VMworld Europe
I will be at VMworld Europe this week.
I am speaking on Wednesday, October 13th, at 10:30 am, giving a short tutorial on outsourcing cloud infrastructure as a service. This is an NTT Communications-sponsored session. I also expect to be available to answer questions at NTT’s booth during that day.
During the rest of the conference I’m available for one-on-one meetings, regardless of whether or not you’re a Gartner client. Please send me email if you’d like to meet.
(In case you’re wondering how vendor-neutrality works when I do a vendor-sponsored day like this: NTT has no control over my presentation content whatsoever, nor anything that I say in general. It’s a risk for the vendor, in that they don’t know what I’m going to say exactly, and that what I have to say might not be entirely consonant with their strategy. But it’s part of Gartner’s policy when we speak at an external event like this, which means that you, as an attendee, don’t have to wonder about whether I’d have said something else under different circumstances.)
Cotendo and AT&T
A lot of Gartner Invest clients are calling to ask about the AT&T deal with Cotendo. Since I’m swamped, I’m doing a blog post, and the inquiry coordinators will try to set up a single conference call.
I’ve known about this deal for a long time, but I’ve been respecting AT&T and Cotendo’s request to keep it quiet despite the fact that it’s not under formal nondisclosure. Since the deal was noted in my recently-published Who’s Who in Content Delivery Networks, 2010, someone else has now blogged about it publicly, and I’m being asked explicitly about it, though, I’m going to go ahead and talk about it on my blog.
There are now three vendors in the market who claim true dynamic site acceleration offerings: Akamai, CDNetworks, and Cotendo. (Limelight’s recently-announced accelerator offerings are incremental evolutions of LimelightSITE.) CDNetworks has not gained any significant market traction with their offering since introducing it six months ago, whereas these days, I routinely see customers bid Cotendo along with Akamai.
However, to understand the potential impact of Cotendo, one has to understand what they actually deliver. It’s important to note that while Cotendo positions its service identically to Akamai’s, even calling it Dynamic Site Accelerator (just like Akamai brands it), it is not, from a technical perspective, like Akamai’s DSA.
Cotendo’s DSA offering, at present, consists of TCP multiplexing and connection pooling from their edge servers. Both of these technologies are common features in application delivery controllers (or, in more colloquial terms, load-balancers, i.e., F5’s LTM, Citrix’s NetScaler, etc.). If you’re not familiar with the benefits of either, F5’s DevCentral provides good articles on multiplexing and persistent connections, as does Network World (2001, but still relevant).
By contrast, Akamai’s DSA offering — the key technology acquired when they bought Netli — is sort of like a combination of functionality from an ADC and a WAN optimization controller (WOC, like Riverbed), offered as a service in the cloud (in the old-fashioned meaning, i.e., “somewhere on the Internet”). In DSA, Akamai’s edge servers essentially behave like bidirectional WOCs, speaking an optimized protocol between them; it’s coupled with Akamai’s other acceleration technologies, including pre-fetching, compression, and so on.
Engineering carrier-scale WOC functionality is hard. Netli succeeded. There have been other successes in the hardware market — for instance, Ipanema, which targets carriers. Both made significant sacrifices in the complexity of functionality in order to achieve scale. Enterprise WOC vendors have had a hard time scaling past more than a few dozen sites, and the bar is still pretty low (at Gartner, we use “scale to over a hundred sites” on our vendor evaluation, for instance). A new CDN entrant offering WOC-style, Akamai/Netli-style functionality would be a big deal — but that’s not what Cotendo actually has.
Akamai’s DSA service competes to some extent with unidirectional ADC-based acceleration (F5’s WebAccelerator, for instance), but there are definitely benefits to middle-mile bidirectional acceleration, resulting in a stacked benefit if you use an ADC plus Akamai; moreover, this kind of acceleration is not a baseline feature in ADCs. Cotendo overlaps directly with baseline ADC functionality. That means the two companies have distinctly different services, serving different target audiences.
