GoGrid CEO, John Keagy, recently spent some time overseas visiting the new GoGrid European Headquarters and data center in Amsterdam. I caught up with John upon his return in order to find out his thoughts and visions of a global GoGrid cloud, how Equinix has enabled GoGrid’s expansion and why it is important to the GoGrid customer.

Michael Sheehan: Why is opening a new overseas data center important?
John Keagy: It’s part of our global expansion plan. Europe is a logical next step.

MS: Why Amsterdam and not somewhere else?
JK: My favorite reason on why we selected Amsterdam as the first part of our overseas expansion is AMS-IX. AMS-IX is an Internet exchange that has resulted in Amsterdam being the place for Internet transit. Bandwidth is affordable and comparable to Silicon Valley. It means that customers are in the spot where most Internet traffic originates and terminates. If you are going to locate a web server in one location in Europe, Amsterdam is the most connected city. It’s the best place to locate your Internet infrastructure. It’s got the most connections and because it has the most connections, it is the most affordable – the highest performance at the lowest cost.

MS: Why was having a European presence critical?
JK: We have a strong European customer base that has been demanding a localized presence and when we examined that marketplace, we determined that it was critical to enable those European customers to have a cloud infrastructure deployable in their backyard.

MS: What are your impressions of the data center facility having visited it?
JK: The data center facility is incredible. It’s a combination of GoGrid doing a nice job with its installation – the racking and stacking, cabling and design of the installation. But it is also Equinix’s implementation of its cold aisle technology. It’s like walking into a refrigerator. It’s sealed. It doesn’t have a cage door, it has a glass door. They pump cold air into the interior of the cage and it’s vented through the equipment. Where there is no equipment, the slots are filled with baffles so that the cold air is forced through the equipment. It’s sort of like a refrigerator within a cage. It’s not just us doing a good job, it’s Equinix pursing a better utility efficiency score through sophisticated cold aisle containment technology.

MS: What’s your longer term strategy for global operations?
JK: Europe was just a first step in our global expansion plan. The next step will be Asia, although we have always enjoyed a large percentage of our customers coming from South America, so our next step after that will be South America.

MS: Personally, how is this exciting for you – 10 years in the making, we now have an overseas footprint?
JK: GoGrid has always had a customer base that served an international audience. Over 90% of our customers historically were outside of the state of California – considering the value we bring to Silicon Valley-based companies, that is quite remarkable. And we are on the order of 40% international. For me personally, it’s a milestone that I have been looking forward to for a long time and I’m excited that we finally have automation technology that is really facilitating what we are doing.

MS: Why is the Equinix partnership important?
JK: I’m very excited about the partnership with Equinix. They have an ecosystem for cloud services that is more compelling than their ecosystem for telecom services. The difference here is that businesses (consumers of cloud services) are learning that by connecting to Equinix, they can procure cloud infrastructure and other services securely and reliable in a high performance fashion that avoids the public Internet.

MS: How does that work with GoGrid’s Hosted Private Cloud?
JK: It’s about avoiding the two largest fears regarding the adoption of Cloud Computing: the public Internet and sharing. Customers are worried about consuming cloud services over the public Internet. There are over 3 million buildings connected to Equinix facilities in one way or another – this allows them to remove the public Internet from how they consume cloud services. GoGrid Hosted Private Cloud is a non-shared environment – it’s dedicated and private – which eliminates the 2nd big fear which is sharing – it provides security and performance benefits.

MS: For GoGrid customer, having a global footprint like this is important because…
JK: GoGrid is the only company that has a single pane of glass that lets you manage infrastructure across the globe in a truly on-demand fashion – through one pane of glass and one API.

Do you have any questions for John? If so, please leave a comment!

