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Summary:

In 2011, I predicted Microsoft and Google were poised to own the cloud computing market in the next decade. Eighteen months later, Amazon Web Services and Salesforce.com seem like the ones that really have what it takes to dominate over the long haul.

In early 2011, I wrote a blog post about who I thought would be dominant cloud computing players 10 years from then. In that post, I argued that the breadth of offerings from Microsoft and Google put them in position to own large parts of future IT markets. But much has changed since then. I think two cloud providers — Amazon Web Services and Salesforce.com — have begun to pull away from the pack, and I’m ready to admit I didn’t give these two companies their due.

To understand why are they beginning to lap the field, it is important to understand what has been successful in cloud computing to date, and what hasn’t been successful (or at least not yet).

Market dynamics create the opportunity

Despite several years of basic cloud services being available, and a small explosion of different services and business models, success in the cloud has been somewhat limited to a few areas. Software as a service has been surprisingly (to some) successful, but mostly for task-specific consumer applications, or for contextual (i.e., non-differentiated) business applications.

The other successful service market, infrastructure as a service, only has two application classes that are really successful: large-scale web applications and data analysis/processing. The mass migration of legacy transactional applications to IaaS has yet to really take hold, if it ever will. For the most part, the economic advantages for IaaS really still belong to apps that have dynamic natures — either fixed execution timeframes (e.g., data processing) or variable load (e.g., web apps).

Platform as a service, while showing real promise, is not being used at nearly the scale of these other two categories. I would contend, as well, that the most successful platforms will either run the types of applications that are already successful on IaaS, or be “attached” to SaaS applications in order to extend, enhance and integrate those offerings.

Thus, when it comes to PaaS, I think the biggest beneficiaries of its eventual success — which is likely, but not guaranteed — are the same two companies I believe are pulling away today.

Why Amazon Web Services?

I almost feel silly calling out Amazon today, as today its dominance seems so obvious. But 18 months ago, while it was definitely the visionary among the IaaS offerings (as I noted in a follow-up post), it hadn’t really stepped into the era of offering services that competitors couldn’t match within 12 to 18 months (assuming those competitors had the vision to do so).

What is so disappointing, however, is that none of Amazon’s competitors really took the challenge. While many focused on EC2 (compute), some on S3 (object storage) and a few on RDS (relational database) or SimpleDB (key/value storage), none understood the total package that Amazon was providing. What sets Amazon apart are things like reserved instances, a spot market for unused capacity, an integrated management console, and an overall focus on what customers need today to build and run the applications that make cloud valuable.

Yes, I believe Microsoft has some competitive capability, but it is, for now, focused on  features and services it can sell to developers piecemeal. Amazon started this way, but I believe James Hamilton and others helped Amazon determine early on that the real financial market in cloud happens in operations, not development. Amazon’s spot and reserved instance markets are examples. Microsoft doesn’t seem to have grasped it … yet.

Google, too, has the scale to compete with Amazon, but I don’t see it scrambling to address operational needs. Where is the unified console for operating and monitoring all the Google services an IT team is using? How about additional services around application deployment, configuration and monitoring? Google has promise, but it also has a way to go.

All in all, nobody has put the package together that Amazon has for the new computer utility market (as my friend Simon Wardley would call it).

Why Salesforce.com?

The thesis of my earlier post was the idea that the eventual cloud winners would offer emerging businesses completely integrated, but “mixable,” sets of IT capability on demand from a single service interface. While I expected Microsoft and Google to be the leaders in that space (and they still could be in eight years), the current leader appears to be Salesforce.com.

Sadagopan Singam has a great post outlining his thoughts about the recent Dreamforce conference put on by the SaaS leader. He calls the company an “enterprise nerve center” that can let all parts of an organization work in tandem to respond to business needs.

What Salesforce is doing so well is combining the core functions of business and the social interactions with customers, partners, and within the organization itself. So, as work gets created, moves through the company, and results in deliverables and/or revenue, Salesforce can automate key elements, coordinate the human aspects, and measure and analyze it all.

This is disruptive stuff. Most existing enterprise software companies drive business by moving documents around and relying on humans to handle their own communications around those documents. This is slowly changing (and is not, frankly, my area of expertise), but you can see a distinct difference in the language used by Salesforce, and that of Microsoft or Google.

Microsoft can certainly give Salesforce a run for its money here, assuming Redmond can overcome the internal inertia and politics involved in realigning products in such a fundamental way. The same is true of Oracle. Google is largely a no-show in this respect, in my opinion, as anything other than productivity apps seems outside its comfort zone.

