Nothing says fun like a hurricane party, a bottle of “Jack,” and a little game theory debate as lights begin to flicker across New England. And speaking of “Jack,” what can possibly explain the handlers at HP letting Leo Apotheker get off the reservation long enough to proclaim the obvious market shift brought on by the iPad?

Note to Leo: Never tell the world your business problems right before you put up the “for sale” sign. Never.

Note to Larry: Please put Leo, the board and shareholders out of their misery.  Can you imagine?

Ahhhhh.  I feel better.  Now … turning to the chasm-crossing cloud market ...  I am fascinated by how the maturing of this market changes the competitive landscape as players reposition where they’ll compete and investors ask, “Where is the smart money?”

So, with a nod to Geoffrey Moore’s iconic taxonomy, here’s my cut at a bare-bones outline of Cloud computing’s rise from evolution to revolution.

2006/07 – Innovators:  Launch initial offering

Key milestone: Packaging server virtualization into a solution called “Cloud”

Amazon announced a limited public beta of EC2 on August 25, 2006, just six months after the launch of Twitter.  This move is a Cloud Computing equivalent of shipping the iPad. New idea has been funded, team built, 1.0 product is “good enough.”  The race has begun and hardly anyone has noticed it yet.

2008 – Innovators: Get proof and “traction”

Key milestone: Amazon (AWS) does $100M in revenue

Zero to $100M in 2 years is proof enough. Early adopters -- technology enthusiasts -- flock to Amazon AWS and would-be competitors hastily plot their entry into this new market. The debate begins:  what is cloud computing and what are posers (a.k.a. “cloudwashing”).  These questions consume the blogosphere and keep early twitter users off the streets.  

2009 – Early adopters Part I:  Cloud breakthrough defined, validated, and gaining a foothold

Key milestone: Gartner issues their 1^st cloud computing vendor list

Cloud computing is recognized as a generational epoch on par with Mainframe, Minis, PC and Web.  Amazon AWS does $250M in revenue. Traditional IT vendors stop asking “What is it?” and put on their acquisitional hats to answer, “How do I get into the game?”

2010 – Early adopters Part II: Cloud love fest in full swing

Key milestone:  Acquisitions, open source initiatives, and (drum roll) Microsoft is “all in”

The seriousness of the game is now completely clear to anyone who is paying attention. Game changing events (time will tell) add fuel to the cloud computing buzz:  CA acquires 3 companies in the space; HP and Dell duke it out for 3Para in a sky’s-the-limit arms/price race.  In July 2010, Rackspace Hosting and NASA jointly launched a new open source cloud initiative known as OpenStack and, in March 2010, Steve Ballmer gives a speech declaring: “Microsoft, for the cloud, we're all in.”  Apple released the first iPad in April 2010, selling 3 million of the devices in 80 days. Amazon AWS does $500M in revenue. The movement is clearly a juggernaut.

2011 – Early majority: The US government pushes hard to the cloud; enough said

Key milestone:  Acquisitions move up the stack

The year starts out with many transactions around owning a cloud (“Look ma, I’m just like Amazon too, no hands …”). Terramark, Savvis, and Navisite all get gobbled up as PC era’s transition to Cloud becomes a done deal. iPad will sell close to 50 million units this year. Amazon AWS is on track to do $1,000M in revenue.

Then there is the matter of both Cloud.com and CloudSwitch going for something like 100 - 150 times trailing twelve month revenue. (If Apple Cloud were to get that kind of valuation it would be worth 15 trillion dollars -- enough to pay off the entire US debt). These 2 deals are outliers that tell us something important about what is now required to win. They signal a new game with a higher ante.

Look at the CloudSwitch Verizon deal, in light of Verizon’s recent $2B purchase of Terremark. Terremark is one of the most advanced Clouds available and Verizon just spent another $140M to protect that initial investment -- and provide a capability that other clouds cannot.

Lessons learned: It is no longer sufficient to have an advanced Cloud. You need something more in order to compete. You need to be able to move applications in and out and around all things Cloud.

2012 and beyond:  We all agree that Cloud is the next generational computing epoch. So what will the market do? It has already moved from the Wild West to early settlement times. Companies are settling down for the long haul, building stonewalls to stake their claims. As the market shifts, leaders will look to add capabilities that broaden and differentiate their solutions (CloudSwitch/Verizon redux). 

I expect the next 12 months to show a lot of Cloud related action in management tools, gateways/connectivity, and Platform as a Service (PaaS). And, unless the Mayan calendar turns out to be right, Cloud is likely to dominate the next decade, throwing some innovative curves along the way.

Note:  Now seems like a good time for the next installment of GregO's cloud valuation exit/acquisition score-card.