A few days ago, I published some 2012 Cloud Computing predictions from Warren Heffelfinger (CEO – GoGrid), James Urquhart (Cloud Writer for GigaOm & VP of Product Strategies at enStratus) and Larry Warnock (CEO of Gazzang). The beginning of any year is critical to not only reflect back on what transpired, but also to gaze into the future to see what is to come. With Cloud Computing, to quote an over-used phrase, “the sky’s the limit” and while there are some similarity within these and the previous predictions, there are also some distinct opinions as to where we are all headed in the cloud.

In this article, I have compiled more insightful predictions from another stellar list of cloud experts, namely:

• John Keagy (Chairman & Founder – GoGrid)
• Carson Sweet (CEO – CloudPassage)
• Antonio Piraino (CTO – ScienceLogic)

Below are their predictions so read on to see how they stack up!

John Keagy (Chairman & Founder – GoGrid)

1. There will be less use of the word “cloud” generically and more of IaaS, PaaS and SaaS or “cloud infrastructure, cloud platforms, and cloud software.” Folks are starting to understand the difference between Salesforce.com and GoGrid / Amazon. In fact, folks that really know IT are starting to cringe at folks that talk about cloud computing without understanding that Salesforce and GoGrid are quite different. We can expect some more specific dialog even from the mainstream media.
2. More vendors will be called out for “cloud washing.” Duh. No longer can you confuse outsourcing with on-demand.
3. The market will become more educated to the differences in VMware vs. XEN clouds. XEN offerings will emerge as more differentiated and cost-effective and equally secure.
4. On-prem / off-prem cloud bursting will be debunked as a primary use case. Although we may actually see cloud bursting in the wild 2012, the network costs and latency will not make it compelling. Lots of pundits will theorize boldly about how great it is from their blogger pulpits but the folks living in reality won’t see success.
5. Amazon will shine brighter than ever as the beacon of the future of computing. Thank goodness for Amazon. They are defining a new future and giving it credibility. Trouble is, other than GoGrid, no other service provider takes responsibility for building the technology of the future. And cloud = service. Hmmm.

Carson Sweet (CEO – CloudPassage/GoGrid Partner)

1. Delivery of SaaS via virtual appliance (a.k.a. privately hosted cloud instances) will take hold.
   As mid-market and large enterprises consider the pros and cons of IaaS, PaaS and SaaS, a large contingent with be dis-satisfied with the level of transparency and control provided by SaaS providers. At the same time, they will seek the ease of ownership, instant access and low effort offered by SaaS. Concerns about multi-tenancy will also continue to hold back a large contingent of potential cloud users, especially for more sensitive applications. Software delivery using hosted virtual appliances will strike an attractive balance for these potential users, offering on-demand access and scale while delivering superior control and reducing concerns about multi-tenancy. The demand for virtual appliance software delivery will drive IaaS providers to migrate towards (but not into) a PaaS model. Conversely, SaaS and PaaS providers will offer more flexibility and control over how their service offerings are deployed.
2. IaaS services will continue to coalesce around combinations of managed hardware, pure cloud infrastructure, and in-line access to software and services.
   As cloud deployments continue to grow, large cloud enterprises will hit scalability issues. IaaS providers will suffer migrations from the cloud back to collocated hardware, and IaaS providers will respond to protect the large enterprise business. Established infrastructure providers will leverage their legacies of large-scale, heterogeneous infrastructure management to offer access to combinations of multi-tenant cloud, dedicated private cloud, and traditional collocated hardware environments. Through acquisition or heavy investment in R&D, providers will leverage highly automated virtual infrastructure provisioning and delivery. The most successful will deliver a very wide variety of cloud infrastructure and virtual appliance services in a high-margin, self-service format. This will enable them to retain large-scale cloud enterprises while continuing to capture the large population of self-service, mid-market/business unit customers in a self-service approach. As the total field of cloud-hosted SaaS and consumer startups grows dramatically, IaaS providers’ ability to capture and service smaller customers at scale and grow some portion into hybrid hardware/software cloud environments will be a differentiation and competitive advantage.
3. IaaS providers will seek to differentiate and diversify to become “one-stop-shops”, and some will reach the critical mass needed to capture the emerging large-enterprise cloud services market.
   IaaS providers will seek to differentiate through partnership ecosystems that allow customers integrated access to supporting services (e.g. security, domain naming services, directory services) and application deployments (e.g. WordPress, Hadoop, Apache). The best providers will offer integrated orchestration of infrastructure, supporting services and applications (e.g. RightScale, Chef, Puppet). Providers will quickly move to increase market penetration and retention through the addition of integration, customization, training and management services. Some providers will establish stronger positions in vertical markets by packaging infrastructure, services and software to meet the needs of specific industries (e.g. regulatory requirements, specialized computing use cases, workload variability). Those providers that build the critical mass needed to obtain and retain cloud infrastructure services with large enterprises will become dominant market players; others will follow with focus on the mid-markets, and will rely more heavily on cloud broker / aggregation channels.

