How to Identify Cloud Washing

 |  Includes: AMZN, CRM, GOOG, HPQ, ORCL, RAX
by: Dana Blankenhorn

Charles Babcock at Information Week, a site I once wrote for, delivered a great piece yesterday on what he calls “cloud washing.”

It's similar to things I was writing about in September, when Marc Benioff of (CRM) was playing the feud with Larry Ellison of Oracle (ORCL) . Here at Seeking Alpha I wrote about it as Cloud or Not a Cloud.

Babcock's story has a great definition of cloud computing, one investors need to memorize and understand completely:

To actually be part of the cloud requires systems that run on a simplified data center architecture, operated largely by automated policies, not human hands. The architecture allows end users to self-provision their own servers, and has a billing mechanism that allows the supplier to charge only for the resource used, not the lifetime software license cost.

I've boldfaced the important parts. A simplified data center architecture that is fully automated. Users self-provision their own servers. Billing only for what is used.

Babcock then goes into identifying products and services he accuses of “cloudwashing,” which is claiming something is a cloud when it isn't. Two of the five he names are Oracle products. Another is from HP (HPQ). The others are from private companies.

The pattern in this case is more important than the names, and the definition more important than the pattern. Enterprise software vendors, companies that sell annual licenses on a per-server basis, are the companies most threatened by the cloud. It's not that they can't sell cloud themselves. It's that if they did their revenues would sink like a stone.

Clouds are not built of fancy parts. They're built of standard-issue, cheap parts. They're based on two key trends from the last decade:

  • Distributed computing – having a job parsed out to a lot of different computers rather than run through a single computer.

  • Virtualization – Software that lets a computer run a program under any operating system.

To that must be added the capability of handling “big data,” huge multi-gigabyte files, unstructured, the kind a company the size of or Google might generate from user logs. These are, in fact, the kinds of files from which cloud computing originated.

Finally, there's this idea of charging only for what's used, sometimes called utility computing. If someone calling themselves a cloud vendor wants you to pay a monthly minimum, chances are good they're not really selling cloud. True cloud computing operates on a per-job basis, it can scale from zero to 60 in a heartbeat, and back down to zero just as fast.

It's not a mall, in other words. It's like those “Christmas shops” you're seeing in malls right about now, the ones that will disappear by January. If you're running a mall, this trend is very, very worrisome.

Enterprise vendors are running malls. Cloud vendors are letting these folks pop-up and disappear at will, betting that there will be enough around, over time, to cover their costs, and knowing they can adjust their costs to get through January.

Cloudwashing is a great term. It means claiming something that you don't have. Test all claims against Babcock's definition before you invest. You'll be less likely to get rained on.

Disclosure: I am long GOOG.