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Archive for March, 2009

Sun Shareholders and Jonathan Schwartz: Take the Money!

Posted by Bob Warfield on March 18, 2009

IBM reportedly has an offer on the table to purchase Sun for $6.5B.  As Techcrunch puts it, “That is two quarters of revenues for Sun.  If you factor in the $2.6 billion in cash and short term investments on Sun’s balance sheet, the true offer is closer to $4 billion.”  Sounds like a bargain for IBM, no? 

The market, OTOH, evidently thinks Sun is worth much less on its own because the IBM offer is almost double what Sun’s shares had been trading at.

Sun has had a difficult time for quite a while now.  They flew high during the dot com boom, but since have had trouble maintaining altitude.  A number of different commoditization forces have preyed on Sun’s dominance.  First, the multicore crisis and other events conspired to make Sun’s proprietary SPARC microprocessors not much faster (if indeed they’re faster at all) than Intel’s chips.  That eliminated most of their major proprietary advantage on the hardware side.  Meanwhile, on the software side, for a computer manufacturer, proprietary advantage comes from the OS.  Though Sun has tried mightily to make Solaris more popular, Linux keeps eroding its share of the Unix world and it’s hard to see how they stem that tide. 

Sun has not been without the wherewithal to try to create new franchises, for example in storage.  But it’s not enough.  Lately, we’re in the teeth of a major paradigm shift to Cloud Computing.  Sun is making a lot of noise about it, but they’re not really demonstrating much traction.  Sun, unfortunately, has been positioned as the high end solution.  The trouble is, Cloud Computing is all about massive clusters of commodity boxes.  Sun even had an early entry for the Cloud in the form of Sun Grid.  But it was so focused on supercomputing based on some pretty proprietary architecture, that it never went anywhere.  My last company, Callidus, used it to good effect for our SaaS offering, but we only managed it because we had lots of relationships with Sun Execs and because for a little while, Sun was willing to bend over backward to get someone onto the platform.  Alas, the winds shifted and another opportunity was lost.  I note Sun is promising they’re back, but its years later, and this business with IBM will bury that news in short order.

IBM represents a good home for Sun.  Lots of good can come of it for both companies as well as for customers.  For example, IBM and Microsoft have been trying mightily for many years to compete with Oracle in the database server market.  Sun brings MySQL to IBM where it will no doubt join forces with DB2.  If the company has its act together, I would expect them to insert DB2 guts in place of the current InnoDB engine and advance the performance envelope on the product to make it harder on Oracle.  Likely it also makes things harder for SQL Server too.   Being able to run MySQL and seamlessly upgrade to DB2 as a form of “vertical scaling” would make for a product offering that is priced everywhere on the demand curve–a powerful competitive weapon IBM has used in the past to good effect.  The world wants some counterbalance to Oracle, so this will go over well.

On another front, a combined IBM+Sun collection of IP and projects-already-in-motion just might field a competitive Cloud offering sooner rather than later.  Likewise, combining Sun’s high performance computing assets with IBM’s mainframe business will likely give HP and a few others fits at the high end hardware market.  As I mentioned, Sun is promising a new Cloud offering.  And the world could use some alternatives to Amazon too.

It’s important to note that IBM generally has a good culture.  It’s not like the horse is being sent to the glue factory.  The best people at Sun can continue to thrive in the new entity in all likelihood.  If any company knows how to reinvent and restart at a huge scale, it’s IBM.  They can heal Sun’s businesses if anyone can.

The other thing to note is that the Cloud paradigm shift is really an all out war for control over data centers.  Cloud computing will further centralize purchasing decision, overturn years of account control, and increase the focus on fewer transactions that have commodity pricing.  Early players like Amazon appear to be running away with a disproportionate share of the Cloud spoils.  Huge transactions are at stake, and if Amazon’s early momentum is any indicator, mistakes that cost market share made early in the war can be very costly later.  Meanwhile, even for those that don’t go Cloud, big companies that want to retain their own data centers will still want “Cloudy” technology in their datacenters.  And they will use the threat of Cloud adoption to drive their own negotiations with the vendors.  Effectively, whether you really go Cloud or not (meaning whether you truly outsource your datacenter to a company like Amazon), you’re still part of the Cloud movement.  From that standpoint, it’s a battle between HP, IBM, and Cisco, with Sun probably not being strong enough to go it alone as the fourth player.  Larry Dignan has some good notes on what the synergy between these two would look like.