Antonio Piraino (CTO – ScienceLogic/GoGrid Customer)

1. Cloud management rules – Logistics usually trump management when it comes to new technologies, and the cloud is no different. Now that cloud providers have brought their platforms to market, having visibility into and control of those cloud resources will be paramount in 2012: A centralized view into performance across physical, virtual and cloud-based resources is a requirement for delivering optimal business services.
2. Security gets serious – Security breaches are nothing new but in 2012, cloud’s relative immaturity and high profile will likely motivate a serious attack. The silver lining will be that cloud computing service providers and their customers will come away stronger. Security and disaster recovery plans will be taken more seriously.
3. Acquisitions will be horizontal – Acquisitions in 2012 will be based more on the technologies needed to round out portfolios rather than simply buying smaller firms to boost market share. Look for telcos, social media firms, large system integrators and managed service providers to partner or buy out the cloud onramp providers, orchestration technologies, security technologies and IT monitoring/management firms.
4. Cloud defies the laws of demand – Cloud will act as a “Giffen Good” in 2012, meaning that people will consume more of it even as the price rises. Lower budgets make cloud’s ability to break down costs into smaller increments a more attractive prospect. As cloud service prices increase, it will take a larger portion of the already cut budget, which will mean there is less budget remaining, further driving the cost-cutting measures of cloud computing adoption. Cloud service providers tempted to decrease prices should take note.
5. Cloud wars commence – The most renowned consumer cloud environments such as Google, Facebook, Microsoft and Salesforce.com will start cloud wars based on price and economies of scale. And, since these companies are bringing enterprise grade services to federal and local government institutions as well as corporations of all sizes, the wars will pull in the managed hosting and data center collocation providers too. The majority will only be successful when they identify niche markets where they can deliver new services. Cloud wars will create coalitions leading to more holistic and innovative cloud solutions and differentiated service catalogs rather than traditional price wars.

Be sure to read Part 1 of this series on 2012 Cloud Computing Predictions.

What are your predictions for Cloud Computing in 2012? Any thoughts on the ones from our cloud experts above? Leave a comment and let us know.

As is customary with the passing of an old year and the exciting entrance into a new one, people try to make their best predictions as to what the future holds within their area of expertise. For GoGrid, this is obviously around Cloud Computing. This year, instead of making my own prediction list (as I have done in the past), I thought it would be important to get some other expert voices from the GoGrid and cloud community to do this task.

The important thing to always remember here, especially when dealing with the cloud, is that it changes quickly. It’s similar to buying the latest technology, the moment you buy it (or make the prediction, in this case), it’s instantly outdated. But still, the process is fun if not, educational.

Below is a compilation of 2012 cloud computing predictions from a variety of subject matter experts and thought-leaders in the field of cloud infrastructure, security and services. The contributors are:

• Warren Heffelfinger (CEO – GoGrid)
• James Urquhart (Cloud Writer – GigaOm/VP of Product Strategies – enStratus/GoGrid Partner)
• Larry Warnock (CEO – Gazzang/GoGrid Partner)
• John Keagy (Chairman & Founder – GoGrid)
• Carson Sweet (CEO – CloudPassage/GoGrid Partner)
• Antonio Piraino (CTO – ScienceLogic/GoGrid Customer)

Because of the wealth of knowledge coming from this group, I have actually broken this article out into a series of 2 posts. Without further ado, onto the first set of predictions!

