Blog
18.05.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s I.T. company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of I.T. companies and trends, and advises governments on economic development and investment attraction related to the sector.
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HP and IBM’s lucrative businesses selling server-side systems to global enterprises is under attack from more established cloud hosters. These businesses account for a combined annual revenue exceeding $150-billion.
In the face of the accelerating adoption of cloud computing, both companies are maneuvering frantically to negate the risk and put themselves in a position to benefit from the cloud with IBM SmartCloud and HP Converged Cloud.
Most of the server-side business that IBM and HP have today involves provisioning enterprises with the hardware, software and services they need to run applications on infrastructure controlled by the customer. The customer exercises this control directly through ownership or indirectly through outsourcing contracts.
A plethora of cloud hosters are aggressively trying to use the cloud to convince customers of HP and IBM that they do not need to control their own infrastructure. Instead, these cloud hosters want to lure enterprise businesses onto their cloud platforms.
Amazon and Google and others are renting out space on the same cloud platforms they established to run their own businesses. Additionally, large telcos are setting up cloud hosting operations and a diverse group of cloud entrepreneurs including Rackspace, Salesforce.com and NetSuite are going after individual parts of the solution that IBM and HP now sell.
HP and IBM are not standing idly by. Both are rolling out defensive strategies that look remarkably similar. Each has begun offering customers a continuum of cloud services designed to forestall defections to the cloud “interlopers”. Each company is selling converged systems that customers can use to build their own private-hybrid clouds. HP and IBM are supplementing customer private clouds with a range of external cloud services: hosted private cloud, virtual private cloud, and public cloud.
Both companies are using OpenStack’s open source software for the IaaS layer. Ultimately, this will make it possible for customers to move workloads across different clouds over the lifecycle of an application. OpenStack will also enable peak-period workloads to be “burst” from a customer’s private cloud to HP or IBM’s cloud hosting data centers.
The IBM SmartCloud portfolio was significantly enhanced on May 16, following a major announcement on April 10 which detailed the HP Converged Cloud strategy. Both initiatives are primarily rear guard efforts to protect existing business.
If IBM SmartCloud and HP Converged Cloud succeed in turning back the threat from Amazon AWS and the other cloud hosters, the two server-side computing market leaders can then turn more attention towards using the cloud for new business development.
10.05.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s I.T. company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of I.T. companies and trends, and advises governments on economic development and investment attraction related to the sector.
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To come up with enhanced software to analyze social media feeds, Hewlett-Packard is enlisting its own central R&D establishment to build on the social media strengths the company picked up in last year’s $11-billion acquisition of Autonomy. Technology from both Autonomy and HP Labs is being used in a new customer relationship offering through HP Social Enterprise Services that targets departments wanting to institute a social media customer relationship management (CRM) program.
Analysis of social media traffic is a hot niche in the increasingly hot real-time analytics market. According to HP, “one fourth of search results for the world’s top 20 largest brands are links to user-generated content”. Social media analytics should become an even hotter area in the future as solutions are turned into cloud-based SaaS (Software-as-a-Service) offerings.
HP Labs carried out significant research, led by Senior Fellow Bernardo Huberman, on social media analytics well before the Autonomy acquisition. Social Computing Research is one of HP Labs’ principal areas of focus. For example, its Social Computing group published a paper back in Mar. 2010, Predicting the Future With Social Media, which used a simple model to forecast box-office revenues for movies from Twitter chatter. According to the paper’s authors, the model outperformed more traditional predictors. The HP Labs group has published a significant number of other research papers on analysis of social media.
Autonomy, backed by HP Labs, is at the heart of HP’s information management business. The social media capability it brought to HP spans marketing, compliance, and legal discovery solutions. The Autonomy Social Media solution claims a unique ability “to understand the one billion new messages, ideas, and exchanges that appear each week across social channels”. The technology promises to optimize marketing strategies and messaging by extracting value from conversations or sentiments expressed in social media, in real time.
Domicity’s tracking of HP shows that the company needs to begin growing earnings by boosting profit margins rather than slashing costs as it did under former CEO Mark Hurd. Using R&D from HP Labs to generate unique, high-value added technologies to help a business like Autonomy compete better in a fast growing market comes straight from the new business model that Chair Ray Lane and CEO Meg Whitman are working to develop. For a company that used to be engineering-driven this is a move back to the future.
07.05.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s I.T. company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of I.T. companies and trends, and advises governments on economic development and investment attraction related to the sector.
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VMware's Cloud Foundry dukes it out with Red Hat's OpenShift
VMware’s open source Cloud Foundry PaaS technology has market momentum. One reason … it holds the promise of enabling enterprises to develop applications that can run across multiple IaaS cloud environments — vSphere/vCloud, Amazon AWS (via RightScale), and now OpenStack (via Piston Cloud).
Cloud Foundry is strategically important to VMware because it offers a safety valve for buyers of the company’s cloud-related software who don’t want to be locked into VMware. Organizations writing cloud applications to Cloud Foundry have the freedom to use a range of IaaS offerings and related technology stacks for their private and public cloud environments, not just products from VMware. Just the ability to replace VMware may staunch the potential bleed of the company’s customers to other alternatives.
