Dell’s greatest strength has been in the SMB space, and that is also perhaps the best target for cloud services in the near term. Enterprises secure good economies of capital and support scale in their normal data center build-outs, and it’s hard for public cloud services to compete. For the SMB, neither capital nor support economies are easily established, but the latter in particular is problematic because SMBs often can’t attract skilled IT technicians. Remember that Dell also has a professional services arm now, and that means its own support skills likely have a lower marginal cost — all to make their price potentially more attractive.

VMware, meanwhile, is advancing its own cloud position with a Data Director designed to create an enterprise DBaaS model that would also in my view facilitate cloud models where the application or its components ran in the cloud and the data stayed in the enterprise’s own repositories. This would help considerably in building a larger cloud TAM because it dodges the thorny problem of cloud data pricing and security.

In another initiative, VMware has joined with Arista, Broadcom, Cisco, and Emulex to create what they call the “Virtual Extensible LAN” or VXLAN. This is a strategy to add a 24-bit header to a VLAN packet and then encapsulate the whole thing in IP. It would allow the creation of more VLANs with more members and do so using scalable IP rather than Ethernet. VMware will be adding VXLAN support to its Hypervisor and the result would be a more scalable data center and cloud LAN architecture.  The four obviously hope this will become a new model for addressing distributed cloud resources.

The initiative is more important for its goal than its methodology. We’re seeing network technology adapting to the cloud. That shouldn’t be surprising, nor should it be happening only now. The network creates the cloud; it’s the binding force that makes not only the resource pool possible but also makes its access possible. The network is the business case, the network is the business. But the network has been silent on the topic of the cloud. Maybe this is a sign that the silence is finally over.

Tablets and smartphones aren’t in HP’s future either. HP is dumping the whole WebOS effort and all of the devices that came with it. The move is in some ways more dramatic than the decision to spin out PCs because it’s a retreat from the client business completely, a sharp turn toward the center of the action that would seem to be irreversible. Are they abandoning the client world to Asia or to Apple, or both.

To round out the move, HP will (buy a British software specialist, Autonomy, which has strong credentials in database searching and business, as well as some expertise in content management. The price for the software company seems high to Wall Street; it’s probably one reason why HP’s shares have been off in pre-market. It’s the price and not the concept. HP has been buying software companies for some time as a part of a transformation that started with the hiring of former SAP CEO Apotheker. Most IT players at this point realize that software is the key to establishing a direct connection to the users’ business case, and HP is proving its commitment to that approach. But remember that HP is still a broad-based data center player, and a giant in enterprise computing.

Is the PC an endangered consumer species? If so, what about the enterprise?

So is the PC now chopped liver? There’s no denying the declining interest in the PC as the primary consumer appliance. That’s something that even Microsoft realizes, apparently. Its Windows 8 is obviously a transition product, something that would let it run the same basic OS across any suitable appliance. The announcement that Windows 8 will have its own app store seems to confirm a trend that’s been developing in the consumer market for several years. Driven largely by Apple, we’re seeing a transformation of “computing” into “appliancing,” a shift from designing personal computers as small computers to designing them as information portals. It’s not, at least not yet, as much about replacing the PC as about doing something the PC was never really needed for to begin with. The consumer wants entertainment, period. When PC games and PC browsers were their only conduit to that goal, they bought them. With game consoles, tablets and smartphones increasingly becoming the user’s window on the world, the PC is old news for consumers. Can the enterprise be far behind?

HP’s move puts pressure on the vendor pack

The HP move will certainly put pressure on a lot of players. To start off with, that means that Dell might find it necessary to do its own cut-and-run move. Their decision to get into networking with Force10 and their creation of a cloud-and-virtualization focus on the data center seems like it might be laying the groundwork. I think the loss of the PC would help Dell’s overall financials and also help the company focus on the data center, where it’s been showing most of its strength. In any event, it may have little choice at this point.

IBM, of course, shed its PC business by selling it to Lenovo. As a pure play on enterprise computing, it’s had its ups and downs, but there is no question that IBM is still the big tech success story. IBM proved that making big moves to cut your losses is as important as making moves to cement gains. With IBM now seeing giant HP aiming at IBM’s turf without being encumbered by PC baggage, what does IBM do? Networking? HP has networking products; rival Dell just picked up a line. Does IBM follow suit, and if it does who does it pick up?

Before we go there, let’s look at an important point about enterprise networking.  The only part of it that’s strategic is data center networking, and data center networking is about (you guessed it) the DATA CENTER, which is where servers and software and IBM and HP and Oracle and Dell all live. If “computer companies” are going to say that “computer” doesn’t include PCs then they’re focused totally on the data center, and unlikely to ignore the fact that the data center network is a big part of that picture. Networking first collapses into data center networking and unimportant branch junk, and then data center networking collapses into the server/storage technology plans of the buyer. That’s surely how the IT guys see it.

