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Summary:

Last year, AWS saw big success and big snafus; Superstorm Sandy prompted worry about data center location; legacy IT giants bought their way into SaaS; VMware regroups; the OpenStack crowd got their clouds off the ground; and Europe starts to buy into cloud.

Instead of the usual look back at the top cloud stories of the week, here’s my list of the top cloud computing-related threads of 2012, all of which will continue to play out over the next year.

1: One word: Amazon

Make that three words: Amazon Web Services. AWS dominated discussion around public cloud computing last year and spent it churning out more services from DynamoDB NoSQL database to Glacier data archiving.  And it kept breaking its own record for number of objects stored in its bread-and-butter S3 storage service.

But, with great power comes great responsibility and a huge amount of attention. So every time AWS stumbled, we heard about it. There were several issues at Amazon’s US-East data center over the year that brought down AWS clients including Netflix, Heroku, Reddit and others. So while CIOs love the idea of saving money by using inexpensive AWS services, none of them want to be “that CIO” who presided over a major outage because of an AWS problem.  To be fair, company data centers have problems all the time — we just don’t hear about them much, if at all.

That fear, uncertainty and doubt around whether AWS really is ready for mission critical work will give companies a reason to look at other cloud options — from Rackspace, from Verizon’s Terremark unit, CenturyLink-Savvis, Hewlett-Packard, IBM, Joyent,  SoftLayer or somebody else.

The chart below shows Amazon Inc.’s “other” revenue — which includes AWS — since AWS launched in 2006. From this, you can extrapolate that AWS is now a $2.2 billion-a-year business. How profitable it is remains an open question but it’s clear that Amazon CEO Jeff Bezos is always ready to sacrifice margin for volume business. And that has to worry the legacy IT incumbents.

2: Location, location, location of data centers

Lobby at Verizon office at 140 West Street, New York post-Sandy

Lobby at Verizon office at 140 West Street, New York post-Sandy

After two 100-year storms in two years on the East Coast, any company with data centers in Manhattan, coastal New Jersey, or any low-lying part of the tri-state area, must be wondering what they’ll do about future data centers. A New York-based banking exec told me after Superstorm Sandy that his company’s post-9/11 decision to put data centers away from Manhattan but near a New Jersey swamp is looking sketchy now. He spoke on the condition of anonymity and hastened to add that neither data center failed during the storm.

It’s true that New York’s financial services hub needs some data centers close to the action for latency reasons. But just what percentage of those workloads really demand millisecond or sub-millisecond response times? That’s a question data center expert Mark Thiele thinks people should ask. (Full disclosure: Thiele is executive VP of data center tech at Switch, which operates the SuperNAP data center in land-locked Las Vegas.) “It might be interesting to determine what type of infrastructure is really needed for those really low-latency jobs and how much can be offloaded to ‘safe ground’ data centers,” he said.

But just where is safe ground could be tough to determine, says Chris Perretta, CIO and EVP of State Street. “In the Midwest you get tornadoes, on the coast you get surge, in Florida you get hurricanes, in the west you get wild fires, in California you get earthquakes,” he said.

Still, it’ll be interesting to watch new data center development in the financial services arena. In October, Fidelity Investments said it was putting a $200 million facility in Omaha, Neb., citing tax breaks and other incentives. No mention was made of climate change worry, but IT execs at these companies have to be thinking long and hard about putting any new facility near a storm surge area in the wake of Irene and Sandy.

3: VMware in transition

VMware CEO Pat Gelsinger

VMware CEO Pat Gelsinger

VMware, which is trying to parlay its server virtualization dominance to similar heft in the data centers powering cloud, has a tough road ahead. It’s still recovering from a licensing change announced in 2011 that raised prices — and ire —  in many VMware shops. While Pat Gelsinger’s first official public act as VMware CEO last August was to repeal the reviled “memory tax,” customers are still talking about it. Give VMware credit for reversing itself but that decision caused many staunch VMware shops to take a look at Microsoft Hyper-V, Xen or KVM virtualization as alternatives to VMware’s ESX hypervisor. That was a dangerous door to open.

VMware’s decision to spin off its Cloud Foundry PaaS, Springsource Java framework, and Gemstone data caching technology to a new entity — along with EMC’s Pivotal Labs’ agile development capability and Ceta analytics — was geared to help VMware focus on its new software-defined data center push. The company seems to get now that it has to work better with third-party virtualization technologies — as evidenced by its buy of DynamicOps. And its decision to join the OpenStack effort, signals that it wants to work with other cloud providers — or at least appear to do so.

4: Legacy IT players strive for continued relevance

Oracle CEO Larry Ellison

Oracle CEO Larry Ellison

All of the big boys of enterprise IT — IBM, Oracle, HP, Microsoft, et al.– are struggling to move from traditional software licensing and packaged software delivery to a cloud model of subscription software and services. Here,  Amazon, Salesforce.com and — yes — Google have disrupted the traditional model of buying big expensive chunks of on-premises software up front and then renewing those licenses every year or so. Salesforce.com forced all these companies to take stock of their model and sparked a buying spree by Oracle, SAP and IBM to snap up SaaS companies.

