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

(warning: this blog comes with a pop quiz)

Hypothetical question:  If a big ISV were to fall in love with AppZero technology but turn out to be a VMware sibling, do I have a.) a great opportunity, b.) a giant time sink, or c.) a competitive trap on my hands?

I love talking with Independent Software Vendors (ISVs) about how Virtual Application Appliance (VAA) is the way to go for delivering applications to their users.  It’s true.  It’s fun.  It’s revolutionary. 

Last week my CTO and I were in a room with 5 engineers who were describing the challenge of supporting close to 10,000 customers on a software application that does replication for mirroring, backup, business continuity, and other such mission critical functions.  Their comments went pretty much like this:

• “Every day we have an install that doesn’t seem to work”
• “We had Microsoft and InstallShield on a call with a customer last week”
• “Files are sometimes in use during installation and then don’t get updated”
• “I have to visit tech support everyday in person now”
• “I hate when a customer upgrades their environment”
• “Maintaining the customer base is very expensive”

It is hard for an ISV of any size to simplify what is, by nature, the very complex task of delivering, installing, and upgrading their applications – with of course the ability to rollback an application if an upgrade doesn’t work as planned.

What makes it so hard?  The dark side of freedom.

Math on the dark side

It turns out that a customer’s environment can have almost as many combinations as does a lottery ticket:  Base operating system with major/minor versions, hypervisor, clustered, storage configuration, anti-virus, java or .net runtime, back up, security, update manager, monitoring system form the top level 11 environmental variations that an enterprise application will have to run in.  A conservative estimate about how many different products a set of customers might have across these 11 dimensions begins to highlight the problem for ISVs.

Let’s do the math.  If a set of customers, on average, have 4 different types each per dimension (for example on the OS dimension: W2003 32, W2003 64, W2008 64 R1, W2008 64 R2) we can estimate 4 to the 11^th power or 4,194,304 combinations ….Even a much more concretive software infrastructure stack of 6 dimensions generates 4096 combinations. 

Give or take any number you’d like, leaves a very long tail of what successful ISVs face every day.

…. back to my merry band of ISV engineers

Now, the engineering group I was talking with last week have it a lot easier.  Because their product has only existed for 8 years and there are only 10,000 customers, each with an average of 9 installations, these engineers face only 90,000 unique combinations….way better than that theoretical math above. 

The team has investigated the Virtual Appliance (VA) approach, but they do not want to own managing the OS.  They see the same problem occurring once a customer inserts their software support infrastructure.  And, because 8,000 of their 10,000 customers run on Windows, the VA approach is dead on arrival anyway.  Microsoft does not allow ISVs to ship their OS as a VA.

Whatever will they do to slash this complexity and beat the dark side of freedom?  (grin)

The plot thickens and a pop quiz quickly follows

This prospect downloaded our software from the AppZero site, created a VAA (as opposed to a VA) and is now busily demonstrating the benefits and ease of use to his superiors.

Now, let’s say – hypothetically – that his superior owns nearly 80% of VMware.  Today VMware’s Thinapp can not work for server-side applications. And AppZero does.

Here is my challenge and the pop quiz.

Question:  Do we continue to help the prospect?

Answers:

a.      Yes -- killer early adopter customer sees big win.

b.      No – they’re just gathering competitive information to feedback to the sibling ship

c.      Yes -- position it as complementary and survive the process to get a win, and maybe even a partner on the Linux front

What would you do? Drop me a line at grego [at] appzero [dot] com. I could use some fresh ideas about how to turn this David and Goliath situation into a win.

I’m a serial entrepreneurial leader.  It’s an art/science, left/right brain thing. I have to say that one of the most challenging parts of creating a compelling strategy, leading a company or building products is getting people to see the possibilities, transitions and tipping points. Imagineering the future calls me to look back at what made companies great -- specifically, how they capitalized on paradigm shifts while the rest missed it. Reading the recent bestseller, Outliers, it struck me that, not only do you have to be smart, but you have to be in the right place with the experience to see and grab the brass ring.

Moore’s Law is one of those history lessons that have traditionally been a touchpoint that points the way to the future. Simply put, Moore's law describes a long-term trend in the history of computing hardware, in which the number of transistors that can be placed inexpensively on an integrated circuit has doubled approximately every two years. 

Translation:  compute power has reliably doubled at a decreased cost every two years.