Do the deal, guys.  There may not be another one as good.  Interestingly, they may actual be quite open to the deal.  Sam Diaz reports that Sun approached HP, but that HP was not interested.  Wouldn’t you love to know if Sun started all of these discussions, or whether they simply approached HP to get a competitive bid after IBM had approached them?   My money is on the latter, but you never know.

Who will be the next consolidation target?  EMC perhaps?

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Is the Valley too Expensive for Normal People to Launch Startups?

Posted by Bob Warfield on March 15, 2009

Interesting discussion by Louis Gray as he reports on an SXSW panel discussion.  Seems there is some thinking that the cost of living in Silicon Valley is so high that you can’t do startups unless you either made a pile on a prior startup or have a trust fund.

The Valley has certainly seen an incredible amount of innovation.  Mike Maples of Hyper9 quotes a study that says 90% of successful startups were founded within 30 miles of Stanford or MIT.  GigaOm passes on this McKinsey heat map showing where in the world innovation occurs:

Can it really be that cost of living will change all that and make Silicon Valley an also ran for innovation?  In the Louis Gray post, Penelope Trunk says the process isn’t doable for people that can’t accept risk to their foundation, and concludes this mostly limits startups to single 20-something men.

I don’t agree. 

Let me start by saying I founded my first startup in Houston, Texas, where the cost of living is radically lower than Silicon Valley.  This was helpful in enabling me to get further with less capital, but it did nothing to solve the problem Penelope Trunk talks about.  There was still risk to the foundation.  Salaries were commensurately less in Houston.  And yes, most of the people willing to join up were young single males. 

The Valley has important advantages that ultimately caused me to undertake the expense of moving my startup to Northern California.  Despite higher costs (it was years before I could bring myself to buy a house), the stigma of failing in a small company was much lower.  Plus, there were so many more opportunities immediately available if the one you were on fails that it becomes a sort of safety net.  It’s hard for those outside the culture to understand the value of being totally immersed in a culture of start ups.   The risk of doing one or being involved in one in Silicon Valley is less than anywhere else in the world.  Yes, we have more venture capital.  Yes, there are great universities.  Yes, there is a pool of people with startup experience.  But the cultural value, the total gestalt of startup immersion, is even more valuable.

Some years ago a friend of mine decided to leave the Valley primarily for cost of living reasons.  He believed the housing market had peaked at ridiculous levels and that we were headed for an economic dip.  He was stunningly right in his timing, BTW.  He did a ton of research on where to move, and narrowed it down to Austin or Seattle.  His research was primarily on the trade off between number of startups in those reasons versus cost of living.  His research indicated about 1/6 as many startups, and much lower cost of living.  He reasoned that with his excellent startup track record, he could get on with one of the “good” startups in the new region and come out way ahead.

So far, I think he would agree with my story.  Now let me add some interpretation that he may or may not agree with–we’ve never discussed it.  His financial timing was excellent.  So good, he has been able to retire and I believe he is doing well.  But he never did get on with another startup.  While the other regions did have 1/6 as many startups, and his track record was excellent, something was missing.  He never was able to find a startup that resonated.  The ones he talked to just didn’t seem as good to him, and none were good enough to sign up for.  Whether the startups in the other region were truly not as good, or whether it was just that his network was not as good almost doesn’t matter.  Both are aspects of the startup ecosystem.  And this is my point:  Ecosystem is the most important thing for startups.  They can certainly succeed without one, it’s just a lot harder.  I would argue that means you’re risking your foundation more outside the Valley than those of living inside do.

Posted in business | 1 Comment »

Mark to Market is a Feedback Oscillator

Posted by Bob Warfield on March 13, 2009

Lots of good discussions among my colleagues, the Enterprise Irregulars lately.  I want to comment on one that is somewhat outside the domain of computer software, Cloud or otherwise.

There is a discussion on lately about the mark to market rule and whether it is a good idea to leave it in place or to change it so it is less effective, as the system is now doing.  One view is that it was a good attempt at transparency for the value of things, that there is no better alternative available, that nobody complained during the go-go period, and so therefore it should be left in place.

