Google-Alphabet may signal an end to the cloud price wars

Google boldly goes where no tech giant has gone before. The company’s stunning restructuring from Google to Alphabet signals a profound transformation in how the company will operate. The Alphabet structure should enable Google to continue growing its core ad business (which gushes cash) and provide multiple paths for top talent to run their own businesses. It’ll also allow the very smart, very rich Larry Page and Sergey Brin to finally have the focus they want to uncover new ways of impacting the world using data, movement, biology, and the electrical signals that now seem to link everything and everyone.

But what does it mean for Silicon Valley’s startup scene? In the short term, probably an end to the artificially low-priced cloud services Google has been pushing.

Buying marketshare

Google is one of the leaders in IaaS — infrastructure as a service — though it lags behind Amazon Web Services (AWS), Microsoft (Azure) and IBM. It’s Google, however, that has repeatedly shown a willingness to cut prices significantly to grow marketshare.

Will this continue?

For now, that’s hard to say, but it seems unlikely. At least, price cuts in excess of actual reductions in cost due to scale and Moore’s Law seem unlikely.

IaaS services are where a third-party provider, such as Google Cloud or Microsoft Azure, hosts the critical network infrastructure — the hardware, software, data storage and other elements — that allows companies to cost-effectively run their operations, test out new applications, and scale their business instantly. IaaS provides data storage, data backup, test environments, security, user management, and provides guaranteed uptime. These are all critical. Even large companies are transitioning their work away from on-premise servers and infrastructure and onto the cloud. For startups, IaaS is a must. They pay only for what they need. There is very little capital or upfront cost required, yet they can leverage the expertise, resources, and scale of a giant cloud provider. Build it, test it, unleash it onto the world. IaaS makes this possible.

According to Synergy Research Group, which tracks the IaaS market, AWS, Microsoft, IBM and Google “control well over half of the worldwide cloud infrastructure service market.” Their combined share is 54 percent — and it’s growing.

 cloud leaders

It’s Google’s marketshare, however, that’s growing faster than everyone else except Microsoft — which has made growing its cloud business a strategic focus. Indeed, before being named CEO, Satya Nadella ran Microsoft’s Azure business. A big reason for Google’s growth is undercutting the competition, which has proven particularly attractive to start-ups and small businesses.

CIS_Q414_final

John Dinsdale, Chief Analyst and Research Director at Synergy Research Group, told me that Google “absolutely” uses price cuts as a tool to garner marketshare from AWS and Microsoft. If the price cuts stop, no doubt the competition will gladly follow suit.

Building a better cloud

While the end of artificial price cuts may harm start-ups who have long benefitted from an IaaS cloud price war, it may also mean that ultimately everyone else gets a better product.

As Synergy’s Dinsdale told me, Google Cloud “is a high-growth business that has some decent scale to it, which sets it apart from a lot of the exploratory and highly speculative efforts that Google has been pushing.”

With Page and Brin now more focused on the big picture stuff, Google CEO Sundar Pichai could give the Google Cloud business the technical and business focus it demands — and which the market desires.

This sentiment was echoed by Jeff Ferry, analyst and founder of DailyCloud, a business site focused on the enterprise cloud market. Ferry told me that Google’s “cloud business has suffered from not being as glamorous as some of the moonshot projects.” Under this new structure, however, Ferry thinks that the Google leadership can focus on turning the “enterprise cloud business into a more important new opportunity.”

Ferry says that when it comes to the cloud, it’s less about “think big” because businesses that rely upon the service want to deal with someone fully focused on their unique needs and challenges. “They may admire technological geniuses,” he says, but they don’t buy from them.”

Transparency is good

In the official announcement, Larry Page said that “our company is operating well today, but we think we can make it cleaner and more accountable,” and that he intends to “improve the transparency and oversight of what we’re doing.”

