Why Amazon and Salesforce are pulling away from the cloud pack

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 (s msft) and Google (s goog) 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 (s amzn) and Salesforce.com (s crm) — 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 (s orcl). 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.