Better still, if Cloud Foundry is successful it could boost VMware’s growth significantly. The PaaS market is likely to pass $1-billion in annual revenue next year and is expected to grow in double digits for the foreseeable future.
VMware introduced Cloud Foundry as an open source PaaS offering in April 2011 under an Apache 2.0 open source license. However, contributions to Cloud Foundry are governed by contributor licenses for individuals and corporations. Under these licenses VMware retains both copyright and patent access and protection.
Red Hat has significantly more open source cred than VMware. Red Hat’s OpenShift is Cloud Foundry’s main rival as an open source PaaS software layer and VMware and Red Hat are now actively duking it out for dominance in this market segment. Boosting its strong open source credentials, Red Hat offers enterprises the potential to build an end-to-end open source cloud software stack consisting of its Linux distribution, KVM hypervisor, and OpenStack.
However, Cloud Foundry was earlier to market with a well-developed PaaS offering and currently has the lead over OpenShift. Cloud Foundry’s ability to span vCloud, Amazon AWS and OpenStack presents a strong value proposition, as do some additional capabilities including:
- preferential hooks into VMware’s large installed base of virtualization and cloud software
- the ability to extend across private and public clouds
- support for an array of programming languages and frameworks
- a “micro” version that allows a developer to write an application on their laptop and then migrate it to the cloud.
The outcome of the pitched battle between VMware, Red Hat and other PaaS competitors will largely be played out in the future. For now, it makes for an exciting spectator sport for analysts.
27.04.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s I.T. company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of I.T. companies and trends, and advises governments on economic development and investment attraction related to the sector.
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Will the cloud be a boon or bane to India’s I.T. outsourcers?
In an earlier blog post we highlighted the luxurious operating margins of InfoSys and Tata Consultancy Services (TCS), the two largest Indian I.T. services firms. They are not just profitable. Both have been growing quickly. Infosys and TCS have been winning outsourcing work in the West by leveraging the pool of educated and relatively low-cost talent turned out by the Indian educational system. And they are benefiting from India’s growing domestic economy.
Later, we cautioned that highly automated cloud-based outsourcing could, over time, reduce the advantage of firms such as TCS and Infosys that depend on cost-effective labor to fuel their business model. Under this scenario, traditional labor-intensive “your mess for less” outsourcing, in which these outsourcers excel, would be replaced by Everything-as-a-Service offerings delivered from highly-automated and lightly-staffed cloud hosting data centers.
Results from the most recent fiscal year (ended Mar. 31) are just out for TCS and Infosys. Do they reveal any early hints that the cloud is eating into their labor-based business model? … nothing definitive.
Using indices, the following graphs provide a multi-year comparison of revenue and operating income performance for Infosys and TCS.
TCS, the larger of the two, had a stellar FY2012. Consolidated revenue in rupees was up 31.0% and operating income was up 29.1%. This was even better than the previous year’s 24.3% revenue growth and 28.6% operating income growth.
FY2012 results for Infosys, although impressive, trailed TCS with revenue growth of 29.1% and operating income growth of 19.6%. As with TCS, this was better than FY2011 (revenue up 20.9%; operating income up 14.1%).
In FY2013, TCS is expected to outperform Infosys again. TCS management has issued bullish sentiment for the upcoming year. Infosys says it expects growth to drop to half the FY2012 rate.
Is Infosys the canary in the coal mine? Are its softening results a harbinger of the problems the cloud could ultimately wreak on all I.T. services companies that are overly focused on labor-intensive, your-mess-for-less outsourcing? Or is the current TCS management simply more insightful?
The cloud may very well spell trouble for India-based outsourcing firms, but it does not necessarily have to be that way. Leveraging software expertise and labor affordability, the cloud will present abundant opportunities for these companies, including writing new cloud-hosted applications or transitioning customers’ conventional apps to a cloud-hosted format. The relative perspicacity of management to devise strategies that negotiate a smooth transition to the new cloud computing paradigm will determine who grows and who profits.
19.04.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s I.T. company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of I.T. companies and trends, and advises governments on economic development and investment attraction related to the sector.
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If OpenStack did not exist, the leading I.T. vendors would need to invent it.
A pressing self-interest has led IBM, HP, Dell, Cisco and other I.T. suppliers to pour money, technology and governance expertise into the OpenStack consortium.
Taken as a group, these companies are such powerful market players in server-side computing, and their self-interest has become so thoroughly aroused, that OpenStack is virtually guaranteed to become a key piece of cloud technology. In fact, there is a very good chance that OpenStack, in combination with related open source software such as Linux, KVM and OpenFlow will come to dominate the lower layers of the enterprise cloud software stack over the next 10 years.
The big vendors have thrown aside ambitions they may have had to sell their own IaaS layer technology. Instead, they are plumping for OpenStack because they simply cannot allow enterprise customers — big or small — to begin transferring workloads, en masse, to hosted Amazon AWS and VMware cloud environments. A migration to hosted proprietary clouds, taken to the extreme, could decimate sales by these I.T. vendors of hardware, software and services to enterprise customers.
As the major equipment suppliers cast their eyes over the landscape of possible solutions to the growing Amazon / VMware threat, they ultimately fell in behind OpenStack. With a tuck here and there, OpenStack’s technology is maturing and becoming good enough to function as an IaaS layer to underpin the full gamut of enterprise cloud environments.
