Dell Cloud for U.S. Government builds on Red Hat’s OpenStack implementation and Dell’s platform-as-a-service component will be based on Red Hat’s OpenShift. That choice of OpenStack as basis is interesting because Dell recently nixed plans to offer an OpenStack-based public cloud but also said its private cloud offerings would still draw upon the OpenStack open-source stack. For the record, Red Hat’s OpenStack is technically still in preview although it’s likely that general availability will be announced this week at its Red Hat Summit.  OpenShift became generally available yesterday.

The importance of security clearances

The vendor is working to attain FedRAMP security certification for its platform. Federal Risk and Authorization Management Program accreditation makes it easier for a company to deploy its technology across agencies and organizations without having to repeat a lot of the processes. Autonomic Resources and CGI Federal were the first vendors to get the FedRAMP nod. Amazon’s GovCloud made the grade in May and Hewlett-Packard and Lockheed got the nod last week. More than a dozen providers are expected to clear the FedRAMP hurdle by year’s end with many more expected to do so by 2014 when FedRAMP certification becomes mandatory.

These Dell clouds were designed to meet specific requirements for government work, a company spokesman said. There will be a FedRAMP-grade multitenant cloud on the docket as well as an implementation that meets Federal Information Security Management Act (FISMA) requirements for protecting data security — an interesting concept at a time when the NSA’s PRISM surveillance scandal roils around us.

Still, there’s a ton of money at stake — the White House’s Office of Management and Budget (OMB) estimates that a quarter of the total $80 billion government IT budget is moving to the cloud. That, and the fact that every legacy IT provider and a raft of newer cloud companies are all angling for action, means the competition for this business will be fierce.

Photo courtesy of Flicker user chucka_nc

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That’s why I hope to be glued to my laptop next week (Structure permitting) when Oracle announces its fourth quarter earnings. And this is what I want to hear about:

1: Hardware momentum (or continued lack thereof). Can Oracle finally crack the hardware code? Given its new alliance with Dell that will, in essence, let Dell offer its own version of an “engineered system” running Oracle database and applications, I’ve got to think that tepid hardware sales are starting to take their toll in software license sales as well.

2: HANA envy. It’s been a long time since we’ve seen an enterprise product with a halo as big as SAP’s HANA in-memory database and analytics offering which will soon be made into a cloud service. SAP has been basking in that glow for more than a year. That’s got to bug Oracle CEO Larry Ellison and co-presidents Safra Catz and Mark Hurd. What will Oracle do to steal some of that good feeling for its own in-memory and analytics plays?

3: Fusion traction: Are users of Oracle’s legacy applications moving to the new-generation Fusion versions, sitting pretty on existing versions, or jumping ship to alternatives? In February, Forrester Research surveyed 139 enterprise clients and found they were not wild about Fusion. Of those surveyed, 65 percent had no plans to move to Fusion; 24 percent were indecisive. But perhaps most scary for Oracle, 29 percent said they planned to defect to another vendor. Oracle blasted the findings as inaccurate and out of date but Forresteranalyst Paul Hamerman stuck to his guns.

4: How big is Oracle in big data? What traction is this company, the undisputed king of relational databases, doing outside that realm with its Big Data Appliance and other less SQL-y gear? Can Oracle parlay its strength in legacy databases in this new territory?

5: Support and maintenance re-ups. Are business customers paying for support and maintenance or are they balking? Oracle has traditionally seen these fees — it typically charges customers 22 percent of the purchase price each year for continued software support and maintenance — as its birthright. But customers hate those fees. In a research note Sunday night, Nomura Securities analyst Rick Sherlund raised a red flag when he wrote:

“Oracle is reportedly now the second most active software vendor (next to IBM) in conducting customer usage audits intended to bring in revenues from customers that are not in compliance with their software agreements.”

If a customer is paying maintenance because there’s a gun to his head and not because he’s deriving real value, he’s not a happy customer.

