Understanding Cloud Numbers

Tis earnings season, so cloud revenue and growth claims will fly fast and furious. The inability to compare vendors on an apples-to-apples basis can be frustrating. But by focusing on companies’ primary activities, and excluding their immaterial businesses, the sources of revenue for both the major hyperscale cloud providers and the remaining wannabes are easy to understand:

The diagram above illustrates the five distinct sources of cloud revenue: Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), Software-as-a-Service (SaaS), Hot Air about Services (HaaS) and Snapchat.

A Dispatch from Cloud City – State of the Union 2016

With a venerable tradition dating back over a year, the annual Platformonomics state of the cloud union strives to combine the exhilaration of the running of the bulls at Pamplona with the hyperbole of Oracle’s annual proclamation that this year they really are serious about cloud. Or at least to land a few jokes along the way.

In summary, we’ve reached the end of the beginning for cloud computing.

There is no longer much question whether public cloud will be the foundation for IT going forward; instead we quibble about timing and implementation details. The largest enterprises as well as the most sophisticated workloads are wafting up into the cloud. The leaders are distancing themselves from the pack while the dreams of cloud wannabes are deflating like footballs around Tom Brady. Legacy vendors’ worlds are imploding. Private cloud proponents are harder and harder to find: except for those few diehards hunkered down in their closet-sized data centers with several years supply of canned goods and tape backup cartridges, previous private cloud proselytizers now talk earnestly about hybrid clouds in hopes of retaining a few on-premises crumbs in the process. And even the very largest corporations are realizing they can’t keep up with the hyperscale public clouds.

I contend there were two critical inflection points for cloud this past year:

Customers tipped, specifically the enterprises who spend vast sums on IT. Most CIOs have shifted from resistance or tire kicking to active embrace, and are doing so increasingly for business reasons as opposed to technical. Sticking your head in the sand is no longer a viable option. The objections have been knocked down one after another. Security turned out to be powerful a reason to go to the cloud, not shun it. The enterprise tipping point is critical because it dramatically expands the size of the cloud opportunity. We can now realistically talk about a trillion dollars of existing IT spend in play, aka the “cloud jackpot”.

Amazon’s transparency, both financial and cultural. The breaking out of AWS financials in April forever banished the platitudes “your margin is my opportunity” and “the race to the bottom”. AWS proved to be a very large, very profitable and very rapidly growing business. Even bulls were surprised to learn not only that the business is profitable, but much more profitable than anyone imagined. The initial operating margins for AWS were almost identical to those of financial engineering savant IBM. Amazon also had some unsolicited transparency inflicted upon it by the New York Times, who took a deep look at the company’s culture.

“I CAN SEE THE CLOUD FROM MY HOUSE”

My thesis for the last two years has materialized: it is a two horse race located here in Cloud City (Seattle) with AWS in the lead and Microsoft the only other vendor who can still see them. Besides being extremely convenient for me, this means your cloud landlord is probably in Seattle. Please don’t be late with the rent check. The geographic version of Gartner’s Infrastructure-as-a-Service Magic Quadrant (™ ® © All rights reserved. p = 0.796513. Trough of disillusionment. Etc.) underscores that the cloud world is not flat.

It is so obvious that even the denizens of Wall Street have noticed, with one brokerage firm hyping it as a ‘206 area code street battle for the cloud’. (Never mind that Microsoft is in a different area code. I’m sure they’re using an area code map from The New Yorker where everything west of the Hudson blurs together, just as all those buy and sell recommendations from east of the Hudson blur together).

Where is Google in this race? In some ways they have the fastest horse and are certainly the third hyperscale player in terms of their global infrastructure footprint. But Google’s horse is sitting some other pasture, contemplating space elevators, indifferent to the idea they need to actually show up for the race to win it.

I have a fundamental question for each of the hyperscale players pertaining to whether and how market shares will shift as this market continues to grow, plus some thoughts on the rest of the rapidly diminishing field.

AMAZON WEB SERVICES

Amazon remains the cloud trailblazer, maintaining their frenetic pace of innovation while also making necessary investments to become a mainstream enterprise provider. The question for AWS is can they adapt and evolve their culture in order to extend their current leadership into dominant share of that trillion dollar cloud jackpot? (Note that cloud will also bring significant revenue compression, aka customer savings.) This is very much an issue of “what got you here won’t get you to the next level.”

Beyond all the substantive if boring investments required to sell to and support enterprise customers, there are a bunch of cultural issues AWS must navigate. Some stem from their position inside Amazon and some are unique to AWS. The broader Amazon culture issues that the New York Times highlighted also impact AWS’s ability to realize its potential, not least their ability to hire and retain talent. AWS is a very different business from the rest of Amazon and one sitting on the pole position of a trillion dollar opportunity. It requires a different culture than the core Amazon MVP trial balloon autocannon and one that doesn’t resort to zero sum political hackery to assuage its ego.