Converging clouds
Last week, HP’s Converged Cloud announcement highlighted what is likely to become a standard big-vendor cloud portfolio offered to enterprise customers. OpenStack will provide a common IaaS layer “converging” a customer’s on-site private cloud, as well as HP-hosted managed cloud and public cloud offerings. Customers can put workloads wherever they are best suited within this HP-centric computing universe, and in theory move them around freely as circumstances change. No customer need look outside the HP universe, but if they must, third-party service providers such as Rackspace will also provide OpenStack-based hosting.
The hybrid cloud scenario described by HP is one on which IBM and Dell are also converging. Other technology vendors that do not want to get into hosting themselves can sell individual products into OpenStack clouds. For instance, Red Hat, Canonical and Suse will likely provide valuable packaging and support services to accelerate the proliferation of OpenStack throughout the broader enterprise cloud.
Widespread adoption of OpenStack for the IaaS layer should please enterprise I.T. managers as well as the channel. Both have increased their uptake of Linux and other open source software, allowing them the freedom to add new technology vendors or to change horses, while keeping the same basic technology framework.
Domicity does not agree with some commentators who suggest that OpenStack is too late and the prize has already been won by Amazon and VMware. Vast sums of money are at stake for the big I.T. vendors. The combined revenue for IBM, HP and Dell alone is nearly $300-billion. They cannot afford to allow the enterprise computing workloads that fuel most of their business to drift to public clouds in which they hold no stake. These same market leaders can be expected to use their substantial influence over enterprise customers and channel partners to make sure it does not happen.
12.04.2012
Blog
Posted by Susan Sparrow, President, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s I.T. company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of I.T. companies and trends, and advises governments on economic development and investment attraction related to the sector.
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Apologies if I seem a bit parochial in this blog. I’m excited that Domicity’s home region, southern Ontario, is targeted by IBM for a substantial new R&D investment. In yesterday’s salute to the potential of this area’s university system, IBM is investing $175-million of its “Smart Money” into a cloud-supported research consortium.
Domicity has conducted a good deal of investment attraction work to promote Canada to multinational I.T. companies. One of the key value propositions we stress in this work is the network of well-funded public universities that comprise an impressive cluster of electrical engineering and computer science capabilities.
According to IBM’s announcement, university researchers will be able to access an IBM cloud platform underpinned by two Blue Gene/Q computers. The IBM cloud consortium led by the University of Toronto and the University of Western Ontario (London), includes five additional members: McMaster (Hamilton), Queen’s (Kingston), the Ontario Institute of Technology (Oshawa), Ottawa U and the University of Waterloo.
IBM says, “This collaborative model will help university and industry researchers use high performance and cloud computing infrastructure to better manage and analyze massive data sets to solve critical world challenges.” According to the company, research will focus on providing information that contributes to solving diverse problems including: rapid urbanization, aging municipal infrastructure, rising healthcare costs due to chronic disease, water and energy conservation through weather modeling and smart grid technologies, as well as software innovation.
IBM says that the consortium’s cloud-enabled, virtual structure will allow company research staff to work side-by-side with many of Canada’s world-renowned scientists.
Domicity thinks this IBM cloud investment is smart:
- A relatively modest amount of money lets IBM leverage many billions of dollars invested by Ontarians in education and social infrastructure
- These seven universities have some astounding research talent to enhance IBM’s larger “Smarter Planet” strategy
- Research results can be marketed globally
- IBM is in a favored position to recruit the best and the brightest researchers
- Students involved in the consortium’s research could become life-long IBM customers
- IBM enhances its ability to sell products and services to the federal and provincial government sector, including the region’s massive MUSH market (municipalities, universities, schools and hospitals).
Already a significant investor in the region, IBM’s largest software establishment outside the US is located in Canada. This new IBM cloud research consortium is another smart move. Other foreign I.T. multinationals in need of talent … nota bene.
09.04.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s I.T. company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of I.T. companies and trends, and advises governments on economic development and investment attraction related to the sector.
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Facing a hurdle
Last week Citrix pulled its CloudStack technology out of the OpenStack consortium, creating a rival open source IaaS offering through the Apache Foundation (see Domicity’s previous post).
In the early laps, one way to track who is ahead in the OpenStack versus CloudStack race is to follow the money. Which important industry players are willing to invest in OpenStack and which in CloudStack?
Two sets of companies are particularly worth watching:
- I.T. vendors — major hardware, software, and services suppliers that provide inputs for cloud building;
- Telcos and other CSPs (communications service providers) that are moving into cloud hosting.
Companies including IBM, Dell, and HP span both the cloud building and cloud hosting groups.
Domicity’s table below — extracted from the list of collaborators published by OpenStack and CloudStack — shows major industry players and their allegiance when it comes to either consortium (three companies support both and many other less well-known companies have been omitted).
It is not surprising that CloudStack’s roster of major supporters is less populated. It only formally entered the open source IaaS software competition last week. However, because it is later to the game, CloudStack will need to provide significantly superior services and technology to peel away support from the other guy.
The services piece falls to Citrix which is said to want to use CloudStack to become the Red Hat of the IaaS layer — mirroring Red Hat’s success in providing superior hand-holding for Linux adopters. Expect this ambition to be frustrated if Red Hat takes on the same role for OpenStack.
