BriefingsDirect Analysts Handicap Large IT Vendors on How Cloud Trend Impacts Them

Edited transcript of BriefingsDirect Analyst Insights Edition podcast, Vol. 34, on cloud computing and its impact on IT vendors, recorded Nov. 21, 2008.

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Dana Gardner: Hello, and welcome to the latest BriefingsDirect Analyst Insights Edition, Vol. 34. This periodic discussion and dissection of IT infrastructure related news and events with a panel of industry analysts and guests comes to you with the help of our charter sponsor, Active Endpoints, maker of the ActiveVOS, visual orchestration system. I'm your host and moderator, Dana Gardner, principal analyst at Interarbor Solutions.

Our topic this week, the week of Nov. 17, 2008 -- and Happy Holidays to you all -- is the gathering cloud-computing conundrum. From the hype and intrigue that's been a top story of 2008, do you think that cloud computing is past its infancy and well into adolescence?

We really are only beginning to understand how the IT services delivery, data management, and economic models of cloud computing will impact the market. Today, we're going to focus on the impact that this coalescing cloud phenomenon and the myriad cloud-computing definitions will have on the large, established IT vendors.

If this shift is as large and inevitable as many of us think, the impact on the current IT business landscape will also be large. Some will do well, and some will not. All, I expect, will need to adapt, and the shifts are certainly exacerbated by the deepening global recession.

To help us dig into how cloud computing will impact the IT industry we're joined by this week's panel. I'd like to welcome Jim Kobielus, senior analyst at Forrester Research. Hey, Jim.

Jim Kobielus: Hi, Dana. Hi, everybody.

Gardner: Tony Baer, senior analyst at Ovum. Hello, Tony.

Tony Baer: Hey, Dana, good to speak to you again.

Gardner: We're also joined by Brad Shimmin, principal analyst at Current Analysis. Welcome, Brad.

Brad Shimmin: Thanks for having me.

Gardner: Joe McKendrick, independent analyst and prolific blogger on ZDNet and ebizQ. Hi Joe.

Joe McKendrick: Hey, Dana, great to be here.

Gardner: This cloud chatter just doesn't seem to want to go away. In some respects, it's being heightened by the recession and this added emphasis on doing more with less, cutting down on IT spend and operation costs, the whole pressure on reducing the burden, if you will, that IT can provide for companies, even as they might be contracting.

We're also mixing in virtualization, services-oriented architecture (SOA), governance, platform as a service (PaaS), software as a service (SaaS), and social networking into this cloud-services definition mix.

Many see this cloud as joining, or at least somewhat mashing up or overlapping, the business-to-business (B2B) world with the business-to-consumer (B2C) world. In other words, IT provides services inside of organizations but now the Internet can provide some, and maybe many, of those services, regardless of whether they are a company or individual. So, there's a bit of competition between internal and external IT services.

Let me go to you first, Tony Baer. Of all the large IT vendors -- and you've been covering these folks for a long time -- what's your knee-jerk reaction? Which one has the best outlook from these cloud trends, and which one has the worst?

Baer: That's an interesting question. I hadn't really thought about it in that manner, but I'll just think out loud. Obviously, if we are going to talk about who has consistently positioned themselves as being the poster child, it has been Marc Benioff over at Salesforce.com, where they have evolved from a customer relationship management (CRM) application that you access on demand to expand towards PaaS.

Now, there certainly are a lot of questions about Salesforce's business model, per se, in terms of its very high cost of customer acquisition. The fact is that when you have a subscription-based business, there is going to be customer churn. There's no question about that. On the other hand, they certainly have put this issue on the front burner.

In terms of who is best positioned for all this, I think it's a little too early to tell, because most of the large vendors are only just starting to put their feet in the water. Obviously, IBM, HP, and Microsoft are making moves. SAP has actually had a couple of stumbles on the way there. Oracle has sort of a sitting-on-the-fence strategy.

But, some of the strongest vertical areas would be areas where you are doing planning or testing. Those are clear winners, when it comes to deployment in the cloud, because there is actually relatively little risk factor. When I say vertical, I don't mean vertical industry, but vertical from a software-application standpoint.

Gardner: Who can get kicked in the teeth by this thing?

Baer: Well, Microsoft clearly could get kicked in the teeth, and that's obviously why they've come out with their resource strategy and with their various live-office strategies. Microsoft clearly has the most to lose, because they've been very identified with the rich client.


