Platformonomics http://www.platformonomics.com Sun, 10 Sep 2017 22:11:14 +0000 en-US hourly 1 14483541 The Cloud is Not Flat http://www.platformonomics.com/2017/08/the-cloud-is-not-flat/ http://www.platformonomics.com/2017/08/the-cloud-is-not-flat/#comments Wed, 02 Aug 2017 06:14:44 +0000 http://www.platformonomics.com/?p=877 Continue reading The Cloud is Not Flat]]> I am late to updating the geographic view of Gartner’s Cloud Infrastructure as a Service Magic Quadrant. Here is the update for 2017 (see 2016, 2015):

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Commentary:

1\ The Seattle region (aka the Leaders quadrant) is unchanged. This supermassive region may turn into a black hole, warp the space-time continuum, and consume most of the world’s $2.5 trillion in IT spending. A hat tip to Seattle companies CenturyLink and Skytap who presumably by virtue of breathing the local air also make the magic quadrant, albeit in inner Nichelandia.

2\ The biggest change this year is the introduction of the Lesser Seattle region (and only truly old school Seattleites will fully appreciate that label), which captures companies that may physically do their cloud work in Seattle, but are not wholly of Seattle or the cloud.

Previously we have included Google in the Seattle region, but the company’s cloud efforts have undergone a major transition. What had been a largely unsupervised outpost in Seattle that couldn’t help but marinate in all things cloud has become “strategic” and returned to the corporate yoke in Mountain View. This shift in center of gravity and management accretion has resulted in key personnel departures and left Google Cloud as perhaps the company’s number six or seven priority in the fight for corporate attention and resources.

Joining Google as an inaugural member of the Lesser Seattle region is Oracle, who have been busily hiring the most mercenary and/or aggrieved of AWS and Azure employees to staff their latest attempt to do cloud (I regret I have lost count of what attempt number this is). They are at least enthusiastic about it, to quote one delusional Oracle recruiter: “We’re the only company delivering the most compelling services at every layer of the cloud.”

3\ Denizens of Nichelandia

Alibaba’s Alicloud makes its MQ debut sited on the finest property in all of Nichelandia. It will be very interesting to see if they can get customer traction beyond China.

Gartner seems to have decided not to fight the battle this year with IBM about their position on the MQ (IBM last year delayed the MQ release by over two months with massive executive escalations, because at this stage they’re pretty much down to browbeating analysts, exploiting tax loopholes, and hyping perpetual motion machine Watson). Instead, Gartner finessed the issue by optimistically positioning them in eastern Nichelandia based on a product that doesn’t actually exist while highlighting their actual cloud offering is a clown show perhaps less than you might expect from a company that proclaims with Watson-esque bravado that it is “the enterprise cloud leader”:

The current offering is SoftLayer infrastructure, not NGI (Next Generation Infrastructure). Other than an early 2015 introduction of new storage options, SoftLayer’s feature set has not improved significantly since the IBM acquisition in mid-2013; it is SMB-centric, hosting-oriented and missing many cloud IaaS capabilities required by midmarket and enterprise customers. The details of the future NGI-based cloud IaaS offerings have not been announced. IBM has, throughout its history in the cloud IaaS business, repeatedly encountered engineering challenges that have negatively impacted its time to market. It has discontinued a previous attempt at a new cloud IaaS offering, an OpenStack-based infrastructure that was offered via the Bluemix portal in a 2016 beta. Customers must thus absorb the risk of an uncertain roadmap. This uncertainty also impacts partners, and therefore the potential ecosystem.

The IBM Cloud experience is currently disjointed. Some compute capabilities, such as the IBM Bluemix Container Service and OpenWhisk, reside in Bluemix, but Bluemix is hosted in just three SoftLayer data centers, and is thus not local to most SoftLayer infrastructure. Some SoftLayer infrastructure can be provisioned through the Bluemix portal, but this is not currently an integrated IaaS+PaaS offering, because Bluemix and SoftLayer do not share a single self-service portal and catalog with a consistent CLI and API; do not provide customers with a single integrated low-latency network context; and do not offer a unified security context that allows the customer self-service visibility and control across the entire environment.

Finally, even in Nichelandia, self-proclaimed technology powerhouses Los Angeles and New York City are inexplicably unrepresented. Instead they will pay rent to the big cloud providers who will also pluck their tenants’ juiciest morsels as platform vendors inevitably do (and Amazon will probably even pluck less juicy morsels like the putting-stuff-in-a-box-and-shipping-it “technology” companies so popular in these ecosystems).

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Follow the CAPEX: Cloud Table Stakes http://www.platformonomics.com/2017/04/follow-the-capex-cloud-table-stakes/ http://www.platformonomics.com/2017/04/follow-the-capex-cloud-table-stakes/#comments Tue, 18 Apr 2017 16:10:23 +0000 http://www.platformonomics.com/?p=857 Continue reading Follow the CAPEX: Cloud Table Stakes]]> The capital expenditures (CAPEX) going into the cloud are Sagan-esque, with billions upon billions being spent on sprawling complexes of interconnected datacenters scattered across the planet. The hyper-scale public cloud operators (Amazon Web Services, Google, Microsoft) operate BFGCs (big, uh, freakin’ global computers) at immense industrial scale, with townships of well-ventilated warehouses that collectively hold millions of servers, connected by their own transoceanic cables.

