Monthly Archives: February 2011
As I alluded to in some earlier posts, we are doing a mid-year Magic Quadrant for public cloud IaaS. Specifically, this is for multi-tenant, on-demand, self-provisioned, compute services (with associated storage, networking, etc.). That would be services like Amazon EC2 and Terremark Enterprise Cloud. The intended context is virtual data center services — i.e., environments in which a business can run multiple applications of their choice — as they would be bought by Gartner’s typical IT buyer clients (mid-market, enterprise, and technology companies of all sizes).
Vendors invited to participate will see a formal research-initiation email sometime in the next week or two (or so I hope). This is just an early heads-up.
If you are a public cloud compute IaaS provider and you didn’t participate in the last Magic Quadrant (i.e., you did not do a survey for qualification last year), and you are interested in trying to qualify this year, please feel free to get in touch with me, and I’ll discuss including you in the qualification survey round. (Anyone who got a survey last time will get one this time.) You do not need to be a Gartner client.
Of late, I’ve seen some enthusiastic PR folks sign up executives at totally inappropriate companies to talk to me about qualifying for MQ inclusion. Please note that the MQ is for service providers, not enablers (i.e., not software or hardware companies who make stuff to build clouds with). Moreover, it is for public cloud (i.e., multi-tenant elastic services), not custom private clouds or utility hosting and certainly not colocation or data center outsourcing. And it is for the virtual data center services, the “computing” part of “cloud computing” — not cloud storage, PaaS, SaaS, or anything else.
My colleague Jim Browning, who is focused on SMB research, has just published a survey of mid-sized businesses in North America. If you’re a vendor client, I encourage you to check out his Survey Analysis: North American Midsize Businesses Cite Cloud Intentions.
Also, I want to draw your attention to some research that you might not have noticed before.
Back in 2010, Gartner fielded a huge global survey — 7,300 respondents in the United States, Western Europe, and China — with the goal of looking at cloud adoption trends. Out of them, 650 correctly answered a bunch of screening questions about what constitutes cloud computing, and got to answer the rest of the survey.
The results show:
- Why people called something cloud
- Adoption patterns by type of service
- Key drivers of adoption
- Key stakeholders in driving adoption
- Whose budget is it?
- Key concerns
- Influential factors when selecting a provider
- Project IT budget allocated to cloud
- Impact on the IT organization
If you haven’t looked at this data, I’d highly encourage you to.
Gartner clients only, sorry. (US data has not been consolidated into a publishable form, i.e., turned from big tables of raw numbers into pretty graphs.)
So, we’ve just seen Verizon buy Terremark and Time Warner Cable buy NaviSite. All contemplation of the deals themselves aside, is consolidation at this stage of the market good for the progress of the cloud IaaS market?
I’m inclined to think not.
We are still pretty early in the cloud IaaS market. While most service providers in the space — especially those betting on an enterprise-oriented, VMware-based strategy — have visions and product roadmaps that converge a few years out, there is still an aggressive race to introduce new features and capabilities into cloud IaaS platforms. In other words, everybody needs engineering time, and lots of it. But they also need the fire in the belly that makes people not just do their jobs, but really push themselves — to feel a genuine sense of inexorable pressure to get things out ahead of the competition, a sense of passion for what they’re doing, and the knowledge of the freedom to go do the right thing with a minimum of encumbrance.
Acquisitions, especially ones that require significant integration work, can really extinguish fire in the belly. Verizon and Terremark, for instance, need to consolidate their systems, platforms, and roadmaps. That’s engineering energy that’s not being devoted to building awesome new stuff. (Yeah, if you have enough money, you can try to do that in parallel with your integration, but you lose precious time and willpower and creative efforts on the part of your best people, who only have so many things they can do with their day.) NaviSite is getting wedged into a cable company, which is a massive culture shock that creates a distraction, potentially sends their best people job-hunting, and requires rethinking their strategy and the engineering that should support it.
