The Key To Winning Global Cloud Race

by: Dana Blankenhorn

The ultimate key to winning the new race to dominate the global cloud comes down to one word.


A lot of people are ignoring costs right now, because the industry is so wide-open and clouds make such economic sense on their own that costs don't matter much. Privately-held Joyent, for instance, just raised $85 million, much of it from Spain's Telefonica (NYSE:TEF), with claims it will build a "Star Alliance of the cloud."

The allusion is to the global airline code-sharing group that currently has 27 members.

Alliances may be important in the near term as many countries fear losing control of data to U.S. law. I've written here before that IBM benefits in that case as they are quite willing to build clouds for others.

There is going to be a lot of competition in this space over the next two years, coming from three directions:

  1. Telecom companies like Telefonica, Deutsche Telekom (OTCQX:DTEGF) , as well as such U.S. firms as AT&T (NYSE:T) and Verizon (NYSE:VZ) (the latter owns what used to be MCI)

  2. Computer companies like HP (NYSE:HPQ) and Dell (NASDAQ:DELL), which also have huge outsourcing arms, the former EDS and Perot Systems respectively

  3. Current public cloud players like Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG)

I wrote here last week that enterprises are going remain unwilling to replace current structures with cloud until issues like identity, authorization and policy management are dealt with. What that means is that, when we talk of public cloud, we really are talking about the public use of the cloud, at least in the next few years. This benefits the incumbents, Google and Amazon.

We are far too early in this market to see losers, and this will mask results for the next few years. That is there is plenty of growth available from consumers and business experiments to keep cloud vendors growing across the board.

But in the longer run this area is going to get built-out, competition is going to begin in earnest, and investors will have to ask themselves on what basis will the winners be separated from the losers.

To me the answer will always come down to cost. Cloud cuts costs, but costs will define the cloud winners, they will separate the leaders from the laggards when push comes to shove. And I've yet to see any cloud vendor, other than Google or Amazon, seriously focus on that issue.

If I see a cost breakthrough from some quarter other than Google or Amazon, I'll be glad to change my overall view, but until I do these must be seen as the likeliest winners of the public cloud wars.

Disclosure: I am long GOOG, AMZN, DELL, IBM.