In the case of superior technology, the full story has yet to be written. It is worth referencing a blog by Randy Bias of Cloudscaling who says he has worked extensively with OpenStack and CloudStack. After declaring a “bias” in favour of OpenStack, he provides his analysis of the underlying technology of each. Should his views be shared by a significant number of others, CloudStack’s prospects for winning the technology race appear less than bright. Two weaknesses that Randy Bias identifies include:
- CloudStack is less compatible with Amazon AWS than OpenStack;
- CloudStack is saddled with a dated architecture, “CloudStack is a single monolithic piece of Java code. Most of the code resides in a single .jar file and runs on a single Java app server by default. This is a common architecture — from 1999”.
The race has just begun and CloudStack faces some high hurdles.
04.04.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s IT company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of IT companies and trends, and advises governments on economic development and investment attraction related to the IT sector.
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Does OpenStack still have momentum?
A month ago, Domicity blogged that both supply-side and demand-side economics would necessitate a strong open source option for the IaaS layer — an operating system for the cloud that can play Linux to Amazon’s Windows Server. And OpenStack looked set to become the open source IaaS software of choice.
But a month is a long time in the cloud. Has OpenStack’s market momentum cooled, or is its mojo still workin’?
Before going out on a limb with our prognosis for OpenStack, let’s recap some recent events ….
Sony — It was revealed in early March that Sony Computer Entertainment America, which operates the Playstation business in the Americas, would move part of its hosting business from Amazon AWS to a Rackspace OpenStack platform. The high-profile move was seen as a validation of OpenStack’s availability from multiple cloud hosters and a repudiation of Amazon AWS for a cyber attack on Sony’s Amazon-hosted PlayStation network. Information on 24.6-million Sony subscribers was compromised during the event and Amazon appeared to be at least partially to blame.
HP — In May, HP Cloud Services is expected to unveil an OpenStack-based alternative to the Amazon AWS offering. HP’s public cloud hosting service, which has been running in beta since fall of 2011, will ultimately offer IaaS compute and storage and a PaaS layer using VMware’s open source Cloud Foundry. HP Cloud Services will also host SaaS offerings of third-party ISVs (independent software vendors), HP business units like Autonomy, as well as hosting services that can be rebranded by small telcos and other service providers. The HP entry into public cloud hosting is being pitched as more enterprise-grade than that of Amazon.
IBM — Although Armonk is not among the 156 named participating companies in the consortium, rumor still has it that IBM has effectively joined OpenStack and all that remains is the official announcement. This is supported by IBM’s signing of an OpenStack Corporate CLA (Contributor License Agreement) and an official list of OpenStack contributors that includes 13 names from IBM.
Essex — Much of the intensifying commitment to OpenStack comes from enthusiasm for the newest release. Codenamed ‘Essex’, the official release date for the new edition is scheduled for tomorrow (Thurs. April 5). It is claimed that Essex improves stability for high-volume clouds over previous releases. Other upgrades include: enhanced integration between individual OpenStack modules as well as with third-party monitoring products; better identity management and object storage. HP, Rackspace, AT&T, Dell, and others will offer Essex-based hosting and we expect IBM to follow. Start-up Piston Cloud Computing plans to offer a version of Essex designed to allow enterprises to build private clouds.
Amazon and Eucalyptus — Public cloud hosting leader Amazon AWS has responded to OpenStack’s momentum. To counter OpenStack’s ability to inter-operate between private and hosted clouds, Amazon signed an agreement with software developer Eucalyptus. Eucalyptus has been granted official access to the Amazon APIs (Application Programming Interfaces) which Eucalyptus says will let enterprises move virtual workloads between their in-house data centers (which run Eucalyptus on-premises IaaS software) and Amazon AWS public cloud hosting data centers.
Citrix — Citrix left the OpenStack consortium to offer its own open source CloudStack software through the Apache Foundation. Some say the Citrix departure is a significant blow to OpenStack. It could be seen just as easily as further validation of OpenStack’s momentum. An early OpenStack supporter, Citrix risked being trampled by the big names pouring into the consortium. Citrix CloudStack technology was not fully accepted by OpenStack. And, Citrix no longer saw OpenStack as the vehicle it needed to realize its aspiration to become the “Red Hat of the IaaS layer”.
Now about that tree limb. Domicity still thinks momentum is growing for OpenStack. This is reflected more in mindshare than market share. It could take the better part of a year before it is clear whether OpenStack can erode the market position of Amazon AWS. In the meantime, OpenStack will attempt to close lingering technology gaps with Amazon. The OpenStack consortium also needs to promote a more transparent governance process that includes reducing Rackspace’s control over development.
29.03.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s IT company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of IT companies and trends, and advises governments on economic development and investment attraction related to the IT sector.
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First there were two; now there is one
The larger financial dynamic behind HP CEO Meg Whitman’s decision last week to merge the printer operations into the HP PC business was outlined in our previous post.
What does HP’s new Printing and Personal Systems Group need to happen for it to solve the Apple problem and to begin generating respectable revenue and profit growth?
