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The Emerging Cloud Wars
Scott Raney and Michael Cohen, 06.17.10, 06:00 PM EDT
Google, Microsoft, Amazon and other tech giants are battling for market dominance.
The rise of cloud computing has already proven to be an incredibly disruptive force in the world of enterprise software. Infrastructure-as-a-Service (IaaS) offerings like Amazon EC2 have launched over 15 million virtual machines; Software-as-a-Service (SaaS) offerings like Dropbox have grown to over 3 million users; and Platform-as-a-Service (PaaS) offerings like Heroku now support over 60,000 cloud applications. One can imagine a future world where both big and small companies view computing as a pure utility, outsourcing the vast majority to public infrastructure but maintaining just enough to “keep the lights on” in house. This future is a very real possibility and major players in both the Internet and enterprise software markets are jockeying for position.
The public computing model creates a major strategic challenge to most traditional enterprise incumbents (EMC ( EMC – news – people ), Cisco ( CSCO – news – people ), IBM ( IBM – news – people ), Oracle, Microsoft ( MSFT – news – people ), etc.). It commoditizes their hardware and changes the requirements for their software. On the hardware side, users don’t care what kind of storage, networking or server infrastructure Amazon deploys as long as it is fast, reliable and available on demand. Additionally, they now expect their enterprise software to be as quick to deploy and easy to scale as the underlying, often-virtualized commodity hardware.
One of the most interesting and relatively nascent markets to emerge from the rise of cloud infrastructure is PaaS. While Infrastructure-as-a-Service forces a developer to set up, configure, deploy and manage an application from scratch, a PaaS hides all of this complexity, often allowing a software developer to simply upload application code to run. The platform handles all the gritty details that system administrators usually handle and lets the developer focus on the software. In the non-technical world you could compare this to buying a piece of furniture at IKEA, lugging it home and then figuring out how to put it together, vs. buying it online and having it delivered and set up in your living room.
A PaaS enables IT to provide businesses with the flexibility to scale up or down to fit specific needs, without the cost and complexity of managing additional hardware and software. It also offers operational efficiency and predictability in cost and uptime. These applications are social, real-time, interactive and deliver high value for a minimal amount of user time.
A great example is the “Oil Reporter” application that was created in three days, runs on mobile devices and enables citizens of the Gulf Coast to report, analyze and view observations about the oil spill and its impact. The Oil Reporter app was built for Crisis Commons. Building applications this complex in such a short period of time is only possible by using a PaaS.
While the PaaS market is still under the radar of most traditional enterprise vendors such as Cisco, EMC, IBM, Oracle, several big players including Microsoft, Google ( GOOG – news – people ), Amazon, and VMware ( VMW – news – people ) have already made significant investments. Microsoft launched its Azure platform early this year after investing over $2 billion in Web infrastructure and deploying hundreds of thousands of servers. Google App Engine, which has been available to developers for over two years, offers a platform on Google’s own infrastructure that serves over 250 million pageviews each day. Amazon has been consistently adding services such as database, auto-scaling, and monitoring to its EC2 service, and VMware has moved aggressively to create PaaS offerings, such as its VMForce, through a mix of partnerships and acquisitions.
Each company sees an important strategic value in the PaaS market. Having seen the shift to Web applications, Microsoft has built Azure to protect its developer ecosystem and ensure that its developers build apps that work seamlessly with Windows and Microsoft’s technology stack. VMware has been watching the commoditization of its core virtualization technology and sees PaaS as a way of maintaining the value of its software. For Google and Amazon, the PaaS market represents an opportunity to capture developer mindshare as well as another channel through which to monetize their best-in-breed infrastructure.
While these companies understand the promise of PaaS, each one also faces strategic challenges in capturing a large share of the market. Microsoft clearly views the space as strategic, but its first priority must be protecting its core consumer and enterprise software businesses. In its efforts to continue to dominate the search and online advertising markets, Google risks neglecting App Engine as the platform gains traction (as recently noted in the team’s blog post “Datastore Performance Growing Pains“). Amazon is first and foremost a consumer Internet company and the tremendous growth of EC2 is pushing it to focus on developers and enterprises. Finally, VMware, a pioneer in the virtualization technology that eventually led to many cloud services, must be careful not to cannibalize its lucrative on-premise software through on-demand PaaS offerings.
Time and again in these situations, we’ve seen major market players fighting it out while under the radar pure-play best of breed start-ups, such as Heroku and Rightscale, begin to deliver on the promise of innovation and industry disruption. Without the burden of legacy businesses, companies like these are building solutions from the ground up, optimized for the new world, and we expect to see more of them coming to market in the next few years. After all, Microsoft, Oracle, BEA Systems ( BEAS – news – people ) and a number of other billion-dollar companies all got started this way.
Scott Raney is a partner with Redpoint Ventures. He focuses on information and consumer technology with an emphasis on enterprise software and infrastructure, mobile technology and services, and social gaming.
Michael Cohen is an associate with Redpoint Ventures. He focuses on enterprise software, infrastructure and consumer Internet investments.