Two players (IBM and Oracle) might see themselves becoming a full-service data center companies and lack the network piece. Probably four network vendors might be acquisition targets—Brocade, Extreme, F5 and Juniper. Only two players max from this group could be acquired. If enterprise networking commoditizes and gets subducted, as the current moves suggest it will, then the rest of these, and other non-target players like Cisco, have to make it on their own. In the new market, is that possible? Who might be forced to find out?

Cisco might be feeling good; it seems to have accidentally occupied the space that everyone else wants to converge on. With servers, networking and a reduced consumer exposure, Cisco is a bit ahead of HP in terms of a transformation out of the business space, in a way. But Cisco isn’t an IT player no matter what it wants to believe—at least not yet.  Its understanding of IT is short of what’s needed to compete with the big boys, and Cisco has nothing in software, despite continued efforts. In fact, Cisco may find itself under a bit more pressure as HP steps up the “we-do-all-the-data-center” story at the sales level.

IBM, as I’ve often noted, has been a master of the twists and turns of the IT marketplace. It’s been in and out of pretty much every sector of the market in response to the changes in opportunity. IBM has managed to sustain its strategic engagement with its customers throughout all of this, and in our surveys since the early 1980s, its strategic credibility has never varied by more than a couple of percentage points.

Cisco, interestingly, has gained as much on IBM’s decision to leave networking as it did on “the Internet”, maybe even more. IBM’s networking equipment, supporting its new version of its venerable System Network Architecture (SNA) called Advanced Peer-to-Peer Networking, wasn’t price-competitive with IP and routing. IBM knew it, and over time even sold its networking business to Cisco. That’s what gave Cisco a big boost with the enterprise. It’s the boost that Cisco needed to become what it was at its peak.

I’ve focused in the past on Cisco’s carrier moves, and in particular on the fact that the company failed to realize that traffic alone wasn’t going to drive carrier spending—they need revenue as much as Cisco does. But in the enterprise space as well, Cisco didn’t read the tea leaves. Enterprises came out of the SNA era of networking with a network infrastructure that needed more connectivity and more capacity, in part because SNA networking was expensive. When they transitioned to Ethernet and IP, they boosted both these things based on the lower pricing, and as a result there was a boom in spending. The addition of devices and applications through the peaking IT spending cycle of the ‘90s kept up the pace of growth. It seemed that networking was on a roll.

It wasn’t, of course; it was on a cyclical upturn just like IT was in general. We ended that upturn in 2001/2002, and for the first time in IT history the cycle didn’t turn up again. The issue? Lack of incremental productivity justification. Service providers needed a business case to build out more capacity.  nterprises did too. The tea leaves were clearly readable by 2005, but Cisco missed the signs. When it did realize providers needed more justification for more spending, Cisco hit on high-end telepresence. Does that sound like the service-provider-space story that video is going to double (or more) network demand by such-and-such a time?

To be fair to Cisco, every one of its competitors has made the same mistake Cisco did. The problem is that while those competitors can still hope to gain market share (particularly by taking share from Cisco), the market leader needed organic growth or greater market breadth—the “adjacencies” strategy. Chambers was right to grab onto the latter because there was no quick way to drive the former. But Cisco didn’t have the instant credibility in servers and other product areas, and it didn’t develop an effective strategy to develop those adjacent markets. As a result, it has hit a soft patch in growth. A big staff reduction will make the Street happy, but it might well make the long-term problem worse. The most mobile employees, the ones with the most experience and most marketable skills, may well have been among those who took the severance packages.

This should be a wake-up call for Cisco, of course, but even more so for its competitors. Yes, they could be insulated from their own version of the revenue shortfall problem through gains in market share, but only if Cisco doesn’t reinvent itself successfully first, and if no other competitor does a more effective job second.  Remember that I’ve already noted that EVERY Cisco competitor (enterprise and service provider space) made the same mistakes.

It’s hard to say whether the move will have a major impact on VMware’s market share. Yes, companies could in theory adopt Microsoft’s or Citrix’s solutions, but they could have done that from the first and elected not to. Will the price change be enough to change their minds? If so, then why not adopt “free” virtualization from Microsoft or from an open-source provider?

I think it’s possible that VMware is looking ahead to a shift in virtualization growth—from success in the enterprise to success in the cloud. Cloud adoption of virtualization is a service-industry application, and VMware may be rightfully unwilling to subsidize someone else’s business model by sustaining a pricing policy that encourages an explosion in the number of virtual machines per host. One could argue that the enterprises most likely to be hit by the changes are ones doing relatively simple server consolidation to address an explosion in independent server deployment that should never have happened in the first place.

Also to address cloud computing and data center evolution, Cisco, at its Cisco Live event, announced some interesting enhancements to its UCS portfolio. While what it did in terms of capacity changes was again valuable in an evolutionary sense, but its moves lacked the big strategic sweep that would have benefitted the company’s positioning.

There are two roles a company can play in the cloud: driver of the cloud or supplier to the cloud. Cisco offered some credentials in the latter role, but it’s the former role that needs to be filled. Remember, someone has to drive a strategic enterprise project. Whoever does that will likely deploy all their own gear where they have it and let the masses scramble for the scraps. IBM, HP and Microsoft are driving most of the cloud, and none of them is particularly friendly to Cisco’s interest. Two have their own data center lines, in fact.