Some developments are within HP’s control; but not all. Some will be relatively easy to bring about post-amalgamation; others will be more difficult. Here is the easiest …
- Cost reductions — It is relatively easy to cut out overlapping staff, marketing/sales, and customer support positions between the PC and printer groups; to reduce the number of product models; to streamline the supply chain and generate additional buying power with suppliers. Whitman says most of these measures are planned. Using cost reductions, Domicity estimates HP can improve the 9.7% FY2011 operating margin, which a merged group would have generated, by two or three percentage points.
HP’s new Printing and Personal Systems Group has to do much more than cost cutting to put a dent in Apple’s stratospheric 31.2% operating margin for FY2011 or to impede its growth. However, these other measures will be more difficult and a crucial one is not in HP’s control.
- Competitive cloud offerings for consumers and SMBs — This is a more challenging step in generating growth and improved margins. As discussed in an earlier post, Steve Jobs left an important legacy for Apple by putting iCloud at its strategic center. All Apple products are now positioned as cloud access devices. HP must assemble cloud services that can drive the sale of access and output devices (printers) and improve margins. Its photo sharing service Snapfish, and other cloud services offerings from the printer business will be ancillary parts of the puzzle. But HP needs an aggressive acquisitions and alliances program right away to build the core of its consumer and SMB clouds.
- Synergistic developments — Creative thinking is needed to generate synergies between the printer and PC businesses, beyond mere cross-selling and other promotional opportunities. Greater revenue growth and profits are likely possible from digging into the printer unit’s R&D treasure trove; for example, using sensors and next-generation displays to produce breakthroughs in PC and other cloud access device designs.
- Hardware improvements — The post-merger HP PC business can become much more competitive with Apple in hardware development. As this former post points out, HP’s Envy 14 Spectre ultrabook, which targets the MacBook Air, won ‘Best PC’ at the January 2012 Consumer Electronics Show. HP needs to rationalize its product line and ramp up model-by-model competition with Apple on product design.
- Software smarts — This is largely out of HP’s control. After winding down its WebOS strategy, HP is again dependent upon Microsoft to generate a competitive software platform for the PC, tablet, smartphone, and TV set-top box markets. If Windows 8 is not a winner, the new HP PC business will have a tough time generating real revenue growth. Reviews of the beta versions of Windows 8 have been mixed. One sexy piece of HP software that might have potential to boost competitiveness is Aurasma, an augmented reality technology picked up from HP’s acquisition of Autonomy.
Domicity’s graph below shows that the new HP PC business has a steep climb to begin closing the revenue and profit gap with Apple.
If HP’s new client-side Printing and Personal Systems Group does not experience significant success by the end of 2013, Domicity will not be surprised to see management spin it out to concentrate on its more desirable server-side sector. If this is the result, the reputation of former CEO Léo Apotheker will be enhanced. He wanted to begin divesting the PC business in the summer of 2011.
23.03.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s IT company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of IT companies and trends, and advises governments on economic development and investment attraction related to the IT sector.
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To understand why CEO Meg Whitman is merging the HP PC business with the company’s printer operations, just look at the broader company structure from the standpoint of growth and profitability.
Before this week, Hewlett-Packard operated three macro businesses:
- PCs
- printers
- server-side products and services for I.T. shops
(HP also has two much smaller business units: customer finance and an incubator for new businesses.)
The server-side sector — servers, storage, networking, enterprise software, and professional services — is healthy. It has reasonable growth potential and profitability and is generally well-positioned to benefit from the move to cloud computing.
HP’s printer business has been profitable. However, it has had a poor growth record in recent years and future growth potential is questionable. As consumers and businesses do less printing, HP has tried to generate new growth by: moving into a range of commercial print markets; developing cloud offerings to boost consumer and enterprise printing; and marketing imaging management services to the corporate sector. However, these growth initiatives have not overridden the print output downdraft.
The HP PC business previously demonstrated significant growth potential selling Wintel boxes to consumers and businesses. However, margins were soft; with most of the profits going to Microsoft and Intel. Now even the growth has gone out of the HP PC business. This is due to Microsoft’s slowness to develop a successful operating system for smartphones and tablets in the face of Apple’s momentum.
HP’s strategy to break its Microsoft and Intel shackles by creating a range of WebOS devices on different microprocessor architectures has collapsed. All hope now rests on Windows 8 to generate across-the-board competitiveness with Apple. But the best that Windows 8 can do for HP is a return to reasonable revenue growth. Prospects for decent profit margins remain poor without major changes to the business model.
Léo’s prescription
As an outsider, former CEO Léo Apotheker indicated that the way out of HP’s strategic predicament was to spin out the PC business, freeing up resources for the server-side business with its good growth and profit potential. He particularly wanted to expand HP’s position in the highly profitable enterprise software business; one he knew well from his career at SAP. Apotheker decided to keep the printing business because HP, as the market leader, was making an acceptable profit. He might have devolved the printer business at a future date if growth remained soft.
When Apotheker announced the likelihood of spinning out the HP PC business, the thunder of condemnation from customers and channel partners was so great that the Board lost its nerve and Apotheker was thrown under the bus.
Dual empires
Apotheker’s successor Meg Whitman, another outsider, is dealing with the challenges of poor PC profitability and poor printer growth by merging the two businesses. This effectively divides the HP empire into two — let’s call them the server-side business and the client-side business.