Warren Heffelfinger (CEO – GoGrid)

1. At Amazon, the tail becomes the dog and the dog loses the tail. In 2012, I expect to see greater visibility on the success Amazon is seeing with AWS, to the point where they will report actual results in preparation for a spinoff in late 2012 / early 2013. Let’s face it . . . selling books online is not much different from selling TVs or flowers online, but selling raw compute and storage is radically different and deserves its own publicly-traded vehicle.
2. Telco’s continue to acquire cloud service providers . . . and competitors cheer! Having made a career out of competing with Ma Bell, this is a no brainer. Anyone with an entrepreneurial bone in their body will absolutely implode within one week of operations at a major global telco. Their primary skill set is stifling innovation. Unfortunately in 2012, we will start to see some formerly great companies fade into the sunset after being acquired and dismantled.
3. Big-Brand hardware in Big-Time trouble. Remember the last Internet boom? There were 25 year old kids making $1m selling commodity servers, routers, and PCs. Silicon Valley was littered with these sales reps. Last Fall, I was speaking with a friend in the industry who is located in The SV. Guess what . . . those sales jobs no longer exist. Why? Because getting a server shipped to you in 2 days with a “<insert big brand name here>” label no longer cuts it when you can spin up the same thing in 3 minutes with any number of cloud infrastructure providers. If you are still buying gear from “<insert big brand names here> et al you are probably also dancing the Macarena.
4. “Cloud” loses its sex appeal. Remember when “The Web” was a cool term? Ok, I’m dating myself but you get the point. We expect cloud services (SaaS, PaaS and IaaS) to grow exponentially for the next 5-7 years, but let’s face it, the term “Cloud” is getting old. By the end of 2012, the rest of the IT world will find the term passé (just as industry insiders do right now). Cloud will just be “the obvious way we consume software and hardware”.
5. Big Data gets BIGGER. From our vantage point, Big Data is gaining a lot of momentum. Adoption trends within our own customer base are clearly accelerating, creating a unique circumstance where reality actually outpaces hype. We love this area because the combination of Big Data running on GoGrid’s complex infrastructure is a powerful solution for our customers.

James Urquhart (GigaOm Contributing Author/VP of Product Strategy – enStratus/GoGrid Partner)

1. The complexity of operating application systems in the cloud will become increasingly apparent. The cloud is changing something fundamental about application architectures; they are becoming increasingly small-grained and componentized, in part due to the distributed nature of cloud computing, but mostly because of the business opportunities and work savings such an approach affords. However, as organizations deploy more and more such applications, the volume and interconnected nature of these applications will make the problem of managing them in large numbers increasingly apparent.
2. New hardware architectures will be tried. Many will fail. We are already seeing this trend, but as the needs of new IT services systems (for the most part, cloud services) are discovered, new server, storage and networking products will appear to address them. Unfortunately, most will fail to recognize the scale, consistency and dynamics of so-called “resource pooling”, and will fail to find significant market share. On the other hand, the few that survive will be a big, big deal.
3. Big data and consumer-scale web applications will continue to dominate the cloud–but change is in the air. While there will be increasing signs of enterprises addressing new classes of applications in the cloud, most of them will be applications that are already successful running in cloud services, namely big data and web applications. However, a small number of new approaches–centered on PaaS and “PaaS on SaaS” (e.g. Force.com) development technologies–will make “departmental applications” cost effective in the cloud. In fact, sometime in 2013, the new agility found in the cloud might actually lead to an explosion of “departmental apps”, which create a new operational headache for the IT department.
4. The legal needs of cloud computing are increasingly debated. SOPA, DCMA, EU privacy policy, and so on are only warning shots across our bows with respect to the challenges cloud computing will have on our legal system. There is good news and bad news here. The good news is that most developed countries will see increasing structure placed around how cloud can and can’t be used. The bad news is that many special interests (including those with political power, in some cases) will find ways to bend this law to their own benefit. This is expected, as the real challenge to the legal status of cloud computing won’t be expected for a couple of years or more.
5. Agile companies will increasingly move to the cloud, staid companies will not. This may seem obvious, but there is more at work here than just conservative company cultures. One of the primary benefits of cloud computing is that it makes trying new software a much smaller risk than it was in more traditional client-server models. If a new application fails to find value, you just shut it down and stop incurring expense for the thing. There is no capital outlay to account for after the fact. Companies that have new software to try will flock to the cloud. Those that don’t change their software often will avoid it—for now.

