I think what Issac is referring to with his comments about the benefits of large-vendor benefits has to do with being part of a trusted brand even among CIOs, and about incorporating the types of capabilities that large businesses still care very much about. In that case, integration with CRM apps, databases, scheduling software, security, etc., do become valuable, even if they’re throwbacks to legacy development.

Regarding price of compute, his point, which I think is valid, is that although selling compute is not a PaaS provider’s business, it does present a source of overhead; PaaS prices can only go so low if providers are paying full price for the underlying compute every month. Microsoft et al aren’t buying into an IaaS provider’s margins when they sell services (despite the fact that they sometimes charge more in return).

Still, as I mentioned to Bob, I don’t think PaaS innovation is dead at all, and of course much of that will come from startups. In fact, from what I’ve seen, I think DotCloud has a whole lot of promise and will do very well with developers. I just think having to attract them from under the shadow of VMware, Microsoft, Red Hat, etc., will make that job more difficult. And if you’re successful at it, some large vendor that wants in on that action will take notice.

1) Heroku CEO agrees with recent Heroku acquisition

2) Makara founder agrees with recent Makara acquisition

3) Large vendors will out-innovate startups because they have more engineers

4) Large vendors are leveraging their own datacenters to lock out startups

None of this makes sense, for a few reasons:

- The argument of price is a joke. PaaS is not about the cost of infrastructure. Sure, IBM and Red Hat’s “certified cloud partners” can sell cheaper compute that a startup. And Amazon can sell compute twice as cheap as anyone else. Who cares? Selling compute is not our business.

- Although I agree that large vendors have privileged access to larger customers, I can tell you with 100% certainty that Makara and Heroku gained absolutely no technology or product advantage from being acquired. That somehow startups need “large vendor tools” to build a successful platform is simply bullshit. It’s the other way around.

- As Bob pointed out, the PaaS market is extremely early. Salesforce, Red Hat and Microsoft are no doubt mighty competitors, but the overwhelming majority of developers have not yet chosen a platform. Startups move fast, they don’t face the dilemma of disrupting themselves and there are no competitive barriers holding them back. Everyone is free to innovate and reap the benefits.

- Which brings me to the key point: this is all about developers. We are all in a race to make developers happier and more productive. Nothing else matters. That is how I will evaluate the success of VMWare, PHPFog, Azure, Red Hat and DotCloud. So far everyone has a lot to prove.

There are also two potential benefits from today’s (very impressive) VMWare announcement. One is market awareness which can float all boats. The other is they can set a pricing umbrella much like IBM and BEA did in the app server market. VMWare charges about $2K/year for the vSphere, vCloud, tcServer stack on a CPU today and they will not want to undermine that revenue stream too much with their own cloud offering or squeeze their large service provider partners.

Of course I have a bias with my involvement in two small Cloud vendors – CloudBees and eXo, as do Isaac and Byron have a bias to support their businesses.