It’s fine for Oracle to buy its way into newer-era computing — with acquisitions of SaaS companies like Rightnow for CRM with Taleo for talent management etc.– but it needs to tend to its legacy database and applications customers as well because right now, they’re the ones paying the bills. And, with the shift to big data and new app delivery models, they’re more open to switching vendors.

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Coopetition run amuck?

Oracle CEO Larry Ellison

This is all interesting because not all that long ago, HP was Oracle’s bestie in x86 servers . Of course that was before HP fired Mark Hurd for cheating on expense accounts and inappropriate interaction with a female contractor and before Larry Ellison blasted HP very publicly for doing so, and HP sued Mark Hurd and … well you get the picture.

Now, before it got into the server — er engineered systems —  business by virtue of buying Sun Microsystems for $7.5 billion in 2010, Oracle courted most of the major hardware guys with the exception of archrival IBM. HP CEOs Carlie Fiorina then Mark Hurd and Michael Dell, typically keynoted at Oracle OpenWorld, for example, touting their respective servers as the best possible hardware to run Oracle databases and applications.

As an enterprise software company, Oracle needed good relationships with server companies at least in part to compete better with IBM which offered servers and databases. In fact, the very first Oracle Exadata engineered system, which came out before the Sun deal, was an HP box. But  with its ownership of Sun and its server lineup, relationships with other hardware vendors got more complicated.

As one Dell partner at last week’s confab told CRN’s Joe Kovar: ”The last thing I ever expected at this event was to see Mark Hurd’s face.” I mean, come on:  A customer buying a Dell box running a raft of Oracle software isn’t likely to buy an Oracle engineered system. And, as I’ve reported for a while, Oracle hasn’t exactly hit the cover off the ball selling hardware – hardware revenues have headed south since the Sun acquisition — although Oracle would argue that the hardware it does sell is highly profitable.

Anecdotal evidence is that most people who buy Exa-boxes are doing so at discount and are not necessarily loading up those boxes with new Oracle software but consolidating what the software they already own on new hardware. Anyway, my thesis is that if Oracle truly were happy with its hardware sales and profitability it wouldn’t be snuggling up to Dell.

NSA spying, fallout for cloud computing adoption?

For folks worried about putting private information on consumer oriented services  like Facebook  clearly had more reason to worry this week as news broke about the U.S. National Security Agency’s monitoring of internet and cell phone data. GigaOM’s Mathew Ingram did a great job updating this story all week  and David Meyer outlined the huge ramifications this could have in Europe where data privacy is a key concern.

You’ve got to wonder if this will have a chilling effect on  various “cloud first” initiatives. Earlier this week, I wrote that Amazon Web Services might deploy ”mini me” GovClouds outside the U.S. for workloads that government agencies — or even businesses  –  would prefer to keep in-country.  Since posting that I’ve had several emails from people who would know that AWS is, in fact, doing this.

Given that AWS,  one of the few internet powers not named in the NSA story — is U.S.-based, could there be pushback from other countries that otherwise would consider an Amazon GovCloud implementation?

Meanwhile, Amazon finally acknowledged the existence of a “secret” contract to build a private cloud for the CIA but it took IBM to get it out of them. IBM contested the contract award to the General Accountability Office which ruled in IBM’s favor and recommended a “re-do” of the process. Kudos to Federal Computer Week reporter Frank Konkel for keeping ahead of this story.

More cloud computing news from around the web

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From CRN:  HP Enterprise group SVP Seidl set to step aside

From GigaOM: Why IBM desperately needed to buy SoftLayer

From GigaOM: What the web is saying about Salesforce’s $2.5B ExactTarget buy

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What is the problem? Hyper competition, which is leading to rampant price cuts – some of the largest enterprise market segments prices nosedived, down by an average 17 percent since the end of 2011. A lot of that has to do with the fact that Asian companies such as Asus have started to go direct to market and do an end-run around the premium-charging brand names. These companies have also started to offer more complex solutions.

The problems are likely to spread to even higher end markets as more open standards start to become pervasive.

