Who Loses If The Cloud Is Cheap As Chips

Includes: CRM, IBM, ORCL, RHT
by: Dana Blankenhorn

The launch of the Nebula One, a pizza-sized connector that turns a collection of standard x86 devices into a private OpenStack cloud for about $100,000, could prove a very big deal.

The main impact is going to come in cloud applications development, which is certain to accelerate. Enterprises now have an apples-to-apples comparison to make, between their existing set-ups and a more efficient, cloud-based solution. They can now build roadmaps to replacing client-server systems with private clouds, and have confidence in those roadmaps. Adapting existing applications so they run on the cloud thus becomes an easier decision to make, and software companies serving the enterprise will be hustling to do just that.

The biggest loser, however, is Oracle (NYSE:ORCL). CEO Larry Ellison's claims about having the fastest chip ring hollow when you can do something faster, better and standardized at the price Nebula is quoting. The speed of the transition depends on the speed with which existing Oracle applications can be put onto OpenStack, and Oracle has a Hobson's Choice between following that trend or seeking to impede it.

Another big loser could be Salesforce.com (NYSE:CRM), which sells itself as cloud software but is actually an application stack built on Oracle hardware and software. The company is going to be under enormous pressure to drop prices, with customers growing to consider the Nebula solution as an alternative. Despite its close ties to Oracle, Salesforce may also have to consider porting its whole system to "real" cloud, or at least building an adjunct "real cloud" solution for new customers, or else its margins are going to be squeezed right out.

On the other hand, this is a big boon to IBM (NYSE:IBM). IBM committed to OpenStack months ago, the company is really all about porting applications at this point, and Nebula will help them eat Oracle's lunch. For the same reason this will probably benefit Red Hat (NYSE:RHT), which has long been IBM's partner in the operating system sphere and is porting its own middleware to OpenStack as OpenShift.

As you'll see from the disclosures below I consider myself well-placed in this system. I remain underwater on my Red Hat investment, but I think its close ties to IBM will see it through, and I have avoided buying Oracle at its recent bargain price.

What you need to be listening for, as an investor, are your investment decisions on responding to the productized cloud. OpenStack now has the chance to be the next-generation operating system, on top of Linux, and applications are bound to flow from that. You need to make sure the server applications you support with your dollars are among them.

Disclosure: I am long IBM, RHT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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