The Internet Effect

Gardner: Let's go to Brad Shimmin. Brad, we've seen over the past 12 years or so, that the "Internet effect" often seems to move in a winner-take-all fashion, at least for a certain disruptive phase of adoption. Do you think we are going to see the same with cloud computing? Is this a phenomenon that is going to put more power, more impact, and more dominance in the hand of a small number of companies, or is this going to democratize IT?

Shimmin: I'm firmly on the democratic side of this argument, because when you look at the strategy vendors like IBM has, Sun will have, and Cisco has, in terms of how they're rolling out anything that's in the cloud -- whether its PaaS, infrastructure as a service, or SaaS -- they all seem to be doing two things.

One is that they are taking some point solutions that they are going direct with, like IBM with Bluehouse, for example. Secondly, they are going after an independent software vendor (ISV) market. They want to empower folks like amazon.com, Panorama, Pervasive, Peer1, Mosso, Akamai, Boomi, and all those guys. They're really looking to empower them to go out and deliver services, whether its any of those three layers that I mentioned.

They want to deliver their software and their services, whether it's taking IBM's Lotus software and delivering it directly via some sort of white-label solution on their own, or just mashing up the services that Cisco provides with their WebEx Connect, it doesn't matter. What these companies are doing is allowing this broader feel, allowing this channel of service providers to exist, using their software and their services, and, in some cases, their actual data-center resources.

Gardner: Let me understand. I think you're saying that the organization that can provide the best ecology of partners and provide the best environment to thrive for many other players will do best, whereas, in the past, it seemed that, as an IT vendor, having the most installed base and the most lock-in offered the path to who did best.

Shimmin: Exactly. A good example of that is SAP with their Business By Design software, which is direct to consumer. They launched that a little over year ago and basically pulled back from it. They're getting ready to launch phase two this coming year. That is a testament. Sometimes, you shouldn't do it on your own when it comes to cloud computing.

Gardner: Joe McKendrick, we've seen a couple of impactful bloggers out there saying that the cloud is going to provide this all-or-nothing, and someone is going to come in and dominate the whole thing. Richard Stallman, I think, was perhaps a tip on the arrow for that mentality recently. Now, we've got Brad Shimmin and others saying, "Follow the salesforce.com model. It's one big happy sandbox. Let's get more players in." How do you see it, one or the other?

McKendrick: It's probably going to be quite a diversity of offerings. Cloud computing SaaS is essentially a delivery model and its going to be one of several delivery models. Don't throw out that data center just yet. Most companies aren't ready to commit their mission-critical core applications to cloud computing, especially the larger enterprises. They're staying with the license model at this point.

You see that cloud computing is very much at the periphery of things though. Amazon Web Services is very much a play for small startup companies. WebEx is an example, as Jim mentioned, of a cloud function that's probably used within large enterprises, but, again, it’s not a mission-critical core application.

SaaS cloud computing is one intriguing delivery mechanism, and it will be offered alongside more traditional delivery mechanisms for a long time to come. Probably 20 years from now, we're still going to see data centers on site.

Gardner: This is more of a peripheral activity and you can't dominate from that position. So, I guess you are more on the democratic side.

McKendrick: The democratic side. It's giving a lot of opportunities for new players. In Microsoft, you see something like Zoho coming up with its own compelling office suite. Google also has offerings in that space. I don't think they're going to unseat Microsoft, but it’s a nice alternative and it makes the market more interesting.


Shooting for the Moon

Gardner: Jim Kobielus, I don't know if you're a card player, but there is this game out there called Hearts that we used to play a lot when I was younger. Most of the players would just try to win, but once in a while somebody would look at their hand and say, "It's so good, I'm going to shoot for the moon. I'm going to try to take all the tricks and put everybody out." Do you think there is an opportunity for somebody to try to do that with cloud computing?

Kobielus: I don't think so. I think you hit the nail on the head, Dana, a few minutes ago, when you pointed out that success in the emerging cloud arena depends on having a very broad and deep ecology of partners. I see the partner ecosystem as the new platform for cloud computing, being able to put together a group of partners that provide various differentiated features and services within an overall cloud-computing environment.

Then, the hub partner, as it were, provides some core, enabling infrastructure that binds them all together. Core infrastructures such as, for example, a core analytic environment or distributed data-warehousing environment that manages all of the structured, unstructured, and semi-structured data, manages all of the very compute-intensive analytical workloads, CPUs, and other resources that many or all of the partner solutions can tap into -- a basic utility computing environment.