“Some of the price declines have been quite brutal” says Jeremy Duke, Synergy Research Group’s founder and Chief Analyst. “Down in the trenches, you can see where some vendors are quite deliberately pushing prices down to gain a competitive edge, but also at a high level the market is reacting to the disruptive impact of software based solutions and cloud. Enterprise vendors will need to get creative in order to protect revenues and margins.” [Synergy Press Release]

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Dell increased its server revenue and shipments in the first quarter, according to new Gartner and IDC figures, while archrival Hewlett-Packard’s server share declined. Gartner said Dell boosted server revenue by 14.4 percent year over year, and IDC put revenue growth at 10.1 percent. The problem is, lesser known server vendors edged out Dell in both categories.

After all, while its market share in shipments, at 22.2 percent, has gone up slightly since 2006, when it was at 21.7 percent, the other guys have jumped forward in a big way, from 27.6 percent to 37.5 percent. Going private, which is still in the works, could let Dell change up its operations without having to deal with shareholder scrutiny on profitability and other matters.

If Dell can execute on the plan quickly, it could gain advantage as other legacy vendors such as Fujitsu and IBM scramble to catch up and lower prices to stay competitive with Quanta, Wistron and other “no-name” vendors that have seen their market share rise. But those “other” vendors are shrewd and have sold boatloads of gear by building custom servers for a new wave of webscale customers. Quanta and their kind have figured out ways to keep costs low at scale — their shipments are more impressive than their revenue.

That’s why Dell might gain ground with this initiative against name-brand server makers, but it will have to try harder to fend off the little guys.

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According to IDC,  revenue for every name-brand server maker except Dell and Cisco, was down. Market leader Hewlett-Packard saw its revenue for the period off 14.8 percent year over year. (On the last HP earnings call, CEO Meg Whitman acknowledged that the company is passing on low-margin server deals.) Looks like Dell, with revenue up 10.1 percent year over year, is picking up the slack.

Cisco, which is building from a much smaller base, was up a whopping 34.9 percent, but it’s still got a small slice of the pie with Q1 revenue at $450 million, compared to $2.9 billion for HP, $2.8 billion for IBM and just over $2 billion for Dell. Cisco’s market share rose to 4.1 percent from 2.8 percent.

Oracle’s hardware struggles continue — its revenue was off 26.2 percent year over year and its market share fell to 4.8 percent from 6 percent last year.

Update: Whoa, here are some other eyebrow-raising stats, thanks to IDC Group VP Matthew Eastwood:

Some of the companies with smaller share numbers, saw phenomenal growth in units shipped year over year. Lenovo, for example,shipped 48.8 percent more servers this year over last, but that pales in comparison to SGI (SGI??!!) unit growth which was up 98.7 percent. Chinese giant Huawei, however, saw the steepest growth curve, with units shipped up a whopping 156.6 percent. Huawei saw its overall market share raise from 0.6 percent to 1.6 percent.

But most interesting is that unit shipments from “other” companies were actually off 2 percent year to year. Didn’t expect that.

The much-watched non-brand-name “other” segment — which includes companies like Wistron and Quanta — saw aggregate revenue fall 1.7 percent but market share growing to 14.9 percent from 14 percent. Companies running huge data farms — the Googles and Facebooks — often turn to these companies for white box servers built to their specifications, a development that has to irk the name brands who seem to be seeing the addressable market for their servers shrinking.

Here’s Jordan Novet’s take on the Gartner research.

And now for the IDC numbers: 

This story was updated at 6:18 a.m. PDT with additional information on unit shipments from IDC and again at 8:38 p.m. PDT to correct the Oracle server market share figures in the text.

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Fanning the FUD flame this week was a new report (PDF here) from the Commission on the Theft of American Intellectual Property estimates that IP theft costs the  U.S. economy  $300 billion per year. Not surprisingly, China was fingered as the chief culprit, although Russia and India were also named  as problem children here.

The panel, Reuters reported, wants to anoint the president’s national security advisor as grand poobah of a ramped-up effort to protect intellectual property. Bad behavior should be met with banking sanctions, import bans and  financial blacklisting, according to the 89-page report. (In related news, former CIA Director James Woolsey this week warned that the U.S. is at risk of a cyber attack from North Korea which truly is scary. At least Chinese motives seem rational.)

