A Cloud Storm is Brewing

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A Cloud Storm is Brewing

This week at the GigaOM Structure conference the Future of Cloud Computing Forum is unveiling the results of its first annual survey. With more than 400 respondents, virtually evenly split between end users and vendors, the survey provides an excellent baseline understanding of where we are on this revolutionary transition.

A press release that captures the top trends can be found here, but the survey yielded many more insights that we wanted to share with you through this blog. Because there is so much to cover, I will do so in multiple posts. For this first one I will touch on what future holds for the cloud as it relates to infrastructure as a service (IaaS)

While public clouds are being used to great advantage both officially and unofficially, IT is looking to turn their datacenters into private clouds, hoping to gain some of the same benefits that public clouds offer, while retaining control and avoiding issues like security and compliance. (see link to survey). While some of these benefits will accrue to those who have the scale and means, few will ultimately enjoy the enormous economies of scale of players like Amazon and Google.

“Google is estimated to be running approximately two million servers.”

In fact, the public cloud players will continue to have unfair advantage stemming from their first order businesses such as eCommerce and Search. This enables them to commoditize the scale out of their infrastructure and learn how to manage it and offer cloud services profitably to others.

“Every day Amazon Web Services adds enough new capacity to support all of Amazon.com’s global infrastructure through the company’s first 5 years, when it was a $2.76 billion annual revenue enterprise.”

But it’s not necessarily a foregone conclusion that Google or Amazon will corner the cloud computing market in its entirety. In order to compete, we are seeing players such as Rackspace and Microsoft offer value added services like PaaS (Platform as a Service). Additionally, the potential wild cards in this market will be the Telcos who have the scale in their core business that could provide leverage to compete if they assemble the right offerings. Verizon, through its recent acquisition of Terremark, is an example of this possibility.

Like powerful weather fronts colliding, the convergence of the forces behind public and private clouds will dramatically reshape the IT landscape. Organizations will look to gain the best of both worlds by developing hybrid clouds – a mixture of public and private. (see link to survey). Unfortunately however, many organizations will find this transition a stormy ride because they will fail to properly train and prepare their internal organizations for this shift. Nor are they yet experimenting with the cloud to the extent they should be to uncover the potential challenges they will likely encounter along the way.

Security and compliance are always issues that come up for Cloud as they have for other early market shifts, but the challenge that is particular the the early Cloud market is around interoperability. As our survey highlights, hybrid is chosen path for Enterprises cloud deployment. But, because there is a lack of standards in the cloud, interoperability between applications running across these hybrid cloud architectures will be difficult to achieve. Like any market in its initial boom phase, the hybrid cloud landscape will be littered with projects launched with the best of intentions but that may fall short as we wait for these issues to be worked out. So who will be the winners? In the short term, certainly it will be the cloud Vendors who will battle for the multi hundred billion dollar potential market prize. For IT organizations it will take longer for this play out, however there should be no excuse for not experimenting with greenfield projects, even if understandably brownfield mission critical processes are held back. Meanwhile, for line of business end users where IT is willing to experiment, they will likely still benefit from initial examples of better responsiveness to their needs. So for those who invest wisely now, the opportunity to use the cloud as a spring board for innovation, new applications and building a more agile business will position them to reap the longer term rewards that this shift to the cloud offers.

Certainly we're in the midst of an exciting transition that brings with it a mix of challenges, opportunities and uncertainties. Our objective, unlike the Dilbert cartoon below -- which although funny, possesses a ring of truth -- is to bring clarity to what the Future of Cloud Computing holds for all participants and provide you with specific information and concrete examples of how the cloud can positively impact us all.


About North Bridge Venture Partners

North Bridge Venture Partners is an active, early-stage venture capital firm based in Boston, Massachusetts and San Mateo, California, founded in 1994. With approximately $3.1 billion under management, North Bridge Venture Partners focuses on investments in communications, software, new media, healthcare, and materials technology. Working closely with entrepreneurs, North Bridge adds value by providing strategic guidance., specific industry knowledge, team-building skills and in-depth understanding of both private and public financings. For more information, visit North Bridge's website at www.northbridge.com

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