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.

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.

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.

Cloud databases have been an issue of increasing importance because they’re essential for the cloudsourcing of any team or company application and because they represent a new dimension in security risk for enterprises. Amazon’s EBS was the proximate cause of that company’s recent cloud outage, so cloud databases also demonstrate the new dimension in vulnerability that this sort of distributed technology can bring. Enterprises need a way of harmonizing cloud use with data security or they’re not going to the cloud with anything that’s important, and that would relegate the cloud to hosting websites or testing/piloting applications.

Database.com is first an attempt to integrate strong security into a cloud DBMS (an RDBMS to be specific). It includes strong authentication at the API call level, meaning that every access attempt is verified, and by-row tabular security rights within the DBMS. All of this is good stuff, and for many enterprise applications, it will help relieve security fears. But it’s not enough by itself.

No matter what any vendor says, mission-critical enterprise data isn’t likely to go into the cloud. The career risks for anyone making that decision are profound, according to the results of our spring survey. None of the enterprises we asked said they believed they would cloudsource a mission-critical DBMS. So it would appear we’re at an impasse, right?

Not so fast. Database.com is also an example of a database model, DBMS-as-a-Service. It’s always been possible to visualize “data” in multiple ways — as disks, as file systems, as DBMSs. That multiplicity of vision translates into a multiplicity of models. You can send disk commands to a database, or file-system commands, or you can send DBMS queries—SQL, for example. When you send the low-level commands, you drag disk I/O over a connection to the cloud if you cloudsource the data. And when you send high-level commands, you receive the results of a query and not the 10 million records you might have spun through to get those results.

OK, fine, but this is still DBMS-in-the-cloud. It is, unless you turn the tables. Instead of looking at the DBMSaaS as something the cloud offers, how about if the enterprise offers it? Suppose that in a hybrid cloud, the DBMSaaS queries were made by the cloud applications back into your data center? That model is readily supported by modern back-end repository strategies and DBMS appliances. With tabular joining in an RDBMS, it would be possible to create a database that was partly stored in the cloud but whose sensitive elements were back in the enterprise.

Even this may be a model of an even deeper and more important issue. Enterprises say that basic platforms (IaaS) in the cloud are, at reasonable levels of utilization and with reasonable availability enhancements, about 75% more costly than internal servers. That says that the basic business model for IaaS can’t be successful in securing wide penetration of cloud computing into mission-critical apps even if you solve security and availability concerns. But services can be offered from cloud infrastructure, and efficiency in both the resources needed for the service and the way the service can be linked to enterprise computing/business activity can be more compelling.

Outsource firm Virtela, which has already created an interesting umbrella VPN service as a kind of VNO across multiple operators, is also launching a cloud service set based on the same framework. The idea is to take applications like security in the mobile space or application acceleration and make them into “services” of the cloud. These are more easily introduced than competing architectures for mission-critical apps, and enterprises in our survey seem to think that sort of thing is the right way to go.

So do carriers, of course. Verizon is clearly looking at this same model, as well as BT. KT, while making some waves by promising IaaS services that are more cost-effective than Amazon’s, is also planning higher-level cloud-based services. We’re told that they believe there’s more money in the services space than in basic IaaS.

All of this, of course, gets us back to the notion of “SOA clouds” and the need to think of applications as being cloud-optimized. The SOA architecture facilitates the consumption of application components in service form, delivered either through RESTful interfaces or more rigorous SOAP connections (which is how Database.com works, by the way). Microsoft and IBM have both been working with their customers to move thinking in this direction, and the results are becoming clear by the number of enterprises who now think more in SOA terms than in terms of virtualization for their clouds.

Amazon needs to make sure that it doesn’t lose customers to the Color Nook because it needs to be sure that it doesn’t let B&N create a legion of book-hungry semi-tablet enthusiasts that can’t get Kindle without rooting their Nooks.

The question is whether they can do something at this point, when the B&N device is already out there and competing effectively, without giving away too much and hurting their profits even if they win the t-reader race.

Right now, both the big vendors we’ve named offer both, and the carriers are trusted in terms of financial stability, professionalism and quality of infrastructure. Where vendors have the edge is in the planning of a cloud-ready IT commitment. I think that the latter is more important than most people realize; simple IaaS cloudsourcing doesn’t address enterprise needs except in development and pilot testing. Anything other than IaaS requires significant SOA-like integration, something IBM and Microsoft realize and others either don’t realize or don’t address.

