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Cloud Update - Notes from CloudBeat 2011

Posted by Andrew Dailey
Andrew Dailey
Andrew Dailey is a Managing Director of MGI Research
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on Thursday, 08 December 2011 in Cloud Computing

We recently attended VentureWire’s CloudBeat. The senior-level crowd made for great networking, and the combination of main-tent and one-on-one interviews and panels made for a lively two-day conclave of cloudy companies. With a heavy dose of Silicon Valley-think, this event was for senior business dev execs, CTOs, cloud evangelists, and CEOs of small to mid-size companies.

Key highlights

The private cloud is becoming more visible, and may end up as the dominant computing architecture. A number of speakers and private conversations indicated how the concept of private clouds (e.g., non-public infrastructure dedicated to a single company) are gaining traction.  Public cloud resources will continue to apply massive pressure on IT organizations to become more agile and shed their bureaucratic processes. With this pressure, IT shops will be forced to demonstrate their competitiveness vs public cloud providers. What came out from this event is that leading edge IT organizations can and will be very competitive vs the public cloud providers. This trend towards private cloud adoption will bring into focus many private cloud-oriented start-ups that have been struggling for attention, and will also benefit the efforts of some of the major vendors like EMC, Oracle, and others who bring an enterprise IT perspective.

Savvy companies are using the public cloud as expansion capacity to their private cloud/internal data center environments.  Best Buy, Zynga, and Netflix, among others, highlighted how they use Amazon for additional compute capacity. It’s not about replacing the data-center, it’s about leveraging external resources for specific uses.

It’s all about the Use Case. Cloud computing, as a generic term, is grossly over-used (see MGI’s definition of cloud computing, and research note on three key trends).  Fortunately the market is well-past the hype, although many investors have assumed much higher adoption rates than what is reality among Fortune 500 companies. The challenge for aspiring CEOs and CMOs is how to position their company with prospective customers with real-world use-cases and jargon-free language, while at the same time applying the appropriate labels to attract the attention of potential funding sources and industry analyst firms.

Amazon Bristles Under Microscope. As the most widely referenced vendor of cloud services, Amazon is coming under increasing amounts of scrutiny. More interesting than an answer to any individual question, was Amazon’s overall tone when the audience or interviewers asked hard questions. It was a mixture of surprise and shock rather than the kind of sure-footed response befitting a market leader. Amazon has built an impressive business, yet it still has a long way to go to truly assume the mantle of a mature market leader and earn the market's full respect. That being said, no one is remotely close to the mindshare that Amazon has built for its cloud services business (see commentary from Netflix below).

The “freemium” vs “enterprise” debate rages on for early-stage growth companies. With many top tier VCs enamored with the freemium model, tech CEOs focused on selling enterprise-class solutions to SMBs and Fortune 500 users are under pressure to deliver a free version of their solution. A number of start-ups are sporting cash-heavy balance sheets that can afford freemium models in the short term. box.net and dropbox have raised more than $400 million combined.  There is a land-grab mentality pushing the acquisition of users at all costs, and boardroom confidence that money-losing start-ups can flip to profitability once the business “reaches scale.”  Though it’s unclear what, if any, unique IP is being created, and what consumers and businesses are willing to pay for many “cloud services” like document management and storage.

Detailed Notes and Quotes

"We're out to replace the data center - and it's a decades-long process." - Amazon

Interview with Adrian Cockcraft, Director - Architecture/Cloud Systems, Netflix

The Netflix use of the Amazon cloud is well-documented.  What came out in the session at CloudBeat was a taste of Netflix's perspective on using a cloud provider, and Amazon in particular. Netflix’s use of cloud computing is often vastly overstated in the press.  The bulk of Netflix's business is focused on buying content and mailing out DVDs to customers. The streaming business, and the IT to support it, are a small minority of Netflix's overall business activities.  In the course of Netflix's experience in streaming content, reliability and redundancy have become of paramount importance. Netflix built triple redundancy into their streaming systems. Conceptually, Netflix is trying to build a Java-based systems architecture, so that the entire environment could be ported from Amazon to any cloud provider. However, that is not easy nor a reality today, – it’s a long-term goal. Key suppliers mentioned by Netflix include: Atlassian for their development environment [MGI has conducted numerous interviews with Agile tools CEOs/CTOs], App Dynamics, and all three major CDNs are "completely interchangeable" - Akamai, LimeLight, and Level 3.

Notable quotes:

  • "We [Netflix] never want to represent more than a very small amount of any cloud provider's business. Today we represent a single digit amount of Amazon's overall business."
  • "It has taken some time for the relationship to develop. Eventually, we developed a very open relationship with Amazon."
  • "We need to see that something will become a problem before anyone actually sees a problem."
  • "Currently no one is interchangeable with Amazon, and we don't expect to see anyone come close in the next two-three years."

Interview with Allan Leinwand, CTO, Infrastructure Engineering, Zynga

Zynga is in the quiet period, so Leinwand provided circumspect answers as appropriate.  Nonetheless, he provided the most insights into how even a internet-scale company thinks about the cloud. He was exceptionally complimentary to Amazon, and mentioned that as an internet company, Zynga started by hosting its games on Amazon. However, Zynga realized that "with Amazon Web Services (AWS) we were renting, when we could afford to own our infrastructure".  Further, "we were spending in OpEx, and we wanted to start spending from CapEx, so Zynga decided to build a private copy of AWS [Zynga refers to it as the "Z Cloud"], and tie it off to Amazon.  As a result, “we can burst into AWS when necessary.”  Apparently, Zynga learned to quickly and efficiently deploy and operate new systems, and now can do this internally, at scale.  Zynga's scale is legendarily impressive - Castleville, one of its latest games, passed the 18 million users mark within 15 days of launching. He referred to the public cloud as "a four-door sedan - we all love four-door sedans, but sometimes you need a truck or a 4WD jeep, or a sports car."

A key point of Leinwand was that Zynga is determined it wanted to control its infrastructure.  Zynga has done extensive research into what their boundary points are – e.g., determining the requirements for running everything everywhere, and running one thing everyone.

Notable quote:

  • “When you get to the point where you know your app(s), when you know where you can differentiate your business, then it’s time to think about a private cloud.”

Interview with Lew Moorman, CSO and President, Cloud – Rackspace

Even though Rackspace has built an impressive business with revenues growing 30%+ qtr/qtr and on pace to exceed $1 billion, the company risks becoming the Rodney Dangerfield of cloud computing, as it is always compared with Amazon, and one gets the feeling that Rackspace can’t help but feel it doesn’t get the respect it rightly deserves. Moorman discussed RAX’s OpenStack initiative (“it’s young, but maturing code now in beta with major companies like PayPal, Sony Gaming, and NASA”). While Rackspace’s success is undeniable, and it’s #2 position in the industry unquestionable, relative to companies of their size Rackspace struggles to crisply define its differentiation, and at times the company’s internal self-perception is at odds with what customers privately share about the company.  Rackspace thinks of itself as being more customer friendly compared to Amazon. When you talk to folks who use Rackspace, there is some frustration around the levels of service and support from the company.

Relevant Research:

Cloud Computing: A Definition

Concerns over datacenter power costs are back

New Research: Three Key Trends Shaping Cloud Computing

New Research - 20 Questions with CEO of FinancialForce.com Jeremy Roche

IT Inherits Cloud Computing Orphans

CIOs are Leveraging Cloud Computing and SaaS as a Negotiation Tool

Few production apps are in the Cloud