Time             Company                                          Valuation*

Q1 2010        3Tera /CA                                          $90M   @ 30  EV/R(ttm)

Q2 2010        3Para/HP                                            $2.4B   @ 12  EV/R(ttm)

Q1 2011        Facebook/Private IPO (GS)               $50 B   @ 25  EV/R(ttm)

Q1 2011        Terremark/Verizon                             $1.9B   @ 5.4 EV/R(ttm)

Q2 2011        Navisite                                               $230M @ 2.1 EV/R(ttm)

Q2 2011        Savvis                                                   $2.9B   @3.0 EV/R(ttm)

Q3 2011        Cloud.com                                           $218M   @100 EV/R(ttm)

Q3 2011        CloudSwitch                                         $140M   @125 EV/R(ttm)

*Valuation – includes debt

EV – Enterprise value or market cap + cash + debit

R(ttm) – Revenue for trailing twelve months

I am always looking for a way to communicate better and cut to the heart of any discussion. So, if you have thoughts on this subject drop me a line at GregO {@} Appzero {dot} com or tweet me at http://twitter.com/gregoryjoconnor. 

As it turned out, the brilliance and competence of Amazon’s technocracy were no match for simple human error. An incorrect manual update to the network set up a domino effect of Catch-22-esque compound failures to Amazon’s EBS (Elastic Block Store) details of which can be found in a 6 page explanation the company offered last week.

Although cloud naysayers will no doubt try to make this event the poster child for Luddite agendas, it won’t work. Data was lost. Business was lost. News was made. But overall, the fallout has not been too bad as users have quickly come forward to stand by Amazon and the choice to use its services.

And the risk was largely knowable. As Jason posted in an article On Cascading Failures and Amazon’s Elastic Block Store  “This is not a “speed bump” or a “cloud failure” or “growing pains”, this is a foreseeable consequence of fundamental architectural decisions made by Amazon.“ 

The gains surpassed the risk. And will continue to do so. Though still in its early stages, life in the cloud is really a lot more of a learning experience than it is an adventure. Everyone involved will continue to get a little wiser in the ways that only experience – usually bad ones – can confer on those gaining the wisdom. 

As the only software vendor offering patented technology to virtualize Windows, Linux, and Solaris server applications – AppZero is a huge fan of all things cloud. We invite our customers to move their applications to and from datacenter and cloud(s) and cloud to cloud, with no lock-in. I’ve seen the hesitancy that comes from skepticism and trepidation as well as the high fives and smiles that accompany seeing and believing.

But here’s something I’ve also seen that I will never understand: Organizations running very important (though not “mission critical”) Solaris 2.6 applications on hardware that is past the hope of life support. The hardware will fail and take with it the applications. When I say, “It’s not a matter of if … it’s when.” I get knowing chuckles and head shakes as IT pros tell me how very right I am. 

When I go on to tell them that AppZero software can encapsulate their Solaris 2.6 and 7 applications, pick them up, and deposit them on Solaris 10 and bright shiny, inexpensive, reliable machines, all without a line of code … they are intrigued. Of course they are. Here’s a very cost-effective solution to a guaranteed problem.

Okay.  So here’s the question: Then why doesn’t every one of them just jump up and sign on with AppZero? Human nature or human error? Have they lived so long in denial that they’ve crossed over into magical thinking, convinced that because it hasn’t happened … it won’t? Or do they expect to be in new jobs before the when = now?

Cloud risks pale against cloud gain. Life on the San Andreas Fault brings a great lifestyle until the big one. But important apps on Solaris 2.6?  I don’t have a clue so feel free to send me one. In the meantime, let’s cloudify those Windows and Linux client/server apps – no code, no lock-in, no pain.

I am always looking for a way to communicate better and cut to the heart of any discussion. So, if you have thoughts on this subject, drop me a line at GregO {@} Appzero {dot} com or tweet me at http://twitter.com/gregoryjoconnor

Busy, busy month for those of you keeping score, and I don’t mean the final gold medal count.  But, now that I’ve nodded to the Olympics, congratulations to both team Canada and team USA on the best hockey game I’ve ever seen.  Ever.  And I’m from Boston, home of the sometimes brilliant Bruins.

No, the game I’ve been watching is a tectonic shift of cloud ecosystem money move toward application mobility:

• Makara – funded by Shasta Ventures, Sierra Ventures, as well as the market-moving Marc Andreessen and Ben Horowitz -- threw back the cloak of stealth.  (Makara Leverages Virtualization to Simplify Cloud Application Management)  According to the release, “Makara provides easy on-boarding to the cloud. With Makara's Cloud Application Platform, developers are able to deploy new or existing web applications to a public or private cloud with no code changes.”  (By the way, makara is apparently a creature in Hindu mythology that acts as a vehicle for water and sky, also serving as the insignia for a god of love and lust … You laugh now, but you’ll thank me some day if you’re ever on ‘Who Wants to be a Millionaire’.)

