Sunday, March 22, 2009

Cloud platform - the next generation of computing

There are several players in the cloud computing market at the moment. They vary from tech behemoths such as Microsoft, Amazon and Google to small players such as Rackspace. In this blog, we will analyze the different players and check their strengths and weaknesses.

Google offers web hosting and provides storage services through its app engine platform. However, the range of programming languages one can use with Google app engine platform is limited. The limited options also limit Google's ability to attract more programmers.

Microsoft has started offering web hosting and storage service. Currently this service is free and can be used within limits.

Offering widely used cloud services may not work well for Microsoft or Google. This business is a low margin business. While Microsoft enjoys wide margins on its productivity and operating system businesses, Google enjoys wide profit margins in its search business. The cloud business offers very low margins and it is a model that can threaten Microsoft's entire business model.

Amazon offers the best of breed cloud storage service. It also provides EC2 compute service. Amazon has also moved to offer CDN services based off of its storage engine.

Rackspace offers better pricing than Amazon in providing cloud storage and web hosting services. It also offers to host e-mail for qualified customers. Rackspace has teamed up with limelight networks to offer CDN service.

Sun Microsystems and EMC are also interested in cloud computing. Sun has historically been a player with storage technologies. EMC meanwhile has an interest in the cloud to sell more storage. It could get really interesting if IBM buys SUN. IBM would likely sell consulting services on top of the cloud software developed by SUN. There are other players such as AT&T, EDS, CSC who are also in this market.

Rackspace Systems is based off of San Antonio, Texas. It is a public company and provides details of its operations. It has been in the cloud business for some time now – its 10K shows revenue of $720/customer/year. The company doesn’t break down its profit margins for cloud vs other services ( like web hosting, hosted e-mail etc. ) The majority of the company’s revenue is through non cloud services. In fact, cloud services only make up 4% of Rackspace's market segment. However, the cloud segment is growing very quickly with 500% growth year over year. Overall, Rackspace's business is growing at 46% year over year. Rackspace has a pretax margin of 7% and after tax margin of 4%

The allure of cheaper maintenance and less capex will lure more services to migrate to the cloud in the coming years. It is difficult to predict a winner at this time, more likely than not, the winner will be a company that is not a prominent tech titan. The low margins make this model particularly attractive to companies such as Amazon and Rackspace. Others such as IBM ( with SUN ) may also find this space interesting as they add value added services and special hardware.

Sunday, March 01, 2009