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Don’s recent attempt to look at financials of 10 publicly traded “cloud” companies got me willing to expand his research to a bigger picture.

After all, limiting the scope to 100% cloud companies really skews the charts to “Salesforce.com and everyone else” leaving such cloud juggernauts as Amazon and Google out of the picture.

As Don notes, Salesforce.com is doing extremely well: in Q1 2011 the company demonstrated 34% year-over-year growth rate and made $504 million in revenue. Their 2010 revenue was about $1.66 billion.

Companies like Google and Amazon are indeed much harder to analyze. Neither of them discloses cloud-related revenue which sort of vanishes in the grand scheme of core business such as respectively online advertisement and retail.

In this blog post I decided to have a look at where these two cloud businesses stand.

Amazon

In August 2010, UBS Investment Research estimated that Amazon Web Services were on track to make $500 million in 2010 (up from $275 mln in 2009), and $750 mln in 2011 (out of total $44 bln revenue of Amazon as a whole). By 2014 they are expected to get to $2.5 billion.

Profits are estimated to be around $58.2 million in 2010, $100.7 million in 2011.

As a side note on the Infrastructure as a Service space, Rackspace is considered to be number 2 cloud provider and they are way behind Amazon with target revenue for 2011 set to $100 mln (for cloud services).

Google

Google Apps is Google’s core subscription cloud service, and again a small fraction of the total company’s revenue (and with Android’s success no longer the most cherished ‘secondary business’ either).

The latest interview with Google Enterprise (which includes Google Apps) boss – David Girouard does not say much:

3,000 business are moving to the suite each day, and over three million have moved since its debut in 2007. But it’s unclear how much revenue Google is generating from subscriptions. All we know is that it’s under $1bn a year, less than four per cent of the company’s overall revenue. The aim, however, is to create a multi-billion-dollar business – in the near term. “Not a decade from now,” Girouard said, “but within a few years.”

Obviously ‘under $1 billion’ is a huge range.

A year ago, in May 2010, Nikesh Arora, president of Google’s Global Sales Operations and Business Development provided more detailed information:

First of all, back then the number of customers was one-third lower: “There are 2 million small businesses that have signed up”.

And secondly he provided a date estimate for reaching the $1 billion mark: “In perhaps three- or four years, I hope it will be more than a billion dollar revenue stream.”

With that kind of growth, to get to a billion dollars in 3 years, Google Apps need to be making  $300 million in revenue a year at the moment. On the other hand, when Google Apps were claiming 1 million users in early 2009, their revenue target for the year was $40 million. So with 3 times more users today, they might very well be at the 3 times the revenue – $120 million a year for Google Apps. My guess, is that the broad range ($120-$300 mln) might be related to them including or excluding advertisement revenue coming from free Google Apps accounts.

Anyone else?

I am actually quite impressed with how revenue of Salesforce.com compare to cloud businesses of Amazon and Google.

For now I would probably just limit the analysis to these 2 vendors. Microsoft is trying hard to get into this business with their Office 365 and Windows Azure launches. However, to be fair to the company I would probably wait another year before discussing their financial performance.

And that’s just for the software vendors. IBM‘s CFO Mark Loughridge claims that cloud services will generate $7 billion in revenue for his company by 2015, and I am pretty sure that hardware vendors are not losing money on shipping servers to all the new cloud datacenter either.

Have I missed any of the big players you would have expected to see in this analysis? Let me know.

Marco Arment from Instapaper thinks that Chrome OS will have limited appeal for consumers, will target businesses and not be well-received there due to lack of proper enterprise support and commitment. Here are a few quotes from Marco:

Google’s targeting of Chrome OS is interesting. Rather than trying to attract consumers, who have demonstrated that they’re not interested in “Net PC”-like browser-only hardware, Google is positioning Chrome OS hardware as inexpensive, low-IT-overhead alternatives for businesses to deploy instead of desk computers.

In last week’s Talk Show, John Gruber and Dan Benjamin discussed why it may finally be a good time for this: a lot of computers today in businesses exist solely to run a web browser. John’s example is almost every computer in a typical bank branch, on which the agents usually just type your information into a series of web-browser forms in order to do their jobs.

Google’s just not in the business of providing long-term support for an unsuccessful product line. It’s part of what allows them to keep releasing new things all the time while geeks declare Microsoft a boring old dinosaur. But IT departments need their platform vendors to behave much more like Microsoft.

I doubt many corporate IT execs are going to take the risk that Chrome OS will be a stable enough long-term platform to deploy to their companies’ workforces. As the saying goes, nobody ever got fired

Interesting enough, I actually agree with the second part of the argument but not with the initial premise.

