Underneath this is the fact that Amazon has been a challenge for the Street. They’re the drop-dead winner of the online retail game. They’re the largest single provider of cloud computing today. They now have what is arguably the second-best tablet and the Android leader. But they’ve never really generated the profit that would normally be demanded of any company, and in terms of stock performance they’ve outrun even Apple this year. The Street clearly thinks they have momentum (which is key in the way traders make decisions) and yet…

The big question here may be the cloud. Amazon’s cloud lead, as I’ve noted before, is somewhat illusory. We are a quarter of one percent into the cloud market at this point, and the horse that’s ahead one step out of the starting gate doesn’t gain much from the lead in statistical/historical terms. The real challenge is that IaaS is a pure cost-substitution play, which means that it is always going to be under the worst price pressure and always generate the lowest profit. The telcos, whose internal rate of return is low, have a natural advantage in this sort of service, and they’re coming into the market now. We are going to see more pressure on EC2. Tablets are consumer products, whose margins NEVER grow over time, and so there’s pressure there. That’s the issue for investors, and for us in the market. Consumerism is cheapism, not profit. IaaS is cheapism, not profit. Amazon, like Apple, has to look higher in the clouds, and deeper into cloud/tablet relationship, if it wants to keep flying.

Juniper Networks announced that their OpenFlow implementation will be available in source-code form to Junos SDK developers. Juniper, like some other big router/switch vendors, has supported OpenFlow at least at the demonstration level, though neither Juniper nor its peers have been in a rush to productize it. That’s in part due to the fact that it’s open-source, I think. What Juniper has done here is to make their source code available to developers who could use it to extend basic router/switch functionality and create OpenFlow services/networks alongside (more properly, within) existing router/switch networks.

Juniper’s approach is interesting because it leverages something they’ve always been able to do. Their router/switch code has always made the forwarding table addressable to applications, and in fact they’ve had partners extend basic router functionality using that capability (in the video space, for example). What they’ve done is to use that capability to implement the OpenSwitch part of the picture in their Route Engine, and then link that implementation (via the OpenFlow protocol) to a controller application that runs in Junos Space.

To me, the big question is where Juniper will go with this. I believe that OpenFlow is valuable primarily as a “cloud” or “interior” technology, meaning one that is used to manage traffic inside a service black box. Net neutrality issues will likely deter network operators from broadly using the protocol because those issues act against grades of service on the Internet. Inside a cloud or content delivery network (CDN), though, you can do what you like. Given that Juniper has products like QFabric and the PTX that would benefit from being integrated into a higher-level vision of cloud data centers and service black boxes, I’d like to see them push their OpenFlow approach explicitly in these areas. Since this release is focused on partner relationships, they may be letting partners do that, which might not be optimal for Juniper’s own interests.

The RightNow buy is interesting in a couple of dimensions. First, it shows that Oracle really wants a presence — a major retail-level presence — in the cloud. The company has been a provider of all sorts of interesting cloud tools and it made a recent push for the cloud in OpenWorld, but this deal is a here-and-now move with a big investment behind it. Second, the move shows that CRM may be a very critical app for the evolution of cloud relationships with users.

We’re kind of past the early hype days of the cloud, and Oracle likely now realizes that players like Microsoft and IBM have a more established position in the PaaS and SaaS models of the cloud, where I think all the indicators say the real action will be. Part of the problem with being only a tool player is that you have no play in potential service revenues, but the real problem is that you have no tools to transition users or operators into installing your tools. You need to be a cloud services player if you’re a cloud infrastructure player.

Salesforce may be the target of the second motive, or just “collateral damage.” CRM is an application that lends itself to SaaS because it’s largely contained; it doesn’t have an impact on the big mission-critical core apps. That makes it easy to consume, and that means that Salesforce gets a lot of early adopter opportunity. You could see that in their numbers this quarter. So, this early lead could be a long-term problem for Oracle if Salesforce starts branching out into more and more stuff—which it has. I don’t think Oracle thinks that cloud CRM in itself will keep the lights on, but it does likely think that it’s a camel’s nose that it doesn’t want someone else sticking under an Oracle customer’s tent.

