basic capability, that is infrastructure as a service. Amazon (NASDAQ:AMZN) is an IaaS play. When a vendor also delivers tools for building applications within this infrastructure, that's platform as a service. Microsoft pushes Azure as a PaaS play.

A few software companies are now trying to “productize” the cloud, with software “stacks” which imitate what these clouds can do. These are the truest of the cloud plays.Thus VMWare (NYSE:VMW), Citrix (NASDAQ:CTXS), Rackspace (NYSE:RAX) and RedHat (NYSE:RHT) are cloud plays.

The problem for investors is that, now that these companies are commanding big P/E ratios (Microsoft excepted), everyone else is jumping in, pretending to be a cloud play. Many of the companies that joined the Open Cloud Initiative in Portland this week are of this type. The same is true for companies who now say they will support Rackspace's OpenStack project, like Hewlett-Packard (NYSE:HPQ), which is not a cloud play.

The same is true for other companies that claim cloud capability, like IBM, which is selling this capability to companies, but IBM is not a cloud play. And the same is true for the “arms dealers” to cloud. Data system vendors like EMC are not cloud plays, except to the extent that it owns VMWare. The same is true for networking vendors like Juniper Group.

The point here is that you're going to see a lot of people and companies trying to fool you in the next few months. Every enterprise computing company is not a cloud company. Everyone putting cloud on their resume is not a cloud expert.

The future of enterprise computing is mostly cloudy, but don't confuse blowing smoke with clouds.

Disclosure: I am long IBM, GOOG.