As this graph shows, in FY2011, HP’s server-side business had revenue of $61.4-billion and an operating margin (operating income ÷ revenue) of 15.0%. The client-side business, if merged at the time, would have generated a slightly higher FY2011 revenue of $65.4-billion but a much lower operating margin of 9.7%.
HP’s server-side business is #2 globally. Server-side leader IBM had 2011 revenue of $107-billion and an operating margin of 20%. HP’s client-side business is also #2. Market whiz Apple had FY2011 revenue of $108-billion with an operating margin of 31%.
Whitman’s most pressing order of business is to define a model for the newly created client-side sector that can successfully address the central strategic question: “How can HP improve competitiveness with Apple to grow revenue and profits?”. See our next blog post.
21.03.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s IT company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of IT companies and trends, and advises governments on economic development and investment attraction related to the IT sector.
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Stack of naan
The cloud computing paradigm is placing an increased emphasis on the importance of the data center as a source of competitive advantage for cloud-based businesses and operational units. This importance is signaled by such catchphrases as “the data center is the computer” or “the data center is the supply chain”.
If the data center is the computer, a single engineered system for the equipment and the building in which it is housed will generate the highest value-added and the least cost per web click. In the search for maximum return on investment, data centers can be constructed using standardized designs or by heavily customizing the architecture of each facility to the micro-environment of its geographic location and applications.
The history of the server market provides a useful point of reference as to the overall direction the market will take. Over time, x64 servers have steadily increased their market share versus the mainframe and RISC/EPIC architectures. The same dynamic is starting to be seen in cloud data centers; only the applications with the very highest value-added will be appropriate for custom-built monolithic centers. For the mass market, more standardized commodity designs will predominate.
These are early days for “the data center is the computer“. The market is in a wild and woolly experimental free-for-all as it feels its way towards the most efficient models. A variety of creative alternative data center designs are popping up; here are three substantially different examples:
- IBM’s big stack of naan approach — IBM’s large data center for Tulip Telecom in Bangalore, India. Unlike a typical North American sprawling one-storey data center, the 100-megawatt behemoth developed by IBM for Tulip Telecom, maximizes scarce and expensive land by going vertical. Four 5-storey towers house 200,000 sq ft of raised data center floor space. They sit on three floors of shared space. This represents a good example of a fully customized data center design.
- Google’s Finnish paper mill — Minimizing energy use is the basis for the design of Google’s new data center in Finland. In 2009, Google paid about $52-million for a paper mill in Hamina, Finland. In a twist of fate, the paper-making operation had been forced to close due to competition from Internet-based media. The site features a 450-meter underground tunnel that stretches into the Baltic Sea, which originally provided cold water to cool a steam generation plant at the mill. Google has repurposed the tunnel to cool the servers in the new data center. This semi-customized design has been uniquely adapted to the local micro-environment but undoubtedly contains Google’s famously commoditized equipment architecture.
- HP Cloud Services’ factory-made metal boxes — HP Cloud Services has chosen HP EcoPOD shipping container data centers as the hardware platform for its new public cloud hosting business … today’s ultimate in data center standardization. The EcoPODs, which typically are populated with dense x64 blades, are production-line manufactured and can be delivered in as little as three months.
In the server market, the x64 boxes are steadily eating up the cloud opportunity thanks to their virtues in running scale-out applications. However, any rumors of the death of the mainframe remain premature. Likewise, it will be a long time before big custom-designed monolithic data centers are supplanted by commodity prefabs.
One thing is clear though. In an era when the data center is the computer, standardization and commoditization will increase. The major public cloud hosters including Amazon, Facebook, Google, Microsoft, and Twitter are already driving this trend forward.
15.03.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s IT company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of IT companies and trends, and advises governments on economic development and investment attraction related to the IT sector.
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About a week ago, Amazon AWS, the leading provider of commodity IaaS (Infrastructure-as-a-Service) cloud hosting, announced yet another in a long string of price cuts that extend back to its start of operations in 2002.
Amazon AWS is employing a “learning curve” pricing strategy that involves cutting prices to grow its business at an accelerated rate, while at the same time making it increasingly difficult for direct competitors to enter the market or to thrive. (See Domicity’s recent press comment in ComputerWorld about Amazon’s price reduction as well as our comment in NetworkWorld about Sony’s transfer of part of its business from Amazon AWS to Rackspace OpenStack.)
Under classic learning curve pricing strategy, as a market leader continuously expands its business volumes, it drives down costs through steady improvements to operating procedures and increased purchasing power with suppliers. Most of these cost savings fund further price cuts, rather than increased earnings.
Competitors in the same market are forced to respond to the leader’s price reductions. Otherwise, they stand to lose customers. If these competitors do not enjoy the market leader’s cost advantages, they must swallow losses and, under investor pressure, they will eventually depart the market.
The diagram below illustrates how a market leader, using learning curve pricing, creates a positive feedback loop of cost reductions, price cuts, and expanded business volumes to discourage the competition.
Learning curve pricing is made easier by a company’s ability to endure thin gross margins. Amazon, the parent of AWS, has built a value chain designed to eke out acceptable earnings per share from gross margins … just 22% in 2011. This compares to Microsoft at 78%, Google at 65%, and IBM at 47%. Hewlett-Packard, with a gross margin of 23% and Dell at 22% have more similar cost structures to Amazon.