Cotendo is offering pretty good performance in the places where they have footprint — enough to be competitive. Like all CDN performance, customers care about “good enough” rather than “the very best”, but in transactional sites, there’s usually a decent return curve for more performance before you finally hit “fast enough that faster makes no difference”. This is still dependent upon the context, though. Electronics shoppers, for instance, are much less patience than people shopping for air travel. And the baseline site performance (i.e., your application response time in general) and construction, will also determine how much site acceleration will get you in terms of ROI.
The deal with AT&T is significant for the same reason that it was significant for Akamai to have signed Verizon and IBM as resellers years ago — because larger companies can be much more comfortable buying on the paper of a big vendor they already have a relationship with. And since AT&T’s CDN wins are often add-ons to hosting deals — where you typically have a complex transactional site — selling a dynamic acceleration service over a pure static caching one is definitely preferable. AT&T has tried to get around that deficiency in the past by selling multi-data-center and managed F5 WebAccelerator solutions, but those solutions aren’t as attractive. This partnership benefits both companies, but it’s not a game-changer in the CDN industry.
Since everyone’s asking, no, I don’t see Cotendo price-pressuring Akamai at the moment. (I see as many as 15 CDN deals a week, so I feel very comfortable with my state of pricing knowledge, especially in this transactional space.) What I do see is the incredibly depressed price of static object delivery affecting what anyone can realistically charge for dynamic acceleration, because the price/performance delta gets too large. I certainly do see Cotendo winning smaller deals, but it’s important that the wins aren’t coming from just undercuts in price — for instance, my clients cite the user-friendly, attractive portal as a reason to choose Cotendo over Akamai.
I have plenty more to say on this subject, but I’ve already skimmed the edge of how much I can say in my blog vs. when I should be writing research or answering inquiry, so: If you’re a client, please feel free to make an inquiry.
Interesting side note: Since publishing my Who’s Who note a week and a half ago, my CDN inquiry from customers has suddenly started to include a lot more multi-vendor inquiry about the smaller vendors. That probably says that other CDNs could still do a lot to build brand awareness. (SEO is key to this, these days.)
Equinix’s reduced guidance
A lot of Gartner Invest clients are calling to ask about Equinix’s trimming of guidance. I am enormously swamped at the moment, and cannot easily open up timeslots to talk to everyone asking. So I’m posting a short blog entry (short and not very detailed because of Gartner’s rules about how much I can give away on my blog), and the Invest inquiry coordinators are going to try to set up a 30-minute group conference call for everyone with questions about this.
If you haven’t read it, you should read my post on Getting Real on Colocation, from six months ago, when I warned that I did not see this year’s retail colocation market being particularly hot. (Wholesale and leasing are hot. Retail colo is not.)
Equinix has differentiators on the retail colo side, but they are differentiators to only part of the market. If you don’t care about dense interconnect, Equinix is just a high-quality colo facility. I have plenty of regular enterprise clients that like Equinix for their facility quality, and reliably solid operations and customer service, and who are willing to pay a premium for it — but of course increasingly, nobody’s paying a premium for much of anything (in the US) because the economy sucks and everyone is in serious belt-tightening mode. And the generally flat-to-down pricing environment for retail colo also depresses the absolute premium Equinix can command, since the premium has to be relative to the rest of the market in a given city.
Those of you who have talked to me in the past about Switch and Data know that I have always felt that the SDXC sales force was vastly inferior to the Equinix sales force, both in terms of its management and, at least as manifested in actual working with prospects, possibly in terms of the quality of the salespeople themselves. Time is needed for sales force integration and upgrade, and it seems like the earning calls indicated an issue there. Equinix has had a good track record of acquisition integration to date, so I wouldn’t worry too much about this.
The underprediction of churn is more interesting, since Equinix has historically been pretty good about forecasting, and customers who are going to be churning tend to look different from customers who will be staying. Moving out of a data center is a big production, and it drives changes in customer behavior that are observable. My guess is that they expected some mid-sized customers to stay who decided to leave instead — possibly clients who are moving to a wholesale or lease model, and who are just leaving their interconnection in Equinix. (Things like that are good from a revenue-per-square-foot standpoint, but they’re obviously an immediate hit to actual revenues.)