Public cloud providers are among the most important dependencies any company will take. Successful vendors in this position understand the nature of this relationship with their customers and actively work to build customer trust and mutual co-dependence. Not surprisingly, enterprise vendors are very transparent with their customers. Yet this is at odds with the secretive Amazon culture that seems incapable of putting numbers on the y-axis of charts.

Even more, successful enterprise vendors mitigate customer fears of lock-in. AWS has not figured this out and is struggling with lock-in fears, as evidenced by what can only be seen as disappointing adoption of higher level services like the EC2 Container Service and Lambda, despite their technical appeal. Business as usual will not overcome these fears, and not addressing them means a future where customers only feel comfortable consuming base compute and storage. Being cognizant about your own power is challenging, as big technology companies’ internal mindset invariably lags their growth. They go on thinking they’re the plucky little startup long after they’ve become Godzilla.

I used to think Amazon should spin off AWS so it could maniacally focus on retaining or expanding their current share of the cloud jackpot, and build the distinct culture necessary to fully realize that opportunity (and avoid the distractions from the rest of Amazon). After seeing the financials, I believe AWS should spin the rest of the Amazon e-commerce business.

MICROSOFT

Microsoft has executed extremely well to emerge as the only credible challenger to AWS, leveraging both their platform heritage plus the fortune of a massive and overly-optimistic infrastructure build-out for search. Further, they’re the only vendor from a previous generation to make the leap to hyperscale. Unlike many of their peers, Microsoft’s survival in the cloud era is not in doubt.

But as the enterprise market for cloud really begins to open, the question for Microsoft is whether they can bring their enterprise capabilities to bear in a way that both reels in AWS and allows them to materially expand their share of the cloud jackpot. It is not clear Microsoft fully appreciates those enterprise capabilities, in relative or absolute terms. It is a long road to become a credible enterprise vendor, and having lived through that process when I was at Microsoft, it brings great cognitive dissonance to realize they are by far the best of the hyperscale bunch (and it is even weirder to see the company getting good marks for “Playing well with others” these days). Microsoft also has an advantage as a full spectrum provider across IaaS, PaaS and SaaS, to which AWS is just starting to react. But more of the same is not going to materially increase Microsoft’s market share position. Further success starts with a strong dose of self-awareness.

GOOGLE

The big question for Google is when will they realize cloud is more than just an engineering problem? If they want to build a real business where customers take a enormous dependency on them, they are going to have to do some critically important but mundane things that don’t involve algorithms. Worse, it is likely to involve fickle humans. They must overcome their deep antipathy to both customer-facing operations and enterprises as customers.

Post Alphabet, where any previous inhibitions about pursuing new hobbies have evaporated, it is even harder to imagine the “capital allocators” choosing to invest in thousands of enterprise sales and support people given alternatives involving life extension and/or space elevators. After all, won’t the robotics division eventually solve any problem that today requires humans?

THE CULLING OF THE WANNABES

Last year we catalogued the delusions afflicting a long list of public cloud wannabes. This year we simply observe the epidemic of sobriety sweeping the vendor landscape (and the morning-after wreckage). HP managed to exit the public cloud business not just once but twice this year. Helion is Heli-off. Rackspace, still recovering from its OpenStack misadventure, is shifting its center of gravity from the data center to the call center. Both vCloud Air and Virtustream have disappeared into a miasma of highly leveraged financial engineering emanating from Austin. AT&T, CenturyLink and Verizon are all hoping no one remembers they once claimed to be public cloud providers (and probably will get away with it). Cisco, presumably, has filed a missing persons report for their InterCloud.

THE SUPERBOWL OF CLOUDWASHING

While the number of hallucinating vendors has plummeted, devotees of delusion should not despair. Despite all the departures, aggregate levels of industry delusion may be hitting new highs between the efforts of IBM and Oracle. These delusional dinosaurs are locked in a battle every bit as fierce as one between the hyperscale competitors, except they are vying for the World Championship of Cloudwashing™. Given cloud poses an existential threat to both companies, it is not surprising they are talking cloud. But their delusion manifests itself in the colossal gap between their rhetoric and their actual capabilities.

I have been arguing for almost three years that IBM is likely to be the cloud’s biggest scalp. Their best outcome is they’re just a much smaller company in the cloud era, not that they’re executing on that path. The stock is down a third since I started beating this drum and is currently exploring new five-year lows. They continue to confuse boutique hosting with hyperscale cloud, and have been reduced to asserting Watson will somehow be their cloud Hail Mary (at what point is it reasonable to expect Watson to progress beyond an endless PR campaign, never mind drive revenue material enough to bolster the ever-shrinking IBM topline?).

A year ago IBM had the cloudwashing title wrapped up but Larry “Lazarus” Ellison is not one to back away from a challenge. Hypercompetitive: yes. Hyperscale: not even remotely. The question for Oracle is do they really believe it when they assert they are the leaders in cloud (or even have a cloud as opposed to some SaaS apps?) or they believe that empty rhetoric is a legitimate substitute for millions of lines of code and billions of dollars of capex? It is embarrassing when your employees feel compelled to point out the discrepancy between announcements and action, and in particular recurring confusion around tenses (also a lesson here for press who happily write the “this time we’re serious AND we are already the clear leader” Oracle cloud story every year without reflecting upon their credibility or past proclamation performance).