By making Google — the Google we know and use — one of six separate entities, and pledging greater transparency and accountability, Page may have signaled the end of Google using money to build IaaS marketshare. Instead, these monies will likely go toward the many moonshots and experiments on the Alphabet side of the ledger. This is not necessarily a bad thing, not for Google, not for the market, not for cloud innovation. IaaS may be boring, and it’s no moonshot, but it is vital to our increasingly digital lives and to nearly every business. Building Google Cloud through innovation, not price cuts, may itself prove transformative.

Note: I asked Google for comment on how the restructuring might impact IaaS efforts. They told me that at this time they aren’t providing additional commentary beyond the official statement. 

Apprenda teams with Piston to gain OpenStack support

Apprenda, which started out as a .NET-and-Windows-focused Platform-as-a-Service but has since opened up to other languages and technologies, continues to broaden its horizon. A new partnership with Piston Cloud gives it an entry into the OpenStack camp.

Here’s the PR spin from the announcement:

Together, Apprenda and Piston will deliver a tightly integrated solution that enables agile software development teams to build Java and .NET cloud applications and microservices faster in a true hybrid cloud environment. With more enterprise developers turning to both PaaS and OpenStack solutions than ever before, it makes sense to deliver a powerful joint solution.

Piston co-founder Chris MacGown said the deal makes sense given that both Piston CloudOS and Piston OpenStack are meant to be vendor agnostic in terms of underlying hardware. “We believe that developers want to consume platform-as-a-service, and that there’s not yet a one-size fits all approach to meet that need. This means we need to provide, integrate, and partner with PaaS solutions tailored for specific use-cases,” he said via email.

Since Cloud Foundry never focused on the Windows arena, this partnership brings .NET-focused platform to Piston OpenStack, he added.

If you follow vendor shenanigans, this is an interesting turn because Piston and its other co-founder, OpenStack pioneer Joshua McKenty, have been fairly tightly aligned with Cloud Foundry, the open-source PaaS backed by Pivotal, [company]IBM[/company], [company]HP[/company] and others. In fact, McKenty recently left Piston for Pivotal — which offers a PivotalCF, a commercial version of Cloud Foundry.

Cloud Foundry claims to bring PaaS capabilities to your public cloud of choice, and Apprenda CEO Sinclair Schuller has been openly dismissive of public PaaS adoption in general. Apprenda paints itself as the enterprise-class private PaaS, a contention that the PivotalCF folks can’t stand.

Apprenda billboard on Pivotal's SF building

So it’s fair to say that Apprenda and Pivotal are not tight. Apprenda recently plastered a billboard on the side of Pivotal’s San Francisco headquarters building (pictured above).

Back to Piston and Apprenda: If this partnership delivers what it promises, customers can get — as Piston CEO Jim Morrisroe put it in a statement — “a scalable turnkey [OpenStack] IaaS and [Apprenda] PaaS out of the box.”

Disclosure: Piston is backed by True Ventures, a venture capital firm that is an investor in the parent company of Gigaom.

Note: This story was updated at 5:55 a.m. PST, December 24 with Chris MacGown’s comments.

 

Former cloud pariah Oracle claims stronger cloud sales

Oracle, which ramped up its cloud marketing and product rollouts over the past year, touted some encouraging signs for that business in its second quarter, ending November 30.

Revenue from [company]Oracle[/company] cloud products — which fall into what the Wall Street Journal called a “catchall category” — was up 45 percent year over year to $516 million. (Total Oracle revenue was up two percent to about $9.6 billion, from about $9.3 billion last year.)

Revenue from SaaS and PaaS sub-segments of cloud were $361 million, up 41 percent year over year, while IaaS revenue was $155 million, up 62 percent, CEO Safra Catz said on the company’s earnings call Wednesday night. (SeekingAlpha has the transcript.)