This doesn’t represent a view change for me; I’ve been pessimistic on prospects for retail colocation since last year, even though I still feel that Equinix is the best and most differentiated company in that sector.
Rackspace AppMatcher and SaaS marketplaces
Rackspace has teased a preview page for a SaaS marketplace called AppMatcher. (It looks to be more of a front-page mock-up than anything actual; note that the “1,000 apps”, “100,000 businesses” bits look like placeholders.) The concept is pretty straightforward: app providers provide info about their target customer, and potential customers provide info about their company, and the marketplace tries to hook them up.
Hosting companies have increasingly been talking about doing marketplaces for their customers and their partner ecosystems, particularly in the SaaS space, and Rackspace’s foray is one of several that I know of that are still under wraps. Parallels has gotten into the act on the small business end, too, with the SaaS marketplace it’s integrated into its software. And a ton of other companies in the technology services space are also wanting to jump into the SaaS marketplace / exchange / brokerage business. (And you have folks like Etelos who build software to enable SaaS marketplaces.)
We’re seeing other software marketplaces in the cloud context, of course. For instance, there’s the increasing trend towards cloud IaaS providers offering an app store for rent-by-the-hour or otherwise cloud-license-friendly software — an excellent and important convenience, even necessity, for really driving cost savings for customers. And there are plenty of opportunities, including in the marketplace context, to add value as a broker.
However, I suspect that, by default, these days, if you have a need for software that does X, you go and attempt to enter X into Google, and pray that you’ve picked the right search term (or that the vendors have done reasonable SEO), in order to find software that does X. Anyone who wants to do a meaningful matching marketplace needs to be able to do better than this — which means that the listings in a marketplace need to be pretty comprehensive before it offers better results than Google. What a marketplace offers to the buyer, hopefully, is more nicely-encapsulated information than raw search results easily deliver.
However, many SaaS apps are narrow, “long tail” applications — almost more a handful of features that properly belong in a larger software suite, than they are properly full products unto themselves. That means that it’s harder to make sure that you really have wide and deep listings, and it means that useful community review gets more difficult because the app that’s got a handful of customers quite possibly doesn’t get any thoughtful reviews. And for many of the companies that are considering SaaS marketplace, the length of the long tail makes it difficult to have a meaningful partner model.
So what does Rackspace have that other, previous, attempts to launch general SaaS marketplaces have not? Money to do marketing. And at least thus far, the apparent willingness to not charge for the matching service. That might very well drive the kind of SaaS vendor sign-ups necessary to really make the marketplace meaningful to potential customers.
More colo coverage
My colleague Alex Winogradoff (alex dot winogradoff at gartner dot com) has begun to pick up an increasing percentage of the colocation inquiry that myself and Ted Chamberlin have previously taken. Ted and I are both hugely busy (if you don’t know him, Ted is my co-author on the Magic Quadrant, and is our primary guy covering the purchase of network services), and Alex has been assigned to learn the data center market, which remains a hot topic among our clients.
Alex is interested in talking with a broad range of colocation and turnkey data center leasing vendors, since these are highly localized markets where we routinely see a mix of global, national, regional, and local players in any given deal that a buyer asks us to look at. Whether or not you’re a client, you can contact Alex and ask to brief him; I highly encourage you to do so if you are a vendor in this space serving typical Gartner clients (mid-sized business, enterprise, government, and technology vendors, primarily).
Alex has spent his career focused on carriers and other network operators. Since he’s relatively new to the data center market, this is a great opportunity to educate him about what you offer, and influence his thinking on the space, as he begins to shape his research agenda.
And for you industry-watchers: Retail colocation remains a relatively weak market this year, but wholesale colocation and data center leasing are certainly growing significantly, both in volume of deals and the degree to which they’re playing a major part in data center sourcing decisions.
Amazon introduces “micro instances” on EC2
Amazon has introduced a new type of EC2 instance, called a Micro Instance. These start at $0.02/hour for Linux and $0.03/hour for Windows, come with 613 MB of allocated RAM, a low allocation of CPU, and a limited ability to burst CPU. They have no local storage by default, requiring you to boot from EBS.