Larry Warnock (CEO – Gazzang/GoGrid Partner)

1. Storage Capacity concerns will increase driving greater demand for compression technologies. Recent natural disasters in Asia have created a shortage of disk drive production that is now causing a ripple effect in cloud storage costs. Compression technologies will come to the rescue for many organizations.
2. OpenSource will continue to gain momentum and OpenStack will receive increased support and become a compelling option for organizations of all sizes. We’ll see high profile use cases turn to open source databases such as MySQL, PostgreSQL, and particularly NoSQL (MongoDB, Cassandra, Hadoop and others) due to their reduced cost, increased flexibility and extreme scalability. And being Linux based, they will continue to pull market share from UNIX and Windows Server based products, especially as enterprises move apps to the cloud or SaaS delivery model.
3. Encryption will no longer be optional, it will become a must have. This applies to all data including email addresses and student records, not just credit card information or HIPAA. The cloud will be a significant driver for encryption, especially for multi-tenant applications in the cloud, and within SaaS and PaaS.
4. Telcos will lead the way in moving enterprises to the cloud. They understand how to deliver “carrier-grade” services and are ready to take the next step.
5. Mobile device security will reach a new peak. While the cost of devices is decreasing, the cost of losing one is increasing. With every new app that is created, it opens new doors for hackers to break through – and they will.
6. Security breaches are going to happen at a faster pace than we saw in 2011 and that’s saying a lot when you consider RSA, Lockheed Martin, Epsilon, the Fox broadcast network, PBS and Citibank to name just a few – it’s only going to get worse. Enterprises need to assess their security controls and prepare accordingly before it is too late.

You can now view Part 2 of the 2012 Cloud Computing Predictions where John Keagy (Founder & Chairman of GoGrid), Carson Sweet (CEO of Cloud Passage) and Antonio Piraino (CTO of ScienceLogic) weigh in with their predictions.

What are your predictions for Cloud Computing in 2012? Any thoughts on the ones from our cloud experts above? Leave a comment and let us know.

Don’t let the media fool you. Which of these actually make cloud computing financially compelling?

1. Super cheap power, such as hydro-electric
2. Shipping container datacenters
3. Massive datacenters
4. Blade servers
5. Datacenters with super-efficient cooling
6. VMware virtualization licenses
7. Pay-as-you-go pricing
8. Automation
9. Shared platforms
10. Commodity hardware

The answer is NOT “all of the above”! If you said “pay-as-you-go pricing, automation, shared platforms, and commodity hardware” then you win. In fact, these four concepts are so powerful that I believe that they will shrink the entire IT economy. IT shrinking? How could that be possible? Yes, I think that the $3.3 trillion dollar global IT economy could be cut in half. When I’ve made this declaration before I’ve been likened to the commissioner of the US Patent Office who was rumored to have said:

“Everything that can be invented has been invented.”

Charles H. Duell, Commissioner, U.S. patent office, 1899 (attributed)

In truth he didn’t say this. http://en.wikipedia.org/wiki/Charles_H._Duell

But I’m still saying that I think we’re currently seeing the peak of complexity and cost in IT. IT is going to get easier and less expensive from this point forward. There. You have it in writing.

