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What do you do once you become the top bookseller and web-startup hoster? You shoot for the enterprise market!

That seemed to be the sentiment of Amazon’s Cloud for the Enterprise event which the company held in Sofitel Los Angeles last week. The pitch boiled down to:

  • Amazon’s datacenters are the most reliable, secure, and cost-effective option you can find,
  • Amazon Virtual Private Cloud (VPC) lets you securely connect an isolated subnet of Amazon Web Services (AWS) to your intranet,
  • If you are already virtualizing your applications, why not then run them in AWS and not spend money and efforts on whatever datacenter expansion you might need on your end?

Why this makes sense?

Amazon went a long way to make their datacenters more reliable and secure, they have the technology for network connectivity, and they do get significant economies of scale. The latter is not just words. Amazon’s CTO – Werner Vogels – showed pie chart of the cost structure for their datacenters.

They have almost eliminated labor among the significant cost factors – which is great considering that labor is one of the top (if not the top) elements of typical on-premise IT environments.

However, they went further than that. In their current cost structure server hardware is by far the number one cost absorbing more than 50% of what they have to spend. This made them work hard on improving the utilization of these resources. What they did is sell these compute resources as a combination of:

  • Reserved instances (when customers commit to resources for a long period of time to get 50%-70% discounts),
  • On-demand instances (normal hourly pay as you go model), and
  • Spot instances (when the remaining resources get automatically auctioned among bidders in a name-your-own-price scheme)

This means that they can get server utilization close to 100% – which is incredible considering that typical numbers in the industry are probably within 10-30% range.

Considering all this, why bother buying a new server when Amazon can deliver a potentially better service (with additional availability options, global datacenters and so on) at a lower rate?

What is in it for Amazon?

This also seems to be a natural adjacent market for Amazon (the IaaS company – not the online retailer). If they already successfully host web startups and are the most well-known compute platform for tasks such video transcoding or text recognition – why not use that same expertise and infrastructure to sell it to enterprises?

Enterprise IT is a huge market with great margins, and as corporate CIOs are looking for ways to use the cloud to cut costs and/or become more agile – Amazon has the brand recognition to be their number one choice.

This seems to be a high priority effort for the company considering that they have their CTO attending and delivering his keynote at events like the one in LA. And it should be if Amazon does not want to be squeezed between enterprise vendors like Microsoft and VMware getting the higher margin enterprise cloud segment, while initiatives like OpenStack commoditizing lower end cloud compute services.

With so many vendors going after them, Amazon needs to keep moving fast to stay relevant.

Are we there yet?

With all that being said, today Amazon’s pitch remains a great story rather than reality for both technology, business and perception issues.

Technological challenges include inability for IT today to easily (or better automatically) move workloads between their on-premise datacenters and Amazon’s cloud. Even the virtual machine images Amazon is using are not compatible with the VMware and Hyper-V hypervisors enterprises have.

Obviously most of the existing IT management and monitoring tools that companies are using are not yet Amazon aware either – meaning that administrators cannot just get Amazon added to what they have already but instead would have to learn new ways and find new tools.

From business perspective, Amazon is just not an enterprise vendor yet. Corporations have contracts with Microsoft, IBM and others – Amazon is brand new to these customers.

Perception-wise, Amazon needs to find early adopters of that enterprise IT scenario to showcase at events like this. The 4 customers presenting at the event in LA were using AWS to:

  1. Offload computation tasks,
  2. Do image processing,
  3. Host web sites, and
  4. Host their SaaS electronic medical records application in the cloud.

Needless to say, these are not the scenarios Amazon was trying to pitch.

Summary

With the enterprises starting to evaluate their cloud options, the fight for the cloud for the enterprise is only going to become hotter. It is going to be interesting to see if Amazon finds a way to “descend” from the public cloud to the on-premise and hybrid scenarios with smart partnering and acquisition strategy, or traditional enterprise and virtualization players add public cloud to their solution sets and squeeze Amazon out.

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Looks like my recent Google Apps customer base estimates need corrections and the current growth is far smaller than the one we were seeing earlier this year. What’s happening? Are they stuck getting all the technology enthusiasts and visionaries they could get, and having no way of attracting the bigger mainstream market?

Let’s look at the numbers again:

Last week Steve Ballmer quoted some private comScore research stating that Google Apps customer base stopped growing:

“Let’s look at the facts,” Ballmer said. “Nobody uses those things. And the usage data hasn’t grown in seven months. They’re just flat, comScore. Just like this,” he said moving his hands side to side. “It’s just like flat line. Exactly flat line.”

What a chance for Google to surprise the world with new usage data and all they could produce in response was:

…there are now more than 10 million active users (Granted, that’s the same stat Girouard provided in a May blog post).

But Girouard said that with the start of the new school year there had been “fairly huge growth” in the use of Google Docs.

Obviously if they were approaching 15 million or another significant number they would call it out.