VMware really needs their service providers to be awesome, because that’s key to their hybrid vCloud strategy. These acquisitions take out two of the most innovative VMware-based providers. I suspect the market’s not really aware of this, especially in the case of NaviSite. NaviSite has never really publicized some of the things that differentiate their cloud IaaS platform and make it pretty cool — for instance, NaviSite allows VM oversubscription and prioritization coupled with auto-scaling, which is great for enterprise applications (which generally require low resourcing, as opposed to, say, consumer-facing Web properties that fully consume scale-out resources).
Just one service provider being really aggressive about adding new features to its platform spurs the others to follow suit — the slower companies may need the idea (or want to wait until someone else has done it to see how it goes), and then respond competitively. The more service providers are innovative, the more the others have an invisible flogger spurring them on. So if the pacers slow down, so to speak, the entire market potentially does.
While Amazon is innovative, and its pace of feature introductions is extremely rapid, those features are also split out between Amazon’s multiple constituent customer types. And many of the VMware-based providers habitually dismiss Amazon as a competitor and thus do not feel as internally pressured to competitively match their feature set. (This is arguably a potentially fatal mistake, especially as Citrix gets serious about its ecosystem.) Consequently, though, Amazon’s not a substitute pacer for innovation amongst the VMware-based providers.
You can argue that acquisitions potentially give innovative companies a lot more money to work with, which can significantly accelerate their roadmap and business plan. This might even be the case for Verizon/Terremark in the long term. But it still comes with a near-term cost, in almost all cases.
Cloud companies, whether service providers or software, have gotten snatched up rapidly over the last two years. How many of those companies have turned out to have accelerated, not diminished, innovation under new ownership?
A number of years, an executive at a vendor made a very honest and very funny comment to me during a briefing. The gist of it was this: For years, they’d disdained the technologies that Generation X was interested in — Linux, open source, and so forth. They had, in fact, been generally contemptuous of them, and of the up-and-coming young’uns in corporate IT who were interested in those technologies. And then, ten years passed, and those Gen Xers that they’d been so dismissive of began getting promoted to director-level in corporate IT. And so now they were in charge of sourcing — and they hated that vendor.
That vendor ended up having to spend a lot of money on a marketing campaign that was targeted at Gen X, but I don’t think they’ve ever fully recovered from those years. Even though they’re now perfectly capable of managing the new generation of technology, they are still perceived as stodgy, and not a vendor to look to for innovation (despite actually being pretty innovative, compared to their competitors).
Over the last two years, I’ve been seeing a lot of echoes of that in my conversations with vendors, including service providers. (The naysayer rhetoric around public cloud sometimes sounds a lot like the naysayer rhetoric around Linux in the 1990s.) Cloud naysayers talk about how the enterprise will never trust outside providers or shared environments, be willing to give up most if not all customization in order to drive cost and agility, and so forth. But even if at least part of this generation of IT leadership feels that way, the next generation is highly unlikely to. Digital natives will soon reach crucial levels of IT decision-making even in the traditional enterprise, and there’s a truly cloud-native generation entering the workforce, as well, who will start exerting corporate purchasing power in a few years. The entire mindset of an organization and its approach to sourcing ultimately often hinges on individuals, and generational turnover in IT management shouldn’t be ignored.
Vendors who dismiss the significance, importance, and reality of public cloud computing risk silently alienating future IT leaders. There’s a difference between a realistic immediate approach to the market, which has to acknowledge enterprise concerns and ways of doing business and create a path to migrate to the cloud, and conveying the sense that cloud isn’t for real businesses.
Last week, Amazon launched its Simple Email Service (SES). SES is an outbound SMTP service, accessible via API or easily integrated into common SMTP servers (Amazon provides instructions for sendmail and postfix). It has built-in rate-limiting and feedback loop statistics (rejected, bounced, complaints). It’s $0.10 per thousand messages. EC2 customers get 2000 messages for free each month. You do, however, have to pay for data transfer.