On the hardware front, the Street is now saying that both AT&T and Verizon will be under-spending in Q4, with (no surprise) wireless less a problem than wireline. Operators have to show a profit like every other public corporation, and there is increased pressure on ROI for infrastructure, particularly with wireline. The quarterly reports from both AT&T and Verizon suggested that you can’t make wireline work unless you can deliver multi-channel TV because people won’t pay for premium broadband even if you can deliver it. I think it’s pretty clear that operators are looking to shift more capex out of network equipment and into IT equipment, both to host “cloud services” and to host service features. This is what network equipment vendors should have been working to avoid for the last four years, but they didn’t really start picking up on the shift until this year. I’ve seen a LOT of progress among the equipment vendors in positioning their service-layer offerings, targeting not only content and mobile but also the cloud in general. But “a lot” isn’t enough because the momentum away from ‘thinking of network vendors as service partners’ has become pretty strong.

The only way HP can recover from this is to articulate some brilliant strategy that creates a cloud ecosystem that includes the PC, and I wonder whether it’s capable of something that radical, or even whether such a positioning could be articulated at all from the PC side. Apple, which has its own set of announcements in the cloud space, would have the pizazz to make a cloud appliance move, but that’s because Apple has differentiable brand power behind its appliances. Google could do the same. HP? Come on!

The Apple iOS 5 and iCloud launch today, and while frankly neither are particularly revolutionary, they are still credible steps toward what might turn out to be a revolution. The iCloud mission seems now to be one of creating “unity” among the iOS devices, meaning to create a virtual iOS umbrella that covers everything Apple and essentially makes iOS a virtual operating system (OS) residing in part in every appliance and also in the cloud. What Apple has not yet done, but that I’m confident it will do, is to realize the potential of that model with services beyond collective iOS chatting.

We could call what’s likely to emerge from the Apple/Google/Microsoft dynamic “social communications,” but it’s also arguably the first step toward network-supported behavior modification, something that’s going to unite identity, location-based services (LBS), demography, buying/shopping behavior, advertising and promotion, and a bunch of other things. Why? Because it creates a kind of parallel universe in (dare I use the cliché) cyberspace where our alter egos have electronic tools and systemic knowledge they share with the real us through our appliances. That’s the end-game for everybody.

Sony is right in this case. Apple has demonstrated that the notion of a separate smartphone/tablet/game system market is unlikely to prevail in the real world. What’s really happening is that there’s an appliance market that shows (at the moment) three distinct faces. Some users will accept them all, and others will gravitate to one of the group, depending on how they balance the various applications and issues. The point is that it’s likely that all of these appliances will have a feature base in common, and that symbiosis among the devices will be important for players who want to keep multifaceted buyers in the vendor’s product domain.

This is also reflective of what Apple needs to deal with now, in the world it created. Things like televisions are clearly going to join the appliance ecosystem, and other stuff probably will, too. But what’s going to matter more is the experience that can be delivered through all this stuff, not the exact boundaries of the “stuff space.” Apple TV isn’t important except as a member of the Apple Ecosystem, and fleshing out that ecosystem is a job for cloud-hosted features, something that Apple is yet to demonstrate it grasps.

But then, Google hasn’t demonstrated that, either. Only Amazon so far has any cloud reality — and even there it’s not completely clear that they have a strategy or whether they just stumbled into a couple of gold coins from a pirate horde. Can they find the rest of the loot? We’ll see.

Another indication of market turmoil is today’s UBS decision to lower their earnings forecasts for Alcatel-Lucent. There is nothing in particular about the company’s products or strategy behind the move; it’s rooted in Alcatel-Lucent’s large exposure to the EU market and the debt crisis there, as well as cost reduction issues that the company still confronts.

I’ve noted many times over the years that Alcatel-Lucent has a position of unique opportunity and risk, both derived from the common cause of its broad product line. The company is in everything everywhere, so it has unparalleled influence. In the last year or so, though, Alcatel-Lucent has fallen victim to the common network equipment vendor problem of weak articulation. We’ve seen many examples of the company being unable to control an engagement that it is objectively the only player capable of supporting. Why? Because Alcatel-Lucent has no clear marketing position, particularly on its website, and because you can’t expect a sales force to be a strategic marketing tool; they’re compensated to close deals. In some cases, the sales team in carrier accounts can’t even recognize a service-layer opportunity.