But this speaks volumes about Oracle’s cloud:

For instance, when the team was struggling with Oracle’s central IT to get the server resources they needed, the team requisitioned a bunch of desktop computers from Oracle’s Seattle office and turned them into an OpenStack-powered private-cloud-development environment so they could continue their work in peace, right in the middle of the office floor.

IT involved? Check. Private cloud? Check. OpenStack? Inauspicious. Desktop computers under the desk? Are you f*%king kidding me?

To paraphrase William Goldman: “Follow the capex” with IBM and Oracle. We’ll see if they’re still pretending next year.

(CLOUD) BURSTS

Dell/EMC/VMware/WTF: the metal-bending M&A muttonheads have likely inflicted irreparable damage to VMware, the best asset in the so-called “federation”. Pivotal also risks being caught up in financial shenanigans perpetrated by those who neither understand nor appreciate software.

DevOps: if you’re buying DevOps tools, you’re doing it wrong.

Digital Ocean: needs to make its play as the dark horse window is closing.

Docker: despite all the political hijinks as competitors tried to box Docker in, Docker has become boring. That is good; the container infrastructure continues to mature. More exciting perhaps are new developer models emerging that are “native” to containers.

GitHub: the Craigslist of cloud?

HubSpot: this is not cloudy, but given the infrequency of my blogging, I will predict their CEO steps down in 2016 with p = .7. The board may follow. The level of transparency has not yet become “uncomfortable”. But it will.

Industry Foundations: after an ugly outbreak of industry foundations last year, we can only hope to be certified Foundation-free in 2016. As we have seen, this affliction is highly contagious. As with cockroaches, when you see one foundation, you will likely see more. So it is important to prevent potential foundation epidemics; the best protection is not letting companies that can’t write code get involved.

PaaS: still a zero billion dollar market though the data is suggesting I might finally have to stop using that line next year. Perhaps more importantly, containers have reinvigorated the endless ontological debate about what exactly constitutes a PaaS. Cloud Foundry is having some success selling to very large enterprises, but they seem to be selling hope more than product. The Fortune 500 is packed with companies grasping for anything that lets them believe they can become software companies.

OpenStack: like a poorly performing European football team, OpenStack has been relegated to a lower division. It is now a solution for telcos. As the saying goes, if at first you don’t succeed, you can still sell it to telcos. OpenStack is a great fit with the NFV misdirection, which gives telcos the infrastructure toys everyone else had a decade ago while leaving the networking crown jewels firmly in vendor hands.

(Free) Stock Tips: if wave one of the cloud disruption hit enterprise hardware, wave two is hitting enterprise software. VMware preemptively tubed its stock by letting itself be the funny business in the Dell-EMC deal, so it not clear how much more downside there is in VMW. Oracle’s stock has already started to roll over. But there is still time to short Red Hat who, despite being irrelevant to cloud, sports a multiple of over 75 yet will see a much smaller fraction of every dollar that shifts to the cloud. If you have a cloud infrastructure software company to sell, Red Hat is your first call.

Fumbling the Future: Virtual Reality Edition?

The Sports Illustrated cover jinx pales in comparison to the curse of the barefoot young techie on the cover of Time

TL;DR Facebook’s Oculus virtual reality play is far from a sure thing.

Fumbling the Future is a great book that plausibly explains why Xerox merely copies and prints, despite having pioneered foundational elements of computing at PARC, including bitmapped displays, local area networking, WYSIWYG document editing, object-oriented programming and built the first GUI computers. More broadly, the authors ask:

“Why do corporations find it so difficult to replicate earlier successes in new and unrelated fields?”

With all their talent, resources, mountains of cash and often dead-on insights into the next big thing, why do leading technology companies almost inevitably fail to translate dominance from one era/area into the next?

There is no shortage of management theories which abstractly analyze such moves, but case studies can be much more edifying. It is too early to assess Hooli’s Google’s Alphabet adventure, which looks to be the mother of all corporate experiments in leaping into multiple new and unrelated fields, all at once, as they seek to build the world’s first advertising/life sciences/automotive/ fashion/space elevator conglomerate. But we have another example unfolding now with virtual reality where the early returns are deviating from the master plan laid out in a Fortune 500 boardroom.

The Next Major Platform

Social networking supremo Facebook decided virtual reality was the next big thing and has made it the company’s first major foray beyond its core. Mark Zuckerberg put the world on notice, repeatedly saying virtual reality is the “next major computing and communication platform.” One assumes the unspoken addendum to this is “…and we intend to dominate it”.

