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.

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.

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.

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.

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.

The classic vision of cloud computing is virtual something-hosting, where the “something” is anywhere from an entire application to the bare-bones machine image (SaaS down to IaaS, respectively). This model is useful as a way of looking at the cloud in isolation, but for most enterprises, the cloud in isolation isn’t very interesting. Since they don’t expect to migrate any more than a quarter of their IT spending to a public cloud, the key question for them is how you hybridize.

Microsoft is the only one of the currently popular cloud leaders that has taken the hybridization to heart from the first. The Azure cloud is a PaaS cloud that, with the help of the Azure Platform Appliance, which is a partner-delivered combination of Microsoft software and server and network hardware. With APA, a user can build an “Azure cloud” that seamlessly extends between an enterprise data center and a public cloud provider (Microsoft, of course, and in theory, other cloud providers who adopted the Azure architecture).

CloudSwitch can be visualized as a more generalized model of the same hybridization notion. With this approach, the user deploys a series of CloudSwitch Instances in the cloud and a CloudSwitch Appliance (which is a software component, not a gadget) in the data center. The appliance links to all of the instances in as many clouds as there are, and it essentially synchronizes each instance as a host for one or more virtual machines that are managed to be functionally identical with the applications’ resources in the enterprise. What you end up with is a kind of “envelope” that everything runs in and that can be made to extend to any number of clouds that can host a virtual machine. A secure Internet tunnel links the components of this architecture.

There’s a lot to be said for this approach, but it’s not a panacea for cloud issues. What CloudSwitch does is make public cloud resources (Terremark’s resources, in this case) appear to be elastic extensions of local VM hosts. The way this is done (once it’s set up) is largely transparent to users, so the cloud can really appear as an elastic extension of the data center. For cloud-bursting applications where the cloud takes up the slack when applications overload the in-house computing resources, it’s an easy way to build the framework without becoming a specialist. Compared to Azure, which is PaaS and thus imposes some application and middleware constraints, it’s more flexible.

One place the concept falls short is in the area of “equivalence”. Yes, CloudSwitch can create a virtual data center that spans the real one and the cloud, but the stuff that goes into the cloud still has to conform to the price paradigms of the cloud and is still constrained by the tunnel connection in terms of performance. For Verizon, these limitations probably won’t be critical because the company is likely to be targeting SMBs with the offering and because enterprises could be made to understand the limitations of the Cloud Isolation Technology and exploit the capabilities readily.

The most significant thing about the deal, I think, is that this is a network operator buying a software company. If you think about that, it’s a major twist because in the past, operators would have expected their vendors to offer them a package or would have “introduced” a startup to a big vendor in an arranged acquisition. Here’s a Tier One buying their own service-layer technology. If you need proof that the network equipment vendors have fallen asleep at the switch, this should be it.

The move comes at a critical time for Apple. While the company has almost been the single-handed driver of the mobile revolution, the product cycles in that space are getting shorter, and it’s harder to say what the next generation of devices might be. A smartphone is a logical extension of a standard phone and one that exploits the broadband mobile connectivity that was already in place. A tablet is in many ways an extension of a smartphone. What extends the tablet? What is the Next Big Thing? The answer is the cloud, the mobile/behavioral ecosystem that will create the electronic virtual world we’ll all live in, in parallel with the real world. For Apple, it’s the iCloud, a course Steve Jobs has already charted.

Google knows that, of course, and sees a similar vision. One could argue that Google sees it even more clearly than Apple, in fact, because Apple’s culture has always been just a tad elitist and thus egocentric. Android and the MMI deal are Google’s appliance play, and for now, ChromeOS is carrying the flag of the cloud, in the form of hosting the thinnest of all possible clients. ChromeOS, in my view, is just a placeholder for an eventual shift toward a more Android-centric future, but one that focuses on exploiting Android as a cloud conduit, just as Apple wants iOS to be.

The thing is, the secret sauce of the future is the mobile/behavioral stuff, and neither Apple nor Google have any particular incumbency there. Nobody does, in fact. My work with operators suggests that they understand there’s a lot to be done and a lot of money to be made in the mobile/behavioral symbiosis. The problem they have is that this particular area of service innovation is even more vague than content monetization, and they can’t get anyone on the vendor side to talk effectively about content. What hope do they have for mobile?  If you’re a vendor and if you want to own the market of the future, this is the problem you need to solve for your customers.

Interestingly, Alcatel-Lucent has just issued a press release calling for more thoughtful use of mobile assets in customer care, and when you read into the details, you see some of the elements of a mobile/behavioral solution at a more general level.  The Alcatel-Lucent mantra is “contact me, connect me, know me,” and that is pretty much what I believe to be the key to mobile/behavioral opportunity. You have to be able to reach the customer proactively with social/behavioral changes to their virtual world, to connect them to the other partners (human or cloud-machine) in that world, and you have to know a lot about their interests, desires and prohibitions to make inferences about what’s best for them at that moment in time. I’d like to see Alcatel-Lucent take this story more into the general consumer market. I’d also like to see some competitors push the story even further.

In the enterprise space, our spring survey found that enterprises were still generally holding their capital plans but were slow-rolling project spending. A part of the reason was concern over economic conditions, which was a visible issue even before the harsh political face-off that’s virtually killed market confidence this summer. Another part was some concern over their cloud plans, concern that arose from getting more insight into cost and benefit as they got deeper into the topic. Both these issues appear to have grown over the summer, and I expect our fall survey to show that.

Data center modernization is the only real driver of network change in today’s market. Nobody has demonstrated any direct productivity gains out of network change, despite Cisco’s attempts to make telepresence the water-carrier for network expansion. The problem is that virtualization as a driver for data center modernization appeared to have tapered off even this spring. It’s not that people weren’t doing it anymore, but rather that the network change part was largely baked and they were back-filling into pre-existing plans. Cloud computing was the big driver remaining, and the cloud has proved more complex than enterprises had expected.

In the service provider space, I’m seeing the result of five years of declining revenue per bit. But the thing that’s really hitting now is a more subtle structural issue. Content, which everyone knows means “video” is the driver of traffic in both wireline and wireless, to the point that you could almost neglect other growth sources in planning. But content isn’t “Internet” traffic as most would know it. More and more content is served out of metro cache points, and so it’s the metro capacity that’s consumed. Metro means Ethernet, and the growth of Ethernet to support content delivery has been the driver in a shift for operators from IP-dominated planning and spending to capital planning that’s Ethernet-dominated. That process at first tended to focus on more premium players and products because early metro/aggregation Ethernet was an expansion on the previous business-focused Ethernet services infrastructure. In most metro areas today, according to our operators, the impetus for Ethernet growth is consumer video, and that’s the worst service in terms of ROI. Thus, price pressure on Ethernet is inevitable.

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