Oracle is making its cloud strategy a bit clearer, but there are still plenty of places where the connection between offering and goal are a bit fuzzy. Perhaps the most revealing is its announcement of Oracle Public Cloud (OPC), a social-network front-end to a cloud service bazaar that will eventually include all of Oracle’s Fusion applications.

The idea is that companies can use this front-end to provide teams and individuals a point of access that offers them cloud capabilities based on their identity, and thus allows both line departments and IT to buy elastic capacity. The focus of the OPC is Software as a Service (SaaS), yet another example of the fact that anyone really looking at profit in the cloud has to be looking at the place where the largest amount of user cost can be displaced. SaaS also simplifies the notion of work backup and overflow, and since Oracle has championed the database appliance that can simplify data mobility and has embraced a Hadoop-friendly model for data distribution, you can argue that they’ve got the best cloud position in the market. In fact, I expect to see IBM working to refine their own strategy to ensure they can fill the same role.

Apple — and Steve — gave us the current market revolution. By marrying portable power with ubiquitous broadband he ushered in a new era where the average teen can have, literally at their fingertips, computing power that dwarfs what was the world’s computational supply just a few years ago. We’ve yet to see where this can take us, and I’m personally saddened that we’re not going to have Steve to help guide us in the journey.

The Carrier Cloud Forum at Interop New York this week is grappling with some of the issues that Steve Jobs created. Appliances demand back-end services to support them, and the way those services are created and the identity of those who offer them may well be one of the major issues in networking. I’ve noted that operators in my surveys have been steadily promoting the cloud services opportunity among the monetization projects they have been running, and it looks like it could be the top of the list this fall. It’s not that the cloud offers operators the largest opportunity — mobile/behavioral services and content both outstrip it — but cloud infrastructure is what’s likely to host those content services and mobile/behavioral services. Appliances have coalesced all of the opportunities of the future into one delivery point—what the user is holding. The cloud coalesces all the technology options into one, admittedly fuzzy, vision.

I think CCF demonstrates that we’re still shadowboxing with the issues, though. The fundamental truths of cloud computing remain as they always have been. SaaS displaces the most cost and therefore offers the greatest benefit to buyers and profit to sellers. IaaS is the most flexible, but it presents both benefit-case and profit barriers to wide adoption. All the “-aaS’s” will face a common issue of service- and application-level integration, which is something nobody is really looking at. That integration will likely set the pace for the question of how clouds and networks get along, because the general solution at the service layer would produce a flexible solution at the service/network boundary. We’re not looking for this in the cloud computing space, but operators are looking at it in their own service-layer projects, which include both mobile/behavioral and content. Can all of this stuff be combined?  Not yet.

First, the cloud. Amazon stole some considerable thunder from Apple with its Silk split-browser model because Amazon exploited a true cloud computing service to enhance a customer’s service. That’s the service layer model of the future. There are some indications that Apple will do more than just spin a “content hosting and sharing” model of the iCloud, including inter-iPhone messaging, but it’s not clear that these offerings are going to be positioned as part of the cloud at all, which I think would be a further mistake on Apple’s part. Amazon is a retailer, not a search giant, and thus a whole new kind of competition for Apple. They need to take these guys seriously.

Speaking of clouds, France Telecom has again said that the cloud is of critical importance to it and that it’s looking hard at the union of IT and networking needed to create it. This fits with our general survey results: Operators are increasingly seeing the cloud as the thing that hosts the service layer and the thing that hosts specific cloud-computing services. The question is how the two get combined.

Oracle may have a handle on it, and in its OpenWorld event this week it’s expected to launch a “big data” Hadoop-based cloud-distributable data engine. Hadoop is becoming an attractive model for at least some applications of cloud-distributed data, and it’s interesting to speculate that it might even become a standard strategy for hybridization. Oracle is also launching a NoSQL database, and one question here will be the extent to which Hadoop-like distributability is limited to NoSQL models. Most enterprises are, in my view, way too dependent on SQL to dismiss it even for cloud distribution.