So if you look at this, then the salesforce.com APPExchange model is very much the template for success in cloud computing. Will others, or can others, provide a similarly rich partner ecosystem environment for their cloud computing efforts? Clearly, well established platform vendors, like SAP, Oracle, IBM, and Microsoft, stand to do very well in the cloud-computing paradigm, because they have substantial, global, differentiated partner ecosystems.

New players who come in to do just collaboration in the cloud, storage in the cloud, and so forth, will not necessarily be the dominating vendors in this new environment. They'll probably be members or participants in several partner ecosystems, providing some core functionality, but they won't dominate to the extent that the established brands will.

Gardner: Brad Shimmin, there is a certain traditional bifurcation in IT vendors. Some focus on platform values, services, and products, monetize around the platform, and are either agnostic or neutral around applications. There are others who are mostly focused on application-level values, monetize around that, and are either picking and choosing platforms or offering wide portability.

Can this bifurcation continue into the cloud era? For those who have an installed base of either platform and infrastructure or applications, can they transfer that to some sort of a cloud-based service offering and leverage off of their installed base?

Shimmin: I think so, Dana, and it's already happening with most of the major players we're talking about -- Oracle aside, because Oracle still seems to be on the fence with this. But, when you look at a company like Microsoft, they seem to be slow to market, and then, once they enter the market, they go really, really fast. They seem to be going really, really fast at the moment with two things, because they have both. They have the infrastructure and they also have the apps. They're going to have both paths.

They have the Azure platform, which is truly a PaaS offering that you use to build your own applications. So it's a layer above the Amazon EC2 infrastructure as a service.

Then they have the full-on SaaS-type products with Microsoft Online Services, which has in it almost the entirety of their collaboration software. So, they have actually sort of leapfrogged IBM Bluehouse a little bit with that.

The point is that these vendors are really looking at their portfolios and seeing which ones fit either of those two models. They're not committing to one or the other, Dana. They're really trying to tackle both ends at once.

Gardner: It seems to me, though, that, if you are focused on the applications, alternative cloud-based offerings for those applications could develop and undercut your business. If you're an infrastructure provider, you could start to offer similar cloud-based infrastructure services. That is to say, you could run your apps, you could perform services, do architectural development of business processes, and cross this barrier between internal and external services, if you stick with a common platform and a de-facto set of standards.

So, do you think, Brad, that there is a disadvantage for being an applications vendor who doesn't move rapidly to the cloud?


Risking the Customer Base

Shimmin: I think you're at a disadvantage. You're at risk of losing your customer base. We're going back to talking about the difference between Microsoft Online Services and Office Live, compared to Zoho and Google Apps, for example. Microsoft can be undercut in a heartbeat, if they don't do this right.

Back to what you were just talking about there, I see it as a distinction between PaaS and infrastructure as a service. There are a number of rudimentary basement layer infrastructure-as-a-service vendors out there who are going to be taking the Amazon model and talking to vendors, as we've been talking about, to act as a part of that ecosystem, and to build out this infrastructure that will allow you to build and deploy any PaaS or SaaS on top of that.

What that says to me is that the vendors who have that strong infrastructure piece -- the infrastructure software and in some cases the hardware and data centers themselves -- are going to be well positioned to play in that ecosystem, regardless of what sort of SaaS applications they have.

Gardner: Salesforce is an example of this. They were very application specific, when they first came out with their SaaS offering, and now they say, "No, no, we don't want to just be application specific. We really want to be cloud platform services specific." Right?

Shimmin: Yeah, they may be following that tail a little bit. If you look at EMC as well, they have sort of a similar approach. They built out a true platform. I think its called the Fortress. It's their own data center. They started with Mozy, which is like a consumer backup, and they have Recovery Point. They just announced a more generic data-center service for that. They'll just keep building out this broader infrastructure as they go.

Gardner: Tony Baer, two points. One, it's almost ironic now that being in the hardware business might actually be a good thing. For years, there was this notion that the hardware is commodity, and there will be no margin. It's the software where all the margin is. If we follow the logic of cloud computing, being a provider of the data center infrastructure, including hardware and storage, could be a safe bet, whereas the margins are going to continually be under assault on the applications. Does that make sense?

Baer: I'd still go along with what Brad was saying. I don't think that just a strict platform alone -- in other words, storage as a service -- is going to ultimately be a predominant play. It's a very niche buy. However, storage, along with what Jim was saying about analytics as a service, atop which you can then build an ecosystem of solution vendors, that's much more a winning combination.

