Is Private Cloud the Next Frontier

Business Models

Looking at the state of Cloud Computing from 2006 to 2012, it is interesting to see how different companies modified their postures in the ecosystem.

Amazon has leveraged its data center operational know-how and turned it into a new line of business that is expected to generate north of $1.5 billion in revenue. This is one of the few instances where a big-bang approach for a brand new market that had worked.

Take Salesforce.com, on the other hand, it has focused on creating user stickiness by creating platforms where other vendors can participate in its ecosystem. Instead of jumping into an unrelated business, like Amazon, it has stayed closed with what it knows. And, I can only speculate that the fact that Oracle is breathing down its neck is helping them focus.

For those more "conventional" players, Rackspace had probably done the most in reinventing itself. It not only cobbled together a Cloud OS that is meant to offer Amazon like capabilities, gave it up as an open source project, then wanted to turn its business into managing other companies' data centers (running OpenStack). This is interesting in two respects. One is that it seems to acknowledge Amazon's dominance in public cloud. At the same time, by offering operational management services, Rackspace seems to be betting on its ability to offer differentiated solution that cannot be easily copied by Amazon (who by definition will focus on standardizing their offerings to maximize operational efficiency.)

As for the VCE crowd, with the large data center operators - Amazon, Google, Facebook, etc. - all opting to buy directly from the component makers given their massive scale, the combined VMWare, Cisco, and EMC offer is impressive. With a single stroke, it allows these companies to tap into each other's install base while minimize the complexity and overhead of creating customized solution for each deployment.

Private Cloud

Taking a step back, however. The industry dynamics also seem to be shifting. Amazon has effectively dominated the Public Cloud arena. Amazon will continue to improve its service and coverage along with the bevy of new companies that rely on its infrastructure, like DropBox. Similar to utility, it is unlikely that anyone can take on Amazon at this point.

At the same time, the implicit strategies for companies like Rackspace and VCE is to shift their focus to private cloud. Private Cloud has two advantage from those offered by Amazon. One is that it is (somewhat) customized to each deployment which increases its switching cost. The other is that private cloud users, by the fact that they wanted their own cloud and can pay for it, are less price sensitive and are willing to pay for value-added services.