A marketing foray into Cloud Computing - Part 3 - So who's doing the numbers?

Some very bold and large industry forecasts are flying around for cloud computing. Worldwide sales of cloud services are forecast by Gartner to be $68.3 billion in 2010 growing to $148.8 billion in 2014. Interestingly, the UK is forecast to achieve sales of $43.15 billion or about £28 billion in 2014. Hang on! Do I believe that? £28 billion is almost 2% of current GDP. That’s massive.

Gartner estimates 2009 cloud service income to be $58.6 billion so who’s doing the business? We can follow a thread here. Here’s a chart from an analysis made by Gartner in June 2009 described as “Magic Quadrant for Web Hosting and Hosted Cloud System Infrastructure Services”:




So if we go to the upper right part of the quadrant and look at the company’s current earnings statements we can form a view of how well Cloud is doing.

We couldn’t establish earnings for AT&T on hosting and cloud computing, as these services don’t appear to be identified separately in their accounts.

Savvis and Rackspace are active in the UK. In Q1, 2010 Rackspace’s worldwide cloud income was $19.3 million or 11% of total revenues. Savvis’s cloud income for the same period was $2.8 million roughly 1% of their revenues for the first quarter.

Terremark’s annual revenues were $292 million in the prior year of which some 58% - $169.4 million came from managed services.

As at Q4 2009, IBM told us that whilst their cloud operations were well advanced in Germany, they weren’t as yet fully operational in the UK. We’re sure IBM’s cloud operations are fully implemented in the USA and that they have the financial strength, capacity and agility to move quickly on European Markets.

Then there’s the much-reported Amazon Web Services (AWS). AWS is coy about disclosing its cloud numbers but recent analysts’ reports (Citibank) estimate AWS earnings to be running out annually at around $600 million, which is less than 3% of Amazon’s annual income.

Microsoft’s Azure Platform does not appear in the “magic quadrant” since it’s “a cloud application infrastructure, not a cloud system infrastructure.” And presumably other SaaS providers do not appear for much the same reason. We should mention the very successful salesforce.com in the context of SaaS as their 2010 revenues are likely to come out at circa $1.5 billion that’s a bigger number than any other company appearing in the analysis here.

So who’s not there that should be? Noticeable omissions are Fujitsu who recently unveiled their new massive IaaS data centre in North London, HP who have claimed to be making a $250 million investment in cloud this year, BT Global Services who launched their VDC platform after the Gartner report was produced in October 2009 and possibly CA.

Anyone else? And how does one arrive at that $68 billion number? We’ll try and find out.

We’re sure that there will be new strong market entrants and considerable consolidation amongst existing vendors. New players may emerge from the managed hosting market too. To coin some more Geoffrey Moore chasm doctrine, cloud computing has yet to “cross the chasm” to the mainstream market. It’s still an early stage / early adopters’ market that offers strong prospects of growth.

Up-and-coming managed hosting players will need to consider and differentiate their offers cleverly to succeed (and that’s where Rocket Fuel comes in). I wouldn’t fancy their chances with a generic heterogeneous hosting offer against the likes of the big IaaS potential players. They may not have the scale of infrastructure, low cost base and financial strength to compete with the bigger players. Nevertheless, opportunities abound for the company able to build a presence with a cleverly positioned offer or that’s based on a market niche in which they can gain effective control. In the UK, Gartner predicts that SaaS will fuel market growth. We tend to agree. There are attractive business opportunities for the managed hosting business to generate growth from partnerships with SaaS providers with which they share compatible business goals. Other opportunities might lie in building a following in target market segments in which the hosting provider can build and exploit specific expertise, or in changing a target industry business model. There is any number of combinations and permutations to build success in the cloud, but differentiation is key in a market where there’s strong convergence of pricing and supply, increasing commoditisation and fierce competition.

In our next piece, we’ll talk about what’s really happening on the streets, customer issues and concerns and current supplier positioning to market. There’s still a long way to go. We’re excited about the prospects for cloud and look forward to developing profitable growth opportunities with you.

A marketing foray into Cloud Computing - Part 2 - Riding the Hype Cycle

Let’s start to take a look at the bigger picture of what’s happening in cloud computing.

As Gartner says, “The hype is deafening” or as one old-hand salesman told me, “As for cloud, there are more people out there selling PowerPoint presentations than anything else.”

It’s unsurprising, therefore, that cloud computing is at peak of Gartner’s Hype Cycle, what they call “The Peak of Inflated Expectations” “in which a frenzy of publicity typically generates over-enthusiasm and unrealistic expectations. There may be some successful applications of a technology, but there are typically more failures.”

For the vendor, it’s important to associate their business with the new upcoming technology, to position themselves for the future. For the customer, it’s a maze of bewilderment and confusion where it’s difficult to discern what’s real and what’s hype.