Facebook bought Oculus for $2 billion in March of 2014, and supposedly has committed another $5 billion of additional investment. Oculus gets (and deserves) credit for reviving virtual reality (henceforth VR, to save a few characters) from a long hibernation with its breakthrough 2012 Oculus Rift Kickstarter campaign. With the exception of some embarrassing contemporaneous Hollywood movies, VR’s initial ‘90s incarnation had been forgotten. Less heralded is the assistance Oculus received from Moore’s Law, the vast economies of the smartphone manufacturing complex and a few others who were quietly keeping the VR dream alive.

Oculus arrived at Facebook right at the closing of the “move fast and break things” frontier era. They were going to do VR “right”, as befits a major technology corporation, and set out systematically on multiple fronts. They vacuumed up talent, including luminaries like Michael Abrash from Valve and gaming legend John Carmack. They opened more offices than I can count (three in the Seattle area alone), plus established a research group as well as game and movie studios.

Part of doing VR “right” was to set an incredibly high quality bar, not only for themselves, but for the entire industry. They feared inferior VR could ruin the opportunity for everyone, and so became the industry’s self-appointed quality sheriff. Competitors like Sony were patronizingly chided for perhaps insufficient attention to quality.

Consistent with this high quality bar, the Oculus talking points shifted from the previous North Star of inexorable progress towards shipping the consumer version of the Rift to more philosophical discussions of all the difficult challenges they were so generously working to overcome on behalf of the entire industry. Oculus statements like “input is hard” were offered up so frequently as to become a meme with its own shorthand of “IIH”.

When Platformonomics last looked at VR back in December 2014, some cracks were already visible in the strategy (if I may quote myself):

Oculus, the uncontested leader in VR just a few months ago, backed by billions of Facebook’s dollars, is already in a bit of a strategic quandary.

After years of selling the dream of the “consumer Rift”, Oculus has gotten very vague about when if ever we will see that oft-promised device.

Big Company Games

As they arrived at Facebook, Oculus got entangled with Samsung, playing the kind of reindeer games that BigCos are obligated to play. Samsung, the world’s foremost practitioners of “ship first, people only care about hardware specs and worry about software later”, decided to do their own VR headset, which crudely speaking, bolted an Android smartphone to your face for a minimalist VR experience, and would be differentiated primarily by its ship date (like the dog who catches the car, it gets tricky for fast followers who find themselves out ahead of their role models).

Oculus was skeptical about VR on a mobile platform. The combination of underpowered hardware vis-a-vis Oculus’s PC-centric approach and Samsung’s software track record set off all of Oculus’ quality alarm bells. They worried Samsung would do their usual crap software job and ruin the pool party for everyone. There is also a question of to what degree Samsung held display panels for Oculus headsets hostage, but whatever the case, Oculus chose to take one for the industry team and partner with Samsung to make sure what became known as the Gear VR would not rely solely on Samsung software.

Into the breach went Oculus CTO John Carmack, who spent months working with Samsung on the Gear VR, noting bluntly along the way that Android development “really does suck”. In the end, the Gear VR, powered by Oculus software, didn’t outright suck, benefiting from Carmack the Magnificent’s efforts (and perhaps the low expectations Samsung brings to anything involving software).

At the same time, Google, congenitally unable to resist toying with their mortal enemy Facebook, kicked off their own big company reindeer game and introduced Cardboard, an eponymously constructed and priced VR headset for Android phones. No doubt their pride hurt by Carmack’s disparaging comments about Android’s graphics architecture, Google soon began to see VR as another front in the battle to retain control over the Android ecosystem. Cardboard added still further impetus to mobile-centric VR even as it risked to lower the quality bar even further, which in turn probably motivated Oculus’ mobile efforts even more.

Surprise Surprise

Ultimately, Oculus made their peace with mobile VR and began to talk about a platform spanning both mobile and PC experiences (even if they were papering over two incompatible efforts). But the Oculus dream of the consumer Rift headset was deferred by the attention required on Samsung and mobile VR.

Oculus went into the Game Developers Conference in March 2015 downplaying the prospect of any news, content to demo the “Crescent Bay” prototypes it had been showing for at least six months. Like everyone else, they were surprised by the bombshell announcement of the Vive headset from HTC, powered by Valve’s VR technology. The industry assumption was Valve’s long time VR efforts had been abandoned after Oculus hired away some key employees post Facebook hookup.

HTC and Valve did a great job of keeping the Vive under wraps – it appears to have been a complete surprise. The Vive product has several attributes important to our discussion. First, it delivers an exceptional VR experience, So good that Valve was willing to make an absolute statement that “zero percent of people get motion sick”, a claim that certainly could not be made about the Oculus. Even when I tried to induce motion sickness with the Vive by jerking my head around wildly, I couldn’t do it. Second, input may be hard, but the Vive comes with a pair of controllers that offer very precise control over objects in VR. The Longbow demo where you shoot a bow and arrow illustrates how capable these controllers are, and makes it easy to imagine manipulating all kinds of sophisticated implements in VR.. Third, the Lighthouse system uses “frickin” lasers (versus Oculus’ optical approach) for exceptionally accurate positional tracking within a roughly 12 x 12 foot space, which means VR no longer has to be a seated activity (though you are still tethered by the headset). And fourth, and maybe most importantly, they promised to ship in 2015.