Just to give a feel, here is a Microsoft datacenter complex in the eastern United States:

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It seems pretty impressive until you see the expansion under way, which dwarfs the original complex (in the distance at the top of the following picture) and will result in a facility a mile long:

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Beyond being mind-blowing to people like myself who come from the traditionally asset-light-to-the-point-of-no-assets-beyond-a-couple-laptops software business, the vast sums being spent to move dirt, pour concrete, bend metal, and sling electrons also help us handicap the race for the trillion dollar cloud “jackpot”.

CAPEX is not sufficient to win the cloud, but it is surely necessary. Not only is massive CAPEX outlay a prerequisite to offer cloud services globally at scale, but also a strong indicator of on-going success. Customer adoption and utilization necessitate further CAPEX spending.

And there are significant economies of scale operating at hyper-scale. You get efficiencies of operation, specify your own highly-optimized and cost-reduced servers and network equipment, get exclusivity on the latest CPUs (and probably soon will just design your own) and increasingly run a private global fiber network so you don’t have to pay telco retail (where there is no Moore’s Law). It is an unprecedented level of vertical integration.

And these accumulated CAPEX expenditures, given their sheer scale and the time required to translate balance sheet cash into a global footprint of fully operational and interconnected datacenters, constitute a significant competitive moat. This cumulative investment is a proxy for the size of those moats.

This post examines when the hyper-scale players had their “cloud inflection point”, i.e. when they began to devote CAPEX to their cloud, as well as the magnitudes of their cumulative and on-going CAPEX investment. From this analysis we get a sense of just how big a check new entrants will have to write if they want to play this game seriously.

Unhelpfully for our task, the cloud players don’t break out their cloud-specific CAPEX. It requires some work, speculation and reading tedious financial documents to glimpse the portion dedicated to cloud as opposed to other investments. Every company at this scale makes non-trivial investments on mundane things like office buildings and other facilities. But each also has CAPEX unique to their businesses. Amazon spends big on warehouses and the robots scurrying around inside. Google has (or at least had) investments in self-driving cars, a veritable air force of flying objects (balloons, drones, satellites), retail fiber networks and one still hopes the odd space elevator that all require some degree of CAPEX. All three companies build hardware products for which they may invest in manufacturing tooling which their outsourced manufacturing partners then operate.

Our analysis begins in 2001, as this is the first year for which we have Google CAPEX numbers (a whopping $13 million). We start with the investment section of the cash flow statements in their publicly reported financials. For Amazon and Microsoft we combine the Plant and Equipment line on the cash flow statement with their separately, contentiously and somewhat ambiguously reported capital leases (equipment that is financed and is paid for over time instead of up front, which maps very well to servers that have a limited useful life and are generating revenue over that time, plus we live in a zero interest rate world so why not). While bean counters and finance wonks can argue about the accounting impact of these leases, in real terms they constitute even more CAPEX. Including the capital leases makes the CAPEX numbers significantly higher. In 2016, Amazon did $5.7 billion in capital leases on top of $6.7 billion in CAPEX. We find an extra almost $1.1 billion in CAPEX for Microsoft in 2016 when we check their couch cushions for capital leases. Google does not appear to be using capital leases to fund their infrastructure. The Microsoft numbers have also been mapped from their July to June fiscal year to the calendar year, which the other two companies use as their fiscal year, for a true annual comparison.

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All three companies show roughly similar trajectories, with annual CAPEX spending in 2016 between $10 and $12 billion. There is some variation from trend around the financial crisis, with Google pulling back sharply in 2009, Microsoft in 2010 and Amazon going parabolic out of the crisis.

The magnitude of these expenditures is even more impressive when compared to some of both the biggest companies on the planet and the biggest spenders on CAPEX. It is stunning that Microsoft now outspends Intel on CAPEX.

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When we look at cumulative spend since 2001 through 2016, the curves are also similar. Google has spent $58 billion on CAPEX since their founding, while over the same time period Microsoft has spent over $48 billion, and Amazon almost $45 billion (though it is the most backloaded):

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When we normalize against revenue, things are choppier:

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Google is the biggest relative spender, though fluctuating dramatically from 4% in the aftermath of the financial crisis to as much as 18%, averaging 12% over the entire period.

The Microsoft numbers may be the most interesting as they illustrate the transition from an asset-light software company into one with a global cloud footprint, going from under 4% to 12% of revenue spent on CAPEX today. I’m also told these numbers understate the increase as the cloud build-out began while Microsoft was in the midst of a big office building spree, meaning the typical CAPEX for a pure software business is even lower (hmm, Oracle might be interesting to look at in this regard…).

Next we’ll drill down on each company.

Google

Google pioneered the cloud computing model to support their search and ad business, so their cloud inflection point is basically coincident with the company’s inception. It is only much more recently that they have begun to try to dumb down and expose a tiny fraction of their infrastructure externally as a public cloud.

Given this data cover almost the entire lifespan of the company, it also includes things like office space for over 70,000 employees (with slides a de rigueur if extraordinary facilities expenditure).