Juniper has its own cloud announcement today, Junosphere Lab. The company launched its Junosphere notion with a classroom strategy that I think tossed away a pretty good concept on a weak first application.  The lab app isn’t all that much better. Operators tell me that they really want a strong approach to multi-provider federation that they’re more in control of than the “umbrella” Open API Service of competitor Alcatel-Lucent. Junosphere could be a place where federation of service-layer (and even connection-layer) elements are hosted and even a place were operators host some service-layer features. Junosphere Lab steps closer to that mission but it’s not there yet, and we wonder if that’s because Juniper hasn’t advanced its own service-layer stuff far enough to support the broader mission the operators want. At any rate, Junosphere is a good idea if it’s used right, and Juniper, you need to stop dipping your toes into the applications and do something worthy of the concept—just like the service layer.

Well, Amazon finally announced its tablet. The event itself might have offered some clues because Apple would have done this in the Superdome, and Amazon had something that looked more like a high-school auditorium.

Bezos set the tone for the launch with a long praise-fest for the Kindle and the ebook and e-ink concept.  Then he jumped to talking about the Kindle Touch, which is an e-ink product that’s an advance from the current Kindle but much more like Barnes & Noble’s newest Nook model, a cross between a tablet and an e-reader, but much more the latter than the former. This new Kindle Touch has a $99 buck price point (for WiFi; $149 for 3G), which undercuts the new Nook. 

But it’s obvious that Bezos couldn’t stop there. Ten thousand or more media and PC analysts would likely have stormed his castle and burned him alive. After blowing Android Kisses, then touting new media and app stores and Amazon Prime and even EC2, he finally got to the point. The future is media and cloud service offerings!  It’s Kindle Fire. It’s not a tablet, but a Media Cloud Appliance!

Let’s come back to earth for a moment for the specs. Fire will have a dual-core processor and a seven-inch screen, making it a less-than-iPad right there. The announcement is likely to be disappointing to many who had expected Amazon to field an iPad-like product for about the same price as the HP TouchPad sold at  “after-the-market-exit” fire sale. Yes, that would have been wonderful, but as my readers know, I’ve never believed for a minute that was Amazon’s intent, and clearly it was not.

Fire is based on an Amazon-customized older version of Android, the latest to be available as open-source, and like the Color Nook, there’s an overlay GUI on it that harmonizes the look and feel with something a reader-focused buyer would want. But it’s really a bit more than books, it’s CONTENT. But it’s a bit less than a real tablet, or the iPad in particular. The seven-inch form factor is one big difference. The smaller screen is essential for a reader-focused tablet; people don’t want to really read books on something the size of a cocktail table book. But its size limits the entertainment value of the device and its value as a generalized Internet portal.

The price point for the Fire is within a dollar of the level ($199 versus $200) I have blogged about as the likely floor price for a subsidized tablet/reader. My model says that you can make money overall at that price because of the ebook sales (and Prime membership sales) you’ll then get as a follow-on. But at that price, the subsidy of follow-on sales is critical – and that shapes the nature of the Fire. No matter what others (including Amazon) might say, it’s a “Nook-alike”; more of a Barnes & Noble competitor than an Apple competitor.

But it does redefine that competition by adding in the video content dimension that Amazon has and B&N lacks. That makes it a kind of reader-plus or tablet-minus. You can see that Amazon isn’t trying to say Fire is an iPad, but it’s trying to say that the Fire is a better content device than a generalized tablet, and obviously a much better e-reader.

Cloud service backup for a tablet

One innovative feature of the Silk browser is the split architecture. There’s EC2 back-end processing linked to a Fire front-end. This may be the first example we’ve seen of a cloud service backing up a tablet experience at the GUI level. It’s also certainly a model of how the cloud hosts what I’ve always said was a “service-layer” function. Certainly it cements the relationship between the cloud as an IT model and the service layer.

Fire cements the role of Amazon’s EC2 in the web-front-end application model and even expands it a bit. EC2 is used to enhance the viewing experience by pre-processing stuff that would normally be done on the client, but it seems likely that the role of enhancing the experience could easily be expanded to the functional level under the same model. Along the way, this pre-processing might reduce communications load.

