In this blog I look beyond the obvious and try to find out why people and companies do what they do - and what it means for the rest of us. 
The “Cloud” market is not a market – it’s a construct. The SSP market 10 years ago wasn’t a market either – it was a bad idea. Both had absurd levels of “buzz” which led to absurd levels of VC money being poured in. Both will end the same way – with disillusionment.
The reason the SSP market never was is fairly simple to understand – the premise was fundamentally flawed. The SSP wanted to solve a problem that didn’t really exist. Companies were not interested in pushing their critical data assets out the door to be handled by a third party – unless the cost advantage was so stunningly compelling to merit them doing so. Well, turns out it wasn’t cheaper – if anything it was more expensive. Multi-tenancy wasn’t real nor trusted and as such there was almost zero economic benefit delivered – which destroyed any hope of this market ever becoming legitimate.
When the “buzz” of the SSP was at its height, VCs couldn’t throw enough money at enough wanna-be entities fast enough. There were dozens of SSPs, but not one had a legitimate business model, because there wasn’t a legitimate market opportunity. They all died. Money flushed down the can. A lot of disillusionment.
What survived that horrible time – and in turn prospered – was not “capacity” based services. What survived were solutions to legitimate problems experienced by a legitimate market. How strange. Backup service providers have thrived while capacity providers died. Why? Because solving a backup problem is a real market opportunity. It’s not a nice to have – it’s a need to have. The arms dealers in that market have made a fantastic living selling the means to the end. The service providers themselves have built solid businesses – and don’t call themselves SSPs. Delivering actual value has a way of driving sustainability. This sub-industry did what all successful companies/markets do – intersected a long term secular trend. Data growth isn’t going to abate and backup/recovery isn’t going to become easier. Those two truths make up a wonderful long term secular trend. Long term secular trends are waves you want to ride – go ask VMware or Data Domain. Trying to create a trend is almost impossible. Intersect one instead.
I see the same thing happening again with Cloud. There are a zillion wanna-be providers of “capacity” services. VCs are pouring money into anything that says Cloud. They will die. You can’t build a sustainable business selling capacity unless you have a distinct advantage – like you build disk drives or you have a model so vastly superior to everyone else that you dictate the terms (Amazon, for example). It’s going to be hard for even an outrageously well funded startup to beat EMC, or IBM, or AT&T or Seagate at this game. I’ll go so far as to say it will be impossible.
Someone will fail soon. Then it will be a snowball effect. VCs will swing to the other end of the pendulum and run and hide from all things Cloud. Companies that have branded themselves Cloud will panic and try to remove the stigma from themselves. Valuations will plummet.
Side Note: There is no such thing as a private cloud. A private cloud is called IT. We don’t need more terms for the same stuff.
Remember Arsenal Digital? They were an SSP. When the ship started sinking they rapidly switched gears and became a backup service provider. IBM then bought them. You see where this is heading?
It is inevitable that this happens again. My advice to those who want to survive the coming collapse is to quickly find a legitimate valuable service to offer the market – something they actually need. It’s fine to use “Cloud” as an enabling component to that service – economically or technically – but if you believe that simply being “cloud” is going to provide you sustained value, you are screwed.
You need to change your messaging, and change it quickly. Plus, I hate to tell you this, but it wasn’t working anyway. People don’t buy “clouds” just like they don’t buy “ILM.” They are constructs. They use the constructs, but they don’t buy them as a “product.” They buy solutions to problems they have. Sell them that and you’ll be fine. Message to the solution and the problem, not to the enabler, especially when it’s apparent to me that the enabler is going to have negative value in the coming year.
Companies that provide arms and means to leverage the cloud will do fine. 99% of companies that are cloud will not. You got a great A round valuation by being cloud yesterday, but your B round will be a death march if you are still clinging to that moniker in six months. Use the cloud – don’t be the cloud. Use the cloud to deliver your high value services that everyone needs and you’ll do fine. Sell “cloud” capacity and you’ll be gone within a year.
Related posts:
- Cloud Economics Continued
- The Cloud And The Government
- Cloud Apps That Make Sense – Hint: Backup isn’t One
- Head In the Clouds – The Great Value Question
- Reverse Cloud Economics
Tags: Cloud, service provider, SSP, valuation
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AMEN Steve!