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Google’s cloud infrastructure supports search, YouTube and a billion some odd Android devices, amongst other things. Google Search is the biggest application in the world, entailing trillions of annual queries against the many copies of the entire Web they store (which they size at a modest 60 trillion URLs). The ad business relentlessly tracks every click by billions of users. YouTube, which Google bought in 2006, serves up millions of hours of video daily and no doubt has required totally insane CDN and network investments, contributing to its continuing lack of profitability. Google Cloud Platform is basically a rounding error compared to these other applications, but nevertheless gets to leverage the underlying infrastructure.

Google’s extracurricular “Other Bets”, aka Google “X-cess”, also consume CAPEX. Google started to break out the CAPEX associated with “Other Bets” in 2014. Despite the sheer amount of metal involved in many of these activities, the CAPEX involved is actually a smaller percentage of the overall spend than might have been expected (and this is probably bad news for hopes of a grand societal bargain wherein we accept the all-surveilling eye of Google tracking our every move in exchange for a space elevator). However, CAPEX for “Other Bets” has grown rapidly from $501 million in 2014 to $1.39 billion in 2016 (over 13% of total CAPEX). It will be interesting to see what effect jettisoning various satellite and drone programs as well as approaching “put-up-or-shut-up” time for self-driving cars will have on this spend going forward.

It isn’t crazy to think Google may have spent upwards of $50 billion on their infrastructure over the lifetime of the company. No small part of that represents multiple generations of servers and exabytes of disks that have been replaced due to obsolescence and failure, as opposed to purely incremental capacity (so with a three year useful life, Google could have deployed six generations of hardware for some of its capacity). Broadly, Google’s public cloud efforts get to piggyback on these efforts, although they are also making some incremental investments just for Google Cloud Platform. They have had to deviate from their historic and highly centralized “just do it our way” attitude and are investing in smaller datacenters located in more geographies to address data sovereignty demands.

While Google faces a variety of challenges in its public cloud efforts, it is safe to say they are much more likely to involve fickle humans, product-market overshoot, and finding the right software face to put on their infrastructure as opposed to infrastructure itself.

Microsoft

Microsoft’s cloud inflection point is pretty easy to discern. We see two big accelerations in Microsoft’s CAPEX spending. One starts with an perhaps overly optimistic build-out for search in 2005-2009 that got the company cloud expertise and a global infrastructure footprint. The second begins in 2012 and continues to accelerate through 2016, driven presumably by Azure and Office 365. The bulk of that growth is for cloud CAPEX though some may also support the Surface and Xbox hardware businesses. It is notable that Nokia came and went with little or no discernable impact on Microsoft’s CAPEX spend (presumably Nokia had outsourced their manufacturing by that point).

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Microsoft also has a search business. While they have only a fraction of Google’s queries, it still requires ginormous global infrastructure. Microsoft has spent $43 billion in CAPEX since 2006. Taking a stab and saying 80% of that is for cloud infrastructure suggests a cumulative cloud CAPEX investments of on the order of $30 billion (similarly summing total CAPEX above 2% of revenue yields similar number).

Amazon

As with all things Amazon, there is frenetic activity on multiple fronts. CAPEX spending barely registers before 2009 and in that year we see the knee of the proverbial hockey stick, with CAPEX growing 40-fold since. This CAPEX explosion includes AWS infrastructure (and Amazon isn’t leveraging an existing search-scale infrastructure, so this spend is driven by AWS), a massive expansion of e-commerce distribution centers to get ever closer to ever more of the buying public, and an office building frenzy that has turned Seattle into the “crane capital of America”.

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Figuring out how much of this is for AWS is difficult. Amazon, not renowned for its transparency, actually provides a little more breakdown on its CAPEX spend than the other companies, breaking out both capital and build-to-suit leases (hat tip to The Next Platform for charting):

Unfortunately, like Amazon’s infamous charts with no units on the vertical axis, this additional information isn’t particularly useful. We can speculate that buildings (datacenters, distribution centers, office buildings, and/or biospheres) are constructed on build-to-suit leases and the computing stuff that goes into the AWS datacenters is purchased via capital leases. Amazon does say about their capital leases: “the increase reflecting investments in support of continued business growth primarily due to investments in technology infrastructure for AWS, which investments we expect to continue over time.” Amazon has spent about $11.4 billion via capital leases since 2009.

The challenge is teasing apart what has gone into AWS vs. the traditional Amazon e-commerce business (that AWS now subsidizes). We know AWS has seen explosive growth since its debut in 2006, but so too has the the rest of Amazon which has grown revenue by $115 billion (not including AWS) in the same period. And they have grown their distribution footprint at least five-fold in that time:

Amazon's warehouse footprint has grown rapidly in recent years. (Chart Via Institute for Local Self Reliance)

These warehouses are occupied by at least 30,000 Minion-esque Kiva robots. Even if these robots were funded by capital leases, at a cost on the order of $1000 per robot, they’re not likely to be material.