Jeff Nolan is on the other side, and was questioning mark to market (FAS 157) some time ago.

Think of the mark to market rule as requiring a company holding financial instruments for which there is a market (debt, securities, etc.) to constantly revalue those instruments based on their apparent market value.  Sounds like a good way to improve transparency, right?  After, even though the company didn’t sell the instruments, if they had to on the day they were marked to market, we have an idea what they would have been worth.

The flip side of all this, which I’ve been reading everywhere from the EI discussion to my various investment groups, is that mark to market has been a big player in our current financial crisis.  The complaint is that it forces a very negative valuation in times like these even though the entity holding the instruments has no intention of selling them right away and may in fact have a good plan for working through the crisis.  But they don’t get a chance to do that because mark to market damages the overall perception of their financial solidity.  This has been particularly insidious for banks of all kinds.

This is bad enough in terms of the impact of investment markets who make decisions on whether to buy or sell other securities (everything from complex derivatives to the public stock of the instrument holders, e.g. banks) based on valuations heavily impacted by mark to market.  Where it has gotten really ugly is in its regulatory impact.  Capital liquidity requirements and the like are affected by mark to market valuations.  This impact has been so negative that no less a figure than Warren Buffet (who generally has no patience for anything but the harshest accounting) is calling for regulators at least to quit using mark to market altogether.  When the Sage of Omaha weighs in on a topic, you have to at least consider it.

My own view is pretty straightforward:

As can happen, this particular attempt at transparency has clearly failed.  Just because we don’t have one in mind that works perfectly well to replace it yet, and just because we did not (necessarily) know it had failed in the go-go period, these are not reasons to let it continue unchecked. 

Reality is that so much leverage was let loose that most of the banking system is now painfully interlinked.  It isn’t a matter of letting a few bad eggs go to clean up the mess in classic free market style.  It’s a matter of dominos so linked to one another that they all must fall if left unsupported.  That’s not acceptible.  Yes, it stinks we’re in this position.  Yes, some very undeserving people are going to be protected and some will even profit at everyone else’s expense.  But the alternative is much more painful.  We are way past standing on dogma or principle. 

We got here by fiat when a very simple decision, call it a poor negotiation, created too much leverage:

http://c21org.typepad.com/files/edge-1.pdf

We won’t get back out except by fiat, and fiat is much cheaper than propping up the dominos with taxpayers cash.  I’m not sure there is enough cash.

The market today is acting like an undamped oscillator.  Normally, it does a good job correcting itself whenever it gets too high or too low.  But sometimes, it can swing much to wildly in the process.  We would all be better served if that oscillation could be damped just a bit.  Mark to market is the opposite of damping.  By definition, it creates the kind of feedback oscillation you hear when you put the microphone next to the speaker.   It values assets according to the market, which then change the value of the asset holder, which reflects back to the market, which then revalues the underlying assets, and over and over until we have a nasty mess like the one we see today.  Leverage adds tremendous additional “spring” to the oscillation, making it even harder to damp.  Leverage means the organization that issued the debt actually has very little ability to be responsible for the debt, because it is using its own debt to finance it.  That’s what ties all the dominos so firmly together.

So, we need to first dampen the oscillation by lessening the effects of mark to market.  Then we need to see about reducing allowable leverage in some manageable way that doesn’t create panic.  It’s going to be a long painful process, but we can see from the market of the last few days that even a little hope from major banks cheers everyone on.

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From the Dept of “That is so cool!”

Posted by Bob Warfield on March 10, 2009

Hey, I’m a geek.  I’ll admit it.  An alpha geek, mind you.  So I love the latest geek gadget as much as the next guy.  Consider a RAID array to replace your hard disk that is so powerful you can load and open every single MS Office application in half a second.  Whoa!  I gotta get me some of that!

Now the bad news, it’s just a crazy marketing video.  I suppose if you had the bucks and the IT chops you could build your own.  I prefer to look at it as something that’s coming. 