#1. Pay-as-you-go pricing

Pay-as-you-go pricing can reduce total IT costs by 90% or more in many cases. The tech industry always has huge claims like this so why is this one such an incredibly big deal? For example, Intel is always coming out with processors that are a zillion times faster. This is a big deal because we’re not talking about a single component getting much better, we’re talking about the whole IT budget. The whole IT economy. This most powerful force driving the economics of cloud computing really has two components, you “pay for only what you need” and you can “switch what you do pay for”.

Pay for what you need

Paying for only what you need means that you don’t need to over-provision. This part of cloud computing is analogous to the electrical power grid that “GoGrid” is named after. Businesses don’t need to generate their own power anymore.

The average IT department would never confess to how guilty they are of over-provisioning. I’ve been the CEO of colocation, dedicated hosting and cloud hosting companies. Each of these models provides an improvement in your ability to provision only the IT resources that you need. And because I have been exposed to thousands of installations in each of these business models, I have a unique perspective on the efficiencies of each model. Basically, the average colo customer “wastes” about 90% of their infrastructure, dedicated server customers do better but still “waste” about 70% of what they are paying for, and with our cloud platform we’re seeing “waste” as low as 10%.

Colocation:

With colocation you don’t need to have your own datacenter so you can generally control how much space and power you want to pay for. You still need to commit to 1 to 5 years’ worth of space and power so you almost certainly will have periods when you have too much space and power or not enough space and power. IT loads are never static.

You tend to alternate periods of too much which is wasteful, or too little which is potentially even more damaging to your business. The bigger problem with collocating your IT equipment is that you still need to buy the equipment. You don’t want to risk running out of capacity so you buy big. You estimate what you need at peak load, say the demand you hope to see during the holidays, and that is what you buy for and live with for several years.

We’ve studied the aggregate waste of our 1,000s of colo customers and estimate that 90% of their CPU power, 70% of their RAM and 50% of storage space is wasted. This means that somewhere around 70% of the electricity needed to power and cool this equipment is also wasted.

Dedicated Servers:

Dedicated servers give you much improved granularity in your purchasing and significantly shorter contracts but we still estimate that over 70% of the CPU power, 60% of the RAM and even more of the storage space is wasted, along with the corresponding use of electricity. Among other challenges, you still can’t scale your individual servers to re-size them as loads change without somebody getting out a screw-driver, so you tend to over-provision.

Cloud computing:

Cloud can be paid for by the hour. Because your infrastructure can scale up and down automatically, it is just like turning on and off the lights. Waste can be minimized. You can scale in two ways that aren’t as easy in the real, physical world, both horizontally by adding and deleting servers automatically, and also vertically, by enlarging and shrinking the servers themselves. Paying for servers by the hour even gives you the ability to de-provision servers at night and GoGrid has many customers that are doing this quite effectively. GoGrid servers are being turned on and off at a super high rate of speed. In fact, the number of “adds” per month at GoGrid is much higher than the number of servers that customers just leave running for the month.

Switch what you do pay for

Now here’s a concept that works… don’t agonize over your IT decisions. You aren’t as stuck with them as you have been in the past. It took many years for the client-server revolution to occur because embracing this architecture was an incredibly costly endeavor with a 10 year plus commitment. It took many years for that generation of computing to happen, but cloud is happening much more quickly. With the cloud, you don’t own anything so if you don’t like what you have you can dump it and switch. It is hard to put a percentage savings on this but isn’t freedom an incredibly powerful economic advantage that will give incredible flexibility to business?

In summary, Pay-as-you-go is number one this list for good reason. Pay-as-you-go is an “order of magnitude” force…a “90% cheaper” force…a “10,000% better” force on the economics of IT.

#2. Automation

Labor is the single biggest piece of the IT economy according to Gartner. Equipment isn’t even close. People make mistakes, they are super-expensive, and they just can’t do as good of a job running infrastructure as software that can run infrastructure for itself. That is the big change here… programmable infrastructure. “Dev Ops”.