• Next, CA bellies up to the bar, plunks down a reported $90M (30 times trailing twelve months revenue) and leaves the building with 3Tera (CA to Acquire Cloud Computing Solution Provider 3Tera)  3Tera CEO Barry X Lynn says, “3Tera eliminates the manual, error-prone tasks that have historically hampered an organization's ability to deploy IT services to the cloud,".  30 times  TTM revenue the cloud bubble is bulging.

•  And our friends at VMware continue to be as busy as Santa’s elves in season, spending cash and energy protecting its current dominance in the virtualization market.  Examples include:  VMware ThinApp 4.5 to virtualize server-side applications, and VMware to Acquire Certain IT Management Products and Software Expertise from EMC Corporation which, after naming an all-cash transaction figure of up to $200 million, VMware’s press release – defying the convention of alphabetical order – leads with the technology and intellectual property of FastScale. 

Notice a common theme?  It’s all about moving applications from the data center to the cloud.  By any other name, that’s still AppZero’s application mobility mantra.

Put yourself in my place; It is exciting to see this broad swath of really, really smart people betting large on application mobility as a critical factor in the cloud market’s evolution.  Sand Hill investors, old-iron scavengers in search of a makeover, and virtualization royalty alike are rolling money at application mobility.  And that’s good news for me.

Why?  Because people will begin to ask questions such as, “Why not move the OS and the App in a VM? Doesn’t OVF make this all work across VMs from Xen to VMware from KVM to Hyper-V? Has anyone heard a success reported?”

Quick reality moment and speed check:  Windows 2008 server is about 16-20 GB; SQL Server 2008 1GB, .Net around 500MB. I can move roughly 16-40 application servers with SQL Server or .Net in the time it takes to move one that also includes the OS.  Speed and agility (a 93-97% improvement for those keeping score).  That’s why VMware is changing its strategy on how to move workload from the data center to clouds, and automating workloads in private clouds.

The name of this cloud game is speed and flexibility at the application layer.

So far the market is building out on top of server virtualization, known primarily for reducing the number of physical machines and associated cost.  Infrastructure can be provisioned in a matter of minutes on a self serve basis.  The fly in the ointment is that the purpose of infrastructure is to run applications and they are installed 1 at a time.  Once installed, applications become welded to the OS.  The result is that they then have to be managed individually, which dramatically adds to the cost and complexity of just doing work.

Application virtualization separates an application from the OS making it mobile and automatable -- between machines, between the data center and between clouds – external and private.  Application mobility brings a clean interface to the app stack making it possible to provision apps in minutes just the same way Hypervisors provision machines in minutes. 

The combination of the two virtualizations is what IT needs to deliver what the business needs. 

There is also compelling software consolidation that can be achieved by running more than one application on a software stack (OS, anti virus, management, etc) in isolation.  Software consolidation will free up more budget as this movement takes hold.  Simple math says that running two applications on one OS can cut OS licensing requirements in half.  Bigger math gets bigger results.  Gartner better lower their predictions for Microsoft’s server revenue over the coming years.

I’m arguing with myself, so I’m winning and losing.  The argument?  VMware’s Zimbra acquisition: a.) brilliant – and necessary -- building block in the drive to domination of the evolving cloud economy? Or b.) distracting activity on par with a crow’s attraction to bright, shiny objects?

The question isn’t whether or not Zimbra is very cool.  (It is.)  Or whether it’s worth the $100 million VMware shelled out.  For me, it’s a question of ends and means.

Readers of my blog know that I am a fan of VMware.  They pretty much created the market that created the need for what AppZero (and no one else) does (server-side application virtualization.)  But they also know that I have questioned where VMware and its hulking shadow of a daddy, EMC, are headed.

I first blogged the question when VMware acquired Spring Source.  I thought it was interesting that a company espousing and attracting partnerships for progress in this brave new cloud world, would jump into competition with those partners.  SpringSource put VMware outside of its core infrastructure business into the development and management business.

Fast-forward.  With the Zimbra acquisition, VMware has popped up the market stack to land smack in the middle of business’ most ubiquitous application – email and collaboration.  Zimbra out-Outlooks Outlook.  If you’re unfamiliar with it, take a quick look at the demo (www.zimbra.com). 

Anyone who has ever used Outlook/all of civilization will immediately be at home with the UI.  That same population will be tickled at the sheer elegance, practicality, and simplicity of the additional functionality.  Zimlets are mashups that let you do things that just make sense, like mouseover the word “tomorrow” in the email you’re reading to see your calendar for tomorrow.  Click on it and you’re in your calendar to drag, drop, and beyond.