The operative technology here is the SSD, or solid state disk.  They can’t hold as much data as a regular hard disk, but they are sooooo much faster.  They used so many of them (24) to hold enough data and to make them way faster.  In the video, they quote a top speed of 2 GB/sec from their RAID array using 256GB SSD’s which have a native 220 MB/sec capacity.  Let’s play with the numbers a bit.  Suppose I’m happy to load all of MS Office in 2 seconds (I think it may well take minutes on my laptop or as much as a minute on my PC) instead of 0.5.  That’s 4x slower, so we take away 1/4 of the drives.  Now we’re looking at 6 SSD’s instead of 24.  That would give us a capacity of 1.5 TB and a very fast array indeed.  How about 4 drives?  Still able to load MS Office in circa 3-4 seconds and now you’re looking at 1 TB of storage.  What’s that cost?  Something on the order of $1500 – $2000 when I checked.

That’s today.  Now let’s apply the magic of Moore’s Law, and assume we can halve the cost of that system every 2 years.  In 2 years it’s $750-1000.  2 more years and its $350 – 500. 

So get ready, radical performance improvements for your computer may once again be possible.  Here’s one the multicore crisis doesn’t seem to have screwed up.  Cool beans!

Thanks to Gizmodo for the entertaining video.

Posted in saas | 1 Comment »

Corporate Web Site Gives Way to Community: It Had to Happen

Posted by Bob Warfield on March 4, 2009

Fascinating story by Charlene Li (Groundswell author) and others about Skittles and their new approach to branding via Social Media.  Essentially, Skittles have modified their home page for www.skittles.com so that it consists largely of a mashup between various Social Media and a little bit of residual “normal” web site.  First they did it with Twitter, where they showed a continuous search of Tweets that referred to Skittles.  Today I notice they’re showing a feed from Facebook that again shows Skittles-related content from Facebook.  A floating dock in the top left corner lets you choose what to connect to.  Besides Twitter and Facebook there is YouTube and FlickR. 

This stuff is very gutsy, and quite brilliant.  What better way to say they’re hip with the demographic they want to reach?  Company spokesperson Ryan Bowling says:

“In this day and age, where the consumer is extremely influential, the content for our Web site is really based off consumer chatter and beliefs about our brand.”

Why gutsy?  It had to take some guts just to relinquish control even if they knew people were largely positive about the brand already.  Brand managers are some of the most extreme control freaks you’ll ever come across in the marketing world.  Customers can say anything in the Social Media, and Skittles can’t control it.  Techcrunch writer Mike Butcher tested the limits by Tweeting, “Skittles give you cancer and is the cause of all world evil.”  Sure enough, he has a screen shot of it appearing on the Skittle home page!

It took real conviction to go this route, and it will be interesting to watch it play out.  As Charlene puts it:

The brand managers are secure enough in their relationship with customers and also in their brand to let go of control. In fact, they recognize that they never really were in control of the brand. So why not let it go completely?

…

Skittles is the first major consumer products brand to really, truly let go of the traditional brand baggage. They retain some branding presence with the floating dock, but they have realized the new truth of branding in the brave new world of social media — that your customers own your brand.

I think Charlene has it right–the brand managers never had control.  It was always the customers.

I’ve watched a lot of companies try to harness Social Media to create value for their businesses.  Heck, my company Helpstream does this as its core competency.  The realization that your customers are in control is a common thread that most businesses don’t understand.  They work hard to control the customer, but at best they only influence them.  At worst, too much heavy-handed control results in lower customer satisfaction.  Have you noticed how the big satisfaction stories seemingly involve almost no control at all?  Take a look at Zappo’s.  There isn’t a lot of rhyme or reason to their customer service when you look at the anecdotes.  It’s one preposterous thing they’re doing for the customer after the other.  Consider this anecdote:

A woman found the perfect pair of shoes for her husband and she was waiting for her husband to come home so she could surprise him with the shoes and he unfortunately died in a car accident on the way home. So she called the company for help with the return process, and the rep she talked to sent her flowers. She was so touched, she told the story to everyone at the funeral. This type of situation doesn’t happen very often–we don’t have a process or procedure for that. But because we hire for culture, the rep just took it upon herself to send the flowers. She didn’t have to ask for approval–she was empowered to do that. She wasn’t thinking about what is the impact on our profits. She just knew this was the right thing to do.

Note that there was no playbook, they hired for culture (e.g. they hire people who will think of this stuff) and empowered that culture to do what they had to do without needing constant approval.  There’s that loss of control again, but it’s used to good benefit.