613 MB is not a lot of RAM, since operating systems can be RAM pigs if you don’t pay attention to what you’re running in your baseline OS image. My guess is that people who are using micro instances are likely to want to use a JeOS stack if possible. I’d be suggesting FastScale as the tool for producing slimmed-down stacks, except they got bought out some months ago, and wrapped in with EMC Ionix into VMware’s vCenter Configuration Manager; I don’t know if they’ve got anything that builds EC2 stacks any longer.
Amazon has suggested that micro instances can be used for small tasks — monitoring, cron jobs, DNS, and other such things. To me, though, smaller instances are perfect for a lot of enterprise applications. Tons of enterprise apps are “paperwork apps” — fill in a form, kick off some process, be able to report on it later. They get very little traffic, and consolidating the myriad tertiary low-volume applications is one of the things that often drives the most attractive virtualization consolidation ratios. (People are reluctant to run multiple apps on a single OS instance, especially on Windows, due to stability issues, so being able to give each app its own VM is a popular solution.) I read micro instances as being part of Amazon’s play towards being more attractive to the enterprise, since tiny tertiary apps are a major use case for initial migration to the cloud. Smaller instances are also potentially attractive to the test/dev use case, though somewhat less so, since more speed can mean more efficient developers (fewer compiling excuses).
This is very price-competitive with the low end of Rackspace’s Cloud Servers ($0.015/hour for 256 MB and $0.03/hour for 512 MB RAM, Linux only). Rackspace wins on pure ease of use, if you’re just someone who needs a single virtual server, but Amazon’s much broader feature set is likely to win over those who are looking for more than a VPS on steroids. GoGrid has no competitive offering in this range. Terremark can be competitive in this space due to their ability to oversubscribe and do bursting, making its cloud very suitable for smaller-scale enterprise apps. And VirtuStream can also offer smaller allocations tailored to small-scale enterprise apps. So Amazon’s by no means alone in this segment — but it’s a positive move that rounds out their cloud offerings.
Liability and the cloud
I saw an interesting article about cloud provider liability limits, including some quotes from my esteemed colleague Drue Reeves (via Gartner’s acquisition of Burton). A quote in an article about Eli Lilly and Amazon also caught my eye: Tanya Forsheit, founding partner at the Information Law Group, “advised companies to walk away from the business if the cloud provider is not willing to negotiate on liability.”
I frankly think that this advice is both foolish and unrealistic.
Let’s get something straight: Every single IT company out there takes measures to strongly limit its liability in the case something goes wrong. For service providers — data center outsourcers, Web hosting companies, and cloud providers among them — their contracts usually specify that the maximum that they’re liable for, regardless of what happens, is related in some way to the fees paid for service.
Liability is different from an SLA payout. The terms of service-level agreements and their financial penalties vary significantly from provider to provider. SLA payouts are usually limited to 100% of one month of service fees, and may be limited to less. Liability, on the other hand, in most service provider contracts, specifically refers to a limitation of liability clause, which basically states the maximum amount of damages that can be claimed in a lawsuit.
It’s important to note that liability is not a new issue in the cloud. It’s an issue for all outsourced services. Prior to the cloud, any service provider who had their contracts written by a lawyer would always have a limitation of liability clause in there. Nobody should be surprised that cloud providers are doing the same thing. Service providers have generally limited their liability to some multiple of service fees, and not to the actual damage to the customer’s business. This is usually semi-negotiable, i.e., it might be six months of service fees, twelve months of fees, some flat cap, etc., but it’s never unlimited.
For years, Gartner’s e-commerce clients have wanted service providers to be liable for things like revenues lost if the site is down. (American Eagle Outfitters no doubt wishes it could hold IBM’s feet to the fire with that, right now.) Service providers have steadfastly refused, though back a decade or so, the insurance industry had considered whether it was reasonable to offer insurance for this kind of thing.
Yes, you’re taking a risk by outsourcing. But you’re also taking risks when you insource. Contract clauses are not a substitute for trust in the provider, or any kind of proxy indicating quality. (Indeed, a few years back, small SaaS providers often gave away so much money in SLA refunds for outages that we advised clients not to use SLAs as a discounting mechanism!) You are trying to ensure that the provider has financial incentive to be responsible, but just as importantly, a culture and operational track record of responsibility, and that you are taking a reasonable risk. Unlimited liability does not change your personal accountability for the sourcing decision and the results thereof.