When you look at the cloud, you're looking at a platform play, as opposed to a niche play, with one exception. The exception is that one of the advantages that's been stated about cloud computing is that it gives you a chance to kick the tires before you actually commit to implementing a solution or application. That's the one exception I would make there. Otherwise, I agree with the others here that, in the long run, probably the strongest play is more of a platform-based ecosystem, which will include infrastructure, because you can't have an ecosystem without having underlying infrastructure services.

Gardner: So, we have these cloud providers that are spending, in some cases, billions of dollars on a quarterly basis to build out their data centers. As more and more applications and services move to the cloud, they're not going to be able to get utilization beyond 100 percent. That's all you can get. So, they need to add more servers, storage, and data centers.

As this trend unfolds around the world, they need to be regional. They need to take advantage of lower costs of labor and energy. It seems to me that being a supplier to the cloud data-center providers is a pretty good business right now.

Baer: That is a good business. It's not the end business, but it's a good business. In other words, your successful cloud platform is not going to be just, "I'm going to provide storage as a service or backup as a service." However, to players who are trying to deliver PaaS it certainly is a winning strategy. You won't become a dominant cloud player, but you can certainly play a major part in that ecosystem.

Gardner: Joe McKendrick, let's look at this through the eyes of application development. It seems to me that developers and ISVs, are once again a very important component of how these newer trends unfold. The hearts and minds of developers, where ISVs see their businesses being good, can invest their development in order to get a return.

These green-field application developers, are they going to continue to be concerned about installed-base platforms, or are they going to see more of an opportunity in this PaaS and build their apps of, for, and by the cloud?


The New Heavy Industries

McKendrick: Dana, I just want to go back one point there. It's interesting when we talk about the larger infrastructure providers and cloud providers: the Amazons, and, to some degree, Microsoft. They've become the new heavy industry of the 21st Century. It's no longer the thing to do to pursue smokestack factories, and so forth.

Gardner: These are the new River Rouge build-outs, right?

McKendrick: Exactly. Microsoft, Amazon, and a couple of others are building huge sites, or have built huge sites, along the Columbia river basin, where there are vast amounts of hydroelectric power and cheap energy. We're seeing other communities around the country pursuing these large data center providers. That's become the heavy industry du jour.

Gardner: At a time when they will take any business they can get.

McKendrick: Exactly.

Gardner: So, what about developers, green field versus building to an on-premises platform framework lock in?

McKendrick: Just about every small ISV coming on the market now is offering a SaaS model. This is the way to go with the emerging smaller software-development companies.

For the larger developers, ISVs that are already well-established, it's now another delivery mechanism, another channel to reach their customer base. There are a lot of efficiencies. When you have a cloud model or are working with a cloud model, you don't have to worry about making sure all your customers receive the latest upgrade or deal with problems customers may be having with conflicting software. It's all done once. You do the upgrade once, test it, ensure the quality, deliver it, and it's all done in one location. It makes their job a lot easier.

Gardner: It certainly does. It's a very attractive model, if you're a developer. You don't have to put up a lot of upfront cost. You might not need to go out to a venture capitalist and get $30 million to start your company. You might to be able to do it with an angel or two, or maybe even bootstrap it, right?

McKendrick: Exactly. You don't have to worry about buying and mailing out those CDs.

Gardner: Jim Kobielus, you talk with a lot of startups. I talk with a lot of startups. When it comes to money -- whether it's VC money, angel money, or credit card debt money -- there's a lot of ferment in developing services of, for, and by clouds. I'm not being approached by many startups saying, "We're going to build a business around this Unix platform, this particular flavor of Java, or this particular instance of a Windows runtime environment." Does your view of the market jibe with mine?

Kobielus: Oh yes, very much so. What the whole trend towards SOA started was the gradual dissolution or deconstruction of the underlying platforms, as you mentioned -- OSs, development environments, and the declarative programming languages. This is all buggy-whip territory now in terms of what large and small software vendors are developing to. Pretty much everyone is now developing to a virtualized SOA, cloud environment.

When I say "cloud" in this context, most of the large and small vendors that I talk to -- although they may not use the word cloud -- are really looking at more of a flex-sourcing approach to delivering solutions to market. They might come in with a subscription service, but they often say, "We want to put it out in the market, see if anybody signs up, and then see if from there we want to turn it into some sort of packaged, licensed software offering, or, conceivably, we might turn some aspect of it into a hardware appliance that's optimized for one function."

Most of the vendors that I talk to now have three broad go-to market delivery approaches for flexible delivery of applications or of solutions. They have everything as a service approach, the appliance approach, and the packaged, licensed software approach.