Customer love to be delighted, and you can’t delight them unless the customer feels like they are in control.  You can’t delight them unless the people meeting them are in control and able to do what it takes. 

I mentioned watching a lot of companies trying to harness Social Media.  Recently I was chatting with my fellow execs at Helpstream about how Salesforce executives seem to be fascinated with Facebook.  Whether we’re talking about Marc Benioff himself or Zuora’s TienTzuo (former Salesforce exec) on Z-Commerce, they want a connection to Facebook.  I don’t know how successful these particular efforts will be, but thinking about it, and reflecting on Skittles, there are some essential ingredients to keep in mind.

First, is you have to be authentic to succeed.  You’re in someone else’s patch.  You don’t have control.  Your only strength is your reputation and how you conduct yourself in those communities.  Authenticity is closely tied to reputation.  It creates reputation.  The web makes it easy to tell anyone anything.  Hence Authenticity is scarce.  But at the same time, the web also makes it easy to find out if you are not authentic. 

I hear a lot of nervous chuckling when the Salesforce’s of the world talk about Facebook.  Are they serious?  Are they just trying to grab some Facebook buzz?  How can this really work out for business?  Why didn’t they do LinkedIn, it’s for business?

Those kinds of comments are partially motivated by concerns about Authenticity.  Whether or not Salesforce really cares about Facebook and its denizens, or whether they’re just trying to use it for some unfair advantage.  BTW, I have no opinion on this.  I don’t know what inner feelings Benioff may have for Facebook, but I do understand what motivates these questions.  The younger demographic that grew up on the web had to develop unusually sensitive antennae for Authenticity.  They only have to be duped a few times before they’re hip to the idea that you have to be skeptically paranoid about everything on the web.  There are predators, viruses, phishers, Nigerian scam artists, and spoofers at every turn.  The web is a bad ‘hood.

This brings me to a second issue these companies face.  Different communities have different purposes.  Some are very much oriented to business–LinkedIn comes to mind.  Many blogs like this one are in that category.  Some are entirely about personal life.  MySpace, and perhaps to a lesser extent Facebook, are squarely in that category.  Some include both.  Twitter is my favorite example there, although we see it with YouTube as well.

I’ve talked to a lot of members of this younger demographic that grew up with the web, and noticed some interesting things.  These young folks go out of their way to separate their business and personal life.  That’s really no different than us older peeps, BTW.  It’s just harder for the young folk because the web breaks down the barriers.  I’ve talked to a number young people who are heavily into piercings and tattoos.  These are not compatible with a lot of professional environments.  No worries.  They have carefully, even artfully, arranged their body art so it is invisible when they wear work attire.  Perhaps they always wear a long sleeved shirt.  Perhaps they remove some of the rings from piercings during the work day.  This is very symbolic of the dual lives they lead.  Businesses have to be sure to respect that, because they’re working hard to keep their business and personal lives separate on the web, where barriers naturally are minimal. 

It’s no accident that Facebook has run afoul of it’s own users three separate times now when trying to changes its rules to facilitate its business model.  In each case, they failed to leave enough control with their users so that the users could maintain authenticity and separation of their professional and personal lives.  Think about these questions when you go to harness Social Media outside your own fences (the rules are different when you own a community, but that’s a subject for another post):

1.  What control are you ceding to that community to keep them delighted when they interact with you?  You had better be comfortable with the notion of ceding almost 100%.

2.  Are you respecting the separation of professional and personal properly given the focus of the community? 

3.  Are you presenting an Authentic presence for you business and products in the community?

There are a lot of other ramifications to the Skittles story and the value of giving control to you customers because they already have it.  It’s a deep topic and critical to gaining real value from the web channel.

Related Articles

A MySpace Credit Card?  You’ve Got to be Kidding!  This is one of those cases where the business need doesn’t match the personal life nature of an online community, and RWWeb calls them out on it.

Posted in Marketing, strategy, Web 2.0 | Leave a Comment »

Catching Up With 3Tera in the Clouds

Posted by Bob Warfield on March 1, 2009

Recently I had a chance to catch up with 3Tera CEO Barry Lynn and SVP of Sales and Marketing Bert Armijo.  It’s been a little while since I chatted with these guys and they’ve been busy!