My guess is AWS’ infrastructure spend is on the order of $15 billion between servers and buildings. One area where AWS is behind both Google and Microsoft is owning their own network, which means they are paying a lot more to move bits. Presumably they are planning to rectify this and will add it to their CAPEX spending. We can expect Amazon’s CAPEX investment to continue to grow based on the three vectors above, plus they are opening a new vector as they expand their distribution business with 40 planned air freighters plus long haul and delivery truck fleets (FWIW, FedEx spends $5 billion a year on CAPEX, 10% of revenue). And maybe the Prime Air drones will be more than a PR stunt.

Cloud Table Stakes

This reading-between-the-lines analysis suggests the hyper-scale clouds collective CAPEX spend on their infrastructure could be approaching $100 billion ($50B for Google, $30B for Microsoft, $15B for Amazon). Given the cloud jackpot is a trillion plus dollar annual opportunity, that doesn’t seem crazy at all.

Are there are other estimates or disclosures of CAPEX spend on cloud infrastructure out there? Am I missing anything (e.g. I ignored amortization because I’m interested in the gross spend, not accounting values)?

In a future post, we’ll play follow the CAPEX for two companies that keep telling us they are leaders in the cloud contest: IBM and Oracle. The CAPEX will tell us if they have real clouds or are just clowns…

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The Spectacle that is Dreamforce http://www.platformonomics.com/2016/09/the-spectacle-that-is-dreamforce/ Fri, 30 Sep 2016 21:44:14 +0000 http://www.platformonomics.com/?p=830 Continue reading The Spectacle that is Dreamforce]]> My condolences to anyone in the Bay Area next week as Dreamforce descends like a khaki-clad, expense account-fuelled barbarian horde upon ancient Rome.

Salesforce may feel compelled this year to surpass its own superlative standards of spectacle to compensate for a mounting set of inadequacies, including slowing growth at a company (and stock) sustained by growth, confronting real competition that can actually write code, being reduced to enlisting the EU as a strategic partner and an increasingly Oracle-esque purchase experience (and pricing). In a cosmic twist of irony, Salesforce has become the Siebel of its generation, focused on defending its multiple at all costs to keep it out of Oracle’s clutches.

For your own safety, do not stand between Salesforce and trendy topics, due to the risk of extreme and hyperbolic buzzword triangulation. They will no doubt put the A and I into “marketing” and serve as the definitive example of the saying “AI is whatever hasn’t been done yet.”

If you’re going to miss this rapturous occasion, here are some excerpts to tide you over from the funniest chapter in Dan Lyons’ book Disrupted (my review), about HubSpot’s visit to Dreamforce:

“Imagine Joel Osteen pumped up on human growth hormone. Imagine there’s a secret government lab where scientists have blended the DNA of Tony Robbins with the DNA of Harold Hill, the aw-shucks shifty salesman from The Music Man. Imagine a grizzly bear in a pinstriped suit, standing on his hind legs and talking about changing the world through disruptive innovation and transformation. If you can imagine those things then you can almost imagine the horror of seeing Marc Benioff, the billionaire founder and CEO of Salesforce.com, on stage at his company’s annual conference, Dreamforce.”

“The whole thing makes me depressed, in part because Benioff is a buffoon, a bullshit artist, and such an out-of-control egomaniac that it is painful to listen to him talk. He lives in Hawaii and signs his emails “Aloha.” He’s a Buddhist and hangs out with Zen monks from Japan, and he gave his golden retriever the title “chief love officer” at his company. He is the Ron Burgundy of tech. He and this conference are the essence of everything that has gone wrong in the industry.”

“There’s an art to this kind of horseshit, and Benioff is its Michelangelo.”

“Sure, Benioff is full of shit, but so are we, and Benioff is way better at being full of shit than we are.”

“Now, here in the Moscone Center, the P. T. Barnum of the tech industry is giving a master class in how the game is played.”

“The truth is that Salesforce.com has little new to introduce. All of the stuff about hospitals and Haitians and Huey Lewis is meant to distract us from noticing that Benioff doesn’t really have much to talk about other than warmed-over versions of old products.”

“The final day features a speech by Deepak Chopra, noted charlatan and quack. He and Benioff are friends. Chopra rambles on about joy and meaning and interconnectedness and the importance of loving yourself. The old W. C. Fields line “If you can’t dazzle them with brilliance, baffle them with bullshit” seems like the motto not just for Chopra but for the entire conference. Benioff and his philanthropy, the dry ice and fog machines, the concerts and comedians: None of this has anything to do with software or technology. It’s a show, created to entertain people, boost sales, and fluff a stock price.”

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Sorry Oracle, Clouds are Built with CAPEX, Not Hyperbole http://www.platformonomics.com/2016/09/sorry-oracle-clouds-are-built-with-capex-not-hyperbole/ http://www.platformonomics.com/2016/09/sorry-oracle-clouds-are-built-with-capex-not-hyperbole/#comments Sat, 17 Sep 2016 05:44:32 +0000 http://www.platformonomics.com/?p=827 Continue reading Sorry Oracle, Clouds are Built with CAPEX, Not Hyperbole]]> The traditional Oracle marketing playbook is to draw a bead on the leader in any category and try to talk themselves into a rivalry. In what has become an annual event, they’re trumpeting yet again that they’re serious about their IaaS offering (and also distracting from their latest earnings disappointment).