If you look at cloud computing as a Venn diagram, with many smaller bubbles within it, one of the hugest bubbles is this notion of flexible packaging and sourcing of solution functionality.

The "Chinese Wall" between internal hosting and external hosting is dissolving, as more and more organizations say, "You know what. We want to do data warehousing. We'll license a software from vendor X. We might also use their hosted offerings for these particular data marts. We also might go with an appliance from them, for either our data warehousing hub, a particular operational data store, or another deployment wall where the appliance form factor makes most sense."

Gardner: Brad Shimmin, do you see this breakdown too, where the green-field applications, these newer services, can take advantage of ecologies and bring other services into play and create a solution level or a business-process level value? They're going to be all formed by the cloud. They're going to be virtualized. And, they really don't have much concern about what the underlying infrastructure is. Perhaps what they would like to see more of is the ability to run that application in some sort of a coordinated fashion, both on premises and in some cloud.


Pressures on the Market

Shimmin: I do. There are a couple of pressures that are making that so, and I'm very much with Jim on this. When you look at companies like IBM and Microsoft -- Microsoft with their Software plus Services, and IBM with their Foundation Start Appliance, coupled with their Bluehouse software as a service, coupled with their on-premises collaboration software -- you're talking about a solution that spans those three delivery mechanisms.

The pressures I'm talking about that are making that so for the enterprise buyer is that you don't want to have a full SaaS deployment, and you don't want to have a full appliance deployment. When you consider issues like ownership of data, privacy of that data or SOAs, even transaction volumes, there are facets of your enterprise application that are best suited to running in an appliance, in your data center, or in the cloud.

So, these vendors we are talking about here clearly recognize that need, and are trying to re-architect their software so it can run across those three channels in different ways.

For example, let's say you have an email-messaging repository that sits inside your data center. Then, you have the actual transactions for sending out those messages that lives inside Microsoft's Online Services. That's what they're building toward. As I said, they're building toward it. Neither of those vendors -- and they are the two that are leading the way with that approach -- have achieved that. This isn't something you can do today. It's something that you are going to be able to do tomorrow.

Gardner: I think I hear you saying that we shouldn't think of this as an application-by-application decision. That is to say, "I'm going to pick and choose among my 800 applications, and 500 of them will stay on premises, and 300 of them I'll push out into a cloud provider. Let them do it as a SaaS provider. What I hear you saying is not application by application but underlying infrastructure service by infrastructure service, and that's what I will use to divide what I keep on premises and when I go to a cloud.

For example, I might want to keep data services on premises. I might want to keep directory and access management and overall governance on premises, but I might want to pick and choose from a variety of services off the cloud that then create these application processes.

McKendrick: The underlying architecture that a lot of vendors are moving toward to enable that degree of flexible deployment of different form factor -- hosted service, appliance, and packaged license software -- is the notion of shared nothing, massively parallel processing for extreme scale-out capabilities and extreme scale up as well.

In a federated model, where you have different clusters that can be internal, external, or in combinations specialized to particular roles within the application environment, some might be optimized for data warehousing, some might be optimized for business-process management and workflow, and others might be optimized for the upfront delivery, Web 2.0, REST, and all that. But, having shared nothing, massively parallel processing, with a federated middleware fabric in an SOA context, is where everybody is moving their platform and strategy.

Gardner: What's essential for any of that to happen is you need to be doing SOA. You're not going to be able to take advantage of this hybrid model, not just on a application level, but on an infrastructure services level, unless you have already adopted, or well on your way to moving towards SOA. Does anyone disagree with that?

Baer: No disagreeing from me. SOA is the way. Ultimately the vision of SOA -- and this is something I try to bring up -- is that companies are going to be both consumers and providers of services, and the vision of SOA is that it runs both ways. You publish services and you consume services.

We're going to see companies, not necessarily in the IT business, take on more of a role as a provider of service, and they are going to have the infrastructure. They have the infrastructure in place now. SOA connected with grid computing can play a role here, where you have companies providing these services. They're looking for scalability. They're looking to maybe extend their service offerings beyond their corporate walls to their ecosystem of partners, maybe to customers, customers exclusively of that service, and without a prior relationship with the company.

Through SOA, perhaps companies can look at increasing capacity or tapping into capacity as needed in a grid like fashion, either with each other, or with a provider out there such as Amazon or IBM.