It’s now been roughly 3 years since their first beta test.  Incidentally, they claim that beta makes them the first Cloud vendor, since Amazon S3’s beta was 1 month later!  Not sure selling Cloud infrastructure is the same as selling the Cloud like Amazon (that’d be like making the gold pans before the gold is found), but I do applaud their pioneer spirit.  If not the first, they’re certainly among a very small group of original Cloud Thinkers.

Good Catching Up With You Guys.  What’s New Since We Talked?

Our latest version is 2.48, which was recently released.  The big change there is we’ve added support for Solaris and Windows, and there is integrated monitoring.  We now have service on 4 continents, soon to be 5.  And we have customers taking advantage of that.  A customer can get presence on 4 continents in a day with 3Tera.

How Many Customers Do You Have Now?

Several hundred live customers, mostly through partners.

We have a number of hosting partners, and we’re always looking for more.

Tell Us About Your Partnering Strategy

People are starting to realize the need for private clouds.  People are starting to get it.  Federal Government and Large Enterprise want it.  There are legal restrictions on where data can be put.

For a long time partnering was unique to us.  People in the space all wanted to build their own cloud.  Our customers can work with multiple operators from Day 1.  Our customers do this on a daily basis.  It’s routine.  We have a button for it in the GUI to automate it.  Backing up to multiple points of presence, for example.

The product is maturing and we’re starting to see a change in types of customers coming on board.  Don’t know if it’s the economy or the Cloud industry.  A year ago, most customers were web or SaaS.  Now the vast majority are Enterprises.  It is a profitable and stable business though it puts a different kind of requirements on the product.

Why Enterprise?  I’ve Talked to a Lot of SaaS Companies Having Difficulty With Large Deals.

First I haven’t heard SaaS companies are having any particular problem with Enterprise sales.  There’s stress everywhere, but we don’t see the Enterprise as particularly stressed.  When business is good companies want control over price like SaaS offers.  But when business is bad they want economies of scale.

We love this economy.  Everything requires a bit of luck.  Here’s what’s going to happen.  This is the hardest hitting recession we’ve yet seen in the shortest period of time.  Some companies want quick ROI investment, particularly around saving money.  Others get completely frozen and don’t do anything.  There’ll be companies in both of those camps.

<The frozen camp is where I’m hearing the Enterprise problems.  Larger orgs seem more prone to freezing.>

If you look at things like Siebel or other SaaS having a problem, where customers cut back is in discretionary vertical functionality.  Do I have to do it at all?  We greatly lower the cost of almost everything.  We don’t build apps, we build platforms.  So we replace something non-discretionary with something also non-discretionary but cheaper.  Others are making discretionary spending cheaper.

A datacenter upgrade or tech refresh cycle was poised (last one was dotcom).  Now they lost budget for that, so its, “How do I run my business?”

You can’t run a business without IT infrastructure.  I may get rid of my cable TV, but I still have to buy food.  I just want cheaper food.  That’s what we’re out to do.  We can show them the catalyst for cheaper IT infrastructure.  We can even enhance quality while saving. 

People get the same level or more control as when the hardware was in their datacenter.  In fact, it’s more, because they have better tools to abstract large distributed systems.

How do you get the word out?

We look more like a web company there.  We don’t have a big field sales force.  We don’t have big Enterprise software contracts.  What we’ve done is to simplify and create a small incremental purchasing decision.  Even multinationals can start for a few hundred dollars a month, increasing spend as they see value.  That eliminates long eval cycles and the committee sale.  We’re more efficient and we pass that along to the customer.  We’re more focused on value instead of artificial billings like services and support. 

<This incremental pay-as-you-go cost is what I love about the Clouds.  We’ve seen it at my own company Helpstream when using Amazon.>

So we use telemarketing, or what a lot of people call Sales 2.0.  A lot of sales are Webex.  We only go visit customers who have an established footprint with us.

We minimize the onboarding cost and eliminate the lock in.  We avoid API’s that people have to write code to—that creates lock in which worries customers.  This minimizes the perception of risk.

We have a full blown disruptive product.  It is subscription based.  It’s incremental.  You can try it out slowly and then move quickly when you’re convinced.  That helps a lot in this economy. 

