Tim Oren's Due Diligence

Behind The Cloud

The Recession and The Cloud

One of the few hot themes in software and services investing right now is 'the cloud', an easily scalable pool of computing or storage resources located in the network, and (usually) run by someone else. Along with bona fide new entrants, every surviving grid computing company and also-ran virtualization venture is getting a 'cloud' label slapped on it (and 'green' besides, of course). What's going on, given the general state of IT spending amidst a global recession?

Part of what's going on is precisely that recession. Short term adoption of virtualization (and cloud itself) within the enterprise data center is being slowed by the usual caution and cuts in IT spending associated with an economic downturn. Every investment proposal gets hard scrutiny and had better have a short-term, low-risk ROI. Virtualization and cloud might actually offer those returns, but it's a hard sell considering the radical operational transformations they imply in the data center.

Meanwhile, the public cloud is getting an inadvertent boost from the recession. Amazon Web Services (AWS) has been joined by Google, RackSpace, EMC and a bunch of others in providing storage and computing on demand. It's the latest step in reducing capital requirements for starting up venture or enterprise software and services projects. The combined reductions created by off-shoring and open source had already led to what I've called two-stage ventures, where engineering to the point of market test could be accomplished with minimal startup funds. Now public cloud offers the would-be net entrepreneur a way to avoid both the upfront costs of putting service infrastructure in place for a launch, and the 'success failure' risk of not being able to obtain capital or equipment fast enough if the offering turns out to be a hit. In an extremely tough fundraising environment, staying capital-light as long as possible is just the ticket. The upshot will be even more 'below the radar' ventures launched on personal or angel funds, and only turning to venture when and if they prove demand and require external capital to scale their marketing.

A similar argument holds for the recession-beleaguered enterprise. Public cloud plays well in a capital constrained environment. The new department level project or customer-facing venture can start on a public cloud, without implicating the operational pattern of existing infrastructure, or having to consider the capex requirements of building capacity to host and scale the software. Rather than put all innovations on hold, business unit managers may be willing to take a risk on a public cloud provider and worry about internalizing the project when and if it succeeds.

Being well-aware of lock-in risks, enterprise managers will make sure they have the ability to pull their services into their own 'private cloud', in part or whole, sometime in the future. This suggests that ventures like Eucalyptus Systems, which allow emulation of a public cloud API on a private infrastructure, are well-positioned. It's also a good bet that applications born on a public cloud, where redundancy and surge capacity are built in, may continue to rely on public infrastructure for these contingencies, rather than deal with the capex and operational implications of internalizing them. This suggests that public providers will not be substantially threatened by 'privatization' of the cloud, but that management platforms extending across private and public clouds are a good long term bet.

The Cloud Over The Cloud

That doesn't make everything sweetness and light. Putting sensitive data onto a cloud provider's infrastructure doesn't remove security risks - it could compound them. The enterprise or startup handling PII or PCI-compliant data isn't going to get a break just because it's been pushed onto S3 or another storage provider. The software stack deployed on a public cloud is still vulnerable to attack from the network, and it may be more difficult to monitor would-be intrusions from afar. One also has to assume that the cloud provider is successfully maintaining separation of applications against inadvertent or malicious compromise by others on the same infrastructure. Even those who encrypt their sensitive data when at rest in a public storage cloud have to acknowledge that it will be brought into the clear at the moment of processing in a public computing cloud, and that will happen beyond the usual corporate security perimeter. Extending security and privacy monitoring and control into public clouds is another spot for entrepreneuring, though the long term advantage may go to incumbents in the enterprise market.

Then there's that 'green' claim. It seems perfectly reasonable that an application that's deployed on a virtualized infrastructure or a public cloud will suck less power than one which has dedicated resources, no matter how cunning the energy management scheme on the latter. There are a number of before/after and side-by-side comparisons that support the logic, though with wildly varying estimates of energy savings. What seems to be totally missing is any form of ongoing energy accounting. The moment the question changes from "Are you saving energy?" to "How much energy does this really use?", the answer comes up empty. So far as I've found, there is no solution for 'front to back' monitoring of direct and indirect energy usage by applications running on a virtualized or cloud infrastructure. Whether greenery ever comes to point of requiring an audit trail is a speculation, but if so, there is a market hole.

Buzz Phrases and Pundits

Then there's the risk that hangs over all terms that become industry buzz words: semantic heat death. Shortly after something is declared hot, the label will be hung on every venture in sight, and about the same time the ill-informed pundits will start to outnumber the useful analysts. Jonathan Zittrain's recent NY Times article is a bad example in point (BugMeNot). There he properly worries about privacy of data in a cloud, but sloppily confounds the term with another business model: audiences. Zittrain worries about the freedom to innovate in Facebook's cloud, and thereby participates in the semantic destruction of the term. Ask yourself this: Is anyone running an app on Facebook because of their awesome infrastructure or open architecture? Give me a break. The only reason anyone's there is access to the Facebook audience, in the hope of monetizing that exposure in some way. Similarly with his bad example of Apple's iPhone store. Who knows or cares how the backend infrastructure for the app store is built? It's all about access to Apple's customer base. Are Facebook's or Apple's management going to suddenly shift their business models from audience building to open infrastructure provider, and abandoned the value they've created? Give me a break again. Jeff Bezos figured out the distinction: you can buy your public cloud infrastructure from AWS, but it doesn't come with access to amazon.com's customer base. But that's too much analysis for lawyers trying to make political points.