SOA an Essential Starting Point

Gardner: I'm definitely telling people that if you like the idea of cloud, if you see yourself moving towards wanting to take advantage of cloud-like services and values over time, you need to get your act together on the SOA front. It's absolutely essential. I think we all agree on that.

We talked about ecologies. We talked about how groupings of companies working together with mutual interdependence, or the fact that they are going to benefit mutually from a certain market orientation, makes sense.

It seems to me that this is not just going to be among the little guys however. There is a certain alignment that might be in the offing among some of these big companies. So, I'll offer up one potential bedfellows opportunity. That would be IBM and Google, perhaps working closely with someone else like Cisco. If you put together what Cisco brings to the table in terms of increasing services as a function of the network and what Google offers, which is more SaaS and PaaS, as well as a tremendous amount of metadata on what consumers are doing, with what IBM does in terms of its touch in the enterprise and in infrastructure, those three together strike me as a powerhouse.

Does anyone disagree, or do we have any other sort of mega-clusters of vendors out there that would align well in a cloud model?

Shimmin: I think, just like you have at the high school prom, some strange pairings and some power pairings. The power pairing you mentioned there is like the prom king and queen, and they will probably be one of those.

There are a number of others that are kind of bizarre, but I think really beneficial, like TIBCO and Cisco, for example. You wouldn't think it, but TIBCO, with their work on Active Matrix as the abstraction and virtualization of software coupled with Cisco's work in the cloud for their own data center that they're rolling out -- and in terms of the equipment they ship into private clouds inside enterprises -- it's a great combination.

Gardner: How about a combination of HP with EDS, and Microsoft plus something else? Does that make a cluster sense?

Shimmin: If you're talking from the SI perspective, absolutely, because Microsoft is channel bound. That's their legacy and their current status. Being able to work with somebody like an EDS would benefit them tenfold in this situation.

Gardner: How about Apple and SAP? How would they line up with a sort of mega-cluster, anybody?

Baer: It would have to be on Steve Jobs' own terms, and I would have a hard time seeing the Germans at SAP go along with that.

Gardner: Oracle, SAP and Apple, is that what you are seeing? One or the other. Apple teaming up with SAP or Oracle?

Baer: When you take a look at Apple's business model, they like to definitely be like the queen bee in a hive of lots of drones.

Gardner: Well, we talked about playing Hearts and shooting for the moon. Isn't Apple a shoot-for-the-moon kind of company?

Baer: Certainly. Take a look at Apple's traditional approach to partnership, and take a look at how they are handling the application space with the iPhone. They will definitely insist on control, and with a powerful player that also insists on control, like SAP, I have a hard time imagining those two coming together.

Gardner: Remember, we're not talking about mergers and acquisitions. We are talking about partnerships.

Baer: I agree with you, but, essentially, when you are talking about partnering in a cloud, it is a form of virtual merger and acquisition.


All For One -- One For All

Gardner: Maybe it is. Interdependency -- we live or die together, all for one, one for all.

How about Amazon? That would be in my thinking a pretty good candidate for prom queen right now. Perhaps there will be some polygamy at the prom, because Amazon could team up potentially with say an Oracle and a Salesforce. Can you imagine such a pairing?

Kobielus: Yeah, because Oracle, a couple of months ago, announced that you can now take your existing Oracle database licenses and you can move them to the Amazon EC cloud and the Amazon storage service. So, to a degree, that partnership foreshadows possibly a larger relationship between those two companies going forward.

I think its really an interesting pairing of Oracle plus Amazon. Once again, I always have to hit the analytics thing on the head, because I think database analytics or cloud-scalable analytics is going to be a key differentiator for most application vendors.

So, out of the blue, I can imagine that Oracle and Amazon partner with one of the leading data-mining vendors, such as SAS Institute. SAS Institute, based in North Carolina, is a privately held firm. They continue to emphasize that they've been doing SaaS as an alternate delivery channel for their very verticalized and content-rich analytic applications for several years now.

I don't think it's inconceivable that Jim Goodnight, the founder of SAS might say, "Yeah, Oracle and Amazon have got a cloud thing going on. It makes great sense for us to take our existing SaaS strategy and bring it into an Oracle/Amazon cloud so we can continue to penetrate a broader and deeper range of verticals with very flexible options.

Gardner: Clearly, in the cloud, the best analytics will have a significant advantage. Now, what about Red Hat? How about a Red Hat-Amazon pairing? Does that make sense?

Shimmin: That's already done. They have both their app server and their operating system running on it now, but interestingly enough, Dana, they're not going to go up the stack any further at this point.