And, as usual, you can get a glimpse into what rivals [company]Oracle[/company] is most worried about by the comparisons company execs threw out. Said Catz, for example:

“Overall our cloud results were better than expected as we are clearly growing faster than [company]Salesforce.com [/company]and were more than three times the size of [company]Workday[/company].”

This was Oracle’s first earnings call since company founder Larry Ellison stepped down as CEO in September, ceding that slot to Catz and Mark Hurd.

Oracle 2Q FY 2015 earnings

Ellison, who is now chairman and CTO, sees more good things ahead:

“In Q2 we booked more than $170 million in new SaaS and PaaS annually recurring revenue or ARR. In other words, we sold over $170 million of new SaaS and PaaS annual subscriptions this past quarter.

In Q4 of this fiscal year, we expect to sell more than $250 million of new annual SaaS and PaaS subscriptions. That means, during our next fiscal year we will sell well over $1 billion of new SaaS and PaaS annual subscriptions.”

Later in the call, Ellison said the company expects to see “well in excess of $1 billion in new annual subscriptions … which is about what Salesforce[.com] will be selling in their next fiscal year. I think they are at $1.1 [billion] or something like that, best as we can estimate.”

Nomura Securities analyst Rick Sherlund was cautiously optimistic in a research note, which pointed out that the company still faces “a long transition period to the cloud.”

About 5 percent of total Oracle revenue currently come from those cloud businesses. He wrote:

“We  view this as an encouraging step along the way, but there are still risks of ongoing execution, margins are lower in the cloud, cash flow may be dampened by the need for higher capex to build out data centers as the cloud business scales up, and on-premises license revenues are likely in secular decline. But with stronger growth potential in the cloud, the risk/reward looks favorable to us”

Oracle’s got products, but are they cloud?

A nagging problem for the company, which is the leader by far in on-premises databases and is a giant in enterprise applications, is that many still don’t see Oracle’s cloud products as real cloud products. And here is why:

Oracle DbaaS price chart

Yes, Oracle offers its DbaaS by the hour, if that’s the way you want to purchase it. But, once you hit that “Buy Now” button, you have to make a phone call before you can set up an account. That doesn’t seem very self-service-y.

oracle dbaas slide2

Once the account is set up, presumably things get easier. Maybe this is a distinction without a difference, but I’m betting that people used to buying cloud resources would be shocked to encounter the screen above.

 

This story was updated at 11:49 a.m. PST to correct my assertion that Oracle DbaaS is not available by the hour. It is, as documented by the chart inserted above.

4 thoughts on 4 clouds, from a guy who sees them all

Sebastian Stadil has been managing cloud environments for years as the creator of the Scalr project and founder of the startup he built to commercialize it. It’s his business to know how the various public clouds work, and to understand how Scalr’s customer are using them. He came on the Structure Show podcast this week to share what he’s been seeing and how he thinks it bodes for the future of cloud computing.

It’s an interesting interview that touches on just about every cloud around, including Rackspace, IBM Softlayer and Google, and is heavy on speculation about how the OpenStack ecosystem will unfold. Here are four quick highlights, but anyone interested in hearing Stadil’s insights on usage trends and prediction should listen to the whole thing.

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On Amazon Web Services’ move into IT management tooling

“Having worked with Amazon for the past seven years or so, I’ve kind of gotten to the conclusion that Amazon’s just in the business of solving customer problems,” Stadil said. “And when it detects it’s IT that’s the problem, then they’re going to build tools to replace IT. When they detect that it’s something else, then they’re going to build that something else.”

On Oracle’s seemingly incomplete cloud

Stadil said he was experimenting and investigating Oracle’s cloud documentation and everything — storage, messaging, database — was looking pretty good. Until this happened: “Then I dug a little deeper and I found there’s actually nothing around compute. … Which basically means there’s no way I canget a virtual machine from Oracle.”

