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Hurry, The Cloud Computing Platform Opportunity is Perishable!

As I write this post, many are predicting that the big announcement from Google tonight will be that it’s opening up BigTable for the world to use.  At least Kevin Burton and Mike Arrington think so.  I hope so, because the world needs a lot more cloud computing choices.  I wonder how many have figured out just how little time remains to introduce new cloud computing platforms?

Ray Ozzie has said, “[the cloud market] really isn’t being taken seriously right now by anybody except Amazon.”  He’s right on the mark:  it isn’t being taken seriously by anyone except Amazon.  The distant runner up is Benioff’s Force.com.  I say distant because there are a lot of problems with it, not the least of which is an economic model that makes it completely untenable for anyone but big corporate IT to use.  Technically, it is a completely closed and proprietary environment that offers only minimal leverage.  It’s true, they’re very seirous about it, so in that sense we should add them to the list, but the way they’re going about it makes it seem less than serious.

Here’s an important tip for various big industry players who’ve made noise about Cloud Computing at various points:  it’s a perishable opportunity!  You don’t have forever to contemplate how to get in and start winning.

Why?

Because ultimately it boils down to differentiation and commoditization like any market.  The longer you wait, the more bipolar the market becomes.  Allow Amazon to get too strong and you’ll have two choices:

–  Copy Amazon’s API’s very closely and charge a lot less. 

–  Launch a radically different approach that offers big advantages in some other way.

The middle ground will be untenable.  An API or service that is only slightly better than Amazon’s but is incompatible won’t succeed.  We’ve seen this time and time again in our industry.  It’ll play out the same way here.  For a brief time everyone can be slightly different.  Then the world will discover the differences don’t matter and they’ll gravitate towards one player.  If someone already has huge momentum (e.g. Amazon), you must either be incredibly differentiated or much cheaper.  Both are pretty hard to do.

We could ask whether Amazon has already reached a stage that only the two options can fly.  I don’t think so.  Not quite anyway.  It takes longer than you’d think, although their success has been phenomenal.  My prediction is that the window to introduce a major new cloud computing platform initiative is not quite 2 years.  If you’re not out by end of 2009, you will face a major uphill struggle.  In fact, if you’re not a great big player, the window is much less.

There are significant challenges for the big players to execute quickly enough:

–  Sun never seems to execute on anything quickly enough.  Sorry guys, but the company just doesn’t evolve very fast.  That’s why you’re buying properties like MySQL, right?

–  Google wants to be a precision machine, focused on squeazing margin out of a lucrative model.  What would they do, if like Amazon, they announced this thing and suddenly had more traffic to it than their core properties?  They have a history of absorbing startups and then taking a long time to get the thing to a level they feel is commensurate with their standards.  Cloud computing is in many ways worse.  They lose control and let other people’s software run inside their firewalls on their servers. 

–  Microsoft is in the unenviable position the old RISC world was in against Intel.  They have to build everything themselves on their platforms.  There is no synergy with third parties.  It’s ironic really.  The Intel/Microsoft PC Kiretsu could divide and conquer and they were so successful even Apple finally went Intel because the others couldn’t afford to do it themselves.

–  Yahoo?  People used to talk about them in the same breath, but clearly the wheels are coming off that stagecoach.  For a big player, cloud computing is not a little investment.  Particularly now when there is quite a lot of momentum already built.  Yahoo’s bets are laid, and they’re a lame duck besides.  Count them out.

–  IBM?  Could be.  They’ve made announcements but the follow up is weak.  IBM could certainly afford to throw enough services at the problem to get it going until the technology catches up.  They can sure sell such a thing.  The biggest challenge they have is their command and control culture may never let it reach critical mass.

–  Tata et al:  Big Indian or Chinese.  Why not?  These are huge companies overseas.  They have the expertise to do quite a lot.  The Asian markets are hot, hot, hot, and they’re not that well served by Amazon.  These guys would be my bet for the odds on Dark Horse players if they get it and can get their act together.  They’re ideal as low cost providers and like IBM, they can throw service at it until they get it right.  There is surprisingly little technology required at this stage to get started at the level Amazon is at.  You need an EC2 and an S3 clone and a bit of window dressing that does something they don’t.  How about an identity system?  I’ve written about that before.  Wouldn’t you think if a service was announced business would fly to it overseas?

Meanwhile, Amazon is coming to a sort of crossroads as well.  The traffic to Amazon Web Services exceeds the traffic to the rest of their properties combined.  This is no longer a remaindering strategy for unused MIPs as many VC’s I talked to late last year seemed to feel.  Amazon is now experiencing significant growth and scaling pains for the service.  EC2 just went down for about an hour for many customers.

This is both good news and bad news for Amazon.  The good news is that they’re learning how to keep these systems up and they others haven’t even started up that learning curve.  The bad news is it annoys customers mightily. 

The other thing I watch Amazon for is signs they’ll offer anything with AWS that they didn’t already have to build for their core business.  The availability of something interesting and new would be a further signal that this is not just a remaindering business.  More importantly, it would be a further barrier to entry and exit around their valuable property.  As it stands, EC2, S3, and SimpleDB are pretty low level.  They do not represent big barriers.  All that is available in one form or another via Open Source to others who want to play.  Amazon’s expertise in billing and payment processing is more differentiated, but not compelling and as currently offered, very Amazon-centric.

Note to Werner Vogels:  it’s time look for key innovations in AWS to build lock in while you continue to make the service more robust.

Note to others:  Time is running out.  Get in the game or move on.

Note to self:  Look for a dip and buy AMZN stock.

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Google responded well to the challenges I set forth above with App Engine.  See my blog post for more details.  By focusing on language support instead of raw virtual machines, they’ve actually raised the bar in the sort of way I keep saying Amazon needs to above and below in the comments.  I stick to my 2 year prognosis.  If you aren’t a Big Player here within 2 years, the window will close.  What Google has done is raise the ante on what you must deliver to be in the poker game.

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