It’s clear that this isn’t a direct challenge to Apple, but it may just be a formidable indirect one. Fire is a clear partnership between content, appliance and cloud services. That’s what I think Apple has been aiming for with iCloud and has not yet achieved. Why? Because clouds are fuzzy and hard to market. Apple had the disadvantage of having a stable of appliances in place before they fielded their cloud approach, so it pretty much had to let the cloud stand on its own. To make it less complex, Apple kind of dumbed it down. Amazon can make Fire the face of the cloud, which is what I think they intend to do. That is a serious challenge to B&N ,but it’s also a challenge to Apple because the Amazon store retail model is much broader and more successful than Apple’s stores. Retail is more directly suitable to profit-building than ad subsidies too, so Fire may threaten the Hulu and Netflix models as well.

Fire will disappoint many, as I’ve said, but it may also have a greater and longer-term impact on the industry than it would have had it simply gone head-to-head with Apple.

PCs haven’t been a great business for years now, simply because consumerism has driven down the prices and tipped the scales of innovation to the software side. The hardware platforms are all basically the same, no matter what Mac aficionados think; it’s the operating system and software that matters. Even there, price pressures are formidable. Now with the onrush of tablets, we’re seeing the web-client dimension of PC use vanish, and with it likely even more of the profits.

HP’s problem was that it didn’t see the tablet shift coming, not that it needed to be more of a software player. The thing that HP needed was a cloud vision, a vision of a future of network-connected appliances that could marshal a lot of power and knowledge and focus it on something a user was carrying around in a pocket, briefcase, or purse. Yes, software is an element of that, but it’s not all of it.

I’ve learned by talking to users worldwide that everyone understands the pieces of the cloud, but it’s the cloud as a conceptual whole that they don’t quite get. As a whole, the cloud is the notion of a new ecosystem with new relationships, new value focus points, etc. HP might have shown us that conceptual whole, by dumping PCs and focusing on the cloud. Instead HP dumped PCs and dumped the cloud too, and Whitman is proposing to rethink the dumping PCs part. Maybe she thinks that’s best now because it’s too late to get the cloud back, but it’s not going to work.

There’s a lesson here in the networking side. The cloud is a symbol of the new age of communications-connected intelligence, the age that empowers every client because it’s connected to every possible service.  This is an age that networking has created; one that’s not generating value to networking in proportion to its contribution. That’s because network executives have been just as blind, dare we say as dumb, as HP was. The cloud should have been their vision, but they were simply not agile enough to grasp it.

Networking companies recognized, as HP did, that somehow software was involved in the solution, but they never realized that just as “hardware” encompasses both mainframes and smartphones, doorknobs and drawer pulls, “software” means too many things to be a useful goal. “Serviceware” or “cloudware” was needed, and that’s middleware software built on the cloud model.

Another tie here is that HP is now terribly wounded, perhaps even fatally, and this pulls a major competitor off the field in terms of data center competition. HP might have been a leader here, and that’s going to be very hard to achieve in the current situation. Autonomy is the wrong software; rethinking a PC spin-off is the wrong decision. Nobody could benefit here as much as Cisco, who has been punching out at competitors with edgy marketing because it needs to recover its own position.

The problem is that to succeed, Cisco still has to face and address the reality that HP didn’t face—the cloud. There is no enterprise on this planet, no network operator, that isn’t a potential buyer or seller of cloud services.  I’ve seen this proven in major markets and emerging markets.  The cloud is the symbol of the new IT, the new network.  You stand or fall—in the cloud.

The hottest issue for both enterprises and service providers was “the cloud” by a large margin, larger in fact than prior surveys. In my own view, the broad fascination with the cloud is more than just the typical response to media hype. I’s a reflection of the fact that cloud computing is an explicit marriage of a lot of technology trends, a kind of IT Unified Field Theory. Enterprises, in particular, need some strategic mantra to drive their project spending, some way of linking change to benefits, and “the cloud” seems to be even more favored in that role with each passing quarter.

