Cloud Futures Pt. 4: The Culling
Like the advent of the commercial Internet before it, cloud computing is likely to have a similar ‘bust’. In parts 1 (Service Clouds), 2 (Commodity Clouds), and 3 (Focused Clouds), I covered the types of clouds most likely to survive. In this post I’ll talk about those who will be culled from the herd.
But first a little history …
Early Commercial Internet History In the early 1990s the commercial Internet boom started. Many folks may not be aware, but while the concept of the Internet itself is quite old (reaching back into the 70s) it wasn’t commercially viable to use the original Internet. For one, it wasn’t yet very mature, but for another, it was largely an artifact of the U.S. government via a grant to the National Science Foundation (NSF). The NSF maintained a nationwide backbone called the ‘NSFNET’ which connected all of the major regional university networks[1]:
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BARRnet: Bay Area Regional Research NETwork (San Francisco Bay Area)
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SURAnet: Southern Universities Research Association NETwork (South Eastern U.S.)
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NEARnet: New England Academic and Research NETwork (New England)
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CERFnet: California Educational and Research Federation NETwork (San Diego)
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NYSERNET: New York State Education and Research NETwork (Greater New York)
Use of the NSFNET backbone required abiding by the NSFNET Acceptable Use Policy (AUP), which said specifically stated: no commercial traffic. This then was the de facto Internet until the early 90s when small startup Internet Service Providers (ISPs) started building out their own commercial networks. In an effort to make these networks friendlier to business, ISPs began interconnecting directly and trying to work around the NSFnet. The government encouraged this and began actively shutting down the NSFnet, which was officially decommissioned in 1995.
Internet Hype & Bust From the early 90s until the late 90s it was predominantly these small ISPs (and a few large ones) who helped hype and build out connectivity to end users and bring the Internet to ‘the masses’. Large telecom players were largely absent with a few exceptions[2]. In the very late 90s two key things happened:
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The telcos woke up and used Digital Subscriber Line (DSL) to further drive Internet adoption[3]
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A wave of consolidation hit the Internet industry with ISPs and datacenter businesses being absorbed by bigger players, largely telcos
This trend further accelerated when the initial Internet hype imploded in 2000, leaving many of the major startup ISP players (some had grown quite large) as smoking craters because they had relied heavily on the first wave of web startups to provide revenue. Do you remember Exodus Communications? You should. It had a peak market cap of 32B, but eventually did a smoking crater impression.
When you look around today you’ll notice that while there are smaller ISPs it’s nowhere near the plethora of players that existed in the early to mid 90s. The commercial Internet backbone and datacenter business is dominated by cable companies, telcos, and datacenter businesses.
Cloud Futures I’m sure you noticed the similarities to the trends today with cloud computing. We’ve barely come out of the initial hype cycle (or perhaps we’re still deep in it) and there are quite a few small players in the space. More importantly, there are many small players looking to enter. At some point forcing functions will cause a major culling of the hosting and cloud computing industries, at least at the Infrastructure-as-a-Service (IaaS) layer, which is most susceptible to commodity pricing pressure.
I suspect the forcing functions will be twofold:
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The telcos and large players will ‘wake up’ and use commercial products like VMware’s vCloud, Citrix Cloud Center (C3), VMops, or EUCALYPTUS to drive wide adoption
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Serious consolidation will take place
Fights for market share will drive pricing pressure which will drive consolidation. During the consolidation process large and small businesses alike will see both opportunity and failure. If it’s anything like the original commercial Internet consolidation there will be a ‘great culling’ of all of the current and new players. Only the strong or savvy will survive.
How to Survive If you’re a cloud computing provider, you need to be a Service Cloud, a Commodity Cloud, or a Focused Cloud. If you’re a large player, you’ll wind up as one of the first two where you can play at scale. If you are a small player now is the time to look for an area of focus where you can drive value and create sound business fundamentals. This will position you best for acquisition or, at least, for surviving the culling.
[1] Hard to find some of the historical explanations now, but I did find this one for more information. [2] In particular, the incumbent Bells were MIA, but some of the new long distance providers like MCI and Sprint were very active seeing data traffic as the next frontier for their businesses. [3] Not to mention the cable companies who saw they would be left in the dust if they didn’t move quickly.