Gardner: They seem to be sort of pulling back. I think you're right.

Shimmin: I talked to them about their enterprise service bus (ESB) in particular a couple of weeks ago, and I was sort of surprised to hear them tell me that they really didn't feel that, given the way their customers purchased software, it was a model that would work for them.

Gardner: I think they've recognized that the virtualized runtime instance with a stripped-down Linux kernel is a really good business and they should stick with their knitting.

Shimmin: Right, but if you look at their portfolio, you have Drools for example and their business process management (BPM) products, for which I can't remember the name. Those two PaaS offerings would be phenomenal. Don't you think?

Gardner: Yeah. Let's go back to Microsoft. Microsoft has an opportunity to shoot for the moon. I'm going to be a little bit of a contrarian on that. They have all the essential pieces. They have a very difficult transformation to make in terms of their business. They have a lot of cash in the bank, and we're in a transformational period.

If you were going to make a big move, now it would be an excellent time to do it. It really comes down to execution -- whether they can get the various feuding parties inside the company to line up well. But, Microsoft also has to make a choice as to whether they want to be everything to everybody or strive for a better ecology.

Does anyone have any thoughts about what Microsoft should do? Should they try to do it all, or should they become more of an infrastructure-focused provider, not try to be buying Yahoo and becoming search and consumer and applications? Leave that to the other players in the ecology Let's look at Microsoft's situation and let's go to Tony Baer.

Baer: For this, I think there's a difference between what they strategically should do as a company, versus what Wall Street would prefer them to do. Wall Street is always looking for quarterly numbers and a show of growth. Obviously, buying something like a Yahoo, even though Yahoo at this point is pretty much damaged goods, provides that obvious growth into an area that Microsoft and Wall Street have been obsessed with.

However, what's smarter in the long run is the whole Software-plus-Services strategy, which is a great idea, but the devil is going to be in the detail. The idea of providing a seamless, or relatively seamless, experience of whether you're working with -- let's say, Word online versus Word at your desk or SharePoint, or whatever -- is a great idea. I think Microsoft is right now puzzling out the technical details, which is that Word online is not going to be the same exact creature as Word on your desktop.

Gardner: Doesn't Microsoft Software-plus-Services put them at odds with the ecology mentality? Doesn't it, in a sense, push these green-field applications that only want to be in tuned with a virtualized environment. Doesn't it turn them off?

Baer: Well, it might, but do you want to follow your customers in terms of how they want to work or do you want to follow a blind ideal. I think what Jim and Brad were saying before is that, in terms of what customers are going to prefer in the long run, it's going to be a mixed bag.

There are going to be certain services that you will want to consume as a service versus some assets, processes, or functions that your corporate policies and matters of governance are going to require that you keep in-house.

Gardner: I think Microsoft has an opportunity to make an offer that developers can't resist -- and probably no one else is in a position to do it -- which is to say, "We will have at least one of the top three clouds. We're going to give you the tools and give you simplicity that Joe the plumber can develop, and we're going to make sure that you have a huge audience of both consumers and businesses that we're going to line up for you." Isn't that a formidable position, Joe McKendrick?

McKendrick: Very much a formidable position. They've already made a lot of moves in this direction: Software plus Services, the Live offerings. They're already positioning a lot of their product line. They work with Amazon and have offerings through the Amazon service as well.

Microsoft gets into everything. Wherever you look, in the enterprise or in computing, they have some kind of offering there. Sometimes, the things don't take off for a while. They sit and bide their time, and eventually it takes hold.

Gardner: Tony Baer that said Apple computer was like a queen bee with drones. We could apply that to Microsoft as well. It might not be an ecology, as much as the queen bee in the hive dictating all the rules and then the drones just click along, making that a pretty good living, but Microsoft makes the lion's share of the dough.

McKendrick: I think that's a good model. In fact, thinking about the Microsoft plus Yahoo, it makes really good sense for them both to be a real powerhouse together in cloud computing. Earlier, I stressed that the providers who dominate the cloud world will be those that focus on extreme scalability, scale out, shared nothing, massively parallel processing being able to sift and analyze petabyte upon petabyte of data from all over especially of the Web 2.0 world especially clickstream information, and so forth.

Microsoft is already very much focused from the highest level on cloud computing with Azure, Live, and so forth. Clearly, they've got all of their online assets from years back. So, they are very much focused on that.