I think vendors are missing something important in the enterprise space, just as they are in the service provider space. There was a time when network technology was almost a mandate; we knew we had insufficient connectivity to support optimum employee empowerment. Today the low productivity apples have been picked, and companies need to understand the business value behind proposed tech changes.  Ten years ago, perhaps, the trade publications would have filled this need with long-ish insightful articles on adoption and benefits. Today, all anyone wants to publish is a snappy title on a vapid article that elicits a click-through and generates ad revenue. Nobody is offering the buyer the guidance they need, and so they move more slowly

I’ve been involved with IBM in some way since 1964, and I’ve seen almost half its corporate life and much more than half of its life as a computer giant, so let me offer some perspectives that might help others who would like to see their own hundredth birthday.

1. IBM was never hidebound. Early in its computer age, IBM released a mainframe based on what was the state of the art at the time. Within a year, a revolutionary new option was discovered. So did IBM feed off the revenues of its just-released product as long as it could and then bring out the new? No, it brought out the new immediately and wrote off all it had invested in that older model.
2. IBM was always intensely aware of the buyer’s side of the value proposition. At every step in their sales and marketing, they supported the decision process from building the business case to installing the technology. This total-value-chain marketing meant that IBM had a truly unique multi-layered engagement model with the customer, a model that they’ve sustained for 50 years or more. A model that I argue no one else has ever successfully copied.
3. Finally, IBM has always known the value of and the need for ECOSYSTEMIC technology. Computers and networks and appliances and other tech elements are not isolated boxes; they’re components of something bigger. A system of devices needs something to systematize it.

Look in contrast at IBM’s competitors. Sperry Rand, then Unisys, isn’t a computer vendor any more. NCR isn’t either. Digital Equipment Corporation was bought by a PC company. Compaq, which was then bought by HP is the only one of the early players still sharing the computing stage with IBM. But everything that IBM has done well, HP has done less well. HP has far weaker strategic relationships with its customers, and it has made what seems an endless series of critical blunders in tech evolution—WebOS might be the latest—and it has mistaken the adoption of a catchy slogan or two as the creation of an architecture and an ecosystem.

You could argue that Cisco, in the network space, is now at a crossroads, a point where it decides whether to be HP or IBM. Both HP and Cisco have expanded their portfolios without having a strong ecosystemic tie to link their broader line with broader value. Both HP and Cisco have hunkered down on low-margin products that are becoming lower-margin all the time, just because they are products they’ve become known for. Both HP and Cisco had charismatic management that everyone knew, but that built sales and company bulk without creating a longer-term model for success. So which road will you take, Cisco?  Today would be a nice symbolic day to make that choice.

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.

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.

Microsoft and IBM preach a more cloud-enabled app story than most vendors, and they also preach more PaaS, hybrid cloud and private cloud. This month in Netwatcher, we’ll take a more detailed look at the architecture issues here, and how enterprises are seeing their cloud plans developing.

The simple reason for all of this is disintermediation, the fact that operators have become disconnected from mounting service revenues generated by advanced services while still committed to carrying traffic and supporting connectivity. If you go back to the old days of Custom Local Access Special Services (CLASS), you may recall that even in the 90s it was this group of services (which included Call Forwarding, Voicemail, etc.) that generated the highest ROI, and you may also recall that it was this class of services that gave rise to what became known as the Advanced Intelligent Network (AIN) architecture for voice services.

For the past four or five years, operators have been groping for an architecture for the Next-Generation Advanced Intelligent Network (NGAIN). We’ve had a chance to review the approaches taken by operators in three major global regions, and there’s a significant amount of commonality in the ideas presented.

What’s also interesting is that all of the players seem to be basing their next-generation plans on cloud computing principles and software technology frameworks rather than on network equipment. IBM and Microsoft seem to be more an inspiration than Alcatel-Lucent or Cisco or Juniper.

In a related move, Verizon’s Digital Media Services group announced its bid for an in-house NGAIN-like approach focused on digital video. The company wants to offer everything from transcoding and content delivery network management to rights management and (of course) wireline and mobile multi-screen delivery. By grabbing all of these elements, Verizon raises the bar for competitors like (you guessed it) Level 3, that must now capitalize its own comparable approaches. The question that Verizon isn’t answering is whether the elements of its media architecture will be componentized and flexible enough to serve related applications that need information coding, rights management, location-based services and more.

There may be cloud architecture competition emerging from new quarters. F5 announced it had worked with IBM to develop a reference architecture for the cloud. The architecture clearly covers the creation of private clouds based on virtualization, and F5 promises that it will be extended to envelope public cloud components to hybridize them with private clouds. We see no reason why the architecture (which looks much like Eucalyptus, and that’s no accident according to F5) can’t be used for public cloud applications, including service provider clouds.

IBM has specific aspirations in the service provider space, and the reference architecture may be a step in helping prospective service providers clients build cloud services that can then easily hybridize with enterprises. It seems to us that the approach would also support SOA applications, but that’s not a specific part of the release.