But Salesforce still has a long way to go in subverting the existing relationships, technologies, processes and cultures that legacy vendors have established. It’s not just that its software has to be better, it also has the challenge of convincing more IT organizations that SaaS is the way to go when upgrading or replacing legacy applications. However, Salesforce has met that challenge often in the last decade.

Is it game over in the cloud?

I am unwilling to say these companies have locked down the future of cloud computing, but both have engaged in what economist Brian Arthur once called “The Law of Increasing Returns.” Now that they’ve established some advantage, they are going to start attracting more and more of the IT ecosystem in a positive feedback loop that drives more market share back to them.

As to companies that can disrupt (or at least blunt) their bright futures, keep an eye on Microsoft. If it can complete the work it’s doing on changing its internal mindset and stop thinking as a product company first and a service company second, Microsoft will begin to make great strides in integrating its formidable portfolio.

The rest of the cloud computing market lines up in one category or another, but no company has yet to show signs of significant disruption except in niche areas. There are also myriad disruptive startups in the cloud computing space, although the pace of that disruption will continue to be slow and steady. Many established IT companies are only now realizing the time and effort it to address this opportunity before it’s too late.

In the meantime, I want to leave you with one last scary thought about Amazon. In the last few weeks, it has announced its Glacier archiving service and a marketplace for selling unused reserved instances. It also has its first major conference coming up in November. If it announced those two important services now, I wonder what Amazon is waiting to announce at the conference …

Feature image courtesy of Shutterstock user Neale Cousland.

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  1. Re: Is it game over in the cloud?

    Absolutely not.

    “So we’re still at the very, very beginning. We are in the first innings of Cloud Computing. This is still the Renaissance.” These are the words verbatim of Salesforce.com CEO, Marc Benioff. Then Jeff Bezos, Amazon.com CEO, said “We want to make money when people use our devices, not when they buy our devices.”

    Just like CRM and AMZN have re-invented their respective companies into leaders in cloud with platform and services instead of only their original core products of Contacts Relationship Management and E-Commerce, the agility of companies (not just products) allows competition to catch-up quick these days.

    Strong leadership and vision is what both of these companies have going for them right now but it’s quickly becoming a hotly contested market with many innovative and smart companies entering the space. I don’t doubt the ability of either company to continue their remarkable success but there always seems to be something newly, cooler or innovative coming along. Remember with MySpace was all the rage years ago then Facebook killed them in social? How about AOL eventually killing Netscape in ISP, then AOL being killed by broadband in general? Chrome and Firefox severely taking a dent in Internet Explorers market share for web browsers? At one time all these market leading products were clear leaders and then something new came along which eventually displaced, or will displace them. It’s simple evolution.

    However, I will say that I’m seeing the first aspects of CRM and AMZN ‘eating their own’ or taking unusual risks, even for these daring companies. For example, Salesforce has terrific ecosystem partners with the likes of Okta (Single-Sign On) and Box (Enterprise Cloud Storage). However Salesforce recently announced Identity to compete with Okta and ChatterBox to compete with Box. This is not innovation, rather its replace-novation, in my opinion. True, there is value to have these services incorporated into one consolidated platform which I understand but it seems like growing a business through new innovation instead of taking a share of someone else’s market is the heritage of what these companies represent. Then Amazon taking square-aim at tablet and content delivery providers is aggressive and risky. Amazon refuses to sell Apple products even though they could possibly sell tens-of-millions of these devices. Also, Amazon has a clear vision of delivering all sorts of content that will compete with the likes of Netflix (movie content) or even broadband content delivery services.

    Point is that these strategies are aggressive indeed but they are also risky. Aggressiveness and visionary leadership has made these companies successful so there is no reason to think that they won’t be successful in the future but is the game over in the cloud? Absolutely not.

  2. (415) – Asher Bond Sunday, September 30, 2012

    “Where is the unified console for operating and monitoring all the Google services an IT team is using?” … for Google Compute Engine there’s RightScale.. but the absence of a dashboard used as the primary measure of maturity only measures something which has already emerged. I think PaaS is really changing the game and making development happen more rapidly with or without the design of a dashboard integrating service components. Dashboards can prove that software is designed with user experience in mind… and visualizations help people learn frameworks or do analysis of an operation more quickly… but REST APIs and interoperable service components that can work with many dashboards are what I consider to be the mark of intelligent software design… you can visualize that however you want I’m into both fashion and function.

  3. James – thanks for an interesting article. Having been involved in major public cloud projects for over three years now, I echo your comments. However, an interesting dynamic that will play out and might change the landscape somewhat is the emergence of EaaS which is mostly a Microsoft and Google play. Once organizations move their Email, Communication & Collaboration services to a cloud provider, I wonder if it will work as a gravitational pull for other enterprise apps.