Actually using 'cloud' as an analytic concept is going to get ever harder as time goes on, so those in the field had better be backstopping their new buzz phrase with some explicit description of what they are offering and why.

The Roving Eye: Correct Diagnosis, Cussing Is Good For You, Artifacts Of The Week

DRM moribund. Nearly five years ago, I wrote about digital rights management as a (negative) business diagnostic. It always creates user disvalue, so your only analytical task is to figure out whose business model is in the process of failing. Now it seems that the RIAA finally gets it, too. Now perhaps they can spend some time figuring out how they are going to build something that will actually add value. Not that I was feeling bad about it to begin with, but I regard this as final vindication for all of the so-clever DRM business plans that I've consigned to the circular file or bit bucket over the years.

A wart on Jupiter. How cool is this? An amateur Aussie astronomer noticed a new black spot on Jupiter over the weekend, which may have been caused by a meteor or comet impact (like Shoemaker-Levy in 1994) that escaped other's notice. More discussion here. Observations and analysis still coming in. Update: Confirmed.

Construction workers and mechanics have always known this. But now some scientists think they've proved it: Expletives reduce pain. The English researcher says: ""I would advise people, if they hurt themselves, to swear." Having pulled a back muscle during a volunteer trail build project this weekend, I should be cussing the proverbial blue streak, but unfortunately the positive effects seem to be transient.

Not Photoshop. From the Pink Tentacle blog, Japanese rice paddy art. Apparently by planting rice with variously colored foliage. Some of these should show up on Google Earth. Coords, anyone? And in case you need some recon capability to check it out, here's the Blackbird flying again, sort of. Awesome job!

The Roving Eye: Missing Billy Mays, When Customers Attack, 802.11RV meltdown

A surprise to my younger self. I'd never have guessed I'd be so saddened by the death of an aging TV huckster. But a couple months ago I caught an episode of the Discovery Channel's 'Pitchmen' show - simply because it followed our household favorite, MythBusters. Since my measure of television 'reality' portrayals of entrepreneurship had been set by the execrable, mean-spirited Donald Trump offerings, my expectations were pretty low. I was therefore pleasantly surprised to find Billy Mays and his co-star/partner Anthony 'Sully' Sullivan obviously respecting and honoring the would-be inventors and entrepreneurs who came their way, even when their proposals didn't come close to matching their criteria. I never became a regular viewer, but I did take in several more Pitchmen shows thereafter. For clarity about their needs, criteria and process, direct and honest feedback to proposers, and real respect for the entrepreneur, the venture capital world could do far worse than emulate Billy and Sully. I'll miss ya.

Sony brand down. Jeff "Buzzmachine" Jarvis has long talked about harnessing the creativity of customers and fans to help design ads and marketing campaigns. But what happens when they turn on you? Something like this:

Ouch, that's gonna leave a mark! (Hat tip to Cobb.)

Those backhaul blues. Four years ago, I was writing up observations from another camping vacation, regarding the spread of 802.11 'WiFi' to the RVing market and those who serve it. Perhaps unsurprisingly, that trend has pretty much reached completion, with now only the lowest tier or most distant destination campgrounds not having WiFi on offer, usually free. What's gotten worse in the last year, and rapidly so, is the actual usefulness of these systems. Most offer decent throughput only during very late or early hours, or sometimes in the mid-afternoon when most campers are out on excursions. It's the old backhaul provisioning problem, come back to bite campground proprietors who didn't know they were in the ISP business. It bears a lot of resemblance to the trend I saw overtake network planning at CompuServe and other old online services back in the mid-90s. Not only are many if not most RVers showing up with laptops - even the retiree crowd has it figured out - but expectations of continuous bandwidth and duty cycle have once again shifted with the explosion of YouTube and other online video sources as a means of news gathering and entertainment. A campground that's provisioned with a single T-1, or a business DSL or cable modem, is finding its router and resources overwhelmed.

(I also note that many RVing WiFi users haven't thought things through. At a large campground in Salt Lake City, I fired up my laptop and was soon able to see the shared, toplevel directories of an even dozen users who probably didn't realize they were bridged to every other user on the WLAN. No I didn't peek, I'm not that kind of guy, but it's close to an attractive nuisance for wannabe crackers.)

On The Road: A Walk in Wyoming

(We've been back from vacation for a week, and are pretty much recovered. Blogging got left along the road, in part due to intermittent connectivity, in part to the - desirable - distractions of the trip. I'll intercut a few saved posts with new material for a couple of days.)

Along the way, we stopped off in Laramie, Wyoming to visit with old friends Isobel Nichols and Brett Glass, proprietor of the local Lariat.Net WISP. Along with a walking tour of the old town, knowing that we were wildflower fans they treated us to a hike at the nearby Vedauwoo Turtle Rock recreation area. The unseasonably rainy weather obliged with a few perfect hours for the walk. Some more eye candy for those of like mind:

Western clematis

Gumbo evening primrose

Unknown (to me) variety of skullcap

Thanks for Isobel and Brett for an enjoyable excursion!