THINK IT Services

A year ago, I published a series of 10 predictions regarding how the Cloud Computing marketplace would evolve in 2011 in E-Commerce Times. Here’s a recap and assessment of my predictions:

1. The Cloud Computing market will grow more rapidly than analyst firms forecast as organizations move from asking “what is Cloud and why is it important” to “where and how can I capitalize on the Cloud today.”
   • I think I did ok on this one, although there remain plenty of organizations who are still trying to define the Cloud and determine why they should seriously consider employing it.
2. This accelerated growth will occur despite a major cloud computing service disruptions and/or significant security infractions, which will heighten customer concerns but won’t discourage wider adoption.
   • This certainly was the case as we watched Amazon’s Web Services (AWS) crash, jeopardizing numerous start-ups and other companies dependent on its Cloud capabilities, yet failing to dissuade more businesses of all sizes to adopt AWS and other Cloud services.
3. A wider array of appliances and applets will be offered by a growing number of Cloud vendors, which will permit users to “download” the functionality they need so they can work offline or deploy cloud-based solutions behind the firewall to satisfy their reliability and security concerns.
   • This wasn’t as prominent a trend as I expected. However, salesforce.com did acquire Navajo Systems, an Israeli-based startup with unique encryption capabilities that are the basis of salesforce.com’s new Data Residency Option (DRO) that permits users to retain control of their data behind their firewall, which could exponentially expand the addressable market for Cloud vendors.
4. Community clouds aimed at specific vertical markets and supply chain relationships will become more prevalent, as various organizations recognize the value of sharing cloud resources and services with their peers.
   • Although the number of community clouds grew in 2011, they didn’t proliferate as much as I expected as most organizations focused their attention on more binary public vs. private cloud alternatives. 
5. Corporate decision-makers will shift their focus from reliability, security and integration concerns to strategic and tactical governance issues, ranging from planning, selection, deployment, monitoring and evaluation to optimization and monetization of cloud initiatives.
   • This trend was more subtle because most corporate decision-makers continue to have serious reliability, security and integration concerns about the cloud, but are also developing corporate policies and procedures to govern their planning, selection, deployment, monitoring and evaluation processes.
6. The rate of cloud company failures and M&A activities will escalate as many startups are unable to keep pace with rising customer expectations and intensifying competitive pressures, and established players attempt to accelerate their development efforts via acquisitions.
   • The magnitude of the Cloud movement permitted the vast majority of startups and established players to prosper. M&A activity has escalated as the year has gone along, capped off with SAP’s acquisition of SuccessFactors, Oracle’s purchase of RightNow and salesforce.com’s recent Rypple buy.
7. Vendors that provide cloud integration tools and professional services, in particular, will be key acquisition targets because they represent a critical component in pulling the various cloud piece-parts together. The acquisitions of Cast Iron Systems and Boomi are just the beginning on the tools side. Consolidation among cloud integration service firms will occur in the coming year.
   • A series of acquisitions by Appirio were the clearest example of this trend on the professional services side of the integration world. But, the number of Cloud integration and consulting companies continues to increase in response to growing demand. The lack of integration tool vendor acquisitions was a bit of a surprise.
8. Social networking will become a required component of enterprise applications, driven by the success of Salesforce.com’s Chatter. By offering Chatter free to a broader population of end-users within its existing accounts, Salesforce.com is not only raising the bar for its direct competitors, but also expanding and redefining its role within the enterprise.
   • Salesforce.com’s intensive marketing campaign promoting the virtues of the ‘Social Enterprise’ have brought broader attention to this idea. It has not only forced other Cloud vendors and established players to promote their social networking capabilities, it helped fuel Jive’s IPO.
9. Datamarts will become a cornerstone of a new generation of cloud-based Data-as-a-Service (DaaS) and Business Process as a Service (BPaaS) solutions, as well as industry benchmark services.
   • Salesforce.com rebranded Jigsaw as Data.com and unveiled Database.com, but examples of BPaaS didn’t get as much attention because they are taking shape within specific vertical markets.
10. New channel programs will be introduced, new channel partners will emerge and new revenue streams will be established. Ironically, the leading cloud vendors — such as Amazon, Google and Salesforce.com — will continue to have the toughest time building successful channel programs because of their direct sales heritage.
    • The success of THINKstrategies’ first Cloud Channel Summit is an indication of the level of interest in building successful partnerships in the Cloud. Although, channel executives from Amazon, Google and Salesforce.com were prominent speakers at this event who have made significant progress with their channel development programs, they all readily admit they are still searching for the right formula for success.