Sending email from EC2 has long been a challenge. For the obvious reasons, Amazon has had anti-spam measures in place, and the EC2 infrastructure itself is also likely to be automatically eyeballed with suspicion by the anti-spam mechanisms on the receiving email servers. Although addressing issues with Elastic IPs and reverse DNS has helped somewhat, Amazon has struggled with reputation management for its EC2 address blocks, despite attempting to police outbound SMTP from those blocks.
There are various third-party email services (bare-bones as well as sophisticated) that EC2 users have used to work around the problem. Sometimes it’s thrown in as part of another service; for instance, DataPipe includes an external SMTP service as part of its managed services for EC2. Pricewise, though, SES wins hands-down over both a raw delivery service like AuthSMTP and a fancier one like Sendgrid.
Amazon isn’t providing the super-sophisticated capabilities that email marketing campaign companies can provide, but it is providing one really vital element — feedback loop statistics, something that is useful to companies sending both transactional and bulk email. For some customers, that’s all they’re looking for — raw sends and the feedback loop. When you look apples-to-apples, though, Amazon is more than a full order of magnitude cheaper than the comparable traditional services. That represents a real potential shake-up for that industry, whether the target customer is a small business or an enterprise. Also, it’s potentially a very interesting way for those companies to offer a simple service on somebody else’s low-cost infrastructure, as Mailchimp STS now does.
My colleagues Matt Cain (email infrastructure) and Adam Sarner (e-marketing) and I will be issuing an event note to Gartner clients in the future, looking at this development in greater detail.
The dominos continue to fall: Time Warner Cable is acquiring NaviSite, for a total equity value of around $230 million. By contrast, Verizon bought Terremark at a valuation of $1.4 billion. Terremark had about $325m in 2010 revenues; NaviSite had about $120m. So given that the two companies do substantially similar things — NaviSite has largely shed its colocation business, but does managed hosting and cloud IaaS, as well as application hosting (which Terremark doesn’t do) — the deal values NaviSite much less richly, although it still represents a handsome premium to the price NaviSite was trading at.
The really fascinating aspect of this is that it’s not Time Warner Telecom that’s doing this. It’s Time Warner Cable. TWT would have made instant and obvious sense — TWT doesn’t have a significant hosting or cloud portfolio and it arguably needs one, as it competes directly with folks like AT&T and Verizon; most carriers of any scale and ambition are eventually going to be in this business. But TWC is, well, an MSO (multiple system operator, i.e., cable company). They do sell non-consumer network services, but mostly to the true SMB (and their press release says they’ll be targeting SMBs with NaviSite’s services). But NaviSite is more of a true mid-market play; they’ve shed more and more of their small business-oriented services over time, to the betterment of their product portfolio. NaviSite has services that best fit the mid-market and the enterprise, at this point.
NaviSite has been on a real upswing over the past year — Gartner Invest clients who have talked to me about investment opportunities in the space over the last year, know that I’ve pointed them out as a company worth taking a look at, thanks to the growing coherence of their strategy, and the quality of their cloud IaaS platform. This is a nice exit for shareholders, and I wish them well, but boy… bought by a cable company. That’s a fate much worse than being bought by a carrier. I can’t remember another major MSO having bought an enterprise-class hoster in the past, and that’s going to put TWC in interesting virgin territory. And there’s no mercy for NaviSite here — TWC has announced they’re getting folded in, not being run as a standalone subsidiary.
Lest it be said that I am negative on network service providers, I will point out that I have seen plenty of these acquisitions over the years. All too often, network service providers acquire hosters and then destroy them; the only one that I’ve seen that worked out really well was AT&T and USi, and that was largely because AT&T had the intelligence to place USi’s CEO in charge of their whole hosting business and let him reform it. Broadly, the NSPs usually do benefit from these acquisitions, but value is often destroyed in the process, primarily due to the cultural clashes and failure to really understand the business they’ve acquired and what made it successful.
