Business Week Sees through the Clouds

July 18, 2008

Sarah Lacy, Valley Girl, wrote “On Demand Computing: A Brutal Slog”. You can read the full text of her essay here. The story carries a date of July 18, 2008, so the text should be available for a short period of time. I know that I have been frustrated trying to locate Business Week stories in the past, so hopefully the site’s retention policy is more in step with my research needs and yours.

Business Week occupies a middle ground between the Harvard Business Review type of story (case examples, charts, checklists, and chatty case studies) and the Economist’s pro-business, pro-catty writing that combines odd ball statistics with “isn’t that obvious” types of juxtapositions.

Sarah Lacy’s look at cloud computing–also known as on demand computing, software as a service, and a dozen other acronyms–was interesting to me. First she hits the point that it can be tough to get revenue and expenses in line. Her phrase, which I well may appropriate in some future writing, is, “It’s [the Web] just as good at displacing revenue as it is in generation sources of it.” Dead on.

Also, she hits two often ignored “costs” associated with the cloud computing razzmatazz: [a] the difficulty of selling cloud services to prospects who don’t get it or just don’t trust it and [b] the tendency of certain high tech markets to become monopolies.

You will want to check out Nick Carr’s analysis of this topic here. Mr. Carr does not disagree with Ms. Lacy’s analysis. However, as nifty as Ms. Lacy’s essay is, there are two related points upon which I wish to comment:

First, Google’s approach to cloud computing is what I call “pull marketing”.,, and most of the organizations Ms. Lacey mentions in her essay, engage in “push marketing”. A sales professional makes a call and tries to close a deal. Not only is this grossly inefficient and expensive, it quickly exhausts the sales team and the sales and marketing budget. Google, on the other hand, rides in’s car and occasionally waves its pom poms. Google also works to reach those in university programs who will enter the work place in a couple of years. The idea is that these individuals will want to use Google at work. So, Google once again gets a free ride into an organization. The approach is indirect and inefficient unless you have another source of revenue and are not in a particular hurry. Oracle, Microsoft, and other vendors appear to be shifting from pure push marketing to “buy” marketing. The idea is to make it financially attractive for a prospect to shift to cloud computing. Once hooked, I suppose, the vendor has got the fish in the basket.

Second, the success of cloud computing depends on a vendor’s ability to build a big, fast, redundant supercomputer that is reliable. Anyone with a credit card and an email can set up a baby cloud service on a low cost services provider or more upscale to the Amazon Web services system. There’s not much of a barrier to entry, but as the number of users climbs, then real engineering has to be in place. There was a reason why prior to the break up AT&T was a monopoly. AT&T had to do a lot of engineering, research, and guaranteeing to become a monopoly. The second and third tier players in the pre break up telco world were doomed to be niche players. So, consolidation is only part of the story. The rest of the story will be brand identify and really serious engineering for scale. The winner in cloud computing will be the present day’s equivalent of AT&T in the 1950s. Ms. Lacy is writing about border skirmishes. The real battle will be fought on many fronts in a global theater. Furthermore, the shoot out will take place regardless of the economy, regulations, and business school pronouncements. Engineering, not marketing, may be the deciding factor. A touch of creative destruction may add zest as well.

Based on my research, the winner in cloud computing will replicate the type of computing an individual has with a powerful device, pounded flat like a tortilla, and filled with applications, services, and functions. Cloud computing is a big digital burrito stuffed with the goodies organizations crave but have to deal with as individual ingredients. So my take, cloud computing is a convenience food in digital form, perfect for the young at heart and those who want to do computing on the run. For a drawing of a digital burrito, check out The Google Legacy here.

Stephen Arnold, July 18, 2008


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