Security, or lack thereof  – is one big de-motivating factor when it comes to moving more corporate workloads to the cloud– or allowing employees to use their personal smartphones at work for that matter.  But it would foolish for security vendors to waste a good crisis.

This week Verdasys, for example, launched an update to its managed security service  to extend protection to users’ end-point devices. Expect a raft of similar offerings and updates to come.

Security guru Dan Geer says high-stakes hacking is now a way of life and the best any company can do is to mitigate, not eliminate, risk.

“If your enemy really is the People’s Liberation Army, what can you do? We can sputter about it but they’re serious and they’re good,” he told me in an interview last week. “The most serious attackers will probably get in no matter what you do. At this point, the design principal, if you’re a security person working inside a firm, is not failures, but no silent failures.”

The key is to know as soon as possible that a breach has occurred and to react fast.

Other than that, key design points are to keep things patched and to put firewall filtering both on incoming and outgoing traffic, said Geer.

Other key cloud news from GigaOM and elsewhere

It was a very busy week in cloud land. Here’s a recap of GigaOM’s coverage:

• Google cuts prices on week-old datastore
• SAP cloud chief steps down
• Joyent to Amazon: It’s on
• Skyhigh Networks gets $20M to lift IT out of the shadows
• How Amazon’s cloud competitors are trying to find cracks in AWS armor
• Dell backs away from OpenStack public cloud, steps up to Enstratius

And from around the web:

PC World: Nvidia, Citrix crank up virtual desktop delivery

From The Guardian: Public,private or hybrid cloud.

Citrix Synergy 2013 live blog from Brian Madden.

And now, for your moment of Zen

With apologies to Jon Stewart:

Photo courtesy of Flickr user annabellaphoto

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Joyent CEO Henry Wasik

San Francisco-based Joyent has made noises about going up against Amazon before  but now it’s more than tripled the number of instance types it will offer, including 7 different “standard” instance types with RAM allocations ranging from 0.5 to 128 GB; 5 high-memory instances; 6 high-CPU instances; 3 high-storage instances; and 3 high I/O instances (see chart.) But that’s just the beginning, said Joyent CEO Henry Wasik, who joined the company in November.

“We’ve completely reformatted what we do and dramatically expanded the number of instances — originally we had 10 and now 27, but once the portal is turned we’ll have 71,” said he said.

Depending on the workload, Joyent services may well be cheaper than AWS, he said. (Stay tuned for Amazon’s response.) But as many have pointed out, for cloud providers, competing on price alone is a fool’s errand.

Joyent seeks to differentiate itself on how well it runs high-performance applications on its own SmartOS (or on Linux or Windows);  the tooling it provides; its service and support; and its ability to offer the hybrid cloud option that many companies prefer.

Earlier this week Dell said it would offer Joyent as one of three public cloud options it will sell to customers. Dell had promised to deliver an OpenStack-based public cloud this year, but thought better of it.

Face it, in the cloud computing world, it’s Amazon first and then everyone else. In one of my favorite posts of the year comparing cloud providers to hamburger franchises, GigaOM’s Derrick Harris posited that AWS is McDonalds, Rackspace is Wendy’s but a handful of providers — Joyent, Virtustream, CloudSigma — represent the In-N-Out Burger (yum!) or Five Guys of cloud.  He wrote:

These cloud providers, like their analogous restaurant chains, are damn good at what they do and their patrons are loyal. They’re typically designed for maximum performance, maybe security, too, and will play around with new infrastructural or programming components in order to maintain their edge. They might even be the best at certain things and have some major customers (I’ve seen Maseratis leaving the In-N-Out drive-thru), but cost, geography or the desire to get a chicken sandwich, too, limit the number of users they can attract.