Simply put, the Vive is great and enables amazing VR experiences. And it beat the prototypes Oculus had been showing with a smoother experience, better positional tracking, better input and an actual ship date. People who have tried both Vive and Oculus invariably give the nod to the Vive.

The Empire Strikes Back, Sort Of

My guess is Oculus convened their first meeting about actually shipping the consumer Rift on March 2, the day after the Vive announcement. Their first decision appears to have been to give themselves the corporate handbook standard of 90 days to pull together a plan and a year to ship their answer to the Vive.

On June 11th (just over 90 days later), Oculus announced the long-awaited consumer Rift would ship in Q1 2016, a hopefully insignificant interval after the Vive’s promised Q4 2015 date. But they had to really scramble to make this announcement and the compromises show.

Input seemingly remains hard for Oculus, as evidenced by their introduction of not one but two controllers. First, they announced the consumer Rift would ship with — wait for it — an Xbox controller. Second, they announced the Oculus Touch, their own controller which appears similar in function to the Vive controllers but with what seems to be more refined ergonomic design.

The Touch is clearly a work in progress, and the mockup plastic may still have been warm at the June announcement. Even in late August, the Touch is still clearly labeled a prototype: “What we’ve shown today in the Touch Half Moon prototypes is not necessarily representative of what the final product will be…” Access to the controllers remains tightly controlled, the first SDK has just shipped and the company continues to do input-related acquisitions.

But the most telling thing about the Touch is it is supposed to ship a quarter after the consumer Rift, a strategy that has been likened to Apple shipping the mouse for the original Macintosh a quarter after the computer.

Meanwhile, despite having at least one and maybe two orders of magnitude more people working on VR than Valve, Oculus has been jettisoning other deliverables left and right. They cut Mac and Linux support and despite the relationship with Microsoft for Xbox controllers, Oculus did not have Windows 10 support when it shipped and were in an awkward position of asking developers to hold off upgrading.

Developers also complain about the poor quality and architectural churn of Oculus’ SDK: some on the record, more off the record. And they report developer support is noxious brew of ambivalence and entitlement, as if Oculus are unaware that they are no longer the only game in town.

Beyond product and schedule, Oculus also has a communications problem. Their strategy seems to be very visible and loud to compensate for their market position, but are talking too much (e.g. the much ridiculed Time magazine cover above), are tripping over themselves with conflicting messages and often come across as tone deaf.

Here are Oculus’ top two people a week apart in the same publication:

Oculus VR CEO Brendan Iribe still thinks that the technology – and the company’s Oculus Rift PC-based HMD – is set to ‘take off very quickly’.

Oculus Rift creator Palmer Luckey doesn’t think that the tech will break into mainstream overnight, recently stating that it’s something that will take ‘a long time’.

Sometimes they seem to be trying to lower expectations for their first product by stressing just how far out their roadmap extends; other times they’re cheerleading version one. A serendipitous juxtaposition in my feed reader gives us this credibility-sapping combination:

image

But most of all, their June 11th announcement ranks as one of the most awkward product announcements ever. This video clip brutally highlights the vast disconnect between Oculus’ expected reaction and the non-virtual reality (what do you do when the teleprompter says “wait for applause” and there is none?).

Stay Tuned

It is way too early to call this market. The cliché would be we’re not even in the first inning, as neither Oculus nor Vive have shipped, while Sony lurks in the background with the forthcoming Project Morpheus headset for Playstation 4.

But Oculus is far from romping to victory here, as many expected a year ago (including presumably Facebook when they wrote that enormous check). They had and lost the pole position and find themselves behind on both capabilities and schedule. Valve and HTC are deep inside Oculus’ proverbial OODA loop, and by virtue of being forced to react, Oculus has made suboptimal decisions. And more consequences of being back-footed are likely to surface.

For example, Oculus’ business model is unclear. Are they going to make money on headset hardware or sell it at close to cost to create sockets for other businesses? If hardware is an enabler, where is the software revenue? Can they make money from an app store vig when they have made a pretty strong statement that they will allow sideloading and face a deeply established competitor in Valve’s Steam with its over 125 million users? Will they drive material app revenue? Or do they incur mass disdain and end up defaulting to Facebook’s ad-based model? When you’re behind, the desire/pressure to sacrifice margins and/or piggyback on the mothership increase because you just don’t have as many levers at your disposal. Or perhaps they sacrifice further time to transition the hardware to a partner?

The Vive isn’t a sure thing either. I am sure they’re also on a very tight schedule. HTC is financially precarious (although the fact they seem to be betting the company on Vive is good in terms of focus). The Vive lags Oculus in some areas like audio and maybe wirelessly connected controllers (I am not clear on whether they ship wireless controllers with the initial product). And the challenge of scaling manufacturing is already showing up with the statement that while the Vive will ship this year as planned, volumes will be limited, which was no doubt joyous news in Oculus’ many offices.