Yes, getting businesses to commission big desktop refreshes to Google is going to be a challenge and require good field execution to get the early adopters buy into the value proposition (and then serve as a case study to persuade the others). And I think existing Google Apps adoption and progress demonstrates that Google’s execution when pitching to the enterprise is underwhelming. Just think on how much earlier on the market they got compared to Microsoft’s BPOS/Office 365 and how they almost missed this advantage.

However, obviously, even if not that many enterprises adopt Google Apps and Chrome OS – the reality is that these will create a headache for Microsoft because they will be used as a threat buy Microsoft’s enterprise customers when negotiating a better deal on their Microsoft contracts…

The real success of the OS though is likely going to depend on the consumer adoption (iPad was never pitched as an enterprise tool – but companies are increasingly looking to using it as such). So let’s look at the possible consumer play of the technology.

And here, I do not agree that ‘consumers … have demonstrated that they’re not interested in “Net PC”-like browser-only hardware’. Consumers are not interested when you give them a crappy netbook with an impossible to use Linux. There is little doubt about that. However, this does not mean that consumers are attached to Windows fat apps either. Success of iPads is a clear demonstration that consumers can live with total breakage of compatibility with old apps as long as the device is great and the new apps ecosystem is good.

If the application marketplace which Google is launching for Chrome OS is good – it will be just fine with consumers. Especially with supported offline mode and printing. I am using TweetDeck Chrome app in my Chrome browser today and it is just a great application. Much better, faster and easier to maintain than the AIR version I used before. If apps, hardware and pricepoints are there – consumers will come.

And yes, Ray Ozzie is right: applications on any devices are these days becoming a local representation and cache of something server or cloud-side. This is already true for a lot of iPhone and Android applications – so web-based application framework with good access to local resources is fine. Which then makes it a question of whether Google can make the Chrome OS the device operating platform of choice for the range of devices and longer term replacement of Android. And this is a question of competing for the hearts and minds of consumers and developers – and not really a question of a “Net PC” being something that resonates with consumers.

And I have no idea whether or not Chrome OS devices require cheaper hardware than Android devices. I am not sure I see why they would – consumers would probably still want solid-state drives, nice-looking form-factor, touch screens, cameras and other things which make the devices more expensive – so what’s the difference?

The future is in the cloud. Whether this “cloud” means Chrome OS remains to be seen.

Are online services ever going to be 100% secure? If not should the insurance industry kick in?

A few days ago Google Apps had an issue with some Google Docs became accessible to other Google users beyond the security set on the docs. To quote from Google:

As we noted in the Google Docs Help Forum yesterday, we’ve identified and fixed a bug where a very small percentage of users shared some of their documents inadvertently. The inadvertent sharing was limited to people with whom the document owner, or a collaborator with sharing rights, had previously shared a document… We believe the issue affected less than 0.05% of all documents…

This obviously is not fun, and 0.05% can be a pretty big number of documents and who knows how these got spread across customers. However, what I wonder is whether this is actually an insurance industry rather than just technology opportunity.

Seriously, you install fire alarms, etc. in your house but you probably still insure it against fire (and not, say, live in the middle of a field because houses can burn). Does this make sense?

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google_apps_logoGoogle has finally made Gmail and Google Apps for Enterprise their focus area – these are no longer just one of their experimental areas.

Within just last couple of weeks there were a few significant updates to Gmail/Google Apps (probably more than we’ve seen for the whole year before that!):

* [Update] The push calendar and contact sync might actually be not as exciting as some reported initially. First of all, it does not include email. Secondly, calendar and contacts are synchronized via Microsoft’s ActiveSync protocol. Which basically means that Google on the server side pretends that it is Microsoft Exchange. The problem is that if in fact you have corporate Exchange server and want to keep getting your email from it, but also your private data from Google – you won’t be able to do that. There’s just no way to specify two ActiveSync servers in Windows Mobile or iPhone.

And consider other improvements introduced within last couple of months such as:

Some of these were so obvious shortcomings that you can’t help thinking “what took them so long?”

My guess is that what we are seeing is the result of Google internal resource reallocations. When the economy downturn started, Google started closing many of their projects and imposing restrictions on Google’s famous 20% time projects (it used to be: spend 20% of your time on anything you like – not any more).

The fact that Gmail and Google Calendar are getting so many updates lately is a clear sign that these were identified by Google as their priority area. Erik Schmidt seemed to confirm that on their quarter results call:

“By focusing on the one million Google Apps business customers, [you] can get enterprise-quality applications hosted by Google at a dramatically lower price,” Google’s Schmidt said.

I guess for us this means that 2009 can be the year when Google really tries to push harder to make Google Apps a success. And by the way, the talk of how they are complimentary to Microsoft seems to be over. This Thursday they are holding a customer testimony webcast on migration from Exchange to Google Apps.