While automation isn’t itself the single biggest economic factor in the cloud revolution, it is the key technological factor. The big change of the cloud generation is that now software controls infrastructure. In the old world software was developed by one group of people and then a completely different group operated the software. Now developers run the whole show. The datacenter has been automated and a whole bunch of labor, complexity and cause for error has been eliminated.

#3. Shared Platforms

SalesForce.com delivers a complex CRM solution to 97,700 customers using 3,000 servers, a ratio of 0.031 servers per customer. 1,500 of the 3,000 servers are turned off according to Mark Benioff at 0:52 into this speech:

0.03 servers per customer for a complex CRM service is incredible. In the “old world,” this would take at least 2 servers, a hot one plus one for disaster recovery / business continuity. Many businesses deploy a whole bunch more than 2 servers for a complex CRM installation. Zero-point-zero-three servers per customer is a 65 X improvement over the old days. Not 50% or 100% but 6,500%. But wait, there’s more, this isn’t just a savings in server hardware, think of how much more efficiently SalesForce.com manages these 3,000 servers than 100,000 random companies could manage more than 200,000 servers themselves. Crazy. Keep in mind that labor is the single biggest piece of the $3.3 Trillion global IT economy.

There are lots of obvious and powerful reasons when shared platforms make clouds incredibly cost-effective to operate, including scale and an easy-to-operate homogeneous environment that fits all customers. Service providers have capabilities and tools and best practices that they can share amongst thousands of customers and do a much better job than any customer could possibly do individually. Shared platforms also let the service provider capitalize on the mis-matched peak load periods amongst the customers. For example, consumer services (yes, including porn) are popular in the evening while business services are popular during the day and number crunching can be done in the middle of the night.

#4. Commodity Hardware

The programmability of cloud infrastructure enables designing for failure. Things heal automatically so now you can use “throw away” components. No more paying ten times as much for an “enterprise” server that has 3 power supplies but does the same job. Did the hardware powering your Web server fail? No biggie. You should have at least three small ones running anyway instead of one big one, all load-balanced to automatically handle this failure while a replacement is spun up. The leading public cloud vendors and the largest Internet properties are achieving fantastic uptime using super-cheap hardware. No cloud based on “enterprise-grade” hardware from IBM or HP could possibly be price competitive.

The “Doesn’t Matter” list:

1. Super cheap power, such as hydro-electric
2. Shipping container datacenters
3. Massive datacenters
4. Blade servers
5. Datacenters with super-efficient cooling
6. VMware virtualization licenses

1. Super cheap power, such as hydro-electric

At GoGrid, power represents less than 5% of our cost of goods sold. We’re a nicely profitable company despite buying some of the most expensive power and cooling on the planet. Theoretically, we could knock a few points out of our COGS if we used a datacenter next to the Columbia River in Eastern Oregon. Great fishing there, too. But then we’d have new costs that we don’t have now such as the costs of managing people who are native to Eastern Oregon and paying people from Silicon Valley to travel to Eastern Oregon to manage those people and lots of networking costs to take traffic to and from there which increases latency and also the costs of fishing lures.

2. Shipping container datacenters

Maybe somebody else can tell me why these things have anything to do with cloud computing? They are not cheap, not even on a per server basis if you use them completely. And you can’t just park them anywhere. Any claims that these are relevant to cloud computing are likely good examples of “cloud washing”.

3. Massive datacenters

These are critical to Google, which has been rumored to own 2% of the World’s servers:

http://royal.pingdom.com/2009/08/24/google-may-own-more-than-2-of-all-servers-in-the-world/

(image source: intac)

However, the efficiencies that this scale provides just aren’t relevant in today’s SaaS and IaaS markets yet. Margins are super high and businesses pay well for complex infrastructure. Super low-cost PaaS offerings aren’t yet seeing traction from power users. Nobody is giving away free complex infrastructure (yet) on an ad supported model.