The assertion that the Sony PlayStation Network hack was hosted on Amazon’s EC2 isn’t raising all that many hackles among the cloud promoters, but it has demonstrated to enterprises yet again the concept of “collective risk.” A single company, particularly one with a low public profile and little customer credit data on file, has relatively little risk of being targeted by hackers. A cloud hosting a thousand or ten thousand or a million companies is a much more attractive target.

Sony gets attacked because it’s big, but would Mom’s Pizza be at risk? Not as a stand-alone, but it might well be part of a larger risk pool if their cloud host is attacked. Thus, moving to the cloud could raise risks of hacking. Not only that, if the cloud is hosting the hackers, might they not be able to hack others on the cloud more easily, exploiting interprocess issues or opportunities for denial of service? Hacking is an ROI- or publicity-driven process, after all.

Some of the earliest cloud successes (in total-revenue terms) are likely to be the kind of services that AT&T is offering for Windows support. These services don’t ask customers to outsource data or their critical applications, only to outsource support. Cloud resources are applied not to run customer apps but to improve support economies of scale and thus improve both pricing and profits.

This illustrates why I believe that service provider cloud computing and service provider service-layer intelligence are likely to converge on the same architecture. It’s only logical to assume that a provider that successfully sells a support service would be successful in selling cloud services, if the tie between the two was clear. It’s also better for economies of scale if IT functionality (whether the providers’ own apps are used in customer support and services, or the customers’ apps hosted in a provider cloud) use common servers/software and common support tools.

Speaking of Amazon, early responses from my spring enterprise survey suggest that the EC2 problem it had didn’t impact enterprise cloud planning much. That’s because enterprises were not, in the main, considering EC2 as the host for their critical applications. What the survey shows among SMBs is that those with clouds in their eyes, the early adopters, took the process in stride, while those that were on the fence were more likely to be hardened against cloud usage. In short, it increased the skepticism among those still considering the cloud, which may (if the feeling persists) impact the sales cycle for cloud services.

We tend to forget that a market is normally classified as being push or pull, meaning it is sales-driven or demand-driven. Some buyers will go out into the marketplace (meaning the Web, in most cases) to look for cloud providers. That’s not likely to be how mission-critical apps are handled, though. For that, you need a sales effort to create a sense of personal accountability. The larger players like AT&T, IBM, Microsoft and Verizon have sales forces that can hug and cuddle wary buyers, and that is more likely than anything to propel them to the top of the cloud heap.

What Amazon’s problem shows is first that our view of the cloud is simplistic to the point of being dangerous, but that’s true about the popular view of just about everything these days, it seems. Second, it shows that people aren’t looking deeply enough into cloud computing when they commit to it. There’s no substitute for knowing what you’re doing.

But third, providing any form of high reliability is always harder when you’ve ceded control to a third party. Nobody at the enterprise level has any good feel for how EBS might impact reliability. Given that, all you can do is to rely on an SLA, and anyone who’s ever looked at a cloud SLA knows that in the end it’s not particularly valuable.

First, the revenue impact of the decision isn’t significant on its face, because Oracle will treat EC2 virtual machines just like customer virtual machines; the same license terms and rules apply. So what we’re seeing here is a model to accept infrastructure as a cloud service rather than to promote public cloud-based enterprise apps in Software as a Service form. But why even do that? I think that Oracle is realizing that the hybrid cloud is its path to enterprise prominence, and in particular a path leading past HP in a competitive sense.

Another factor is that Oracle’s database appliances are selling strongly. These appliances provide database management systems (DBMS) as a service, and thus could make it much more practical to have a cloud application access an on-premises database with reasonable performance. Thus you could argue that the hybrid cloud model is perfect to socialize Oracle’s appliances in a market that already seems to be catching on to their value.

This would be a way of getting the lowest possible cost for capacity for applications with discretion in their schedule. It might also be a very nice way of promoting normal EC2 services by offering customers a low buy-in threshold that would at some point “expire”, thus encouraging them to bid up toward the normal price. For Amazon, the notion could help the company build up its EC2 capacity without risking a major dip in ROI if it can’t be sold at list price.

Amazon is kind of a “instant-gratification” search option; look up what you want and buy it. The two both provide cloud services, and now Google wants to be an e-book alternative. The threat to Amazon here is real because if Google can make a generic e-book system work, it would have profound impact on the Kindle market. Others have tried to create such a system, however, and it needs a purpose-built appliance to prevent copying. Will Google propose this as a part of Android? It will be interesting to see.