  4. Reblogged this on digitalidan and commented:
    James Urquhart over at GigaOm expresses the distinct impression those of us who follow this space have had for some time now: Amazon and Salesforce have truly set themselves apart as cloud leaders.

  5. Really, counting out Microsoft? When will people ever learn?

  6. Good article, thank you. It’s a little scary to think that just two companies could control this huge emerging industry, however there are two mitigating forces: 1) both companies throw a huge wake. The opportunities for startups to base their stack on AWS or Salesforce (or both) and therefore reach effective monetization with dramatically lower capital investment than was possible before, are creating a whole wave of exciting startups and disruptive innovation. 2) In both cases, the platforms create inclusive, partner-friendly ecosystems, as opposed to closed systems that favor only the mothership, not the developers and value add service providers.
    The suggestion that Microsoft could still disrupt this space, is becoming increasingly unlikely: count up the startups running on Azure, vs AWS. Case closed. It doesn’t matter what the IT departments of large companies are using, because these are increasingly anti-innovation groups, and more risk averse, bureaucratic and therefore not great indicators of future trends.
    Now count the startups running on Oracle……

  7. Is SalesForce not built on Amazon EC2?

      1. Heroku, Salesforce’s dev environment for delivering facebook like apps – lives on Amazon.

    1. No, there behind the scenes database is the largest instance of Oracle anywhere and is custom for them. Whats dangerous about that is that all their customers live int the same database.

      1. That’s not entirely accurate. Salesforce.com is multi-tenant, that’s true, but all customers *do not* reside in the same database. They are split across multiple geographically-derived (NA, EU, AP) databases that live on their own dedicated clusters.

  8. Interesting. But you can’t ignore MS CRM’s consistantly high win rate against SFDC (since the release of CRM 2011). It would be a mistake to count out Microsoft as a likely cloud war victor, particularly as every solution is being refreshed with advanced cloud capabilities over the next nine months.

    1. MS typically buys the business. I really dont think it is good for anyone if Microsoft is to win here, with the exception of Microsoft itself of course….

  9. Some would argue that the game for cloud dominance is just beginning. As a dominant delivery vector, cloud will mature and other providers like CSC will rival Amazon to bring secure enterprise applications to the cloud.

  10. I agree that this year both of these companies appear to “pulling” ahead of the pack. Here’s another interesting post http://blog.openviewpartners.com/can-salesforce-com-really-take-the-social-enterprise-market/
    that argues that salesforce.com’s progress towards a “social enterprise stack” makes them particularly well positioned to swap out legacy solutions as big company IT departments begin to adopt more social and cloud technologies.

    However, the one thing that I think this article is missing is a sense of scale. Salesforce.com will $3B in revenue this year for the first time, and has $21B market cap, while companies like amazon, and microsoft have $114B, and $250B market caps respectively. Salesforce.com’s share of the enterprise IT market is of similar proportions except in the CRM category where it has gained a foothold. While they maybe innovative thought leaders they just don’t have the resources that their competitors have.

    While I agree they are very well positioned to become leaders in the cloud computing space, I think that we are still several years away from decisively saying that they are pulling away from the pack.

  11. Rakesh Sharrma Monday, October 1, 2012

    I think the ability of Sales Force or Amazon to pursue mobile-based cloud services is ultimately going to pay hefty returns. Not only will partners extend / integrate with them to provide new-to-the-world services, but, also help these companies to not get dwarfed by the new innovations that could threaten their existence.
    As more and more enterprises build up a mobile strategy, it is critical for these companies to facilitate such initiatives to stay nimble-footed.
    Potentially, they can grow and innovate through acquisitions of partners who are using them to provide disruptive services.

  12. Amazon.com –> IAAS
    Salesforce.com –> PAAS
    Service-now.com –> SAAS (and I have taken very good look at their platform. It is too good and the future is bright)

  13. There are small companies out there poised to do great things in ways the Goliaths haven’t yet begun to dream. Look at how PeakColo is pulling off white label for example. Cloud isn’t going to be the same in just another 18 months… Stay tuned.

  14. James, Have you taken a look at Intuit? Especially their product Quickbase? http://quickbase.intuit.com/

  15. Pulling away making with a 1.5 % margin, giving it away making no profit to speak of, yea that’s the way to do it, your money for nothing and your chicks for free. Google and Apple must be in trouble.

  16. Charlie barker Monday, October 1, 2012

    Companies evaluating the cloud do and are right to worry about vendor lock-in. I think Amazon has a great model, customers moving from them to another cloud provider or to selfhost would have some pain but would not need to rewrite their apps. Microsoft’s paas model doesn’t really matchup.