From a Rocket Fuel perspective, we believe it’s important for technology companies to balance their bold, exciting visions with practical offerings that customers can buy into now. This is the place where you need to build up a head of steam to withstand the stormy seas that follow. So it’s “head in the clouds and feet firmly on the ground” time for us.

The next stop on the Hype Cycle is the “trough of disillusionment” where companies having failed to meet expectations, see the market fall away from underneath them. Getting through the trough is a hard slog and may call for some “strategic re-alignment” but keep your stake firmly planted in the ground of the new (but temporarily discredited) technology and go back to re-stating core benefits and customer value. The technology will be back. This is just the swing of the pendulum away from the hype in an opposite and equal direction. Steel your courage and stand your ground and remember that this is what negative hype feels like. It’s still hype. Not all companies survive the trough. Some of the early trials end in highly publicised failures. Media interest wanes, except for a few cautionary or sensational “bad news” tales. A significant amount of vendor consolidation and failure occurs.

Here’s Gartner’s hype cycle as at August 2009 with cloud computing at the peak of inflated expectations:



There are some companies hyping cloud that describe it as a “disruptive technology”. It’s not. It’s the same server, mass storage and applications technology that one might buy and use in-house deployed via a disruptive business model. The cost arguments for customers are very compelling. We’re aware of some IT-based businesses that have made savings in direct and indirect costs of over 40% of their total cost base by implementing a cloud strategy.

Cloud has sufficient market impetus to change the computing landscape forever. There will be traditional hardware (and software) product vendors who resist or fail to rise to the cloud challenge. During the last major shift towards client / server PC-based technologies back in the 1990’s, there were some very big name computer vendors that became casualties of the market change. They tried to hang onto the “mini-computer” IT business model that was being supplanted by client / server. If you’ve been doing this as long as us, then you’ll surely remember names like DEC (Digital), WANG, Data General, Prime and Tandem. Most of those companies disappeared from view in a two-year period in the late nineties.

There is a way through all this turmoil of change. And it’s through excellence in marketing, both at the strategy and execution levels. Rocket Fuel can help your company ride through the change and succeed through to the mainstream market. The hype cycle can be a choppy ride and we’ve been through it before. We know what you need to do now and what you need to be selling to succeed in this market. There are some fortunate businesses that may be able to force their way through with financial muscle. Others will fall by the wayside. We can make a difference, so why not get in touch to discover how we can help.

In our next piece we’ll look at key issues for both customers and vendors approaching the cloud based on our own detailed research. Why not subscribe to our blog by e-mail to stay in the picture and keep in the game.

A marketing foray into Cloud Computing - Part 1 - What's it all about?

We’ve been working in cloud computing for over a year now and it’s been one of the most exciting periods in my long IT and marketing history. To-date, I’ve been involved in five or six different projects – helping to bring providers to market and a user-based technology selection exercise (RFP screening). Our work has ranged from market entry for one of the world’s leading IT companies to a fast-growing, hosting company aiming to break into cloud. We’ve also been involved in a provider selection exercise that we gained because of our industry and market knowledge. That’s unusual territory for us but it helped provide us with a perspective from the customer’s viewpoint and what an eye-opener that was!

Cloud computing has sparked a degree of interest that we haven’t seen since the introduction of client / server technology. We believe it’s an early stage / early adopter market where most of the new providers still have much serious work to do in perfecting their market offerings. But that’s what we help them do and we love it.

Nevertheless clouds are murky places and there’s some dense fog out there. There’s much hype and vapour too. In our customer-facing project, we were offered managed hosting, leased product based managed data centre solutions, bespoke clouds (how can they be?), co-location and every other form of externally managed solution that ever was, real or imagined. We were offered imaginary cloud too – the ideas of a zealous salesman on what his company might provide as and when they decided to do so. But it was sold to us as if their cloud offering was available now and it was no small or obscure company either.

We’ll go on to talk about our market and customer findings but first, for the sake of our non-technical readers, we’ll talk about what cloud is in ordinary language.

So what is Cloud?

Gartner’s definition works well for us:

“A style of computing where scalable and elastic IT-enabled capabilities are delivered as a service to customers using Internet technologies.” We also describe five defining attributes of cloud computing: service-based, scalable and elastic, shared, metered by use, uses Internet technologies. A key to cloud computing is an opaque boundary between the customer and the provider. Graphically, that looks like this:




When the customer does not see the implementation behind the boundary, and the provider doesn’t care who the customer is, you have a public cloud service. So what is private cloud?

Private cloud is “A form of cloud computing where service access is limited or the customer has some control/ownership of the service implementation.” This may also be taken to imply the exclusive use of dedicated external physical resources.

We like the President of CSC’s definition that I’m going to paraphrase from memory. “Cloud computing is the delivery of computing facilities whenever you want, wherever you want, however much you need for as long as you need without cost penalty.”

That works well for us. Gartner’s diagram is helpful too.