In terms of scalability, Microsoft has one recent announcement that's pivotal to the development of their platform. They acquired a company called DATAllegro a few months ago, a data warehousing appliance vendor whose primary differentiator was a very strong shared nothing, massively parallel-processing architecture that Microsoft is making the core of a near-future SQL server-based data warehousing environment.

The thing is I am fascinated about with DATAllegro's technology is that it can be used to build the underlying scale-out substrate for cloud computing as well -- combining DATAllegro's strengths from a technical side with Yahoo's strengths on parallelization through the MapReduce or Hadoop framework. They've been one of the leaders in pushing to do really massively parallel clickstream analysis on Web 2.0 and social networking information within the Microsoft cloud, I think that would be a killer combination to dominate this world.

Gardner: Why is that important? Microsoft has Yahoo, or at least the search part of Yahoo, and apparently they can just dump the rest, if they want. That gives them all that metadata about what the consumers are doing. Then, they've got all that information about each and every enterprise in small-to-medium sized business that they deal with. They've got the PaaS cloud and their own channel, if not an ecology of channels.

They can go back to those developers and say, "If you want to remain in business, we're the best bet. We can give you the metadata of how to reach the consumers. We can give you the metadata how to reach the businesses. We might even be able to join them together in a transactional relationship. We take a cut. You take a cut." Any thoughts out there?

Shimmin: With regards to Microsoft's channel, as you and Jim were saying, Microsoft is definitely going to be the queen bee and they are definitely going to make it beneficial to this channel to work with them in their cloud initiatives. At the same time, it's also Microsoft's greatest risk.

When you look at their PaaS with Azure, that makes sense for the channel, because how the channel differentiates is by the services they provide their customers directly, and that comes from developing code. But, when you talk about Microsoft's online services, Office Live, and those things, they are in a very precarious predicament of undercutting the values that their channel partners provide.

They're literally saying, "Hey, why do you need a channel partner for the SMB market, just come right to us and give us your credit card, which you can do for a certain number of dollars a month, and you are running."

Gardner: Right, so perhaps Microsoft has the golden opportunity but the transition is perilous, and execution has to be perfect. Just as we had back in the "anti" days, when all of the Unix vendors got together and created what they called the "anti-Microsoft coalition," all these other cloud providers, ISVs, developers, and all the PaaS people are going to get together and try to provide more of a marketplace, in order to if not staunch Microsoft, at least create that democratic approach to cloud. Does that make sense?

Shimmin: Agreed, and interestingly enough -- I can’t believe I'm saying this -- Microsoft has really done something spectacular here, because it all comes back to the developer. What the developer does drives what software you run on the server, in many cases. What Microsoft has done with the Software-plus-Services program initiative, right now, today, using the 3.5 .NET framework in Windows 2008, you can write code that can be dropped in the cloud or on the desktop automatically. You can just write a rule that says, "If I reach a certain service level agreement (SLA), just kick this piece of code to the cloud."

Gardner: So Microsoft and not the business becomes the arbiter.

Shimmin: Exactly

Gardner: OK. I'm afraid we have to wrap this up. We've had an engaging discussion about cloud, but in the context of large vendors, and how the business side of IT will react to this. It's clearly a subject we'll be dealing with for a long time.

I'd like to thank this week's panel. We've been joined by Jim Kobielus, senior analyst at Forrester Research.

Kobielus: Thanks, Dana and thanks everybody. Have a happy Thanksgiving.

Gardner: Tony Baer, senior analyst at Ovum. Thanks, Tony.

Baer: Have a great holiday everybody.

Gardner: Brad Shimmin, principal analyst at Current Analysis.

Shimmin: You're welcome, and thanks for having me. Happy holidays everyone.

Gardner: And last, but not least, Joe McKendrick, independent analyst and prolific blogger on ZDNet and ebizQ.

McKendrick: Thanks Dana, and since everybody will be listening to this in December, have a happy holiday and a happy new year.

Gardner: And I'd also like to thank our charter sponsor for the BriefingsDirect Analyst Insights Edition podcast series, Active Endpoints, maker of the Active VOS visual orchestration system. This is Dana Gardner, principal analyst at Interarbor Solutions. Thanks for listening and come back next time.

Listen to the podcast. Download the podcast. Find it on iTunes/iPod. Charter Sponsor: Active Endpoints.

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Edited transcript of BriefingsDirect Analyst Insights Edition podcast, Vol. 34, on cloud computing and its impact on IT vendors, recorded Nov. 21, 2008. Copyright Interarbor Solutions, LLC, 2005-2008. All rights reserved.