I’m sure we’ll hear Oracle loudly and brazenly proclaim itself the leader in cloud in every imaginable dimension next week at OpenWorld. An Oracle recruiter recently wrote with a straight face: “we’re the only company delivering the most compelling services at every layer of the cloud” (I struggled to find a single factual statement in the unsolicited message). As with candidate Trump, the fundamental question about Oracle is do they really believe their delusional statements or are they just completely uninhibited by any need for basis in fact?

While Oracle has purchased a bunch of SaaS revenue, they are nowhere in cloud infrastructure (and falling further and further behind). They’re not even listed in the most recent Gartner Cloud Infrastructure Magic Quadrant. This is likely catastrophic for Oracle as the immense gravitational pull of the cloud infrastructure layer is already eating into their database and application platform franchises. I expect they will end up a SaaS company that also aggressively milks its legacy on-premises business for as long as possible (customers will look back fondly at today’s modest prices for Oracle software maintenance).

To play in cloud infrastructure, especially to serve Oracle’s enterprise customer base, requires a vast infrastructure investment in a global footprint of datacenters and networks, which in turn requires many billions of dollars in capital expenditures. When we compare Oracle’s expenditures over the last twelve months with the companies they claim to be competing with, it is hard to discern any commitment to building out a competitive infrastructure:

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But it gets worse when you consider that Oracle is trying to catch up with companies that have invested tens of billions of dollars in their infrastructures for a decade or more. Shouldn’t Oracle need to outspend them if it wants to claim it is catching up? Now these numbers are not pure cloud infrastructure spend as the Amazon numbers include distribution centers and Google’s probably the odd space elevator, but they do demonstrate that the three big cloud players are operating at a fundamentally different level when it comes to infrastructure.

You’d think Oracle could at least point to rapidly increasing levels of infrastructure spend as a sign it is serious. But their year-to-year capex spending is actually down:

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Even if Oracle has a extremely compelling offering (a big if given how early they are on the cloud learning curve and their desire to repurpose/host their existing non-cloud technologies), they have no capacity to deliver it.

So Oracle, do us all a favor and limit your cloud pronouncements at OpenWorld to detailing your future capex budget. Spare us the rest of the marketing hyperbole, because as the last several years of Oracle’s cloud rhetoric has shown, you can’t build a cloud with words.

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Tweetstorm Digest: August 4, 2016 http://www.platformonomics.com/2016/08/tweetstorm-digest-august-4-2016/ http://www.platformonomics.com/2016/08/tweetstorm-digest-august-4-2016/#comments Fri, 05 Aug 2016 23:11:09 +0000 http://www.platformonomics.com/?p=821 Continue reading Tweetstorm Digest: August 4, 2016]]> Some @charlesfitz reactions to the long-delayed Gartner Infrastructure as a Service Magic Quadrant plus bonus material:

1/ Gartner IaaS Magic Quadrant is finally out – probably the most important assessment of the cloud market.

2/ I yield to no one in making fun of Gartner but they do a really good job on this one.

3\ MQ about what you’d expect – AWS followed by Azure in the Leaders quadrant. Microsoft looks like has closed the execution gap a little.

4\ Google now the only company in the Visionaries quadrant but have lost a little ground on visionary axis.

5\ IBM, CenturyLink and VMware have dropped out of the Visionaries quadrant. Gap between leaders and everyone else getting bigger.

6\ Overall the field drops from 15 last year to 10 (and bet even smaller next year)

7\ Biggest takeaway is MQ is deathblow for IBM and Oracle and their claims to be significant cloud vendors, much less somehow leaders.

8\ Oracle not listed at all, in spite of all their oratory about being in the IaaS business. Game over for them. Shades of HP a year ago.

9/ IBM sees huge decline in both vision and ability to execute. Relegated to the also-ran quadrant. Game over.

10\ Needless to say, no customer base cares more about Gartner’s perspective than IBM’s customer base. Live by the sword, die by the sword.

11\ The MQ is over two months late and rumor is the delay is due to IBM escalating, begging, cajoling, threatening, etc. Gartner.

12\ More later after I read the whole report.

Bonus:

See an updated timelapse of how the MQ has evolved over the past six years.

And an update of our previous geographic analysis of the MQ:

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Cloud City now claims the Leader and Visionary quadrants as well as the most forward looking part of the Niche quadrant. Must confess to being a little surprised that much-touted “technology” powerhouses Los Angeles and New York City are not represented here Winking smile.

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Virtual Reality Realities: Summer 2016 http://www.platformonomics.com/2016/06/virtual-reality-realities-summer-2016/ http://www.platformonomics.com/2016/06/virtual-reality-realities-summer-2016/#comments Fri, 10 Jun 2016 06:15:58 +0000 http://www.platformonomics.com/?p=813 Continue reading Virtual Reality Realities: Summer 2016]]> Another intermittent set of observations and opinions about virtual reality (previous episodes here and here):

HTC Vive/SteamVR

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The HTC Vive is magical. You have not experienced what VR can be unless you have tried the Vive. Accurate tracking makes it nausea-free. Room-scale allows freedom of movement (and self-driving cars will free up garages everywhere for room-scale VR). Precision controllers offer both fine-grained manipulation and remarkably effective emulation of many kinds of real-world devices. Much like the iPhone, you can look at version one and realize it will get so much better over time.