The topic of building effective channel alliances in the Cloud continues to gain greater attention. This past week, I spoke at two events and attended a third in the Boston area in which Cloud channel strategies and solutions were a central theme.

The first event was a local gathering called, “Mondays in the Cloud”, organized by Sonian and hosted at the UMass-Boston Venture Development Center. The session was kicked off by Greg Arnette, Sonian’s Founder and CTO, who provided his perspective on the state of the Cloud marketplace. I followed Greg with a talk about the Cloud industry trends driving the demand for a stronger channel network to build on the initial success of Cloud services. My talk was followed by Erik Sebesta of cloudTP who talked about how Cloud integration services companies like his are becoming an important channel to market for Cloud vendors seeking to sell private Cloud solutions into enterprises. Brian Matsubara of Amazon Web Services (AWS) concluded the event with a description of AWS’s channel strategies, programs and success stories.

The next day, I presented and moderated a panel about the state of the Software-as-a-Service (SaaS) and Cloud marketplace, and how established independent software vendors (ISVs) can capitalize on these trends at Progress Software’s “Revolution” customer and partner conference. The overall event attracted over 1,000 attendees, an illustration of Progress Software’s worldwide user and partner base. My breakout session, “Winning the Revolution at the Next Frontier—In the Cloud”, was followed by a panel discussion which I facilitated consisting of Grant Christensen, General Manager-Operations at Supercorp Technology Pty Ltd. based in Australia; Sten Petersson, CEO of Exicom based in Scandinavia; and Tim Diassi, Executive Vice President and General Manager, UnicornHR based in New Jersey. The companies not only operated in different continents, but also delivered very different solutions. Supercorp Technology supplies data services to insurance and financial service companies. Exicom offers an enterprise project management solution. And, UnicornHR provides SaaS-based payroll services. All three companies are experencing growing demand for their Cloud-based solutions and benefiting from their channel relationships with Progress Software.

Yesterday, I attended the ASCII Group’s Success Summit in the Boston area. While it wasn’t promoted as a Cloud event, nearly every speaker addressed the opportunities and challenges associated with the Cloud from a channel perspective. The event attracted over 100 local IT service companies and value-added resellers (VARs), as well as a couple dozen sponsors. It was an impressive gathering with a number of good speakers offering practical advice for channel companies moving to the Cloud.

All the talk about Cloud channel strategies and success stories reinforced the timeliness of the Cloud Channel Summit. You can hear more of my views regarding the forces bringing Cloud channels into focus in the podcast I recorded with Brett Martin and Mike Vizard of Channel Tech Network in Episode 52 of their Channel Happy Hour series.

The extraordinary success of Amazon Web Services’ (AWS) Infrastructure-as-a-Service (IaaS) solutions has prompted nearly every major hardware and software vendor to offer their own IaaS, Software-as-a-Service (SaaS) or Platform-as-a-Service (PaaS) solutions as well. This has put tremendous pressure on traditional hosting companies, communications service providers (CSPs), and Value-Added Resellers (VARs) to respond with their own offerings in this increasingly competitive marketplace.

This week, I had the opportunity to participate in a full-day analyst briefing and attend the kickoff session of Parallels’ 2011 Partner Summit. [Disclosure: Parallels paid my travel expenses to attend the event.] This year’s Summit built on the momentum of last year’s conference by unveiling numerous enhancements to its portfolio of Cloud enablement solutions, including:

• Parallels Automation for Cloud Infrastructure
• Hosted PBX
• Microsoft System Center Hyper-V Cloud
• Microsoft Office 365 Syndication

Parallels also promised to make an increased investment in its Application Packaging Standardization (APS) Program to permit greater portability of Cloud services.