But there are lots of businesses trying to jump on the cloud bandwagon that, in fact, are not offering cloud. Consider this assertion:

“Cloud computing is about providing computing as a utility…over the Internet.

The difference with Cloud is in the way computing is delivered:
- we provide you with infrastructure as a service IaaS
- supply is on demand
- delivery is via the internet
- costs are rental, based on usage.”

It’s true that one of the differences is the way it is delivered but it’s not the only one. Scalability and elasticity together are one of the five defining attributes of cloud. They are not present here since what’s being sold is simply managed hosting.

So is virtualisation a defining attribute of the cloud? Many hosting suppliers say so. They claim, “managed hosting + virtualisation = cloud computing.” That’s simply what it is. It’s managed hosting with virtualisation and not cloud computing.

As this is my introductory piece I’ll say what virtualisation is for the majority of suppliers. Virtualisation here means “server virtualisation” which is about partitioning one physical server into several virtual servers or machines. Each virtual machine can interact independently with other devices, applications, data and users as though it were a separate physical resource.

Hypervisor software is the magic ingredient that makes virtualisation possible. This software sits between the hardware and the operating system and decouples the operating system and applications from the hardware. The hypervisor assigns the amount of access that the operating systems and applications have to the processor and other hardware resources, such as memory and disk input/output.

Virtualisation can mean much more than this but that will do fine for now. There’s nothing new about it. Virtualisation was first introduced in the 1960s by IBM to boost utilisation of large, expensive mainframe computers by partitioning them into logical, separate virtual machines that could run multiple applications and processes at the same time.

Virtualisation, which is one of Gartner’s “top technologies for 2010”, is not necessarily synonymous with cloud, although it may offer significant cost benefits in the deployment of cloud technologies. Cloud technologies that offer elasticity and scalability also present cost benefits in themselves. To put it more simply, you pay only for what you need and use. You don’t pay for under-utilised in-house server networks.

And what do all those initials mean – IaaS, PaaS and SaaS?

Kate Craig-Wood, managing director of Memset very kindly provided me with this helpful diagram that she produced as part of her work on the Government (G-) cloud programme:



Kate writes, “The diagram shows what we agreed we mean by Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (right hand side) and the areas encompassed by the individual terms infrastructure / platform / software on the left. A better term than “software” might be “application” since the platform part is also really just software, but SaaS has already gained wide acceptance.

It is assumed that “as a service” means all services within the definition are fully integrated up to and including the respective level, thus incorporating any sub-levels. Therefore, SaaS providers could either sub-contract to a PaaS provider, or would incorporate the PaaS themselves and provide it as part of the SaaS “stack”. In turn the IaaS could be sub-contracted or incorporated. The customer would see an integrated service.”

This works well as a schematic but practically speaking, Platform as a Service is frequently addressed by the Infrastructure as a Service provider and the virtualisation layer may or may not be present, although it usually is. Interestingly I have yet to see a cloud provider describe their offering as PaaS.

In our next posts, we’ll look at some of the commercial and market issues around the cloud and what’s going on in the front line.

Geoffrey Wilkins

Making marketing investments in a recession – some facts!

It’s a truism that marketing costs are frequently the first to be cut in a recession. We’ve often thought that this was a reflection on the quality of marketing being performed within organisations - that in these businesses marketing has become detached from its primary purposes of innovation, driving profitable growth and acquiring customers.

This week, we’ve literally just completed a piece of live communication with a series of road shows for a leader in the Food Service industry.

We thought that we’d share some interesting insights from their Finance Director on marketing expenditure in a recession. This information carries some substantial weight as his company’s brands feature in 8 out of 10 of the UK’s domestic refrigerators

He had two key headlines based on his own, recent experience:

1. Investing during a recession helps you emerge from the recession in a stronger position

2. Brands should continue to invest in advertising during a recession

Studies from past recessions have shown that companies who sustain investment during recessions are better positioned when the economy recovers. Brand owners need to look on recession as an opportunity to reposition their brands for growth in the long term. Here’s some research from McGraw Hill:


Brands should continue to invest in advertising during a recession

The Finance Director is persuaded that communicating with consumers during the current turmoil is more important than ever to maintain brand loyalty and faith.

The board decided to focus their increased investments in their leading brands and not on their second tier brands, investing more in above the line advertising, especially TV, to put disproportionately more focus on product innovation and lastly to adapt messages to reinforce core associations (for example, in this case – British-ness).

Interestingly, by following this strategy they can testify to their top brands growing at 4.5% in a grocery market that is growing at 3.8%.

This organisation invests substantially in innovation and it shows. The Finance Director is usually the first to favour marketing cuts. Marketing deeply integrated within all aspects of its culture drives the spectacular success of our client’s business. Marketing is never a dispensable luxury except in those businesses that are doing it wrong.

Marc Balhetchet