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Perspectives on building technology businesses and AcceleratorIndia from Cartezia

Unclouding the Cloud

Monday, March 30, 2009

The Cloud has become the latest marketing bandwagon for the Computing, Media and Telecommunications industries. All manner of new initiatives covering technologies, services and business models have now been aggregated under this catch-all heading. This conflated definition of the Cloud is being used to describe everything from new SaaS (Software as a Service) business models to remote computing services and virtualization technologies.


The latest example of this marketing bandwagon is the Gartner report on the Cloud, which claims this market will be worth $56.3 bn in 2009, growing to $150 bn by 2013. Interestingly, Gartner has co-opted existing expenditure on ad-serving services, which will be worth about $28bn in 2009, into this definition. This serves to illustrate that caution is required when assessing the impact of the cloud, both in terms of strategic impact and hard commercial numbers.


Looked at more systematically, the term Cloud can now legitimately be used to cover the following new technologies, services and business models:


  • New Technology Components, which enable the delivery of Cloud Services, for example multi-tenant software architectures
  • ‘Horizontal’ Applications and Services, which service providers can use to deliver ‘Vertical’ domain-specific services to end customers. These can be roughly divided into:
    • Platform Services, which allow computing hardware, system level software and networking tools to provide computing platforms for use by those who are delivering services to end customers. In spite of the broad claims to the contrary, this is where the offerings from HP, Dell, Cisco, Sun and IBM fit into the overall picture.
    • Delivery Infrastructure Services, which provide integrated service platforms for use by the ‘Vertical’ service providers. These services will typically integrate platform services provided by others. For example, Amazon which is a major player in this space has partnered with IBM to deliver the Amazon Elastic Compute Cloud (Amazon EC2) which is designed to make web-scale computing easier for developers. The AppExchange offering from (as opposed to its Sales Tools) also offers an infrastructure platform for others to use.
  • ‘Vertical’ Applications and Services, which are the services used by end customers. Broadly speaking, these can be divided into two areas, with a range of possible business models:
    • Business Applications, such as the services from and, which have the potential to fundamentally transform the way that Businesses use IT and Software, based on the idea of subscription-based SaaS models.
    • Consumer Applications, such as online video exchange by users on social networking sites, such as You-Tube.


Cloud services depend fundamentally on the integration of various components, so there is clearly much room for argument about how ‘open’ this potential for integration and inter-operability really is. IBM, Dell, Sun and 30 other technology companies have banded together to produce a document called "The Open Cloud Manifesto". The six-page document is a statement of principles calling for the entire computer industry to keep cloud services as open as possible, making it easy for them to interoperate and for customers to switch service providers with the minimum of bother.  But as always where big commercial interests are at stake, some scepticism is required. IBM may shortly acquire Sun and Microsoft and its partners have questioned how these principles will translate into reality.

For Gartner, some of this detail is less important than talking up the potential for new revenue generation in the IT industry. They justify this broad brush approach by talking about Cloud computing as a broad and diverse phenomenon.  In spite of some of this hype, there are significant opportunities to create new high-margin revenues from the Cloud. However those building Cloud services need to be particularly aware of the key issues in building and running profitable, scalable services, which in turn requires a clear understanding of multi-tenancy, service management, optimization and appropriate business models.