14th June 2011
Brad Vaughan, Director of Cloud Migration Services for the Armada Group, gives us his latest update from Silicon Valley, where cloud-related discussions are focused on a certain two companies receiving serious column inches, and the impact they're currently having on the uptake of cloud services among US enterprises.
Not Cloud but still related - LinkedIn and the Sony hacks
By Brad Vaughan, Armada Group
The problems that plagued Amazon on April 21st are behind us and the focus of the cloud community in the valley has moved on to other things. A couple of the more significant topics are the IPO of LinkedIn (LNKD) and the increasing number of security attacks on Sony Corporation's infrastructure. As neither of these things are really directly related to cloud computing, we have to ask - why are we so engrossed by them?
The LinkedIn Effect
Probably best to start with another question - What do cloud computing vendors and social networks have in common?
Most of a public cloud vendor’s value is based on volume and not revenue. In the case of cloud, the secrecy (observability) of the revenue numbers and details on reference customers is probably one of the key inhibitors to adoption (Roger 5 Factors affecting Diffusion of Innovation) by enterprises. These companies are currently privately held, so therefore have no requirement to publish this information.
Even though the largest of them all (Amazon) is a public company, it does not publish detail for its AWS line of business, instead it lumps it into the “Others” column with other revenue streams. People have attempted to estimate what it might be, but there is a large amount of variability in these numbers and almost no information on contribution to profit.
So like social networks, we have some significantly well-funded companies with high paper valuations based on business volume metrics. As an investor or CEO you are looking at the Gartner Hype Cycle and Diffusion of innovations curve. You know you are about to head into the trough of disillusionment and simultaneously waiting impatiently for the Early Majority and Late Majority to start the windfall of profitable revenue. The pressure must be immense.
Then, along comes the LinkedIn IPO. Wildly successful, depending on your view of success. In its wake, there appears to be a line forming to follow, with Groupon at the head of the queue. Of those lined up, the most interesting one might be Zynga. It sits at the intersection of social networking and cloud computing. Wild customer growth numbers and one of the largest users of AWS, they recently promoted their move to a private cloud. Zynga has openly identified RightScale as its tool of choice for public cloud management, referring to it as the “single pane of glass”. In recent Cloud Meetups and other events, however, it has made a concerted decision to keep quiet on the tools it is using for private cloud orchestration. This was another data point supporting a possible IPO.
So the conclusion to all this is, if you are a cloud vendor, the prospect of an exit must be fairly attractive. You can see some backlash to the hyped marketing and the uncertainty of enterprise adoption. The cash injection would relieve the investor pressure and give plenty of runway to grow the enterprise business. It would give credibility to the company in the form of the regulation and transparency of a public listing. The IPO’s are also incredibly attractive as many believe cloud companies will attract bigger multiples than their social network cousins.
The second effect of the LinkedIn IPO is the pressure on incumbent vendors. I mentioned in my previous post about the impending consolidation. IPO’s will create a small number of new independent software vendors, but the majority of current cloud vendors will be acquired by larger players. The IPO’s will accelerate the process, because success will drive the value of all companies up. The current enterprise vendors will need to strike while bargains are to be had. This will put additional pressure of cloud vendors because if the IPO and acquisition music stops and you don’t have a seat, then you will become a footnote in the history of the cloud.
Sony, Hacking and Cloud
Some of the early criticism of cloud security was the ability for individuals to use cloud resources to launch attacks. Although not confirmed, there is some evidence that some attacks on Sony infrastructure originated from AWS. Hosting your enterprise services within the same physical borders as a hive of hosted hacking resources might cause some pause among CIO’s. True or not, the real impact of this publicity will be a dampening factor on the adoption of cloud by enterprises. This will put even more pressure on cloud vendors to find an exit path. The longer term view will see a stronger cloud as Amazon and others innovate in security solutions.
As I write this post the NASDAQ is taking a dive for its fifth or sixth day in a row. This will have an impact on the IPO timing, but most likely just in terms of weeks and not much more.
Let’s just keep an eye on the market for cloud IPO’s, acquisitions and consolidation in the next 6-12 months. Then in the subsequent 12 months we should start to see more detailed information and case studies on large enterprise deployments in public and private clouds.
Brad Vaughan is the Director of Cloud Architecture at The Armada Group. He has over 20 years of experience in information technology including more than a decade in lead technical roles at Sun Microsystems and Oracle. He has extensive experience in cloud computing, integrated hardware/software systems and open source solutions. The Armada Group is a Silicon Valley based cloud consulting guiding customers through their decisions on what, why and how to deploy cloud architectures.
Related stories: Cloud's Silicon Valley gold rush
Tags: Social Cloud | Platform as a Service | Software as a Service