But returning to our Xerox lede, the expected VR coronation for Facebook/Oculus foretold on magazine covers is in question. Oculus has lost the clear leadership position they had a year ago and. if you are wearing a rose-colored headset, the best you can say is it now is a horse race. But they’re not unique. These kind of “unexpected” underdog outcomes seem to happen with remarkable regularity, much to the frustration of the technology titans and their megalomaniacal machinations. It is part of what makes tech so interesting to watch.

As with any BigCo initiative, Oculus’ execution to date has been impacted by some combination of a lack of strategic clarity, distractions, an inability to completely conceptualize the entire new value chain (vs. just building technology), an abundance of people, a lack of urgency combined with a utopian quality bar and who knows what other factors that always create drift from the strategy slides.

There is one other possible explanation, which is that Facebook’s VR dream suffers not so much from the usual imperfections in BigCo execution, but rather a strategic mistake. Maybe Facebook made a mistake buying a company whose capabilities were not what they seemed. 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. Oculus received a lot of help from Valve in its early days and even had their own “Valve room” installation in their offices in Irvine. Why are there pictures of Mark Zuckerberg trying out the Valve headset at Oculus as opposed to the Oculus headset he ponied up billions for?

Thanks to all the developers who shared their VR perspectives – you know who you are even if you don’t want to be named Winking smile

So will Oculus get it together and recapture the lead? Or will someone write a Fumbling the Future-esque book about how they didn’t? Or is this just narrative fallacy run amok?

Tweetstorm Digest: May 19, 2015

Lest you missed a bit of a @charlesfitz victory lap for Cloud City (Seattle) on Twitter:

1/ A geographic look at the Gartner Magic Quadrant for Cloud is revealing:

GeoMQ

2/ The Leader quadrant for cloud computing shall henceforth be known as the Seattle quadrant.

3/ Seattle has also annexed the best real estate in the visionaries quadrant.

4/ Yes, Google does their cloud infrastructure work in Seattle.

5/ The MQ has more companies from south of the Mason-Dixon line than from Silicon Valley.

6/ VMware (wedged in there like Oklahoma) is Silicon Valley’s champion, almost by default.

7/ The Cloud BS Brigade of Silicon Valley BigCos (Cisco, HP, Oracle) only appear in their own press releases.

Bonus: a fun timelapse of how this Magic Quadrant has evolved over the last five years.

Book Review: Whiskey Tango Foxtrot

The latest in digital technology and Big Data in particular are increasingly fodder for novelists. Whiskey Tango Foxtrot by David Shafer is a wry story of mostly earnest millennials who end up in “pitched battle with a fascist consortium of data miners”. The Google–esque bad guys are too nerdy and tone-deaf to achieve full-on Bond villain status, but Google is inexorably becoming the template for the next generation of thriller/movie villains (after The Interview, the only villains left seem to be evil corporations lest we offend even the most backward of movie-going audiences and/or their hereditary dictators, although they pale in comparison with classic villains in their menace, reach and ambition).

Shafer has some great turns of phrase in addition to exploring the dark side of Big Data:

They call it the cloud, but that’s wrong, isn’t it? Their cloud is heavy and metal and whirring.

But maybe that’s not how life works at all. Maybe you’re not supposed to put up so much resistance. Maybe a lot of that is pride and ego and pointless in the end. In which case she’d been misled by all that required reading and by the Die Hard movies.

Besides, there is the scrape of luck in everything, from the missed bus, to the dinged chromosome, to the hurtling asteroid.

“Why the hell would you be collecting shit like this?” Mark said, looking straight at Cole. “It’s public. It’s over our network. We call dibs on it.” Dibs? They were calling dibs? “But it’s illegal, to spy on people like this.” “Information is free. Storage is unlimited,” said Cole, totally unbothered. “Our privacy policy is reviewed regularly, and our mandate to collect is spelled out in the implied-consent decree of 2001. We’re just keeping this stuff safe, anyway. The other server giants have terrible vulnerabilities; they could be erased so easily.” Did he just smirk? “But that’s not really my department.”

“And what is the product, exactly?” asked Mark, a little desperately. “It’s a product and a service,” said Straw proudly. “It’s order. It’s the safeguarding of all of our clients’ personal information and assets. But it may be a while before our clients discover that they are our clients.”

“And yes, right now this part runs up against something called the ‘right to privacy’”—she made air quotes—“which is a notion that hasn’t really meant much in thirty years and means less every day. You may as well defend people’s right to own steamboats. Someone’s going to control access to all the data and all the knowledge. All of it. Everything that every government, every company, and every poor schmuck needs to get through the day. You want that to be the other guys? Once everyone’s on our network, the old, unwired world will be worthless.”

Tweetstorm Digest: January 26, 2015

Lest you missed an @charlesfitz Twitter excepting of a (paradigmatically paywalled) Goldman Sachs report “The Hardware Download” dated January 20, 2015:

1/ Missed a good Goldman Sachs report on cloud last week with focus on “the cloud’s impact on IBM”. Good CIO/VAR survey data.

