The coming of age of cloud computing

When the cloud computing (CC) technology first surfaced, it brought with it a large number of naysayers: companies who felt the whole idea was a hoax, a fad that would go away as quickly as it came; that it wouldn’t catch on. On this side of the fence were the tech giant IBM and, particularly, […]

When the cloud computing (CC) technology first surfaced, it brought with it a large number of naysayers: companies who felt the whole idea was a hoax, a fad that would go away as quickly as it came; that it wouldn’t catch on. On this side of the fence were the tech giant IBM and, particularly, Oracle, who felt the idea was basically “vapor-ware.” Amazon kind of started CC in the way that we know it today, popularized it, had it to itself for a while, and has stuck with it from the beginning. This gives the company the power of being the first. While Microsoft (MS) and Google didn’t exactly “bad-mouth” CC the way that Oracle did – they were kind of neutral or asleep, they found themselves in a position of having to catch up. And trying to catch up they still are.
Thanks to business agility – or who says an elephant can’t be fast, some of these naysayers are now on the bandwagon, swallowing their pride and actually propelling the wagon. Ditto for the companies that were initially “neutral” about CC – MS and Google. By 2014 market value, MS is Number 2 with 10%, and IBM is Number 3 (7%). Others are Google (5%), Salesforce.com (4%) and Rackspace (3%). (These data were taken from the 23 July 2015 issue of New York Times, who, in turn, took them from Synergy Research Group.) Amazon Web Service (AWS) leads the pack at 28%, thanks to the power of focus and “hanging-in-there,“ or persevering when obstructions hit.
In its second quarter report that came out on Thursday, 23 July 2015, Amazon reported income from AWS, which Wall Street never saw happen before but was pleasantly surprised, of course. This raised Amazon’s stock price by 17% and added a market capitalization of $40 billion when the stock market opened on Friday, 24 July 2015. Though these figures may be modest by Apple or Google standards, they are quite significant, because they come from a different line of business – not exactly like selling commodities like iPhones or the now “well-moneytizable” Google ads.
Like most businesses, Amazon has weathered a lot of storm to be able to stand and lead in this business. Remember 22 October 2012 when an Amazon EBS (Elastic Block Storage) server in the US East datacenter in Virginia, USA, went down, taking numerous websites with it? The outages were related to Amazon’s EC2 (Elastic Compute Cloud) and RDS (Relational Database Services), and it appeared the problems were localized to Amazon’s datacenter located in Virginia. The root of the problem appeared to be a power outage. Customers were infuriated by the disruption of their cloud service, as evidenced by blogs and tweets. Affected companies scrambled to respond. There was also another outage of the Amazon cloud on 14 June 2012 and yet another in April 2011. Each of these mishaps had dramatic effects on Amazon’s customers, but somehow, Amazon came out of it.
What problems did IBM or Oracle, have with CC in the beginning? Simply put, it’s what I’ll call the “incumbency syndrome.” Realize that there are two sides to the proverbial cloud coin. On one hand are the major proponents, such as Amazon initially, and Google and Microsoft, later. On the other are the traditional infrastructure makers such as AT&T, Cisco, EMC, Hewlett-Packard, IBM, and Oracle. According to a Bloomberg BusinessWeek (BW) article in March of 2011, the latter group collectively controlled over 95% of the market and sit on vast cash reserves earned by steering the creation of data centers inside large corporations. They specialize in setting up and servicing high-margin products and reap the attractive consulting fees that result from helping companies manage their equipment. In his book on “The Management Strategies for the Cloud Revolution,” Charles Babcock discusses a few of the critics of the cloud. Prominent among these is Larry Ellison, CEO of Oracle, the commercial database company. Ellison refers to the cloud as “water vapor.”
IBM deserves some praise for swallowing its bride to start its own CC business, despite the initial negative disposition. Ditto Oracle. Incidentally, especially true for IBM, these companies are well placed to compete, explaining why IBM has climbed up on the list of cloud masters. The list of the top 6 cloud companies that I published in the 8 October 2012 issue of this column of course did not include IBM. Back then, the top six were Amazon, Google, MS, VMWare, Salesforce.com, and Rackspace. Today, the top six are Amazon, MS, IBM, Google, Salesforce.com, and Rackspace, in that order.
With the 2014 market share numbers, Amazon is clearly the company to chase. Although some tech experts predict that Amazon would always lead in CC, I am not so sure. Microsoft’s interest and investment in CC appears huge, and there seems to be a kind of aggressiveness by the company to supplant Amazon. While small start-up companies may find Amazon‘s offerings more attuned to their needs in terms of convenience, simplicity, and -thanks to Google, price points; MS, IBM, and HP have all the large, deep-pocketed enterprises in their hands as customers. Also, especially for MS, its possession of operating systems as well as its massive arsenal of productivity tools could be leveraged in a way that one cannot yet predict, especially given the focus that the company has placed on CC. I think MS has what it takes to topple Amazon from the lead position.
The take-away from this article is that cloud computing has come of age, as Amazon reports income, to the delight of Wall Street. However, the fight is on for leadership in this technology field that Amazon helped pioneer.