To make things even worse they are back to providing confusing information about their enterprise wins. Bloomberg is reporting that this June they one $500,000/year Google Apps contract with Washington, D.C. Hmm… Weren’t they telling CNN recently that this contract was signed last year and for $1.9 million? Both stories quote the same number of user accounts (38,000) so this must be the same deal they are simply reporting as a new one again. Does not help their credibility really…

It really looks like they had been enjoying significant growth up until a few months ago (and were happy to report the numbers and customer names) and then the growth started to slow down leaving Google’s PR confused. Hmm… I sort of heard of such things before. Isn’t this a classical trend from Moore’s chasm diagram:

Marketing and Selling High-Tech Products to Mainstream Customers" by Geoffrey A. Moore

Basically, Moore argues that the needs and usage patterns of the early technology enthusiasts and visionaries groups are radically different from mainstream users, so once you get the first two groups to adopt your product you get stuck in the chasm not letting you penetrate more lucrative mainstream market.

Is that what we are seeing?

I have a few ideas of the possible reasons here:

Docs and Spreadsheets are too geeky and incomplete: I sort of think that the Gmail part is probably more acceptable to consumers – after all Hotmail, Yahoo mail and others made the concept of web mail widely popular with consumers. But editing documents and spreadsheet in the browser is still way beyond the regular user grasp. Maybe if the browser pretends it is just a local app (like Chrome presumably will be able to do for some sites) and is able to open the document you doubleclick on your desktop – but they are not close to that, and their poor ability to import doc files (I tried to import a simple doc with a clipart picture in it and the import failed altogether) is making the transition from Microsoft Office tough. They tout integration with Gmail, but just try editing the attachment you got in an email and sending it back with your reply – this is not any easier than in Microsoft Office.

Reliability concerns: I would think that Gmail is a far more adoptable concept, the recent outages have probably made a lot of the folks in the enterprise decide to put their evaluations on hold for now.

Poor transition path: Finally, most companies already have some IT infrastructure in place, and if you have more than a couple hundred of mailboxes, and would like to seamlessly go from your Notes or Exchange to Gmail without impacting the email flow and loosing any data – that can be a significant endeavor. For now I am not seeing crowds of system integrators (anyone besides Capgemini?) and ISVs rushing in to solve the problem.

[Update: added this fourth reason]
Sales/Distribution channel: Google’s consumer-oriented “built it and they will come” mentality is not working with enterprises – these guys expect vendors to be building relationships with them – something Microsoft’s direct sales force is doing and Google is not. A good distribution channel (Dell, HP, IBM, etc.) could help but Google does not have that either.

Without these problems addressed, Google might well get stuck with the “more than 10 million active users” for quite some time ahead…

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Google Apps (including GMail) were out (again) for commercial customers this week. Considering the August outages not that long ago, this can be a significant PR blow for Google’s enterprise efforts. Or this could be a great opportunity for 3rd-parties to get in and make Google Apps enterprise-ready.

Here’s a quick summary from Slashdot:

“A prolonged, ongoing Gmail outage has some Google Apps administrators pulling their hair out as their end users, including high-ranking executives, complain loudly while they wait for service to be restored. At about 5 p.m. US Eastern on Wednesday, Google announced that the company was aware of the problem preventing Gmail users from logging into their accounts and that it expected to fix it by 9 p.m. on Thursday. Google offered no explanation of the problem or why it would take it so long to solve the problem, a ‘502’ error when trying to access Gmail. Google said the bug is affecting ‘a small number of users,’ but that is little comfort for Google Apps administrators. Admin Bill W. posted a desperate message on the forum Thursday morning, saying his company’s CEO is steaming about being locked out of his e-mail account since around 4 p.m. on Wednesday. It’s not the first Gmail outage.”

The discussion mostly revolves around half of readers saying that on-premise systems are even more susceptible to failures, and another half (proud IT people) saying that their systems are never down and they can do their jobs better than any folks at Googleplex. No surprise.

However, this comment caught my attention (I am leaving everything as it is in the original post):

“The problem is not downtime- it’s lack of any way to mitigate the problems, and a complete and total lack of any customer service from Google. There is NOBODY you can call when there’s a problem. PERIOD.

Compare and contrast. Google:

  • If Google hoses someone’s account, they’re completely fucked. Google will shrug and say “meh, whaddya gonna do?”, and point to their user agreement.
  • If someone breaks into their account or changes the password, they’re completely fucked. Google won’t block access, can’t prove who is who, getting logs will be a slow fight to the death, etc.
  • If the user deletes a bunch of mail (or someone else does) or there’s a bug with their email client (ie if they’re using IMAP or POP access), they’re completely fucked. Google won’t do a restore. Their backups (if they even have any) are for “oh shit” system-wide fuckups (like, I’m guessing, the current one- I bet the accounts got deleted and they’re restoring from backups.)”

If you carefully read between the lines you will see that these are valid concerns and they are not something you could not fix technologically. Will it be too long before we get applications providing such fault-tolerance and administrative control for Google Apps (and competing platforms)?

  • Archiving/backup/recovery outside Google (on-premise or in a competing cloud),
  • Dial-tone availability to maintain email flaw and possibly some (most recent?) data,
  • Access auditing,
  • Offline access (probably will be provided by Google Gears eventually).

The list could go on and on. Sounds like the more outages Google has the bigger is the potential demand for external safety bags other vendors could provide…

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© 2008-2012 Dmitry Sotnikov

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