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By Timothy Chou
 hen someone asks you
what cloud computing
is, it may seem difficult
at first to explain it. But
by the time you finish
reading this, you should
be able to explain it to your Facebook friends. First
of all, everyone who shops on Amazon or searches
on Google or posts on Facebook is using the cloud.
These consumer applications are simple examples.

Volume 1, 2010: Issue 7 1

Network Cloud Services
What you may not have thought about is that ev-
ery one of these consumer application cloud ser-
vices uses network cloud services. In fact, the word
“cloud” comes from the fact that many years ago
those of us who built and sold client server applica-
tions, software and hardware used to draw a pic-
ture with the PC connected to a network and the
network connected to a server. Since none of us
actually understood how the network worked, we
drew a cloud and labeled it “network” and left it
at that. In those days companies built their own
networks, but today consumers and businesses use
network cloud services delivered by companies like
AT&T, Verizon, Masergy and Sprint.
Data Center
Cloud Services
Since the Network Cloud Service providers had to
build buildings that had high-quality
power and were physically
2 Volume 1, 2010: Issue 7
secure, it made sense for them to begin to offer
data center space for these emerging consumer
application cloud services. In the early days it made
more sense for Google to use Savvis to provide data
center space. Today, companies like Twitter, Face-
book and OpenTable continue to rely on data cen-
ter services provided by companies like Savvis, NTT,
Terremark, and others. Of course, anyone who be-
comes a student of the cost of computing comes
to realize that the cost of power is a big driver. As a
result, anyone who needs space for 100,000+ com-
puters (e.g., Google, Amazon, Microsoft) is building
data centers located near low-cost and reliable
power.
Application
Cloud Services
So far we’ve focused on consumer application
cloud services, but for the past ten years the fast-
est-growing business applications have all been
delivered as cloud services. Since 1999, fifteen
companies that deliver business application cloud
services have become public companies. These fif-
teen include Concur (1999), Webex (2000), Kin-
tera (2003), Salesforce.com (2004), RightNow
Technologies (2004), WebSideStory (2004),
Kenexa (2005), Taleo (2005), DealerTrack
(2005), Vocus (2005), Omniture (2006), Con-
stant Contact (2007), SuccessFac-
tors (2007), NetSuite (2007),
and OpenTable (2009).
Some of these compa-
nies have been acquisi-
tion targets. Webex was
acquired by Cisco in
March 2007 for $3.2B.
Blackbaud purchased
Kintera in 2008. Om-
niture acquired Web-
SideStory, and most
recently Omniture itself
was acquired by Adobe
in October 2009 for $1.8B.
An informal analysis of forty
of the Fortune 100 showed
only two companies that
did not have at least
one of these applica-
tions running. Of course
today, nearly all tradi-
tional application soft-
ware companies like Ora-
cle and JDA offer to manage
their applications as a service.

Compute & Storage
Cloud Services
The cover story in Business Week in November 2006
was titled "Jeff Bezos’ Risky Bet" [1]. The article fo-
cused on Bezos’ vision of transforming the Internet
retail giant into a cloud service provider. While he
may have known it would be a success, rumors
abound barely four years later as to how big the
business is. But it’s clear it’s been a tremendous suc-
cess. Not only did Amazon's EC2 and S3 pioneer a
simple way to create, launch and terminate server
instances and storage objects, but also the trans-
parency (and low price of less than $0.10 per hour)
open up numerous use cases. While pioneered by
Amazon, compute cloud services are now avail-
able from an ever-increasing number of players
including Microsoft, EMC, Terremark, Rackspace,
GoGrid, Joyent, Layered Technologies and many
many others.
Of course compute & storage services have been
used by high-growth, newly founded Web-based
companies. Examples include Gilt Groupe, which
auctions high-end fashions and in a few years grew
to a $300M business running all of its computers on
the Joyent compute and storage cloud services; or
Context Optional, which runs social media market-
ing campaigns on Facebook and hopes to grow
as fast. In a completely different application, Path-
work Diagnostics uses thousands of Amazon com-
pute servers to run machine-learning algorithms for
a few months to produce better tumor diagnostics,
then turn the servers off. If you thought about doing
this the traditional way, the costs and capital outlay
would be prohibitive.
We are only at the beginning of what’s possible.
In 2010, $3,000 will buy a single computer for more
than three years running in a high-quality data cen-
ter 24x7, which is good. But $3,000 will also buy 1,000
computers for more than a day. No one has ever
had that capability before.
Volume 1, 2010: Issue 7
Platform Cloud Services
This brings us to the last group of cloud services.
Platform cloud services. Platform cloud services are
used by software developers to build new applica-
tions and by operations managers to manage their
application, compute and storage cloud servic-
es. Platform cloud servers for software developers
range from horizontal services like Microsoft’s Azure
or Heroku’s Ruby on Rails platform to the more verti-
cal platforms like NetSuite’s SuiteCloud, Salesforce’s
force.com or even Facebook’s platform. Horizontal
platforms offer a great deal of flexibility, but if you
know you want to leverage NetSuite’s schema to
build an MRP application, like Rootstock did, then
choosing a particular vertical app can significantly
speed the development and reduce the cost to
build new applications.
Platform cloud services also provide the operations
management specialists with a range of services.
This could include spam filtering from Postini all the
way to a new generation of software that could be
used to develop private compute & storage cloud
services. CA’s 3Terra, cloud.com, Nimbula, and
Cloudera are just a few of the emerging new plat-
form products.
A Next Wave
The last major wave of business computing was
known as client-server computing. It was driven by
a major shift in the economics of hardware and soft-
ware and gave rise to many companies we con-
sider today as the “tech industry” – names like Intel,
Oracle, EMC and Microsoft. Names like CDC, Prime,
Data General and DEC have all but faded into the
past. This next wave of computing, cloud comput-
ing, is creating another major shift in the economics
of hardware and software. Who will we be talking
about ten years from now?
[1] Jeff Bezos' Risky Business, BusinessWeek Novem-
ber 13, 2006, http://bit.ly/8ZfR9k.
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