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Here’s my attempt to put together the list of things I expect to happen to Cloud Computing in 2009 – kind of natural thing to do the fist day of the year, right?

Overall, this is going to be a year when cloud computing will start rapidly maturing with competition heating up on the infrastructure/platform level, real private cloud solutions hitting the market, traditional applications increasingly moving to SaaS or hybrid model, and browser offline becoming a reality.

Let’s go through these one by one – and go through the IaaS and PaaS markets first.

Platform and Infrastructure as a Service (PaaS and IaaS) markets maturing and blurring.

IaaS is basically Amazon EC2 approach with hosters giving customers the ability to instantiate and control virtual machines running in the datacenter. This is a natural progression from the traditional server hosting model. However, this model of raw VM does not provide a lot of opportunity to differentiate which in turn is leading to higher competition and lower profit margins. We will see more and more platform functionality being added to infrastructure offerings and these two layers merging more and more.

Amazon is clearly adding more and more services besides EC2, and partners such as RightScale are adding automated scaling features normally associated with PaaS.

Even newcomers are now often shooting for something in between right from the get go. Can you tell where Windows Azure is? It is already kind of both infrastructure and platform.

Speaking of Windows Azure, this is likely going to be the year when it will hit the market. Folks at Microsoft are doing their best to make it easier for existing software ecosystem to get in with effectively the same or very similar tools they use today. The sheer size of the ecosystem, and this evolutionary approach is likely to immediately make Microsoft a serious player in the space.

VMware can definitely get into the top 3 as well if they execute well with their vCloud initiative. They would need to make sure that:

  • Their hosting partners can compete effectively against Amazon, Microsoft, Google, and others.
  • This pick your partner approach does not confuse the market, and
  • They don’t end up being behind competition by limiting themselves to basic infrastructure only.

The interesting aspect of that is that VMware really has the potential of forcing Microsoft to let partners run Azure. Today this is not the case and the only place where Azure exists is Microsoft’s datacenter.

It remains to be seen whether pure Platform as a Service players such as Salesforce.com (with its Force.com) and Google App Engine will be in the leaders group. They will likely start feeling pressure from the infrastructure level as I mentioned already but it might be challenging for them have the ease of migration and the flexibility that IaaS solutions have.

Also, Google seems to be making surprisingly small progress lately. They have posted some information on the upcoming System Status site and billing/quota dashboard – which means that the beta status is likely to be gone soon. However, their development story (Python as the only programming language and quite limited development environment) and the economy forcing them to concentrate on their core search and ad business are limiting their ability to compete.

Thoughts, comments on any of these?

I will continue with other trends next week.

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Microsoft's Gen4 DatacenterSeems that Microsoft is suddenly surprisingly extremely open on how they design and run their datacenters. Not only we have a write up by Michael Manos on their Generation 4 datacenter architecture (and a great concept video), but even more surprisingly James Hamilton is giving us a spreadsheet of their datacenter expense structure!

Can you find information like that for Google or Amazon? The answer is no. Because the way they run their datacenters is a part of their competitive edge – especially for Amazon who compete at the infrastructure level where low pricing is important so efficiency is paramount.

Why would Microsoft do that? Apparently these blog posts are not just something individuals put out but a concerted move by the company. My guess is that there’s not much they loose now by giving away that information: after all they are not really a player in that space today (Live is way behind Google and Windows Azure is at a very early stage), and even a smaller vendor going after Microsoft would like to mimic their approach achieving the same economy of scale and competing against Microsoft is not going to be that easy.

However, the posts intent to help establish Microsoft’s credibility in the space (despite Hotmail success and a lot of other online efforts, the software giant is not really viewed as a web 2.0+ company). The message is: we are very serious about this market and this transition, and we are innovating and leading the industry to some kind of next generation approach leaving others behind.

We’ll see how this all plays out. Meanwhile do check out the links if you have not done so yet:

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Folks at Google have released another set of APIs for Google Apps and like the previous drop in September this one is for administrative tasks.

This is actually a big deal deal because unlike earlier user-oriented APIs these give you programmatic administrative access to all users’ data and settings.

Here’s the key difference in what we had before and what we have now:

A strong move meaning that the enterprise folks at Google are really starting to think about enabling the ISV ecosystem around their technology. After all, this is what made Microsoft so successful.

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The posts on this blog are provided “as is” with no warranties and confer no rights. The opinions expressed on this site are mine and mine alone, and do not necessarily represent those of my employer Jelastic or anyone else for that matter. All trademarks acknowledged.

© 2008-2012 Dmitry Sotnikov

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