Friday tends to be my recapitulation day, in no small part because there’s typically not much news on Fridays. Today I’d like to touch on Apple’s results, VMware’s pact with Google on cloud features, and EMC’s overall pain and suffering. They continue to paint a picture of transition, something that’s always fun because it creates both problems and opportunities.
What’s particularly interesting today is the juxtaposition of these items with the quarterly reports from Apple and Google. These companies both had light revenues, and that suggests that some of the high-flying sectors of the market are under pressure. Google is said to be losing market share to Facebook, but what’s really happening is that online advertising is being spread around among more players and it’s a zero-sum game. Amazon is proving that it will have to be creative in shipping unless it wants to keep discounting more every year, to the point where there are no margins left to them. Moral: Google and Amazon need to be in a broader market. Keep that in mind as we develop this blog, please!
Apple is clearly winning the smartphone wars, with once-arch-rival Samsung (Android) sinking further in both market and revenue terms. One interesting thing I found when talking to international users was that the term “iPhone” is becoming synonymous with “smartphone” in many geographies, and even here in the US I’m seeing a pickup in that usage. There’s also growing evidence that app developers favor either Apple’s platform or even Microsoft’s Windows 8.x Metro over Android. Google’s decision (if the rumors are on target) to become an MVNO may well be a reaction to Apple’s dominance.
If that’s true it could present a challenge for Apple in the cloud area. I’ve always felt that Apple was lagging in the cloud-exploitation side of things. A part of this is because Cloudification of features or services tends to anonymize them, which is hardly what brand-centric Apple is seeking. But Google’s MVNO move makes little sense unless you think they’re going to tie in hosted features with their handsets, and even propose to extend those features across into Apple’s world.
Suppose Google were to create a bunch of whiz-bang goodies as cloud-hosted mobile services extensions. Suppose they then made these available (for money, of course) to Apple developers. Does Apple then sit back and let Google poach? Even if Google didn’t make cloud-hosted service features available to iPhone types, an MVNO Android-plus-cloud move could be the only way to threaten Apple. Particularly if operators wanted to use NFV to deploy agile mobile-targeted services (which they tell me is exactly what they’d like to do).
The Google-of-the-clouds notion is interesting given that Google just did a deal with VMware to add some Google cloud services to VMware’s vCloud Air. This is being seen by virtually everyone as a counterpunch against Amazon and Microsoft, both of whom have more cloud-hosted services available for their platforms. I think this is important because it suggests that even in mainstream cloud computing we’re starting to see more emphasis on “platform services” beyond IaaS as differentiators and also as revenue opportunities. A cloud platform service explosion could create mobile utility too, if it exploded in the right direction.
More important than even Google’s MVNO and VMware’s aspirations is the fact that platform services are the key elements in “cloud maturation”. We’ve been diddling at the edges of cloud opportunity from day one, and we’ve achieved only about two-and-a-half percent penetration into IT spending as a result. Worse, my model still says that IaaS and “basic PaaS” will achieve only about 24% maximum share of IT spending, and that well down the line. But if you start adding a bunch of platform services that can integrate in IoT data, mobile social frameworks, context for point-of-activity productivity enhancement and suddenly you can get a LOT more.
How much is “a lot?” It’s tough to model all the zigs and zags here but it looks like the opportunity on the table for the cloud through optimized platform services could be 1.5 to 2.0 times what basic cloud would get. Better yet, for providers at least, is the fact that the adoption rate on platform-service-based cloud could be almost twice as fast, getting cloud spending up to as much as 30% of IT spending by 2020.
You have a burst in the arctic fox population any time you have a burst in the lemming population, but when lemming counts drop back to normal so do fox counts. For decades now, technology has been feeding on overpopulation of opportunity. IP in business networks was created by the burst of distributed computing initiated by microprocessor chips. OTT was created because online advertising was less costly than buying TV commercials. But all these rich growth mediums have been used up by opportunistic bacteria at this point. Now, to move forward, we’ll have to be more creative.
The telcos and the big IT companies and other “mature” businesses now have to face their own reality, which is that the OTTs and the cloud were never “competing” with them in a strict sense, they were just parallel players in the ecosystem, evolutionary co-conspirators in an attempt to exploit changing conditions. However, what we’re seeing now is convergence of business models created by an elimination of market low apples.
Google cannot make easy money any more. Neither can Amazon. Both companies are now looking to “the cloud” as a solution, but the cloud involves much higher capital investment, better understanding of operations, and systemization in addressing some new benefit models to generate new sales and profits. In heading for the clouds, Google and Amazon are heading for a place that’s darn close to where carriers have been all along—cash flow machines building services off massive infrastructure investments. Both Amazon and Google would be trashed by the Street in minutes if they ever suggested they were doing that.
Google’s MVNO aspirations and fiber, Amazon’s cloud, are all tolerable as long as they don’t generate a boatload of cost that will threaten the Street’s view that these companies are growth companies and not utilities. Somehow these high flyers have to build services at a new layer, where capex and opex can be lower but where value can be higher. Does that sound familiar, like what the telcos have to do in order to get beyond the bit business? And guess what; the telco model of today is closer to the cloud model of tomorrow, at a business level, than either Amazon or Google are. So the telcos don’t need business model transformation at all—their competitors are going to be rushing to the telco business model because there’s nowhere else to go.
I’m not saying that the telcos are going to win over Google and Amazon, or vice versa. What I’m saying is that we’ve not been seeing OTT competition up to now, but we’re darn sure going to see it over the rest of this decade, and every signal in every quarterly report bears that out. And that, friends, is going to produce some very interesting market shifts and opportunities as well as very dramatic changes in the very structure of networks, applications, and information technology.