2/ VAR survey “How has migration of your customer’s workloads to the public cloud impacted spending on infrastructure companies?”

3/ Positive responses minus negative responses: SAP +44, MSFT +40, RHT +35, VMW +6, CTXS -36, ORCL -50, IBM -74 (!)

4/ CIO survey shows $RAX a bigger player in the race for the enterprise public cloud jackpot than $GOOG

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5/ “many investors are focused on IBM’s ability to counter many of these secular pressures with its investments in cloud platforms”

6/ “the early read from our team’s surveys suggest much work is still needed in this respect”

7/ GS coyly concludes: “IBM’s infrastructure software sales could be seeing more pressure than peers with migration to public cloud.”

A Dispatch from Cloud City – 2014 Retrospective

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In an effort to make this an annual event, here is a plumbing-palooza stream of cloud consciousness. Last year’s broad themes remain intact though my Rackspace call didn’t pan out.

Cloud Infrastructure

  • Public cloud has won. Thanks Target. Thanks Sony. Thanks Kim Jung Un. If your public cloud gets hacked, you get to blame someone else and will have company in your misery. Public cloud will absorb vast quantities of enterprise on-premises IT spending and thus be an enormous pot of gold.
  • Docker – everyone likes Docker. Even people who don’t.
  • There are two and a half big league public cloud providers vying in what John Connors has dubbed the (WTO-free) “Battle in Seattle” (Google does a lot of cloud work in Seattle too):

Amazon remains the leader with incredible execution and is relentlessly pushing up the stack. They are on the same “enterprise journey” that Microsoft went through beginning in the late ‘90s (with some of the same people in fact), in an effort to get IT comfortable paying them vast sums of money. Amazon seems to have abandoned price leadership as they find themselves in a price war against competitors who have vastly more money than they do. Frittering away valuable cash on hardware misfires and TV shows is a growing opportunity cost. If Amazon’s stock price doesn’t recover, expect their employee retention problems to grow and discussions of spinning out AWS to get more serious. But they’re not going to yield their leadership in 2015.

What I said last year about Microsoft still works:

“Azure has become the clear challenger to AWS. The much maligned Mr. Ballmer is not getting credit for Microsoft’s embrace and execution on cloud. Unlike most of its cohorts rooted (mired?) in previous generations of technology, Microsoft is well on its way to making the cloud transition.”

Microsoft is executing like old school, taillight-chasing Microsoft with the added advantage of glass-half-full perceptions about the company for the first time in nearly two decades under the regime. The open source embrace (sans extend) is real after enactment of the strategy tax cut. If you’re still having cognitive trouble with this, the best analogy I can offer is Microsoft has become Intel and just wants to soak up all those datacenter compute cycles (a pithy analogy for what Intel has become eludes me, but it could be a fun exercise).

Google I don’t give a full big league integer to because cloud is still basically a hobby for them. In technology terms, they are in many respects the leader, but they’re just not serious about the non-technology investments they need to make to really compete for that broad enterprise transition to the cloud (they too need to embark on an “enterprise journey” as opposed to hoping those enterprises beat a path to their door). The company seems more interested in n+2 or n+3 opportunities (self-driving cars! life extension! an air force!) than mundane n+1 opportunities like cloud (which gets interesting if you believe we’re seeing weakness in Google’s search cash geyser for first time – will the further out new businesses spin up soon enough to offset slowing and/or deteriorating desktop advertising?). Presumably all those robotics investments are so they won’t have to hire humans to do enterprise sales and support. Google is the Crazy Eddie of cloud (note Eddie didn’t have much of an enterprise business and but did have a fraud problem. But far be it for me to suggest that the ad business is anything but squeaky clean). They will continue to push prices down which is a great way to push Amazon to the wall. But Google needs more than just technology and lowest price to really compete for the enterprise cloud jackpot.

  • Docker – did I mention Docker?
  • Below the big boys we have a bevy of wanna-bes, characterized by varying levels of self-delusion about their ability to really play this game. The old school announcements of “one billion dollar” multi-year investments aren’t even table stakes – Google spends that on capex in a couple weeks. IDC slyly and without elaboration predicts “75% of IaaS provider offerings will be redesigned, rebranded, or phased out in the next 12-24 months”, which brings us to this group:

IBM has been my poster child for the existential threat cloud poses to old school IT vendors. I’ve been pontificating about the peril they face and their clueless response for quite a while (here, here, here, here, here and here as a start). I took a lot of grief about this view when I first wrote about it but now their plight is widely understood and even conventional wisdom:

Bloomberg Businessweek (US)

My inner contrarian even wants to go bullish on the company just to flout the crowd except I can’t see any path that looks like clear success. Even the best outcome, where IBM keeps all its market share, still results in a dramatically smaller company (in terms of revenue, workforce and stock price) due to the deflation of cloud computing. IBM’s fundamental problem is it is their traditional customers who are being disrupted by technology wielding upstarts and they are going to have to show customers can actually use IBM technology and “business consulting” to be successful against competitors who don’t have that burden. Good luck with that. IBM’s streak as the worst performer in the Dow Jones two years running may not be over.