In practice, the likelihood that you’re going to sue your hosting provider is vanishingly tiny. The likelihood that it will actually go to trial, rather than being settled in arbitration, is just about nil. The liability limitation just doesn’t matter that much, especially when you take into account what you and the provider are going to be paying your lawyers.
Bottom line: There are better places to focus your contract-negotiating and due-diligence efforts with a cloud provider, than worrying about the limitation-of-liability clause. (I’ve got a detailed research note on cloud SLAs coming out in the future that will go into all of these issues; stay tuned.)
Meeting up at VMworld
I’m going to be at VMworld next week. If you’re a Gartner client, and you’d like to meet up with me while I’m there, please contact your account executive to arrange it. If you’re not a Gartner client, please email me and I’ll see what I can arrange. (My days are mostly spoken for, but breakfast and post-5 pm are largely free.)
Getting on an analyst’s radar screen
I’ve been spending about a quarter of my time in the Bay Area for the better part of this year, a lot of my vendor-facing time has been with start-ups, and I spent much of my HostingCon time with start-ups whose executives have never interacted with analysts in the past, so a couple of FAQs are top of mind at the moment.
Emerging technology companies often ask me, “How do I get on your radar screen?” and sometimes, “How do I get you to write about our company?” (Venture capitalists often ask the same questions on behalf of their portfolio companies, too.)
I wrote a post about making a briefing request before; if you haven’t read it, I’d encourage you to do so, before continuing on with this post. So let’s assume that you’ve gone and asked for a briefing, and now you’re wondering what you should be doing to use that time to make a convincing case for why an analyst should continue to follow you.
Gartner analysts, as a matter of policy, do not take client relationships into account when deciding whether or not to follow a company. We choose which briefing requests we do or don’t take, and which companies we write about, solely based on whether or not we and our clients find a company to be of interest. If you’re a vendor client, you are always entitled to make an inquiry, tell us about your business, and ask specific questions — i.e., whether or not we find you worthy of covering in general, we are required to fulfill such requests — but it doesn’t get you any other special privileges with regard to coverage.
So, what makes a vendor interesting?
Client interest. If our end-user (IT buyer) clients are calling and asking about you, we want to know as much about you as possible, so that we can intelligently answer questions. If competitors and investors are calling and asking about you, ditto.
Unique vision or technology. If you’re doing something cool and different, either in implementation or the way you’re thinking about the market, that’s always of interest to us. We’re always interested in market mavericks, as well as people along the bleeding edge who might be tomorrow’s market leaders. We’re also hugely interested in blue-ocean companies, doing something that nobody else is.
Meaningful differentiation. Even if you’re not doing something that’s really unique, you should be able to articulate the things that meaningfully differentiate you from the competition, both in terms of where you see your company going, and the actual features and roadmap of your product or service.
Rapid growth. Evidence of market traction in terms of customer wins, especially enterprise customer wins, and fast revenue growth, is an indicator that we need to pay attention to you, because you’re clearly growing in importance. We like metrics, by the way. Knowing how many customers you have, how much you’ve grown recently, and the ballpark of your revenues, lets us know where you are adoption-wise.
Management team track record. If we know your management team from previous successes, we are much more likely to believe that your new venture will succeed, and will exhibit interest accordingly. (Also, if we have a prior relationship with you, our interest in interacting is likely to carry across between the companies you work for.) First-rate investors help, too; they’re usually a sign that some very smart people think you have a clue.
In short, your goal, if you’d like me to cover you, is to try to convince me that I need to know about you, because you’re going to be successful, my clients are going to want to know about you, and you’re going to be doing something interesting that’s worth my time to learn about. In other words, convince me that spending time researching you is not a waste — that I won’t be filling my brain with information that won’t translate to eventual client value.
HostingCon keynote slides
My HostingCon keynote slides are now available. Sorry for the delay in posting these slides — I completely spaced on remembering to do so.
CloudPundit: Massive-Scale Computing 