The “biggest surprise” was a bit of a surprise to me. Both enterprises and service providers said that “the technical and business aspects of cloud computing are not what we expected”. While I knew from prior surveys that there was a considerable shift in enterprise attitude about the cloud as companies advanced the state of their own cloud planning, I wasn’t sure that the enterprises themselves saw this change. It was also interesting that enterprises listed “failure of the benefit case to prove out in our cloud projects” as a “biggest concern” enough times to give that issue the top spot among the technology responses.

In the “biggest concern” category, fear of another global economic ranked as the clear leader among enterprises, but with the service providers, it was in a virtual tie with “declining revenue per bit” or a variation on that theme. Network operators fear disintermediation and commoditization, a world where traffic growth pushes them to make more investment while revenue either stagnates or falls, the latter coming from the displacement of traditional services (notably TDM voice and even leased lines) by packet-based Internet OTT services.

If you reflect on the fact that Cisco’s Chambers says that the company is going to tighten its focus and build a strategy around product areas, you have to wonder whether “the cloud” is among them. We found in our last enterprise survey that Cisco had actually lost strategic influence in cloud computing despite the fact that more enterprises said they “knew” Cisco’s cloud strategy its competitors’ approach. I’d speculate that Cisco was pushing the role of UCS a bit too strongly. And buyers of network equipment expect Cisco to offer a network-centric cloud view.

There’s also a sense, in Chambers’ words, that Cisco is prepared to discount significantly to buy market share, or revenue. The question is which of these two Cisco is going after. Just buying revenue sets a new lower floor on your prices that you’re unlikely to be able to make up. Buying market share implies that you have some specific plan to enrich profits with follow-on business and and you’re getting a foothold with pricing. Cisco did say it expected to mine profits with services and software, both of which are higher margin than hardware. Cisco didn’t say it, but services and software would put it perhaps more on a collision course with HP.

While Cisco’s comments about Juniper’s vulnerability have received the most media focus, Cisco also said HP has a strategy problem, and that’s certainly true. With so many fundamental changes in the works, and with its future more linked than ever to the data center, HP has to not only do well there, it has to triumph.  The cloud is obviously the only pathway to that goal.

The first technical problem is that about a quarter of U.S. households couldn’t receive HDTV streaming properly because their Internet connection is too slow. That means that to save money by cutting the cord, they’d actually have to spend more money. And there’s no guarantee that it would work for them anyway, because many broadband users streaming video at one time could congest networks. Users could also get whacked with usage-over-cap charges if they watched a lot of TV.

Secondly, multi-TV houses would be even more likely to have quality problems, because multiple streams would almost certainly create issues. Remember: You can’t easily buffer live delivery of channels because you’ll get behind the program schedule, so congestion events could be a disaster.

Then there’s the big non-technical problem, which is getting rights to the material in the first place. The networks own their own shows, and there is no legal obligation on their part to sell streaming of contemporaneous episodes, which would mean that the material available couldn’t be the normal channelized programming. Cutting the cord from the cable bill is one thing; cutting off your programs is another.

The final non-technical issue is advertising. Online ads in streaming video bring in 1/30th of the amount that broadcast commercials bring. If users had to pay the difference, it would cost more than $170 per month, which is way more than the cable bill.

So what’s really up here? I think it is very likely that Apple is creating a line of TVs that will be tightly integrated with iTunes. I think it is very unlikely — bordering on impossible — that they plan to field a streaming TV service aimed at competing with channelized TV.

In my view, the recent Verizon moves to beef up their video on demand (VoD) sales show Apple’s real aim — they’re going to leave channelized TV alone and go for VoD only, which means that their sets will still tune channelized TV and they won’t alter the basic economics of TV viewing very much.

Netflix launched another round of angst with a comment by the CEO that it would be virtually separating its DVD and streaming services, even to the point of separate websites. While this is upsetting their customers even more, it may reveal something about the motivation of the pricing changes.

I’m hearing that the negotiations for streaming rights are getting more complicated and Netflix doesn’t want to tie them too tightly with negotiations on DVD rental, which are a completely different issue. Thus, the current flap may be a signal that there’s a lot going on in streaming negotiation, which could be because Apple is now looking at the model a bit more closely. There’s been speculation all along that Apple’s iCloud should stream video; maybe it will.