Since the beginning of the public cloud market a few years ago, Amazon.com (AMZN) has had a virtual monopoly with its EC2 cloud.
That's because EC2 was the only cloud whose full infrastructure you could rent, as easily as you can order up a new coffee maker from...Amazon.com.
Yes, Google (GOOG) had a cloud. Yes, Microsoft (MSFT) had a cloud. Yes, everyone and his Uncle Mike (DELL) is building a cloud. But Google was only offering a sandbox for development, and Microsoft saw its cloud as an upgrade path for its Windows Server customers.
This allowed Amazon to become a virtual monopolist in the public cloud space, its Application Program Interface or API the industry standard for public cloud.
That may be about to change. And with it, the nature of the cloud market is about to change.
That's because tomorrow, Google is expected to announce its own Infrastructure as a Service offering, a direct competitor to EC2. Just as Microsoft's recent moves, introducing Linux support, demonstrate that it is ready to be a more direct competitor.
Whether this move is against Microsoft's developers or Amazon's customers remains a matter of speculation, but regardless this is a statement of direction that investors would be wise not to ignore.
This market battle won't be easily won. Amazon.com has been preparing for this day for years, steadily rolling out price cuts, and steering the biggest cuts toward those customers who use it most regularly. (Just as it does in the consumer market with Amazon Prime - your best customers should get your best prices.)
But over the long run, and in this market two years is a long run, the latest moves point to a day where cost matters in cloud, where the cost of your building and maintaining a public cloud determines whether you can compete.
This is bad news for companies like Rackspace (RAX), which are still ramping-up their public cloud efforts.
There is a caveat to all this. Open source. Amazon's API is proprietary, although there is support for it from outfits like Eucalyptus. Microsoft is prepared to support open source programs like Linux, but open source advocates remain suspicious of it. How open Google is depends on whom you ask. Rackspace, by contrast, was the first sponsor of the OpenStack project, an effort to build an open source cloud stack competing directly with that of Amazon in the public cloud space and VMWare (VMW) in the market for private cloud.
The end game for cloud is a market based on costs. That end game is in sight. But open source, by its nature, can drive costs out of even a mature industry. Most web servers run Linux, not Windows, because sharing of development costs becomes ever-more powerful as time goes by and maintenance becomes your focus.
Costs have always been the main driver of cloud. Clouds cost much less to support and operate than enterprise systems, because you can build them with commodity hardware, the cheapest software, and open source. That hasn't mattered much in the cloud rush gold rush, since cloud is a money-saver by its nature and thus everyone who can offer cloud right now can prosper.
But that will change. And this news is one marker along that path.