Ten years ago, Amazon unleashed a technology that we now call, for better or for worse, cloud computing. As it turned out, the cloud spawned a revolution. Along the way, many were slow to realize just how big this revolution could be. But now, as 2015 comes to a close, they finally do.
Back in 2006, Amazon was just an online retailer, but it decided to try something new. It offered up a series of online services where the world's businesses could build and operate software—websites and mobile apps, in particular—without setting up their own hardware. Simply by opening a web browser, these businesses could tap into a virtually unlimited amount of computing power. And they did.
Netflix and Dropbox, for example, built two of the world's biggest online empires atop Amazon's cloud services. But even as these businesses thrived in the cloud—moving at unprecedented speed, instantly grabbing more computing power as they needed it—some people said this way of doing things didn't suit everyone. Big banks, insurance companies, government agencies, and other old-school operations couldn't run their software in the cloud, these skeptics claimed, because the cloud wasn't secure. It wasn't reliable. Many of these skeptics worked at places like HP and Dell and IBM and Oracle, the tech giants most threatened by the cloud revolution, companies that sold the expensive computer servers and other data center hardware and software that the cloud could replace.
In some cases, these skeptics acknowledged that the cloud was quicker—and that businesses of all kinds could benefit from rapid access to computing power. But traditional enterprises, they said, needed something a little different. They needed "the private cloud."
It was a silly name, even sillier than "the cloud." But for many traditional enterprises, the idea was sound: Rather than use Amazon, they should launch Amazon-like services on their own computer servers, inside their own data centers. Their engineers would have instant access to computing power via a web browser, just as they would through Amazon, and this computing power would be, well, more secure and more reliable.
But here at the end of 2015, we can now see that this big idea wasn't all that great. Just ask Adam Jacob.
Jacob is the chief technology officer at Chef, a Seattle-based company that offers a nifty tool for automatically installing, running, and modifying software across dozens, hundreds, even thousands of computers. In the modern world, this kind of tool is essential to running a big business. Chef helps drive Facebook's vast online empire. It underpins Target and Nordstrom and Standard Bank and many others. That means Jacob can look inside big businesses. He has seen the private cloud firsthand. And it's not pretty.
Inside big businesses, Jacob says, just about every so-called private cloud project has failed. "Private cloud, as a thing, is near to or approaching zero," he says. Most of these projects were based on a tool called OpenStack, which aims to mimic the cloud services offered by Amazon. But according to Jacob, mimicking Amazon is too difficult, too costly, and too time-consuming for many businesses.
"There are a few examples. But they're all really constrained, and it's not the same as when you use the public cloud," he says. "It takes a long time. It's super-difficult. And the software that you can buy to do it isn't very good." So, these companies are moving onto Amazon and other public cloud services instead.
This is not PR. Chef is a disinterested party in the cloud game. Its tools work with virtual machines in the cloud and with physical machines in the private data center. You'll hear echoes of Jacob's words from Pivotal, another company that seeks to modernize the tech used by traditional enterprises. Over the past several years, many private clouds, Pivotal's James Watters says, "didn't go far enough to provide real value and they never really got adopted. They were too complex for the value."
He says that companies are now exploring new ways of building private clouds, including efforts that involve software from Pivotal. But today, the company's (very old-school) customers run about 35 percent of their operations on cloud services like Amazon. Even the big Wall Street banks are now pushing tasks into the cloud, Watters says. "We're seeing more public cloud consumption than ever—even in our core financial services customers, like the top ten banks in the world," he says. "We're seeing them using public cloud technologies really for the first time in 2015. They were the last holdout."
Certainly, businesses will continue to run a lot of stuff in their own data centers—in part because they still have long leases on those data centers. "I don't think that market is going away," Watters says. But 2015 was a turning point. It's the year just about everyone realized that cloud computing—real cloud computing—is indeed the future.
Boston-based research outfit Forrester calls cloud computing—that's public cloud computing—a "hyper-growth" market. In a recent report, it predicts the market for cloud services will grow to $191 billion by 2020, a 20 percent leap from what it predicted just a few years ago. "The adoption of cloud among enterprises, which is really where the money is, has really picked up steam," Forrester analyst John Rymer recently told us. "It's a big shift. The cloud has arrived. It's inevitable."
That's in part because Amazon Web Services can be just as secure and just as reliable as a private operation. In fact, it may be more secure and more reliable in some cases. A company like Amazon has so many engineers focused on these services—so many people watching for potential problems. It has already spent a decade building this thing. After establishing a decent track record over the past decade, Watters says, cloud computing has become a "social normative" and "a safe bet."
In years past, voices also complained that certain companies and government agencies needed the private cloud so that they could comply with certain regulations that control where and how data was stored. That's true. But like other cloud companies, Amazon has worked to address these concerns, securing many regulatory certifications for its services. It even agreed to build separate cloud services just for the CIA.
That doesn't mean everyone is moving everything onto the cloud. Aaron Rajda, who oversees the new IT tech used at Ford, says the old car company still very much depends on private data centers for security reasons. And you'll hear much the same from other big businesses. But even these businesses are embracing the cloud in big ways. "You have to take a look at it," Radja says, pointing out that the company now runs part of its operation atop Microsoft Azure, an Amazon competitor. "There are advantages." Cloud services let you build and test software more quickly. Trying something new is a few clicks away.
Dissenters can no longer deny the power of the big idea that is the cloud. If you don't believe the experts, just look Amazon's balance sheet. In the spring, for the first time, Amazon revealed the size of its cloud computing business. Amazon Web Services, the company said, was pulling in $4.6 billion a year. This figure has since grown to $7 billion—growing, in other words, more than twice as fast as the rest of Amazon.
Not surprisingly, other notable names, including Microsoft and Google, are offering serious alternatives to Amazon's cloud. Microsoft doesn't reveal the size of its Azure cloud business, but if you lump Azure with the company's Office online services—another example of cloud computing—revenues are comparable to what Amazon is pulling in. Google, for its part, believes its cloud revenue could one day surpass its online ad revenue, which has long served as the core of its business.
Google sees where the trend is headed. Then again, it's a trend that's hard to miss. As Amazon's revenues have risen, the hardware market is consolidating. In October. Dell agreed to acquire computer storage giant EMC. In the past, when businesses wanted to build an online operation, they had little choice but to buy enormous numbers of servers and data storage machines from companies like Dell and EMC. But now they can use cloud services from Amazon and Google and Microsoft. So Dell and EMC are looking for new leverage.
Yes, companies like this can offer their own cloud services. And they have. But they run the risk of cannibalizing their existing hardware businesses. HP spent the last several years building a cloud operation. And just after the Dell-EMC deal was announced, it said this operation was no more. The company will focus on, well, the private cloud. That's what it has to do. It can't compete with cloud services from the likes of Amazon and Microsoft and Google. But the private cloud thing isn't what it might seem.
