Winners in the cloud revolution

Winners in the cloud revolution

Summary: Some companies stand to benefit from the rise of the cloud and others stand to lose. ZDNet picks the IT winners.

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TOPICS: Cloud
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The growth of cloud computing will affect the economic nature of the industry as much as its technology.

The huge scale at which the hardware and software of the cloud operates is having a significant effect on not only the types of technology being used in the industry, but which companies stand to benefit from its rise. 

A round of interviews with executives within cloud companies, hardware vendors and analysts underlines the trend towards the growing influence of the cloud over the structure of the IT industry, and identifies the likely winners and losers among IT suppliers. 

This article does not focus on cloud providers, such as Google, Microsoft and Amazon, but on the companies that stand to benefit most from the changes to the IT ecosystem due to their rise.

The software opportunity 

The growth in commodity hardware, and the shift in infrastructure intelligence up from chip level to distributed software systems, gives an advantage to companies comfortable managing large-scale heterogenous IT. 

Virtualisation expert VMware is in a good position as its technology cares little for the hardware it sits on top of. Furthermore it has the SDN technology from Nicira, which could help it appeal to a new breed of companies with different attitudes to how networks should work. 

Big Switch Networks stands to benefit as well. The company, whose co-founder helped develop the OpenFlow networking protocol, has begun selling software tools that let companies spend less on network hardware by moving  functions away from proprietary gear and onto low-cost commodity servers. 

"Virtualisation expert VMware is in a good position as its technology cares little for the hardware it sits on
top of."

Another is Cloudera, which does a commercial version of the open-source Hadoop data analysis system. Cloudera's customers include Morgan Stanley, Monsanto and government intelligence agencies

Many of the software technologies generating much of the cloud interest are open source (Puppet, Chef, Hadoop, Linux), and so to win in this area companies need to help steward the development of the technology while concentrating on enterprise-grade support — a potent source of revenue in open software.

For this reason companies like Linux stewards Canonical and Red Hat also stand to benefit, along with companies backing strong open-source projects and making them into commercial products — like cloud infrastructure software maker Joyent via the node.js language, or Rackspace via OpenStack.

In the same way that Hadoop can be run locally or from a cloud service, such as Amazon Web Service's Elastic MapReduce technology, all companies that deal in scalable software have the potential to sell to the whole spread of the IT market, ranging from individual developers up to companies with on-premise commodified hardware and, perhaps, to the cloud providers themselves. 

The Asian low-cost manufacturers' time to shine

Asian manufacturing companies such Quanta, Wistron and Foxconn, that help organisations build their own equipment, stand to win out as well. 

In the trade these companies are known as Original Device Manufacturers (ODMs) from their heritage of making low-end equipment for the mass market, such as notebooks. These days they make low-cost server, storage and network gear as well. 

Cloud companies like Google, Facebook and Amazon have started to go direct to these companies to get their kit built, sidestepping traditional vendors like HP, Dell and IBM. 

"Cloud companies like Google, Facebook and Amazon have started to go direct to ODMs to get their kit built, sidestepping traditional vendors like HP, Dell and IBM."

Along with this, many of these ODMs work closely with Facebook's Open Compute Project — a trans-industry scheme to create low-cost server designs. Companies such as Wistron already have designs available and are preparing to sell them to companies large and small. 

As more and more interest grows in commodity datacentre hardware, these companies will benefit. 

Datacentre operators

Colocation and hosting providers such as Equinix, Telstra and TeleCity with large datacentres in key locations are also likely to win.

This is because as companies move to the cloud some will maintain a private cloud presence. Typically they will put their cloud in a datacentre operated by such hosting providers. These providers can then offer dedicated links to cloud operators (such as Equinix’s Direct Connect partnership with Amazon Web Services) as one-stop provision for both public and private cloud.  The move to cloud in general will benefit those with such options. 

High-end software and low-end hardware rule the cloud

Put together, these winners suggest that a major change is afoot in the IT industry as clouds build their own bespoke hardware and smaller companies look to save on kit by adding software capabilities. The companies with the greatest chance of winning are either those who are designed to serve huge infrastructure operators, such as the Asian ODMs, or software companies who can help lessen IT buyers' hardware budgets by giving them more control through software. 

Read on for the flip side of the coin — those companies who are big today but face significant challenges in adapting to the new cloud landscape. After that, ZDNet looks at how the cloud revolution could make a few large cloud providers tech giants and make life difficult for start-ups. Finally, we assess how close cloud is to becoming a utility.

Topic: Cloud

Jack Clark

About Jack Clark

Currently a reporter for ZDNet UK, I previously worked as a technology researcher and reporter for a London-based news agency.

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11 comments
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  • Interesting

    Under "winners" I do not see:

    MS
    Apple
    Google
    Amazon
    Facebook

    The last 3 are mentioned only in the context of Asian manufactures being winners.

    If you are in the business and are not a winner, your position becomes rather obvious. I can hardly wait for part 2. :-)
    D.T.Long
    • Winners in the ecosystem around major providers

      Hey D T Long
      Neither Google or Amazon or Microsoft are mentioned as they are major cloud providers and this article is more about the technology ecosystem revolving around the cloud providers.
      Apple (spoiler alert) is not mentioned in either the winners, losers or top-secret upcoming pieces because they don't really have an enterprise cloud play, and separating device sales out by vendor in relation to cloud rise is a bit difficult and distracts from the focus of this piece (though a client-side cloud piece is upcoming, just no ETA yet).
      Rest assured there's a large article on the way which discusses the implications of goog/msft/amazon getting big and what this means for them and not just for the industry.
      Anyway, tune-in tomorrow to see the losers!
      Thanks for commenting,
      Jack
      Jack Clark
  • Wistron not Wistrom

    come on guys!
    m.t.skelsey
    • Corrected

      Hey m.t.skelsey this has been changed, thanks for flagging it.
      Jack Clark
  • Love to see new technology but..