I wonder why TWC didn’t buy someone like GoDaddy instead — rumor has long had it that GoDaddy’s been looking for a buyer. Their portfolio much more naturally suits the small business, and they’ve got a cloud IaaS offering about to launch publicly. It would seem like a much more natural match for the rest of TWC’s business. I suppose we’ll see how this plays out.
(I expect that we’ll be issuing a formal First Take with advice for clients once we have a chance to talk to NaviSite and TWC about the acquisition.)
A couple of days ago, Verizon bid to acquire Terremark, for a total equity value of $1.4 billion. My colleague Ted Chamberlin and I are issuing a First Take on the event to Gartner clients; if you’re looking for advice and the official Gartner position, you’ll want to read that. This blog post is just some personal musings on the reasons for the acquisition.
Terremark has three significant businesses — carrier-neutral colocation (with the most notably carrier-dense facility being the NAP of the Americas in Miami, which is a major interexchange point), managed hosting, and VMware-based cloud IaaS (principally The Enterprise Cloud). As such, it overlaps entirely with Verizon’s own product lines, which are (non-carrier-neutral) colocation, managed hosting, and VMware-based cloud IaaS (Verizon CaaS). Both companies are vCloud Data Center partners of VMware, and both have vCloud Director-based offerings about to launch.
Verizon’s plan is to continue to run Terremark standalone, as a wholly-owned subsidiary, with the existing management team in place. Verizon might push its own related assets into the subsidiary, as well. Verizon will be keeping the carrier-dense facilities carrier-neutral.
The key question about this acquisition is probably, “Why?”
- While Terremark’s cloud platforms are arguably better than Verizon’s, there’s not such a huge difference that this necessarily makes sense as a technology play.
- In managed hosting, Terremark (or rather, Data Return, its managed hosting acquisition from a few years back) was the beneficiary of customers fleeing Verizon’s decline in Web hosting quality mid-decade, and it has certain cultural similarities to Digex (the Web hoster that Verizon bought to get into the business). It has superior automation but again, not so vastly better that you can point to the technology acquired as significant. It has better service and support, but not at the differentiating level of, say, Rackspace.
- Terremark does have a bunch of data centers in places that Verizon does not, but Verizon hasn’t previously prioritized widespread international expansion. The two big flagship US data centers are nice facilities, but Verizon was already a tenant in the NAP of the Capital Region (reselling to federal customers), and thus able to derive value there without having to buy Terremark.
For Terremark, of course, the reasons are clearer. Mired in debt from data center construction, it has under-invested in the rest of its business of late (I believe VMware invested in Terremark because they needed money to accelerate their cloud plans). As a modest-sized company, it has also had limited sales reach. This represents a nice exit. Having a deep-pocketed sugar daddy of a carrier parent ought to be useful for it — provided that the carrier doesn’t wreck its business doing the things that carriers are wont to do.
Verizon’s sales force is probably the best thing that Terremark will get out of this. No carrier is as aggressive as Verizon at trying to sell cloud IaaS to its customers. It’s a way of changing the conversation — of getting a carrier sales rep in to see the CIO, rather than getting into the argument with the network guy (or worse still, the procurement guy) over penny-a-minute voice services. And while this is resulting in a lot of conversations with customers who aren’t ready to move their entire data centers into the cloud just yet, it’s planting the buzz in the ear — when these customers (particularly in the mid-market) get around to being ready to adopt seriously, Verizon will be on their mind as a potential vendor.
As an acceleration and market share play on Verizon’s part, this potentially makes more sense — Terremark likely has the highest market share in VMware-based self-managed IaaS. But it’s not Verizon’s way of getting into the cloud, despite the press spin on the acquisition — Verizon already has cloud IaaS and its offering, CaaS, is doing pretty decently in the market.