What I especially liked about this year’s event was the way Parallels’ management team attempted to alleviate some of the anxieties among its partners and potential customers about the increasingly competitive Cloud marketplace by emphasizing the tremendous opportunities in the SMB segment and identifying industry best practices that can win hosters, CSPs and VARs success.

While the Cloud Computing market is evolving quickly, mainstream adoption of Cloud services among small- and mid-sized businesses (SMBs) is still embryonic. Parallels is attempting to accelerate the growth of this segement of the market, and help hosting companies, CSPs and VARs capitalize on this tremendous market opportunity with its Cloud enablement products and channel support programs. It is also expanding its role as a Cloud “broker” by recruiting  more Software-as-a-Service (SaaS) to participate in its service catalog.

The company also announced a leadership change with  Birger Steen assuming the CEO position and the company’s founder, Serguei Beloussov, retaining his positions of Executive Chairman of the Board and Chief Architect. Steen brings extensive business experience and strong Microsoft relationships which the company hopes will help it grow from approximately $100 million in revenue to $1 billion over the next five years.

An acquisition by Microsoft might come before it reaches this milestone. The company’s concerted efforts to align itself with Microsoft include many of this year’s product enhancements; moving its headquarters to Renton, WA; and adding other former Microsoft executives to its leadership team such as John Zanni, Vice President of Marketing and Alliances, who was formerly GM of Microsoft’s Worldwide Software + Services Industry, Communications Sector business unit.

A clear measure of Parallels’ growing presence in the Cloud enablement business was the larger number of attendees and sponsors it was able to attract to this year’s Summit. The energy and enthusiasm at the event also demonstrated the strong allegiance which Parallels’ partners feel toward the company.

With few vendors able to offer a comparable portfolio of Cloud enablement tools to hosting companies, CSPs and VARs, Parallels has an opportunity to grow quickly as its partners attempt to keep pace with the tremendous growth of the Cloud Computing marketplace.

Two announcements on the same day this week vividly illustrated the scalability and ubiquity of today’s Cloud Computing phenomenon. They also showed the diversity of users seeking to take advantage of Cloud Computing services.

The first was Amazon’s announcement that it is offering a free usage tier of its Amazon S3, Amazon Elastic Block Store, Amazon Elastic Load Balancing, and AWS data transfer services for new users for a full year. 

Amazon Web Services’ (AWS)  innovative and groundbreaking approach to packaging, pricing and delivering computing power has been the primary impetus and standard bearer of the Cloud Computing movement. Its commodity and even spot-pricing techniques have captured the attention of entrepreneurs and enterprises alike.

UBS Securities estimates that Amazon will generate $500 million in 2010 and $750 million in 2011, making it the largest Cloud vendor by far with minimal marketing effort. Yet, this still only represents less than 3% of Amazon’s total revenues. But, Jeff Bezos is suggesting that AWS could generate as much revenue (and maybe more profits) than its e-commerce business. This is a major reason why Amazon has tripled its capital spending on infrastructure, and why it is attempting to eliminate any economic barriers to user adoption of its AWS capabilities by offering its services for free to encourage even greater growth of its Cloud Computing service business.

Verizon also announced on the same day that it had won a portion of a major new contract issued by the General Services Administration (GSA) of the U.S. federal government aimed at migrating its operations to a private cloud environment.

Under this agreement, Verizon will provide cloud computing services – including server, network and storage capacity – to federal government agencies. The company will provide Infrastructure-as-a-Service (IaaS) capabilities and will help federal agencies meet their virtualization and data center consolidation requirements. The IaaS platform will consist of virtual and physical servers, storage services, backup services, and application support services to create a more responsive and cost-effective, on-demand computing environment.