HTC has delivered on the manufacturing and distribution and seem to be catching up to demand, while Valve rocked the software with SteamVR. Even mundane and unsung components like setup and the tutorial are extremely well done. Apps like Tiltbrush, Job Simulator and The Lab are a lot of fun, and more importantly, give a taste of what can be done with the new medium.

Oculus Rift

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I get to take a small victory lap for my cautionary stance on Oculus, but I wasn’t expecting the extent of the trainwreck it has become. Beyond a badly botched launch, Oculus shipped a product that is both incomplete and inferior to the Vive (with the notable exception of Oculus’ integrated audio headset; the Vive went with the much-beloved tangled earbud experience). Controllers are not an afterthought to be shipped months later and inferior tracking not only falls short of the Vive, but is the root of a bigger problem. The Oculus – dubbed by some the Oculus Retch – has a nausea problem which the company acknowledges by handing out ginger candy with demos and rating games by how likely they are to make you sick. Oculus also ran an old-school and unimaginative playbook to build their software portfolio, focusing on ports of very traditional game titles that do little to exploit the new medium and probably exacerbate motion sickness. Along the way, they have pissed off developers with attempts to lock games to their platform and pushing to impose their app store tax despite earlier promises to be an open platform. Despite all the hype and the billions of dollars, the Oculus thus far is a miss and a black mark for Facebook’s much heralded acquisition track record.

Developers are shaking their heads about Oculus and shifting allegiance to the Vive (and the distribution muscle of Steam), reversing Oculus’ earlier lead (based in part on generous cash payments). As Oculus is a bit of a wounded animal, we may see erratic behavior from them as their plight becomes better understood both inside and outside the company. They are already promising better tracking and racing to ship their Touch controllers (both of which will drive price up – will mother Facebook be asked to bankroll free upgrades or will they hurry along to version 2?).

The Oculus Origin Story

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I previously posited: “One of the biggest unanswered questions in the history of VR is to what degree Oculus raised venture money and then sold themselves to Facebook based on demonstrations of Valve’s technology rather than their own.” The picture of Mark Zuckerberg wearing the Valve headset was telling, but we now have additional support for what happened. I wonder how long before Palmer Luckey departs Facebook? Doing PR (and apologizing) every day has to be wearing thin.

And Then There Were Three

This fall Sony will ship PlaystationVR. They have done a nice job on the hardware and are carefully curating their software library. More importantly, they’ll have upwards of 50 million Playstations to attach to, with a lower headset price than either Oculus or Vive, never mind not needing a powerful gaming PC.

Mobile VR

Mobile VR, i.e. building on the ARM ecosystem plus rapidly improving mobile GPU capabilities, is still a couple years away from being performant enough to be competitive with the PC-based headsets (although the Oculus/Vive rivalry has kicked the AMD/NVIDIA GPU rivalry into high gear as well). Apple and Google are basically sitting on the fence waiting for Moore’s Law to do its thing, with Apple waiting far more patiently than Google who are congenitally unable to resist messing with Facebook and Samsung.

Investing in VR

The venture capitalists are in the “Trough of Thumbsucking™” (sorry Gartner) as they try to predict near-term headset sales and wonder not only how big the market will be, but also when precisely it will go “mainstream” so they can swoop in just in time to reap the big returns. The result is virtual reality is in a strange place where it is often too real to invest on conviction (or a Vive demo) and too early to invest on the numbers, so the VCs are waiting while subjecting us all to lengthy soliloquies about how they think the market might develop (“To VR or not to VR, that is the question…”). Meanwhile, tons of great work is happening, particularly in Seattle and Los Angeles which look like the two poles for VR (though I’m sure New York City would assert they are the leaders in VR, just, well, because…). Seattle has technology and games and LA content.

Summer Project

Your assignment for the summer is to try the Vive and get a taste of the VR future. VR has to be experienced to be appreciated (and is mandatory for discussing it in any form). If you have only done Oculus, Gear VR or, god forbid, 360 videos on your phone (aka NOT VR!!!), you can’t fully appreciate what is coming.

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A Wikipedia a Day Keeps Facebook Away http://www.platformonomics.com/2016/05/a-wikipedia-a-day-keeps-facebook-away/ Wed, 25 May 2016 22:13:43 +0000 http://www.platformonomics.com/?p=809 Continue reading A Wikipedia a Day Keeps Facebook Away]]>  

Seeing the stat that Facebook users in the US are spending 50 minutes per day on the service, I can’t help but recall Clay Shirky’s book Cognitive Surplus.

From my own review:

Cognitive Surplus starts with a potent historical parallel and an astonishing data point. Early 18th century England had a “Gin Craze” as the population tried to anesthetize themselves against dramatic social changes accompanying the industrial revolution. Shirky asserts television has played the same role over the last 50 years, absorbing the vast preponderance of free time in the developed world: “The sitcom has been our gin, an infinitely expandable response to the crisis of social transformation”. He takes a little time to catalog television’s pernicious effects, and makes the point along the way that the asymmetric dynamic between broadcasters and passive audiences of the 20th century media was an anomaly that isn’t going to be reinstated on the Internet any time soon.