Customers save the capex because they don’t have to own the software.  They save personnel costs because people don’t manage servers, they just manage applications using our platform.  Saving thoses costs together with faster time to market really is a cheaper and better proposition. 

We use a combination of methods to attack the marketing problem.  We are voracious practitioners of PR.  PR offers so much more value than any ad we can place ever would, whether that’s a Google ad or a print ad.  Having some writing and putting their intelligence into it creates value. 

We also do some Google ads, though we have cut back on that a little bit.  It is valuable because it brings new people into the space.  It causes them to go find the PR.  We also do a few conferences.  We don’t go to big trade shows, but there are some decent focused small conferences.  We like conferences with a few hundred people because we can spend time educating someone there.

Often these conferences are vertical or geographic.  For example, there are Cloud Conferences for Government people.

Most of our leads are inbound.  Soon, we want to look at more outbound techniques, but without spending a huge fortune.  For example, we’ll be at the Web 2.0 show in SF.  We’re also doing the Sitcom Cloud Event in NY.  We’re doing Forrester’s Cloud Event.  We actively participate in Cloud Camp.

Tell Us More About Your Partner Strategy

When we started, it wasn’t clear this was the right path.  We got a lot of pushback, but we stayed committed to it.  Cloud is not going to be a one size fits all market.  There’s a lot of different purchasers and a lot of different requirements.  Banks want their systems of record in their data center.  Healthcare likewise.  Europe has a lot of laws about this.  There are many geographical issues, even involving physical limitations of the speed of light.

The level of service customers need and can afford is also all over the map.  One company can’t build a data center that meets all of those requirements.  We see a Federation of Clouds where users can take their workload to where their requirements are met.

It’s very popular to have developer systems in a different area than production.  The latter has geography, redundancy, and other requirements.  We transfer the workload seamlessly from one to the other, which is powerful.

We have a tiny little startup that has facilities and points of presence in three continents.  Startups couldn’t begin to do that in the past.  We have customers on military contracts that have very special security requirements. 

Only by partnering could we meet all of these requirements.  Our job is to build the best possible enabling platform.

We’re very conscious of our partners and want to make sure they make money.  We don’t charge them up front or make them sign up for huge commitments.  Its win-win, customers save money, but partners make even more money with us than on their own.

The real strategic value is there will be an evolution over the next couple of years.  Many companies are just not in the infrastructure business.  Yes, they spend billions, but at some point they’re going to stop building that infrastructure and start using the Cloud.  It’ll start slow, they’ll move bits and pieces, but at some point, they won’t need to own datacenters.  There is a whole industry growing up to service this.

What About Amazon, Google, Microsoft, et al?

Cloud computing will be a federation of many many clouds.  There are thousands of telcos in the world.  We see cloud computing playing out the same way.  Of course we see Amazon, Google, and the others playing in that game.

There should be standards to increase the interoperability and make it better for all.  Networking is a very successful example of this today.  Telephones with rotary dials still work today.  Other industries struggle to get to that point.

Why Not Amazon Today?

What does that mean? 

<Bob laughing, “I want your graphical management tool working for me in the Amazon Cloud!”>

We set out to do a particular thing.  Amazon didn’t exist back then.  We set out to make it easy to deal with large systems.  We built an underlying infrastructure to support the user interface that you see.  AppLogic’s Cloudware infrastructure identifies pieces that can be broken out as services.  We are starting to see how to do that.

There’s the UI, there’s a grid OS, we look at heartbeats, failures, etc.  We have a catalog system, we have a metering system, and we generate billing information.  Each could’ve been a company.  But we built it all together as a seamless whole.

Now that we understand how this all fits together, we can look and see how to do it on systems that have fewer services.  EC2 is one of those targets.  We’ve been open about that.  It won’t happen in a month or two, but it’s something we’d like to do.  Amazon is one of several.

We don’t want to be seen as a front end for a cloud. 

Thanks Guys, Great Discussion!

<3Tera remains one of the Cloud Leaders that I like to keep an eye on.  They’re enabling the hosting world to build their own Clouds using 3Tera’s platform.  That ensures a lot more Clouds will be available with lots of interesting features and distinctions.  It’s all good for the end users!>

 

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