To their credit, IBM woke up this year and is no longer downplaying cloud or attributing their woes to simply poor execution of ye olde business model. I am amused that IBM’s leadership has expressed far more public concern about their prospects than the normally curmudgeonly IT industry analysts and pundits who evidently are telling IBM’s customers not to worry about generational transition risk.

Beyond their cloud wanna-be status, it is hard to get enthusiastic about their big initiatives of Watson and becoming an iPad reseller. After what seems like decades of hype, Watson is being devoured by hundreds of much more focused machine and deep learning startups. And it is uncanny how iPad seemed to flatline just as IBM got interested in it (and if you contend IBM’s apps are just what the iPad needs to reestablish growth, I ask only that you name an IBM app, and if you can do that, name one that you’d like to use). Delusion factor: low. The dubious marketing underscores their desperation.

HP (sorry Hewlett Packard Enterprise) trails IBM significantly in terms of existential angst and has a massive internal distraction in splitting themselves up. Helion: they only wish they had another L. While I have been assuming a “better than Autonomy” bar would lead to acquisitions like Box or Rackspace, their efforts to get their hands on VMware suggest there may be some sanity lurking somewhere. Delusion factor: medium.

Cisco is the company with the biggest gap between reality and their own cloud blather. While they are one of the few growing server vendors, their reckoning approacheth on multiple fronts. Delusion factor: highest

Rackspace – my prediction last year was they would not be an independent entity by the end of 2014. They did put themselves up for sale, but had no takers (HP let me down). They have realized they can’t play with the big boys and have retreated to their old hosting turf. OpenStack was a huge distraction for them. But their stock price supposes there is still an acquirer out there. Delusion factor: low. They touched the hot stove, and will not make that mistake again. 

Telcos – CenturyLink (also in Seattle) is executing the best here while the others are too busy chanting “cloud is our birthright” to do much. Delusion factor: medium to high.

OpenStack – another year where the number of press releases probably exceeds the largest number of nodes in production in any instance. They lost ground this year as public cloud continues to outpace private cloud and OpenStack public clouds aren’t very public. A pivot to Docker is coming, even as they perhaps settle to be a telco supplier. Delusion factor: high.

  • Docker – the most interesting aspect of Docker is it works because Linux has won as the operating system of the cloud (and having written those words, a new operating system must surely be upon us imminently). If you don’t need to virtualize multiple operating systems, you can push application isolation up above a single OS. But while Linux has won, Red Hat has lost. They just don’t play any material role in cloud infrastructure. They’re a legacy, on-premise operating system company. Maybe this year the markets will ask why they’re trading at a multiple of over 70.
  • Digital Ocean – while the old school vendors huff and puff, I’ll just note this is increasing where the cool kids run their apps. The problem with taking the “enterprise journey” is it almost always leaves you somewhere developers don’t want to be.
  • Docker – they really mishandled their first competitive blitz, which was actually pretty minimal. But good practice for when VMware finally gets around to announcing vCenter will manage both VMs and containers (and I have no inside knowledge here, it just seems like an obvious thing to do).

Cloud Platform

  • PaaS is still a zero billion dollar market, but there are signs revenue is ramping to the point where we can have a serious discussion about this threshold next year (note I define PaaS narrowly to net new, general purpose application platforms and don’t subscribe to xPaaS speciation/inclusion of decades old code) I still think this is the only layer at which most companies should be doing private cloud.
  • The Cloud Foundry Foundation – not sure if I’m more disappointed that it exists or that it wasn’t called the Foundration.
  • DevOps is a distraction and something you want other people to do on your behalf: if you’re actually doing DevOps, you’re doing it wrong. (That sentence will probably bring me more grief than any other in this post).

Big Data

  • FOMO is the biggest driver of big data in the enterprise. Lots of data is going into the lake, but not much is coming back out yet.
  • Hadoop, or more accurately HDFS, has won based on storage cost advantages and addressing the administrative and governance needs of IT. The programming model can charitably be described as unsettled, which is one of the factors hampering the realization of material value from big data. A big question for 2015 is how quickly Spark matures.
  • The most amusing announcement of the year was Google sucking it up and announcing full support for Hadoop, which they view as an obsolete and decade-old Google technology laundered through Yahoo.
  • The hype around big data will shift to the Internet of Things in 2015. IoT-washing will make cloudwashing look modest, as every data player adds at least those three letters to their home page. Some are doing more and actually building for specific IoT needs. Samsung is the biggest threat to IoT as they feel the urgency to ship half-baked spec sheets devices and crummy software that could set the whole market back significantly.
  • Get ready for data protectionism, as the EU (as a front for European manufacturers) decides they need to control their own data exhaust and not let those evil American technology companies squeeze all the value out of precision metal bending. We could see some very strange big data acquisitions by German manufacturing companies.

What else should we be watching in 2015?