The astonishing data point arises from a television producer’s reaction to his relating the story of Wikipedia: “Where do people find the time?” The impolitic answer of course is Wikipedia’s creators aren’t watching television. Shirky estimates that Wikipedia is the result of on the order of 100 million hours of work by a vast number of participants. This seems staggering until he puts it in context: Americans watch 200 billion hours of television every year and “we spend roughly a hundred million hours every weekend just watching commercials.” That tees up the book: there is a vast collective cognitive surplus available to be harnessed if we can just turn off the television. What happens when billions of couch potatoes begin to participate, create and share collectively?

With 173 million daily active users in the US and Canada, 50 minutes a day means 8.65 billion aggregate minutes a day or over 144 million hours, i.e. over a Wikipedia a day. And closing in on TV with over 50 billion hours a year. Never mind the rest of the world.

So “what happens when billions of couch potatoes begin to participate, create and share collectively?” Humanity’s noblest hopes are no match for cat memes and an echo chamber of clickbait.

And then there is the mystery of declining productivity growth. I’m sure it is just a coincidence that Facebook was founded right about at the 50 year peak in productivity growth and it has been all downhill ever since.

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Book Review: Disrupted: My Misadventure in the Start-up Bubble http://www.platformonomics.com/2016/04/book-review-disrupted-my-misadventure-in-the-start-up-bubble/ Mon, 11 Apr 2016 04:09:04 +0000 http://www.platformonomics.com/?p=803 Continue reading Book Review: Disrupted: My Misadventure in the Start-up Bubble]]>

Dan Lyons’ “Disrupted: My Misadventure in the Start-up Bubble” is laugh-out-loud funny in places, as one would expect from Dan, creator of the Fake Steve Jobs blog, comic novelist, and a writer for HBO’s Silicon Valley. But it is also an unexpectedly personal and serious book. Dan doesn’t just lob one-liners from the sidelines, but frankly chronicles his own missteps on a not-very-successful journey of personal reinvention from career journalist to marketing professional at age 52. Along the way he raises some uncomfortable questions about the technology industry.

After being “unceremoniously dumped” as Newsweek’s technology editor and a brief stint editing an economically unsustainable website, he joins HubSpot, a Boston-area marketing automation company. As Dan notes, “Online marketing is not quite as sleazy as Internet porn, but it’s not much better, either.” As if to compensate, his new employer has made “changing the world” its mantra. HubSpot turns out to be the Platonic form of the wanna-be tech company, amping every inane startup trope to 11 while neglecting the actual technology part (the company makes mediocre software with which to spam prospective customers). Most of the humor comes from simply holding a mirror up to its management (or lack thereof), “the Cult of the Orange People” culture and “adult kindergarten” workplace trappings, all of which the New York Times succinctly describes as “self-satirizing”. The excerpt in Fortune captures a lot of this.

My vote for the funniest part is the chapter about attending the Dreamforce conference and realizing that as over the top as HubSpot’s marketing antics may be, they are but a pale east coast imitation of Salesforce:

“There’s an art to this kind of horseshit, and Benioff is its Michelangelo.”

“Now, here in the Moscone Center, the P. T. Barnum of the tech industry is giving a master class in how the game is played.”

“Sure, Benioff is full of shit, but so are we, and Benioff is way better at being full of shit than we are.”

(Note to Dan: don’t rule out Salesforce as a future employer. Seriously).

Wrapped within that tortilla of humor, the book contains two meatier critiques of the technology industry, with HubSpot as poster child but hardly the only offender. One is labor practices that both exploit younger workers (who seemingly are easily distracted away from the size of their paycheck) and cast older workers in a remake of Logan’s Run, with no discernible happy medium between. As a guy who was twice the age of the average employee at HubSpot, Dan experiences the ageism firsthand (plus the CEO of HubSpot is dumb enough to advocate it in a New York Times interview). He also takes aim at tech companies that never make a profit yet whose founders and early funders do extremely well, even if no one else does. “Grow fast, lose money, go public, get rich. That’s the model.” While the book has precipitated some discussion about tech’s treatment of both the young and the olds, not so much for the second topic.

But the book has become a circus unto itself, beyond the one featured in its pages. Fulfilling every author’s wildest promotional fantasy, HubSpot executives evidently tried to obtain a copy of the manuscript before publication. This led to the CMO/co-founder being fired by the board, the CEO “reprimanded”, another executive quitting before he could be fired, all with a chaser of an investigation by the FBI. HubSpot utilized a tone-deaf PR strategy of stonewalling that will surprise no one who has read the book, only allowing that there was “some fishiness” and “really aggressive tactics”. The FBI characterized those tactics as possible extortion and hacking, although they ultimately didn’t press charges. Dan has yet to get an explanation of what they tried to do to him and wonders whether he missed some bigger malfeasance HubSpot was worried would be uncovered in the book.