We have been around for 10 years and have seen VC funded trends come and go with the wind. Remember when SRM wasn’t a feature but a platform that IT couldn’t live without and CreekPath was going to dominate the storage industry?. We agree with you position 100% but nothing is going to change for the VC’s — they are like high-handicappers in golf who hit 1 drive a round on the screws while splitting the middle of the fairway and think to themselves “if I keep trying it will happen again”. All the while their other 15 or so drives end up in the woods and make for a long walk spoiled. In terms of SSP’s that 1 long drive on the short stuff was Storage Networks. As for the Cloud, we won’t hold our breath waiting for that perfect drive from the unknown (nor is that our partnership approach), but there will be a level of fascination to see who the other 15 shanks in the woods belong to…
As far as we are concerned, one of your final comments was music to our ears:
“Companies that provide arms and means to leverage the cloud will do fine.”
Cheers,
Bobby Moulton
President
Seven10 Storage Software
haha… “There is no such thing as a private cloud. A private cloud is called IT” I like this
Great article, Steve! But I think the title is a little bit misleading. I would have put “cloud business” there instead of “cloud”.
This makes the most sense of any cloud commuting story I have ever read!
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I think this goes without saying based on my previous comments but *standing ovation*
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This all comes back to ‘legitimacy’ – whether you have cloud, Saas, on-premise it doesn’t really matter as fundamentally if you don’t have something that the market sees value in and people will buy, you don’t have anything just vapor.
The risk of this current band wagon is that established companies will potentially loose credibility and serious value. There are too many people who believe the ‘hype’ at high levels in business where they can make ‘messaging changes’ that really have no value whatsoever and damage reputations.
It’s very similar to the bricks and mortor vs on-line of old argument when the ‘bubble burst’ – getting the traditional businesses- those who have achieved success because they have something that people want to buy and moving them to ‘bricks and clicks’ – how many of them ‘messed up’ big time, lots and its taken them years to sort themselves out.
It all comes back to VC’s – they want to have the next big investment aka google, the new biz goes away, gets the marketing machine going and off the snow ball rolls.
Ultimately it’s simple as Steve says – this is IT, I cannot agree more. Technology has advanced, which creates many choices as to how we want the value to be delivered and at what price.
The most pressing issue i see is privacy – it’s really going to kick in soon, where is my data? i don’t know, maybe in a datacentre in China? Hence it’s flawed from a legal angle.
I suppose when you look at it, all the VC money being poured into ‘cloud’ is only benefitting a few namely Google, Cisco and the guys who sell all the kit that VC backed cloud vendors need – now that’s a great business model!
Great article Steve – more please!
Just been to my second cloud conference. I am now convinced of the forecast: cloud clearing.
Mind you, if you can get the money from VCs on the back of cloud but not believe your own BS, I would say go for it.
Great article Steve. But doesn’t this contradict your earlier post “Cloud Apps That Make Sense – Hint: Backup isn’t One” Am I missing something? Is it that BU remains a must have but that online is and will remain the wrong delivery method?
I don’t think so, or at least, hope not. My point on the Cloud Apps post was that the attributes of a good cloud app are being tolerant of high latency and requiring low bandwidth, for example. One directional apps, like backup, are fine – but recovery, well that’s not so good. BI, on the other hand is one way – data goes out to the cloud, and never has to come back – only the results of the query are what comes back – which doesn’t suffer from low bandwidth or high latency.
My point on the Cloud vaporizing was simply that if you are a “provider” you better be big, I don’t see there being much room for little guys as pure play providers. Little guys best focus on application value if they want to prosper. Who will be the next Salesforce.com? Cheers
Thanks for the quick reply Steve, got it. I agree that the rubber meets the proverbial road when it comes to recovery. I also think the (relatively) little guys have to focus on delivering superior customer service if they’re to survive in a world where Google et al may choose to disrupt a cozy market at any time.
[...] You can read EMC’s Chuck Hollis take on private clouds here. Here is a different take on the cloud and what it should or should not mean. As usual, Steve Duplessie does not mince words in this article on why the cloud will vapourise [...]