Joe Coyle, CTO of Capgemini, the big systems integrator, said the reluctance of these big players to make their licensing cloud friendly is their single biggest challenge going forward. “If you look out over the next year, if Oracle, SAP and these guys don’t get their licenses fixed, they’re in for a heap of trouble,” he said. right now if a customer wants to run an Oracle or SAP application on AWS public cloud, the licensing costs make those options uncompetitive with what else is available, he said.

Now, Google, which many had discounted as a force in enterprise software, is getting traction for Google Apps, which more businesses see as a good-enough and cheaper alternative to Microsoft Office. And, Google appears serious about entering the Infrastructure-as-a-Service race against Amazon with Google Compute Engine, announced in June.

5: Building Europe’s cloud

map of europe

By most accounts, Europe has been slower to adopt cloud computing than North America. There are many reasons for this. First, the economy there is even more fragile than in the U.S. And the market is actually a set of markets and is much more fragmented – by language, by culture, by currency (not all of Europe is in the Euro Zone) — than North America. But the European Commission is trying to push the cloud agenda, spur spending on cloud infrastructure to reap what it sees as a huge opportunity to save money and to build new businesses. A lot of eyes — on both sides of the Atlantic — will be trained on this developing situation in 2013.

6: Open-source cloud boom

OpenStackLogoOpenStack appeared to hit its stride this year with nearly every company — except Microsoft and Amazon — clamoring aboard the open-source cloud effort incubated nearly four years ago by NASA and Rackspace. In 2012, Rackspace, HP, and others made their OpenStack-based clouds available. But OpenStack doesn’t have the open-source cloud mantra entirely to itself: Citrix  turned over CloudStack to the Apache Foundation as an alternative to OpenStack. Eucalyptus and OpenNebula are already out there. So 2013 will be the year to start measuring momentum among these alternatives and to assess whether there’s room for all of them.

  1. Barb, great year end roundup! You’re the cloud reporting queen! What Bezos is doing is admirable and its great to have the old guard disrupted, however one must always be careful of signing leases (I.e., know thy landlord)! Regarding the final point you made about the open-source cloud, I wonder if there’s a way to measure some of these alternatives to figure out how much uptake there is (perhaps looking at something as simple as the quantity of messages posted to user forums or wiki page edits)? Happy New Year.

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  2. Love Eddie’s idea of looking at something along the lines of quantity of messages posted to user forums. Many business like mine would love to get hands on the numbers to see what works what does not…etc etc etc. Barbara I think what you wrote about in this article was interesting factual and pinpoints what is important for today’s businesses. I thank you and wish you a Happy New Year.

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  3. Hi Barb,

    This really hits home. I purchased gifts for my kids a few weeks back for Christmas. I received numerous messages via e-mail from Amazon, including e-mails that my order had shipped followed by an e-mail that my credit card had been declined. I received three such e-mails. Then came the kicker – a message on a survey (yes, a survey) stating that East Coast distribution center shipments may be delayed due to Hurricane Sandy. Wait a second, are they telling me that they haven’t gotten operations running at full speed since then? The Goliath of the online sales industry?? And the next question is WHY didn’t networks switch orders immediately to distribution centers that DID have full order picking and shipping capability. There is no excuse for a mass worldwide distribution company to ever allow something like this to occur. Amazon fell hard, in respect to this and other incidents that occurred over 2012 and how can anyone trust their services in the wake of this year’s incidents. Incidentally, we an Audio Visual and Information technology company – I sent an e-mail to him immediately after I received this message from Amazon and said, next project…work on a cloud solution for servers and instant switching capability that keeps situations like this from happening again. And we WILL implement it…

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  4. Measuring open-source cloud uptake in terms of quantity of messages is much like measuring eyeballs in the dot.com bust era. And, not lines of code, number of developers or names of big companies jumping on the marketing bandwagon either. How about measuring actual customer adoption (besides Rackspace)?

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  5. Great post. I enjoy reading end-of-year round ups/reviews. I think it is interesting to see just how much cloud hosting and cloud computing have progressed in a relatively short period of time. I’m intrigued to see how it evolves in the next year and beyond. Happy new year.

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  6. Very nice recap. However while I think you got a lot of things right I think it’s a huge stretch to say that all of the net revenue lumped into Amazon’s “other” category is attributable to AWS. Amazon includes many other things in that financial category, including revenue from the their credit cards (co-branded), advertising services, and from seller sites. Moreover, if they were making 2.2 Billion off of AWS then they would call it out separately in their financials and make a huge deal about it (they would do this for both marketing (definitely) and accounting (probably) reasons, even if the amount was a third as large). As they don’t, and the only highlights on AWS found in their financials talk about customer adoption–all with dollar values conspicuously lacking–I have to believe that AWS is, at best, a fraction of the total revenue. I’m not saying they are not a serious competitor/leader in the cloud computing space as they clearly are, what I’m saying that to my mind it is extremely unlikely they are making a lot of money with AWS right now.

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