Reactions to these events have added to the spectacle. HubSpot sympathizers and Boston tech fanboys rallied around the company and basically acted like the Patriots fans most of them are (i.e. the type who would loudly maintain Tom Brady’s innocence – and deity status — even if he were convicted of multiple felonies based on incontrovertible evidence and a full confession). Outside of Boston, VCs who never miss an episode of Silicon Valley were disdainfully harrumphing on Twitter that they had no plans to read the book. How dare he mock these noble entrepreneurs busy changing the world? Struck a little too close to home perhaps, but it underscores the need for an alternative playbook for those companies that aren’t, in fact, “changing the world”.

I’d retain at least a modicum of sympathy for HubSpot and the ridiculous company they have created except that even after all this they’re still out hyping their culture and belief in “radical and uncomfortable transparency”. No acknowledgement whatsoever — much less explanation – of how that vaunted culture led to executive dismissals and an FBI investigation. Or how to reconcile their stonewalling on the whole episode with that deeply held commitment to transparency.

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Google’s Scalability Day http://www.platformonomics.com/2016/03/googles-scalability-day/ http://www.platformonomics.com/2016/03/googles-scalability-day/#comments Wed, 23 Mar 2016 20:53:22 +0000 http://www.platformonomics.com/?p=799 Continue reading Google’s Scalability Day]]> In May 1997, Microsoft held a big press event dubbed Scalability Day. Microsoft was a relatively new arrival to enterprise computing and was beset by criticism it wasn’t “enterprise ready”. The goal of the event was to once and for all refute those criticisms and get the industry to accept that Microsoft would be a major factor in the enterprise (because, of course, that was what the company wanted…).

Microsoft at the time was an extremely engineering-centric company, so it processed all the criticisms through a technical lens. Soft, cultural, customer, and go-to-market issues were discarded as they did not readily compute and the broader case against Microsoft’s enterprise maturity was distilled down to the concrete and measurable issue of scalability. The company assumed some benchmarks plus updated product roadmaps would clear up any remaining “misunderstandings” about Microsoft and the enterprise.

The event was a disaster and served to underscore that all the criticism was true. It was a technical response to non-technical issues and showed that the company didn’t even know what it didn’t know about serving enterprise customers. Internally, the event served as a painful wake-up call that helped the company realize that going after the enterprise was going to be a long slog and would require lots of hard and not very exciting work. It took over a decade of very concentrated focus and investment for Microsoft to really become a credible provider to the enterprise. Enterprise credibility is not a feature set that gets delivered in a single release, but is acquired over a long time through the experience and trust built up working with customers.

I couldn’t help but think about Scalability Day while watching Google’s #GCPNext event today. After telling us for months that this event would demonstrate a step function in their ability to compete for the enterprise, it was a technology fest oblivious to the elephant in the room: does Google have any interest in or actual focus on addressing all the boring and non-product issues required to level up and serve enterprise customers?

As is their norm, Google showed amazing technology and highlighted their unrivaled infrastructure. And they have as much as admitted they’ve been living in an Ivory Tower since Google Compute Platform was announced in 2012 and “need to talk to customers more often”. Recognizing you have a problem is always the first step, but beyond throwing the word “enterprise” and related platitudes around, they did little to convince us they are committed to traveling the long and painful road to really serving enterprise customers.

Some may wonder why Google needs to focus on the enterprise at all. Isn’t it just legacy? Couldn’t they just focus on startups and position themselves for the future and not worry about the messy past or present? Unfortunately not, as it is the shift of enterprise IT into the cloud that makes cloud so interesting. As the enterprise moves, you have a jackpot on the order of a trillion dollars of TAM. To play to win big in cloud, you have to serve the enterprise (and serve it well).

Google has many intangibles to overcome if it wants to be a serious enterprise player. They still seem to believe every potential customer wants to be like Google. The vast majority of companies aren’t Google, can’t ever be Google and don’t even want to be Google. SnapChat and Spotify are not exactly emblematic enterprises. Culturally, Google starts with even less experience with enterprise customers than Microsoft had at the time of Scalability Day and arguably an even more engineering-driven culture with even less appreciation for the cognitive foibles of the median human. Unlike a Microsoft that had building an enterprise business as its top priority, Google the advertising company and Alphabet the technology conglomerate have many other (and frankly way cooler) priorities. It isn’t clear that a mundane investment in say 5,000 enterprise sales and support people will get the nod over the moonshot de jour (Drones! Robots! Life Extension! Board Game Championships! Squirrel! Space Elevators!).

It is great that Google has woken up, now recognizes the magnitude of the commercial cloud opportunity and wants to chase it. But we’re still waiting to see signs Google understands what that entails and will actually make the vast commitment and investment in activities beyond mere technology required for success.

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New Heights in Collateralization: Cheese Bonds http://www.platformonomics.com/2016/02/new-heights-in-collateralization-cheese-bonds/ Mon, 29 Feb 2016 06:05:14 +0000 http://www.platformonomics.com/?p=797

In our never-ending quest to be your go-to source for developments in Italian cheese finance, we call your attention to the issuance of Parmesan-backed bonds. No word on whether the beleaguered mozzarella industry is also pursuing this path. FinTech startup Cheese.ly cannot be far behind.

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