In a recent announcement, Intel gave a glimpse of what the future will look like. The “Cloud” chip will have 48 cores, is available to Intel’s ISV partner today and will be shipping in volume in less then 18 months. The quote from the Intel dude stated that it will increase the power of what is available today by 10-20 times.  Oh my…. Buckle your seatbelt …. Moore’s law just took a giant step up the paradigm.

In one of my discussions with some folks from VMware I have heard pretty much a uniform response that the tipping point for VM adoption in the data center was the introduction of dual processor chips in 2007. Two core CPUs + VM isolation means I can consolidate physical boxes onto 1 machine. How simple is that math?

Gartner says that the average number of VMs in the data center per CPU socket is 10+ or 5 per CPU.  VM Density is how many environments can run on CPU socket. VM Density increase is due to better through put of the CPU and more efficient VMs and is “the new measure of IT efficiency.”

Fast forward to the data center of 2012. For a moment lets ignore other bottlenecks in the stack that might stop us from drawing a straight line from today to then. VM density will be 240 (5 * 48) per CPU socket. Think of all the empty space in those data centers. Certainly enough to store a few hardcopy versions of the US’ accounts payable to China.

What are some other data points that we can look at today that can help us see the future more clearly? Today’s VM landscape breaks down close to 80% Windows, 15% Linux and 5% other. Why is there such a high concentration of Windows in the data center? Not that I enjoy poking a sharp stick in the eye of Microsoft, but I have to say that it is because no one that wants to keep there job will run more than one application on top of  a Windows 2003 or a Windows 2008 server.

Running multiple applications on Linux? No problem. It is this 1 to 1 OS to app ratio that is one of the things that has made VM adoption so compelling. Fix the fragile Microsoft OS by using a hypervisor to create the isolation between applications that Linux has out of the box is sweeping the industry. So Windows app density is high in Linux, and 1 for on Windows server.

Let’s take a use case where all the VMs are Windows based in the data center. That means there will be 240 copies of the same operating system (assuming the market has actually adopted Windows 2008 server by then). There has to be a more efficient way to deal with the fragility of Windows than running so many copies of the same thing.

Enter application isolation technology or Virtual Application Appliance (VAA) for server side apps. A VAA is a container (a cloud container?) that isolates an application from the OS and other applications. This isolation makes Windows de facto more reliable and eliminates the challenges that force the 1 to 1 App to OS deployment design pattern. VAA makes Windows deployments as robust as Linux, increasing the app density on Windows. Who wouldn’t want that?

Now I am not suggesting that it would be a good idea to run all 240 apps on one Windows 2008 Server OS, increasing the app ratio from 1 to 240. But running 6 applications on 1 OS?  That is very doable and it will reduce the number of concurrent OS from 240 to 40.

Think of the memory savings (recommended memory configuration is 2 GB per OS or 480 GB of memory in this use case). Think of how much you could shrink the checks you have to write from Microsoft by increasing the app density ratio from 1 to 6. An 84% reduction in #OS running. Intuitively, you know it's cheaper to run multiple apps on one OS, but how much cheaper? Well, Amazon is expert at pricing cloud services, and on a simple example of 3 VMs running Windows with 1 app in each VM, the monthly cost would be about $260 on a standard small instance. Therefore running on Amazon with one VM running Windows and 3 apps, the price is $86. Get the picture?  Less OS licenses, less VM licenses, less CPU cycles, less disk, less management

So here are my predictions for 2012:

• Intel cloud chip will be shipping a 48 core piece of silicon for less then $500
• VM density will exceed 200 on this chip in the data center
• Windows OS will be over 75% of the VMs that run in the data center
• 200 copies of same the Windows operating system running on 1 chip is silly
• The industry over time removes silly inefficient execution stacks
• Application isolation will have crossed the chasm addressing, even eliminating, this inefficiency

Assuming the Mayans are wrong and there will be life after December 21^st, 2012, you can see my take on the market.  I would love to hear how others see the impact of the cloud chip on virtualization and cloud computing. Greg Ness how will it affect the infrastructure 2.0?  James Urquhart impact to the Wisdom of clouds is just around the corner?  What is the next tipping point? Drop me a line at GregO {@} Appzero {dot} com or tweet me at http://twitter.com/gregoryjoconnor.