I know that we’re early on in cloud adoption and that the potential workloads moving to cloud is high. But to me it’s clear there will be a shakeout as enterprise players like VMware — which announced its public cloud option this week — along with Dell, IBM, HP and Red Hat try to preserve their traditional IT strengths in a cloud venue while newer look players  built for the cloud — Joyent, Virtustream, and others — gear up.

There may be a ton of work out there but i would bet that some of these players will not be standing in two years’ time.

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Nnamdi Orakwue, VP of Dell Cloud

The company’s first public cloud partners are Joyent, ScaleMatrix and ZeroLag. The rationale: Dell customers don’t want to be locked into a single cloud vendor and would like assurances that workloads can be moved as needed if their requirements change or their current cloud is not up to snuff. ZeroLag gives Dell a VMware-based cloud option.

There are two takeaways from the news, Nnamdi Orakwue, VP of Dell Cloud, said in an interview on Monday. “First, private cloud success is our bread and butter there our top priority on the open-source side is OpenStack. The second is multi-cloud management and helping our customers deal with it via Enstratius.” The Enstratius management offering supports more than 20 different clouds.

Orakwue acknowledged that Dell’s cloud strategy has been a work in progress. Late last year, the company said its public cloud would be based on OpenStack and would come out a year later than expected. Today’s news changes that.

Dell may add other cloud partners to the mix later and could take an equity stake in some of them. (GigaOM’s Derrick Harris wrote in 2011 that Joyent would be a smart investment for Dell if it’s serious about the cloud biz.)

On the one hand, Orakwue said Dell will be “platform agnostic,” on the other he said OpenStack is clearly its platform of choice on the private cloud side. You have to wonder if that’s a consolation prize for the OpenStack faithful.

Things are heating up on the public cloud front for sure. VMware is expected to re-announce its public cloud platform – which will run in as-yet-unnamed partner data centers — on Tuesday and the whole topic of public, private and hybrid cloud deployments will doubtless come up at GigaOM’s Structure event in San Francisco next month.

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The cloud technology providers are banking that these legacy players have tried to build their own cloud services and realized that it’s easier and more productive to base those services on a cloud expert’s technology. So they’re rolling out bundles and packages tailored for that constituency.

Case in point: On Wednesday Tier 3  announced the “Reseller Edition” of its Enterprise Cloud Services.  The Bellevue, Wash.-based company built its own management, controls and services atop VMware vSsphere and packaged all that up for third-party providers from VARs to  telcos.

And Thursday, Dell and OnApp announced joint offerings that are pre-tested to enable service providers, MSPs and telcos ro roll out cloud services as fast as possible.Last month, Rackspace pitched its own cloud infrastructure as a short cut for telcos, MSPS – the usual suspects — to build their own clouds.

Pivotal CEO Paul Maritz has repeatedly used wireless carriers as a key target market for the big data-oriented cloud platform his company is building.

So if carriers are gearing up to build clouds atop third-party IP, why is it happening now versus say, six or nine months ago? Tier 3 CEO Jared Wray thinks it’s because they see the market maturing. “Before recently it just wasn’t defined and there wasn’t a huge de facto open source initiative going on,” Wray said. Now, with OpenStack, in particular, that has happened.

“OpenStack has the fanfare and momentum, so the telcos see a defined, evolved ecosystem and it’s looking like they understand what the key components are,” Wray said. “The idea now is to use the colos and wires they already have and layer value added services atop all that.”

Wray attended last month’s OpenStack Summit to see for himself. As to whether Tier 3 will add OpenStack support he was noncommittal.

This is, of course, all very self-interested by these cloud providers to say. But there is evidence that hosting companies, data center providers and telcos really are getting pressure from their customers for the sorts of cloud services that come from Amazon Web Services and others, said Carl Brooks, cloud analyst at The 451 Group.

To be fair, not all the old line companies have given up on building their own technology for the cloud era. Thirty-year old MetaSwitch is open sourcing it’s new IMS core software to ease cloud development.

But whoever’s technology ends up in the mix, as raw connectivity and compute get ever more commoditized, the secret to profitability — and happy customers — is truly useful services and cloud seems the deployment model of choice.

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