Most of the biggest technology payoffs have been generated by companies that drove transformations in business operations. From the mainframe era with IBM (NYSE:IBM) through the PC era with Microsoft (NASDAQ:MSFT) and the networking era with Cisco (NASDAQ:CSCO), disruptive technologies that set new standards for business productivity established built-to-last companies with massive market capitalizations.
The hybrid cloud is the next major opportunity for disruptive innovation, and companies like Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG), Microsoft and VMware (NYSE:VMW) are well-poised to establish best of breed cloud services. Recent estimates peg investments in cloud infrastructure to now exceed $50B per year.
Yet the winner of the hybrid cloud war may not win by simply building the grandest cloud service, but rather by having a strategic cloud migration and integration capability. That capability will be framed by critical APIs, services and a robust hybrid cloud automation platform. Automation may have more to do with the success of a cloud offering than its sheer depth of services (storage, networking, apps, etc.).
The Power of Software versus Hardware
When Sun Microsystems (NYSE:ORCL) dominated the server world, a much smaller company (with about 20 employees) based in Palo Alto developed software, which allowed x86 servers to be utilized more efficiently. As it grew from its stealth launch in 1998 to its commanding presence today, VMware set the stage for another computing disruption by proving that x86 server hardware could be used much more efficiently with virtualization software: multiple applications and operating systems could run on the same server.
Server virtualization allowed IT pros to manage more app workloads. Sprawling, increasingly complex data centers could also be more efficiently utilized. VMware was not a server hardware company, but a company developing software to allow servers to be used more efficiently. Virtualization paved the way for a series of data center evolutions that made clouds operationally feasible on ever larger scales, which in turn drove new storage and networking demands.
See, for example, VMware's acquisition of tiny Nicira for $1.2B+, where software defined networking became increasingly strategic to the growth of server virtualization.
Middle Ground Software for the Cloud
As tech leaders like Google, Microsoft and VMware invest heavily in cloud infrastructure and public cloud leader Amazon continues to invest as a market leader, many enterprises will likely not be looking at any single public cloud as a permanent destination, but rather as a temporary location driven by changing business and operating advantages. Servers, for example, have refresh rates that can involve replacement as often as every 3 years, sometimes even less. Clouds might be even more temporary thanks to the rise of "on demand" operating models like "pay as you go" disaster recovery and over-hyped cloud bursting.
For example, while the cloud may not be cost effective for many full time workloads, it can be very economical for occasional workloads. Think "pay as you go" for disaster recovery, for example. Today many enterprises invest heavily in buying and operating duplicate server, storage and networking hardware (for rare use during outages). Clouds could be significantly more cost effective for use during rare or even occasional bouts of planned or unplanned downtime than for always on usage. Taxis, for example, are very cost effective for short-term use, but for full-time use they are cost-prohibitive for most drivers.
That brings us to the importance of the middle ground, or agility and automation in between the data center and the cloud. By reducing the time and expense required to migrate apps into and between clouds, the clouds become more economical and more feasible for powerfully disruptive use cases, like cloud-based disaster recovery.
Today there are a handful of startups in the cloud migration middle ground with varying degrees of automation and varying levels of support for production environments. As the cloud migration category matures to support cloud migration and integration the cloud will ultimately become a seamless extension of the data center, something that Microsoft and VMware are already talking about. When that happens, fortunes will be made in the middle ground between massive data center investments and equally massive investments in cloud infrastructure. That middle ground will become strategic to enterprise cloud capabilities; perhaps more so than any single cloud.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: CloudVelocity is an AWS and Azure partner.