Structure 2011: George Gilbert – Principal, TechAlpha; Derek Collison – CTO, Chief Archictect, Cloud Division, VMware; Michael Crandell – CEO, RightScale; Issac Roth – PaaS Master, Red Hat; Sebastian Stadil – Co-Founder, SCALR

Stadil (far right) talks multi-cloud management a Structure 2011.

Windows Azure: Good tech, on an island

“Azure is going to be loved by developers the same way [Internet Explorer] is,” Stadil explained, in reference to the Microsoft’s tendency to use different terminology and standards than other software companies. “… I just see a lot of pain working with the APIs, and I think that’s what’s holding back Azure’s growth.”

OpenStack is still a zoo

“I would love for it to be boring, but right now it’s more like a rocket science project,” Stadil said in response to question about claims that OpenStack has gotten boring because it’s now so mature.

He continued, discussing how current open source technologies came to be because vendors tried commoditizing everything else in order to convince buyers to spend money on their particular part of the application stack:

“It’s kind of interesting to see how that might be playing out again, where all these vendors are pouring tons of dollars into OpenStack, now it seems like they’re doing the same thing to the Docker ecosystem. … The LAMP stack was largely a monolithic application stack and that became open source, it will be interesting to see how a new open source stack emerges specifically for distributed internet-scale applications. …

“I’m pretty sure that at the end of the day, we’re going to end up with an open stack that nobody has to pay for and all the vendors will have not made that much money on it.”

Apache Hive creators raise $13M for their Hadoop service, Qubole

Qubole, the Hadoop-as-a-service startup from Ashish Thusoo and Joydeep Sen Sarma, has raised a $13 million series B round of venture capital led by Norwest Ventures. Thusoo and Sen Sarma created the Apache Hive data warehouse framework for Hadoop while at Facebook several years ago, and launched Qubole in mid-2012. The company has now raised $20 million from investors.

Qubole is hosted on the Amazon Web Services cloud, but can also run on Google Compute Engine, and acts like one might expect a cloud-native Hadoop service to act. It has a graphical user interface, connectors to several common data sources (including cloud object stores), and it takes advantage of cloud capabilities such as autoscaling and spot pricing for compute. The company claims it processes 83 petabytes of data per month and that its customers used 4.96 million cloud compute hours in November.

What’s interesting about Qubole is that although it originally boasted optimized versions of Hive and other MapReduce-based tools, the company also lets users analyze data using the Facebook-created Presto SQL-on-Hadoop engine, and is working on a service around the increasingly popular and very fast Apache Spark framework.

Structure Data 2013 Ashish Thusoo Quobole

Ashish Thusoo at Structure Data 2013.

Qubole’s announcement follows that of a $30 million round for Altiscale on Wednesday and a $3 million round for a newer company called Xplenty in October.

In an interview about Altiscale’s funding, its founder and CEO, Raymie Stata, said his company most often runs up against Qubole and Treasure Data, and occasionally Xplenty, in customer deals. They’re all a little different in terms of capabilities, user experience and probably even target user, but they’re all much more fully featured and user-centric than Amazon Elastic MapReduce, which is the default Hadoop cloud service.

That space could be setting itself up for consolidation as investors keep putting money into it and bigger Hadoop vendors keep trying to bolster their cloud computing stories. Cloudera, Hortonworks, MapR, IBM, Pivotal, Oracle and the list goes on — they all see a future where more workloads will move to the cloud, but they’re all rooted in the software world. At some point they’re going to have to build up their cloud technologies and knowledge, or buy them.

Why technology and content are inseparable at Netflix

Netflix Chief Product Officer Neil Hunt spoke with Gigaom about how important data science and cloud computing are to the company’s business, as well as why the internet is the perfect medium to drive adoption of new video formats.

After years of touting its cloud computing tech, Joyent open sources it

After repositioning itself behind its years-old container-based approach to cloud infrastructure, Joyent has now open sourced the code underlying its distributed cloud infrastructure and storage systems. For a company long heralded as a tech leader, its time to shine is now or never.