    Salesforce takes away a lot of integration pain but their architecture is basically a large Oracle database. It works in a straightforward way up to a certain scale but above that you start having to work around it’s inherent limitations. That said they are currently enjoying commercial success, I think they will fade over time as the limits and prices of they’re service become more important.

  17. The best thing about cloud is agility. Your 18 months old predictions are not quite valid today. This one will expire even faster. It’s a changing market. Changing at extremely fast pace. You should not even be able to imagine how will it look in a couple of years – there should be so much innovation.

  18. Cyndy Claussen, MBA; Corporate Training, PM Monday, October 1, 2012

    I enjoyed the article. Thank you for the research and updates. I guess my only question, to have any understanding which companies may or may not ‘play in the future’ is this, “What is the business need that will be resolved by supporting an EaaS, PaaS, SaaS or IaaS decision?” I see quite a bit of technology here, a lot of ‘cool’ opportunity for development and perhaps better dashboard functionality, but for what purpose and what ROI?

  19. getting to understand the cloud now …

  20. typo @ paragraph 1 line 4 “Salesofrce.com”

    1. Thanks, that’s fixed.

  21. It’s still very early days for cloud technology adoption. The difference is that it is only now becoming accepted globally with the recent EU strategy on cloud computing and SAP and Oracle taking big leaps into cloud recently. With a lot of the vendors there is a lot of growing up to happen, but it may take 10 years before we know what the landscape will look like. At that time I would expect some public cloud offerings will be accepted as safe and secure amongst enterprise and government departments outside of the US. The vendors who get the public offerings safe as houses and certified with the emerging cloud certifications will be the real winners. Game on! – From Mark @2SaaS

  22. @james urquhart:
    Great that you are so honest to mention that you were wrong in a past forecast! It is seldom that people admit that.
    However, If you were wrong in 2011 why should one believe you are right now?

  23. RASPEN GULTOM S.KOM Tuesday, October 2, 2012

    mantap

  24. Note – MSFT makes an OS and applications than run on an OS. The Cloud is – was as much of a mystery to them as the Internet.

    Google makes algorithms for searching and indexing web page and selling advertizing. Selling compute services is not its core strength.

    Amazon was and is Retail as a Service (Retain as a Service) and it is a more logical progression for them to become IaaS given they are middle ware and can commoditize middle nicely.

  25. Seriously, you think :-/
    its just some reporter having superficial knowledge about cloud computing and wants to be on the new..
    Posts like these reduce LinkdIn reputation

  26. Kjetil Korsveien Tuesday, October 2, 2012

    The Game is never over. There is always another Alpha Wolf trying to take your place.

  27. We got Visio files on the cloud over at Lucidchart.

  28. The lack of AWS interoperability I think will hold Amazon back. I do believe they have the right people working for them though. The “reserved VM” market place is a fantastic idea. It takes a good team to come up with ideas like that.

    Companies tend to start with AWS then move off onto their own in-house solution. The problem is that when they do this, they in effect have to set everything up from scratch. I believe up to this point, AWS only supports one virtualization layer. This may be a factor in not choosing to utilize AWS services based on projected growth of a company and if they want to still use XEN after the fact (once they move off).

    AWS was built for agility, but is there such thing as too much? That may deter some future customers because it could just be too complicated as already seen today where if you do not have a dev background, you may misunderstand some of the functionality and cause more issues for yourself as a customer.

    There are still a lot of possibilities like Joyent taking the reigns…Oracle could get into the mix as SUN actually came out with an AWS model 2 years BEFORE Amazon launched. The market just wasn’t ready and there is OnApp’s federated cloud which has the potential to be 50-100 times the size of AWS.

  29. I agree with James on the dominance of Amazon Web Services in the Cloud pack and Microsoft as well as Google must address operational needs of customers to compete with Amazon. With more organizations using cloud-based communication and collaboration services, integration with Amazon Web Services proves to be a good investment.

    One good service I came across recently for storage provision is AWS Integration with GroupDocs’ Document Management Solution. It offers you a new and flexible storage provision and you can store your files in your Amazon S3 bucket directly. For instructions on how to accomplish it, there is a helpful blog-post:

    http://groupdocs.com/blog/groupdocs-document-management/archive/2012/09/21/announcing-aws-integration-with-groupdocs-document-management-solutions.html

  30. JULIAN BLASCO sofas Saturday, October 6, 2012

    No lo entiendo, ¿es mejor la nube? tenemos que estar al día en todo, no me canso de estar diciéndolo.

  31. JULIAN BLASCO sofas Saturday, October 6, 2012

    La nube ayuda a conocer mejor las posibilidades de negocio.

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