    Just like PCs before them, there is only so much market for super giant huge. Like what? I need cloud to orginize my receipies, and balance my check book?

    Maybe I'm missing something, but can some one ball park me on just how much as a percentage of what ever a business is supposed to be able to save by using cloud. I say save, because computer technology is rarely part of the revenue center. Almost always it is part or some expense or cost center. If you start with the idea that by definition a business exists to make a return on capital for the owners, how is cloud going to help a business? And what type of a business would it have to be?
    maszsam
    • reasonable question

      OK, so I run a few Hadoop Clusters at AWS (EMR).

      We have a ream doing similar things that just requested $750K for a new machine to basically crunch numbers. I do it on demand, storing my data @ S3 and then turning on machines to process as needed ... and I shut them down when I am done. Even better, I don't have to outlay for tomorrow's workload ... I add capacity as I need it.

      I not only do the processing quicker, I do it for about $2K/mo. It is not just the cloud, but technologies that scale well on it.

      An large retailer I formerly worked for would see close to 1000x traffic on Black Friday. We literally had a batilla of machines sitting around for the rest of the year. On demand machines are pretty nice in that environment as well!
      mobile_manny
    • from vertically integrated to outsourced operations

      Imagine a large, completely vertical integrated multinational. Over 300.000 employees in 60 countries.
      Then one day management decides to focus on core competencies which is productdesign, marketing and sales. All the rest ranging from HR, Purchasing, manufacturing and logistics is considered non-core and is outsourced. Suddenly the carefully home grown and process tweaked IC infrastructure and application landscape is totally inadequate. It does no longer facilitate, no, it blocks the strategic direction the business wants to go.
      Within 10 years the company went from 250.000 to 120.000 employees. It did a lot of divestments, but also a lot of mergers. Suddenly we found ourselves in the situation that from almost no contracters, consultants, partners, we went to large numbers of collaboraters and co-operators with whom we had to share data and applications.
      We came to the conclusion that it was no longer possible or viable to keep the infrastructure safe by keeping the clients safe. Hell, we did not control over 40% of the clients that were trying to get access to our resources. Suddenly the factories that were once part and parcel of our infrastructure were sold and part of the infrastructure of a contract manufacturing partner.

      The answer: in 2005 we started to ask for open technology stacks, for open Identity Management solutions, for generic email services, for web services for commodity processes. In short: we started to ask for something that we now call Cloud Services. We wanted to connect to new service providers and partners in a matter of hours instead of weeks. We wanted to integrate acquistions in days instead of months.
      Does the cloud give all that? absolutely not. But the pace of progress is enourmous. In 2006 we outsourced our entire enterprise email service to an external provider. It took more than 1.5 year and on several occasions we considered to stop the exercise. When we decided for a different provider after 3 years, the whole migration took less than a month and I guess when we do it now a professional supplier would take some weeks of preparation and do the migration in a weekend. The result: costs are cut by 50% and flexibility has increased by 100%. Tariffs from the provider are based on a per account basis which makes the controllers very happy. Mergers and divestments take very little effort.
      Since then also the Collaboration environment is outsourced (Sharepoint) quickly followed by the Office environment. HRM is outside, payroll is outside and many, many more.
      I hear you think: what about security?? All storage and all communications are encrypted. All SLA's have a prominent chapter about security and suppliers are audited on their behaviour. Last but not least: constant attention for the security awarness of the users and risk assessments in the business processes.
      You are lost if you see the Cloud only as a means to cost reduction. The Cloud gives you the possibility to free yourself from the heritage of old capex that has become obsolete, from out-of-date inflexible processes, to free yourselve from IT staff that has become part of the problem instead of the solution and retrain the rest to handle information instead of boxes. It also gives you the flexibility to switch resources on- and off whenever and wherever you need them.
      In a nutshell: there is still a lot to innovate but there is no doubt that the cloud is the way to the future.
      water-man
      • Stole my thunder...

        Hey water-man,
        Thanks for commenting - hugely interesting story. Much of the things you refer to - the capex savings, the low-cost benefit - will be discussed in the article tomorrow on how cloud providers are industrialising and what this means for IT buyers and start-up competitors.
        Cheers,
        JC
        Jack Clark
      • Nice comment

        I too work with large sets of servers, but rather than the single multinational with all those employees, I have many much smaller internationally operating companies on our infra., and the same benefits accrue.
        sonnet37
  • Understanding ODMs

    Quanta is only one of the big three ODMs in Taiwan and China, you also have Inventec and believe it or not...Lenovo (who bought IBM PCD)

    ODMs have been driving new technology development for many years, building products, whilst at the same time servicing the OEM Market (Dell, HP, Siemens, Sony, Apple, etc.). Korea - ASUS and Samsung - operate slightly differently, but all follow the same massive manufacturing model, building hardware like Honda can build cars.

    But don't get confused by what could be termed success. ODMs build stuff to tempt OEMs, but have to build thousands of units a month to justify the Manufacturing Cities they have invested in. They build Laptops and Servers and washing machines and air conditioning plant and TVs...So everything is a loss spreading exercise.

    What is interesting is the move by Microsoft and Intel to build devices directly for markets with ODMs. That is not a cloud decision, it is basic natural selection.
    John Laity
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