Which brings me to Bed, Bath, and Beyond.  (You wondered how I’d get here, didn’t you?)  What is VMware doing?  If it is not taking direct aim at Microsoft … If it is not positioning itself to be the Microsoft of the cloud economy …. If it is not aimed, ready, and equipped to command that dominion … then acquisitions such as Zimbra and SpringSource are distractions from the core business that make only marginally more sense than would acquisition of Bed, Bath, and Beyond.

Steve Herrod, VMware’s Chief Technology Officer blogging on the acquisition brings up the elephant in the cloud saying, “And there’s one thing I’d like to address head-on. VMware vSphere is and will continue to be an outstanding platform for the deployment of Microsoft Exchange. We have heavily optimized our virtualization offerings specifically for the deployment of Microsoft Exchange, and thousands of companies are benefiting from the increased flexibility, availability, and security that comes from running Microsoft Exchange on top of VMware vSphere. We have some great material on these advantages available here.  So whether it is datacenters, desktops, application development, or core infrastructure applications, our mission will be to attack complexity and simplify IT. You’ll see much more from us in this space, so stay tuned!”

That’s my plan for sure.

Follow Greg O'Connor on Twitter @gregoryjoconnor

So are we talking tomayto/tomahto or apple/orange here?  Actually, when we compare VMware’s virtual appliance (VA) approach with AppZero’s virtual application appliance (VAA) it’s really a lot more like apple/orangutan.  Not better and worse, winner and loser, but different in type and kind and purpose and optimal use.  A tectonic shift.

Before I proceed to explain, I’d like to point out that I’m on record as being a VMware fan.  (See earlier blogs, “VMware’s Genius” ,  “The birth of virtualization” and “The Next Big Cloud Thing: VMWare’s Virtual Platform Stack”.)  VMware’s VA approach has enjoyed real market acceptance for practical reasons, which the company relates as: reduced development and distribution costs; accelerated time to market expanding customer reach; and increased security and control – for both hardware appliance vendors (pre-fabricated product) and software developers (pre-configured package).

In this approach a virtual machine (VM) and an application, complete with all necessary parts of the OS, are packaged into one self-contained virtual appliance (VA).  All of these parts are encapsulated in a little, self-contained world of its own free to travel through space like Horton’s Whos all in Whoville.

VMware promotes VAs on its appliance page with the number growing daily.  Today, as I write, it is 1,308; yesterday it was 1,282.  Who knows what it will be when you look.

All Linux.

Yes, all Linux.  Microsoft licensing does not allow for redistribution of the Windows OS.  So this whole VA idea is only good if your application is based on Linux.  But if your organization is one of the zillions who have bought into the Redmond way of life, you can’t use VAs without rewriting what you have.  Not likely.

But here’s a dirty little question – and I mean no disrespect – Linux or not, why would you want to ship the OS with your hardware product, software package, or data center application?  System admins hate this practice.  They like to maintain clear lines between who owns what, where, and who does what, when.  VAs totally redraw those lines.  I can tell you that the folks running a data center don’t want a packaged application vendor patching, up grading, and otherwise maintaining the OS, networking, and management tools.  And, by the way, packaged application vendors aren’t wild about owning all OS variants either.

Now, granted, VMware owns a lot of real estate in the data center, but VAs don’t travel across hypervisor environments.  So if a company throws Hyper-V, Xen, or KVM into the mix they will need a different VA for each – and they will have no mobility between those environments.  If you’re a software provider, you’ll need to package your app as different VAs for each VM provider.

And speaking of mobility …. What if you want to move an application to the cloud?  Most cloud providers don’t use VMware’s VMs, so you’d need a different VA.  In fact, you’d need a different VA for each cloud – Amazon, GoGrid, Rackspace etc.  Who is responsible for this refactoring?  There is no seamless way to move your (Linux-only) apps between clouds in anyone’s VA.

The culprit in this story is not VMware, it’s the necessary inclusion of the OS – in however small a measure – in the VA.  It’s the nature of the VA beast.

AppZero’s VAA, by contrast, encapsulates a server application with all of its dependencies – but with zero OS component.  Zero.  Complete mobility across servers – physical or virtual (any VM) – to and from datacenter and clouds at will with no rewriting or packaging required.  And because there is no OS component, we do Windows.

So, if you have a spare 10 minutes on your hands, wander down to wherever your sys admins live and ask them how much they like VAs.  My bet is that they really don’t like black boxes in their province.  And your application folks don’t like it either.  Maybe they don’t know there is a strong alternative … yes, VAAs.  If not, you have good news for them.

What a difference an “A” makes. 

(More on what VAAs can do in a blog to follow.)