Every technology goes through this evolution. It's created, it's put in a box and finally it becomes just software.
So it is with clouds.
The “cloud era” began a decade ago, when Google (NASDAQ:GOOG) created MapReduce to improve its own operations and, in the process, showed it was possible to turn data farms into one huge computer to solve large problems or handle spikes in traffic. This eventually became a Yahoo (NASDAQ:YHOO) project called Hadoop, and the cloud era was born.
Later in the decade Google began packing server farms in shipping containers and installing them at sites around the country, handling most consumer requests in a city, and cutting its expenses further. This encouraged all sorts of companies to believe that private clouds were possible and helped further the cloud boom.
Now, a start-up called Piston Cloud is planning on bringing Rackspace's (NYSE:RAX) OpenCloud conference an entire cloud stack on a memory stick that can turn a PC into a mini-cloud. The evolution is complete.
This doesn't make cloud computing simple. But it does herald a shift in the cloud market investors need to respond to.
Software is no longer a gating factor. Everyone can have a cloud, just as everyone can download the latest Lady Gaga video. Which means that things like scaling and training are going to become more important, as clouds become yet-another mass market technology.
The losers will be specialized cloud software companies, like RedHat (NYSE:RHT) and VMWare (NYSE:VMW). They are reaching the limits of their values. Instead power is moving toward companies that can implement clouds for enterprise clients, like IBM (NYSE:IBM), Rackspace, Dell (NASDAQ:DELL) and HP (NYSE:HPQ) - which will all now face a price war.
That price war is going to impact all the specialty houses and may have a profound impact on the direction Microsoft (NASDAQ:MSFT) must now take with its Azure cloud. What it will tell the market is that clouds are just part of Windows, even though they are something different entirely.
Whether the market buys this as the path of least resistance in clouds is unclear. You can speculate that it will, but in the end clouds become just another tool in the tech toolbox, and the cheapest, most flexible tool wins.
As a tech reporter for 30 years I've seen this play out many times. The Novell engineers of the 1980s, the Cisco (NASDAQ:CSCO) engineers of the 1990s, the Windows Server certified engineers of the last decade, they're all going to be retrained, or replaced, by people who can implement cloud.
With clouds on-a-stick, every community college, technical school and corporate training center can now get people up-to-speed on cloud technology within a few months, and those people will all get good jobs. Those won't be long-term careers, because the technology landscape is going to shift again, but jobs are a powerful stimulus to learning.
So where should you put your money if you want to bet on clouds? On the biggest cloud implementation plays – on Amazon (NASDAQ:AMZN), on Rackspace, on Google – with the understanding that financial gains here will be limited by the sheer volume of cloud (and cloud talent) “supply” coming to the market.
The cloud, in other words, is no longer exotic. It is now mainstream technology. It's no longer a way to expand margins, but just another technology whose margins are going to be shrinking from here on out.
Disclosure: I am long GOOG, IBM.