Here's my premise:  high impact, culture-bending technological innovations - however different they may be one from another - conform to a predictable template of evolution.  It goes something like this:

1.       Break-thru - The point of entry at which a technology breaks onto the market scene doing something old in a dramatically new way.  The break-thru vendor, frequently a modest sized venture or start-up, faces the uphill struggle to educate, and otherwise evangelize its would-be market.  It is an expensive, labor-intensive phase in which there the potential rewards are as high as the risk of failure.  Early adopters assume the risk of pioneering to gain substantial advantages in costs and/or performance.

2.       Break-even - The period of maturity during which an ecosystem develops around this technology to improve, optimize, manage, and extend it.  Much of the activity in this phase is directed to making the technology enterprise-grade.  Hype, risk, and pricing level off as the technology moves from upstart to mainstream.

3.       Break-out - The window of opportunity in which innovators springboard off the mature gains of the now-established technology to do something truly new.  Frequently the 'something new' is enabled by the confluence of technologies and business drivers.  This phase offers the greatest potential gains at the lowest risk.

AppZero is a break-out company doing something new; VMware is the break-thru company that did something old in a dramatically new way.  This observation is not a slam.  Note the title - "VMware's genius".  That's praise, right?  They definitely started something new and altered the IT/business culture.  But, they started it all by doing something old ... better.  Much better.

Boring?  Apparently not since VMware holds the record for being the company with the fastest time to $1 Billion.  The reason for the spectacular growth was so simple - dramatic cost savings addressing a universal problem.

Business as usual in the data center had traditionally been to not only plan for the worst, but to provision for it as well.  So it came to be common for an application to sit on its very own server, using less then 10% of its CPU and resources, except for the occasional spike that edged utilization briefly upwards.  Multiply this scenario by however many applications live in a data center and the number is a very big dollar amount of sheer, bottom-line chewing waste.  Hardware, software, management, maintenance, sysadmins, space, utilities ......

Break-thru:  Enter VMware with its ESX hypervisor, which divorced server operating systems (OS) from server hardware in virtual machines (VM).  Server consolidation and all it implies hit a real meat and potatoes enterprise IT issue with a hugely cost-savings solution.  Modern day server virtualization was born and a market was created, complete with its de facto leader.

Break-even: Server sprawl was also born, joining the ranks of general issues such as manageability, governance, and security.  The usual suspects --CA, BMC, IBM et al - soon jumped in with management options that bring virtualized servers into the corporate fold.  Citrix/Xen and Microsoft threw their own hypervisor hats into VMware's ring making a brand new heterogeneous VM landscape, complete with the usual challenges of choice:.  What if I want to move my application across these different VMs? What if my data center runs VMware and Microsoft but I want to move some of my workload to Amazon, which is based on Xen?

VMware remains the market leader.  But constrained by the installed base of its success, it is unlikely to jump back into a break-thru round of innovation.  Rather, it is likely to continue improving its offerings, securing its market position, and harvesting the ongoing rewards of the first two phases.

Break-out: Now it gets interesting again.  At the intersection of virtualization, SOA, and the Internet, comes cloud computing - public, private, and hybrid.  The sky's the limit for break-out use cases.  Cost-savings like crazy.  Efficiencies unimaginable a decade ago.  IT and business alignment like a honeymoon.... How?  By virtualizing servers?  Not exactly.  You only cut costs in server consolidation when server applications actually run on those virtualized servers.  And that's a problem.

The ad hoc ability to provision server-side applications to and from servers - physical or virtual -- in the datacenter, from cloud to other cloud, and back to earth is necessary to fully exploit the potential of infrastructure on demand.  But that level of mobility is just not available in technology designed to separate an OS from a physical server.  And that includes the virtual appliance (VA), which packages applications with the lowest level of OS components required to run.

But any OS component in a deployment package is too much if you want cloud-neutral mobility - the opposite of vendor lock-in.  (I'll maybe describe why in a later blog.)

Enter AppZero with its Virtual Application Appliance (VAA).  Our customers package their server-side applications with all of the dependencies, but with zero OS component.  Unencumbered by the intermingling of OS and application that is introduced at installation, VAA-packaged applications arrive at destination servers (physical or virtual, on premise or in the cloud) ready to run and ready to depart at the click of a button.

No lock-in.  Complete mobility.  The functional equivalent of a neutral runtime environment - at home on any server that has a compatible OS.

A break-out solution for doing something new.  Thank you VMware.