Verizon was among eleven (11) awardees selected by the GSA to negotiate with government agencies and provide services under a blanket purchase agreement valued at $76.5 million over five years.

These announcements exemplify how rapidly the Cloud Computing movement is expanding.

Verizon unveiled a new cloud computing offering yesterday, the latest in its series of “Computing as a Service” (CaaS) packages, aimed at small and mid-sized businesses (SMBs).

The real target of the announcement is Amazon Web Services (AWS), which has pioneered the Infrastructure-as-a-Service (IaaS) frontier that has redefined the way computing power is packaged and delivered to the marketplace.

Although AWS hasn’t threatened to enter the telecom business, like Google, its success in the cloud computing market has raised the bar for telcos who have been laboring in the hosting business for many years.

AWS’s claim to fame in the cloud computing arena has been the hyper-elasticity and minuscule price-points of its IaaS solutions, which are bolstered by a myriad of third-party tools vendors. These services have primarily appealed to tech-savvy users, large and small, willing to cobble together these on-demand, online resources to meet their situational computing needs.

Verizon is countering with a bundled program which promises greater ease-of-deployment and more management control for SMBs with less hard-core technology skills and more comfortable doing business with service providers they know.

Amazon continues to challenge the tech industry’s computing norms by offering increasingly frictionless service delivery and spot-pricing for its cloud computing capabilities. The most recent example is its new EC2 Micro Instances low cost option for low throughput applications.

Unable to match AWS on price, Verizon (and other major players such as IBM, AT&T, etc.) is betting on the greater comfort levels which mainstream businesses feel toward established brand-name companies who can serve as strategic sources boasting better support.

The good news about the heightening competition in the cloud computing market is that the growth in demand is not likely to be satisfied or subside anytime soon.

After casting doubts about the durability of the cloud computing model for the past few years, the major market research firms now admit that interest and adoption of cloud computing by organizations of all sizes across every industry is exploding.

Therefore, today’s upstarts as well as the fast-following established players can both compete on their own terms and find success. However, no industry can survive a ‘cloud rush’ like today’s proliferation of players without a shakeout.

A few cloud vendors will survive trying to compete on price in a cost-sensitive marketplace. But, most of the long-term winners will be those cloud vendors who offer other value-propositions, such as greater ease-of-deployment and support, and win the confidence of customers despite their premium prices.

SMBs and large-scale enterprises will benefit from the escalating competition in the cloud which is producing faster innovation and accelerated maturation of service provider business models.

One of the most controversial aspects of the rapidly evolving cloud computing market among industry insiders is the idea of ‘private clouds’.

Purists insist that cloud computing is all about exchanging legacy, on-premise, inhouse IT resources and functions with online, shared resources via the Internet (i.e., the ‘cloud’).

While this is the origin of the cloud computing concept, a variety of forces have conspired to create an alternative approach referred to as ‘private clouds’.

These include valid customer concerns regarding privacy, security, reliability and performance; along with proprietary concerns among various hardware and software vendors seeking to usurp some of the spotlight away from cloud upstarts like Amazon, Google and Salesforce.com.

In addition to the sourcing and marketing forces fueling the idea of private clouds, there are various debates regarding the technical implementation of private clouds which have raised questions about the viability of this idea.

Just as it pioneered the practical deployment and delivery of public clouds, Amazon Web Services (AWS) is now taking the lead in offering ‘virtual’ private clouds as well.

Anyone who shares my background and experience in the telecom world, can easily see the parallels of today’s AWS announcement with the evolution of the virtual private network in the 1980s to meet the peculiar needs of individual organizations.

Numerous members of the AWS ecosystem have been offering enhancements to its public cloud capabilities to make it more palatable for enterprises to use individually in a safe and secure fashion. Now, AWS is lending more of its resources and reputation to extend their capabilities further to meet users’ unique requirements.

This move will stimulate more customer interest in cloud computing and spark more competition among legacy vendors seeking to legitimize their private cloud efforts.