An alternative strategy to challenging the market leader head-on is to develop a differentiated product line that will support a price premium. For example, HP is entering the public cloud hosting market and hopes to avoid direct competition with Amazon AWS by introducing a higher value-added offering. HP Cloud Services’ initial services are in beta, with the official roll-out said to be targeted for May.
Biri Singh, the SVP recruited from IBM in late 2010 to form and lead HP Cloud Services was quoted in the New York Times (Mar. 9, 2012) saying, “We’re not just building a cloud for infrastructure. Amazon has the lead there. We have to build a platform [PaaS] layer, with a lot of third-party services. … We won’t pull [Amazon’s] customers out by the horns, but we already have customers in beta who see us as a great alternative. We are not coming at this at 8 cents a virtual computing hour, going to 5 cents.”
To a certain extent, Amazon AWS is also being forced to tap dance around the implications of its own IaaS learning curve pricing strategy — trying to leverage its lead in IaaS hosting to move up into higher value-added offerings.
In early 2011, Amazon AWS launched a PaaS service called Elastic Beanstalk. According to the company, developers only have to upload their application and Elastic Beanstalk “automatically handles the deployment details of capacity provisioning, load balancing, auto-scaling, and application health monitoring” on the Amazon AWS IaaS platform.
Farther off into the future Amazon AWS can be expected to move into the SaaS market.
12.03.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s IT company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of IT companies and trends, and advises governments on economic development and investment attraction related to the IT sector.
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In our previous post, Domicity argued that the lower layers of the cloud stack — notably hardware systems and IaaS (Infrastructure as a Service) software — are likely to become increasingly commoditized over time, with much open source software throughout.
The bookend is we believe that the further up the server-side cloud stack, the more proprietary the technology will become.
This raises the question: How deep will open source software penetrate into the PaaS layer?
As an example, HP Cloud Services has opted for open source Cloud Foundry for its PaaS layer. Developed by VMware, Cloud Foundry is an open source alternative to the more proprietary Google App Engine, Microsoft Windows Azure, or Salesforce.com’s Force.com.
Cloud Foundry is not the only PaaS player boasting an open source claim. It competes with Red Hat’s OpenShift, and the lower-profile Engine Yard, Eucalyptus, and WSO2 Stratos entries. And as the PaaS market begins to take off, numerous companies are pouring in with more proprietary offerings, including: ActiveState/Stackato, Apprenda, CloudBees, Cordys, IBM SmartCloud Application Services, Longjump, OrangeScape, Tibco, WorkXpress, and more.
Cloud Foundry claims several strengths including:
- Micro version availability — Cloud Foundry can be loaded onto a software developer’s PC to write web applications which can then be deployed to the cloud and scaled up from there
- Multiple cloud environments — Works across public, private, and hybrid clouds
- Supports a growing array of programming tools — Supports Java, Ruby for Rails and Sinatra, node.js, Grails, Scala on Lift, and more; uses partners to provide addition tools such as Python and PHP; supports an array of application services that includes RabbitMQ and vFabric PostgreSQL from VMware, plus MySQL, MongoDB, and Redis
- Strong leadership — Development of Cloud Foundry is coordinated by über-programmer Mark Lucovsky of Windows NT and Google’s AJAX API fame, and a tight group of experienced programmers working with him at VMware
- Popular with developers — InformationWeek (Nov. 2011) cites a study showing that Cloud Foundry was the most popular overall cloud platform among developers.
There is a counterweight which may hold down the success of Cloud Foundry. Some do not trust VMware to lead an open source alliance and believe that once Cloud Foundry has become established, VMware will make it proprietary.
Will open source be a big part of the PaaS layer? Yes, but to a lesser degree than the acceptance of OpenStack in the IaaS layer. There are too many proprietary PaaS offerings under development that will ultimately work across OpenStack and a variety of IaaS platforms.
06.03.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s IT company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of IT companies and trends, and advises governments on economic development and investment attraction related to the IT sector.
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Domicity believes that the cloud will force commoditization of much core server-side infrastructure technology over the longer term, particularly for the lower layers of the cloud stack.
A likely technological scenario for many operators of large clouds will be x64-based Linux servers, running open source OpenStack, the so-called cloud operating system for the IaaS (Infrastructure as a Service) software layer.
Key factors tending to promote OpenStack’s future success include:
- Use across private and public clouds — OpenStack is being developed to be used freely as the IaaS layer for both private and public cloud environments. This is a potentially powerful value proposition. It opens the way for an enterprise’s virtual machine-based workloads to be “flexed” from cloud to cloud as conditions and economics prescribe. A vendor such as Dell or HP can outfit a client with an OpenStack-based private cloud environment and can also offer the client the ability to run workloads on Dell or HP data centers or those of their partners.
- Vendor agnosticism — OpenStack supports virtually any computer system running one of the major hypervisors, including ESX, KVM, LXC, QEMU, UML, Xen, and XenServer. (OpenStack abandoned support for Microsoft’s Hyper-V, but Redmond is said to be negotiating for readmission to the project.) This will appeal to the many IT players who seek to avoid vendor lock-in.
