The ever so interesting Tim O’Reilly does an interesting analysis on the future of cloud computing (as understood in the context of IaaS), whether it would evolve into an outsize profit business as envisioned by Hugh Mcleod in his post titled “The cloud’s best kept secret”. Some interesting points from the post are mentioned below:
1. Presents an interesting discussion on three kinds of cloud computing models. Summing up, they are:
a.Utility Computing (aka IaaS): Providing computation power that is billed based on consumption. Examples: Amazon EC2, GoGrid and AppNexus among others. The bottom line that these services are targeted to a developer audience rather than end users limits the network benefits of data. Thus IaaS would be a commodity business.
b.Platform as a Service (PaaS): PaaS is a hosted application stack enabling applications to be built and deployed over it. In other words, PaaS provides a much higher level abstraction of an infrastructure than IaaS. Examples in this category include Google App Engine, Mosso, open source offering 3Gen and Salesforce’s Force.com among others. However Tim asks an interesting question of what is value add to developers in one of these platforms from other developers on the same platform? None except Salesforce.com which seems to provide some benefits to developers.
c.Cloud based end user applications (aka Cloud Services): Any web application is a cloud application. For example Google, twitter, Facebook, Amazon etc. This type of cloud computing has network effects and has the potential of growing into an outsize profit business. Salesforce’s force.com platform is in alignment with this model through the developer ecosystems that it provides.
2.The Law of Conservation of Attractive Profits
“When attractive profits disappear at one stage in the value chain because a product becomes modular and commoditized, the opportunity to earn attractive profits with proprietary products will usually emerge at an adjacent stage.”
Example: When IBM began building its PC from off the shelf parts it drained value from the hardware business turning it into a commodity (low margin) business. However the profits didn’t go away, instead, they migrated to software i.e. from IBM to Microsoft.
3. Applies the above mentioned law to Larry Ellison’s point, that cloud computing is not a profitable business model, and argues that Larry “is dangerously wrong for the strategic future of Oracle”. Why? Because “it’s not the database software that matters, but the data that it holds, and the services that can be built against the data”.
The bottom line is that neither would IaaS or SaaS alone can grow into a huge business, however, PaaS can.
Other articles of possible interest:
1. The Platform as a Service (PaaS) landscape
2. What does Oracle cloud offering mean to the enterprise
3. A list of on demand message queue (MQ) providers