4. Blade servers

These are incredibly expensive and always out of date. If you want to use the latest processors, don’t expect to find them on blades. And if you are using blades, you are likely tied into other hardware and software too, which also is quite expensive and inflexible. The leading public clouds don’t use blades and never will.

5. Datacenters with super-efficient cooling

Green is great. Cloud computing is incredibly green for the same reasons that the economics are powerful… a whole lot less infrastructure needs to be provisioned, in many cases 90% less or even 65 times less as is the case with SalesForce.com. But green datacenters really aren’t relevant to the economics of cloud computing at this time.

6. VMware virtualization licenses

VMware is expensive. Virtualization is free. Amazon is the runaway market leader for cloud infrastructure and they do not use VMware and I’d be surprised if they ever did. GoGrid uses open source XEN, and so do other leading public clouds. There is even a third open-source (free) virtualization alternative called “KVM” that has wild technical acclaim.

Summary:

There is good reason why all businesses need a cloud computing strategy even though it is so new. Cloud computing doesn’t deliver a small improvement; cloud will reduce existing IT costs by a factor of 10 or more in many cases. Pay-as-you pricing is the number one economic force driving the cloud. Most importantly, cloud computing is making IT simpler, greener and more reliable in addition to far less expensive.

The financial rag-writers are cloud-washing their stories. Writers are “spin” experts so cut them some slack given that every IT related company is now miraculously selling “cloud” computing. It is no surprise that they have slapped the “cloud” label on the recent acquisitions of Terremark, Navisite and Savvis.

Some great hosting companies have been bought recently but not any true “cloud computing” companies. Even the Wall Street people can understand that the so-called “cloud” revenues of these hosting companies are too small to be meaningful. How much clearer could the Savvis CEO be than to state that only $5 million of their nearly $1 billion in revenue is “cloud”?

Here’s a question for the wizards of Wall Street: Do you think a massive telecommunications company with a name like “CenturyLink” is going to be on the forefront of ushering in a new paradigm in computing? Which century? This doesn’t seem to be the track record for the 21st century. Acquirers like this admit that they are buying these kewl hosting companies because telecom is stale. Let’s hope that these self-confessed dinosaurs don’t take these formerly kewl hosting companies and prevent them from developing any cutting edge cloud offerings. This isn’t cloud consolidation, this is smoke from the mega-boardroom with a mandate to sell networks not develop technology.

Maybe these acquisitions sound “cloudy” because the marketing literature has the word “virtualization”? Ooooh. I bet stock-pickers really love the words “hypervisor” and “virtualization” ’cause those words sound high tech.  They sound like they could be the type of technology that must be the underpinning of cloud computing. They even are reminiscent of Star Trek as in “beam me up some servers Scottie”. “Now that must be cloud computing” they must think to themselves, “I need some exposure to this cloud computing revolution so I’m gonna look for stocks that ‘have’ this virtualization technology”. What they don’t realize is that hypervisors and virtualization are free, old news, and only one of many elements that make for state-of-the-art clouds.

True clouds enable a type of computing that was never before possible. True clouds are the choice of the new Internet companies because they let them compute in new ways that make their new business models possible.  The new best practices in computing require programmable infrastructure that is truly on-demand and massively scalable in a fully automated fashion and super cost effective. The state-of-the-art clouds enable this new genre of computing using purpose-built software that makes it all happen on commodity hardware powering über-efficient and massively-multi-tenant platforms that also enable great margins to the provider.

Clouds are still developing and merely keeping pace isn’t possible for companies dependent on vendors for technology to resell. Things are moving super-fast in cloud computing and that mandates a strong competence in R&D because you cannot buy the technology needed to compete with Amazon. And if you could buy the technology needed to compete with Amazon then you wouldn’t be relevant in terms of price. Even if you believe that these were cloud computing companies that were acquired, and we could debate the point, the safe bet is that they will become less relevant quickly.

Hearty congratulations to our hosting industry friends at Terremark, Navisite and Savvis! We’re happy for you and we praise your excellent work keeping valuations high for the hosting industry.