- Support by powerful firms — Of the more than 150 organizations that have joined the OpenStack consortium, several are major industry players including: HP (whose involvement was précised in our previous post), AT&T, Dell, Intel, AMD, Cisco, Ericsson, Rackspace, Citrix, NTT, Korea Telecom, Deutsche Telekom, Brocade, NetApp, NEC, and Suse (Novell). Many of the companies joining the consortium are anxious to develop OpenStack as an alternative to Amazon’s more proprietary offering and are willing to contribute technology and marketing resources to move the standard forward. With a little more market momentum by OpenStack, companies such as IBM, Oracle, Fujitsu, and EMC that remain outside the consortium will be forced to support OpenStack as well. More telcos can also be expected to join the consortium and Domicity expects the big system integrators and outsourcers to begin pouring in.
Working against widespread adoption of OpenStack is Amazon’s continued development of its AWS (Amazon Web Services) offering. OpenStack is struggling to close the features and mindshare gap it now suffers relative to Amazon AWS. Amazon’s main retail business is arguably the most sophisticated cloud-based operation in existence and its needs drive continual improvement in the AWS offering. The advance of AWS is also driven by the requirements of sophisticated AWS customers such as Netflix. Among other things, continuous price reductions in Amazon AWS appear designed to suppress take-up of OpenStack.
There is a strong parallel between OpenStack’s position as the open source alternative to Amazon AWS and Linux’s position as the open source competitor to Microsoft Windows Server. Heavily funded “command and control” R&D favors the more proprietary solution in the early going. However, the dynamics of cloud competition should tilt the field in favor of open source OpenStack (and Linux) software over the longer term.
Future owners of large and rapidly expanding cloud hosting businesses will be operating in a market that will be characterized by intense international competition, centralization, consolidation, and overcapacity. Many will appreciate the inherent cost-effectiveness of OpenStack and other open source software for building their hosting platforms. Technologically sophisticated, they will not be put off by any shortfalls in customer hand-holding that can be inherent in the open source model.
Next up: Will cloud dynamics also drive open source deep into the PaaS layer?
29.02.2012
Blog
Posted by Marc Brien, VP Research, Domicity Ltd.
This post is based on research for an upcoming Domicity CORProfile© report analyzing the strategies and operations of a global cloud leader.
Early orders for all Domicity’s IT company studies receive a 33% saving. Click here to be in the first group to learn about the next report.
In addition to published reports, Domicity consults on the strategies & operations of IT companies and trends, and advises governments on economic development and investment attraction related to the IT sector.
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Another type of eco-pod
Hosted public cloud services, central to Hewlett-Packard’s cloud strategy, puts the company into direct competition with Amazon, Microsoft, Google, the telcos, and some more specialized hosters.
HP Cloud Services is an incubator business that offers public cloud hosting to web developers and web businesses. Formed just over a year ago, HP Cloud Services is led by an SVP who reports directly to CEO Meg Whitman. (It should not be confused with another business, HP Enterprise Cloud Services, which is run by the company’s outsourcing arm and provides “walled garden” private cloud hosting to large enterprises.)
HP’s strategy sets the company apart from other public cloud providers by employing a surprisingly novel approach based on three main moving parts. Each is potentially disruptive to the larger cloud services market:
- OpenStack for the IaaS software layer — OpenStack is sometimes called the Linux of cloud software. It could disrupt the cloud services space if it successfully popularizes an open source IaaS layer technology that allows large enterprises to securely and freely pass virtual machine instances back and forth between public and private clouds. Developed initially by NASA and Rackspace, OpenStack is now being advanced through a consortium which has more than 150 members. It has been dubbed “the anybody but Amazon crowd” in recognition of Amazon’s success with its more proprietary IaaS software. HP has an opening to become the leading player in the still-immature, but rapidly advancing, OpenStack market.
- Cloud Foundry for the PaaS software layer — Cloud Foundry is an open source alternative to more proprietary PaaS software such as Google App Engine, Microsoft Windows Azure, or Salesforce.com’s Heroku. Cloud Foundry’s development is led by a team of experienced programmers at EMC subsidiary VMware. One goal is to create a cloud app development environment that can extend across public and private clouds in the same manner as OpenStack and which will support popular cloud programming languages including: Spring for Java, Rails and Sinatra for Ruby, Node.js, Grails on Groovy, and others to come. If Cloud Foundry is widely adopted, it will facilitate the ability of HP Cloud Services to offer SaaS hosting to the company’s own business units as well as to third-party cloud businesses.
- EcoPOD shipping container data centers for the hardware layer — If HP Cloud Services is to compete successfully with Amazon and other large public cloud hosting providers, particularly in the IaaS market, it must be able to deliver a unit of computing power at comparable cost to the mega-cloud operators. HP’s strategy is to build its public cloud hosting physical infrastructure using its own EcoPOD modular shipping container data centers which are billed as scalable, energy efficient, lower-cost, and can be delivered rapidly from company production facilities.
HP’s reliance on relatively immature open source IaaS and PaaS environments, combined with EcoPODs to build its public cloud infrastructure is a bold move. The degree of success that HP Cloud Services achieves will depend on the disruptive power of its early technology choices and on the marketing muscle the parent company puts behind the effort.
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