In what some would say is an overdue
recognition that the cloud is the future of computing, venerable valley
companies like Hewlett-Packard, Oracle and Cisco Systems are scrambling
to build data centers, launch new business lines, create cloud services
and convert software that came in a box to software that’s rented over
the Internet.
“Senior management, boards and
investors see this giant iceberg coming at them,” said Patrick Moorhead
of Moor Insights and Strategy. “It’s no trivial task to take an
application of yours that’s 10 years old and move it to the cloud.”
But
there’s no choice — a shift from traditional in-house corporate
networks to faster, cheaper data centers accessed via the Internet is
changing the information technology business model and will create a
$235.1 billion cloud market by 2017, according to the research firm IHS .
“There
is a sea change in what most customers are looking for,”
Hewlett-Packard’s CEO Meg Whitman told analysts in September. “Our
customers are in a period of transformation and transition that you see
only once every 10 to 15 years in this industry. “
Next
month, HP will split into two companies, one of which — Hewlett Packard
Enterprise — will be run by Whitman and focused on business services,
big data, mobile and a hybrid of private and public cloud computing.
The new HP is the result of a four-year “journey” the company began in 2011, Whitman said.
“We
were in danger of falling behind as the technology industry began a
tectonic plate shift to what we call the new style of IT driven by
cloud, big data, security, and mobility,” she said. The shift completed,
HP’s cloud revenue will be about $3 billion, growing at an anticipated
20 percent rate for the next several years, she added.
In
further proof of the changing market, Dell announced this month it is
buying data storage company EMC in a $67 billion merger that is in part
spurred by pressures on both companies from mobile computing and the
cloud, with Michael Dell citing “a need to enter this new age” in an
interview with CNBC.
Nowhere is the conversion to
the cloud more striking than at Oracle, which has traditionally sold
software and hardware to companies to run at their own data centers.
Oracle founder Larry Ellison is famous for dismissing the cloud as little more than the latest fad in computing.
“I
have no idea what anyone’s talking about,” he told financial analysts
in 2008. “It’s really just complete gibberish. When is this idiocy going
to stop?”
That was then. The enterprise software
giant has just finished three years of building data centers around the
world in what co-CEO Safra Catz called “this extremely quick transition
which you are truly seeing the pivot in this fiscal year.”
“This
is one of the largest transformations in the company’s history,” said
Shawn Price, a senior vice president at Oracle, speaking by phone from
Sao Paolo, Brazil, where Oracle was opening a new data center. Price was
hired away from SAP last year to run cloud strategy and marketing at
Oracle.
“The future is here and it’s now. We’re
disrupting ourselves. We’re saying much of what companies are trying to
solve, they can’t solve on premise” with their own data center
operation, Price said. “We’re saying, ‘Let us run it for you.’”
Oracle
is deploying its cloud services in 19 data centers in 14 different
countries for a 90 times increase in data center capacity, Ellison told
analysts in a September conference call about the company’s first
quarter earnings.
“Over the last three years we’ve
been in the startup phase of our cloud business,” Ellison said,
sounding like a true believer. Oracle has installed more than 40,000
physical devices, 100,000 virtual machines and over 8 petabytes of
storage, he said. “We now have in place the physical infrastructure to
dramatically expand our cloud customer base.”
“He’s
changed a lot in two years,” said David Bartoletti, cloud and
management analyst at Forrester Research. “I think it was natural
reaction. When you’re a large software company whose revenues depend on
fees and licensing, the cloud looks really scary.”
For
many companies, the public cloud is a way to save on the cost of
running their own data operation. They don’t need to buy expensive
server computers, they don’t need to purchase and upgrade software, and
they don’t need to maintain the system.
“Enterprises see that as a cost sink, where money goes to die,” said Carl Brooks of 451 Research.
“You
have an IT department that needs to do twice as much as it did last
year and no budget to do it. The only way to solve it, is to look for
external efficiencies. Amazon for $1 does twice as much as I can do
myself. Amazon takes 17 cents off the top, and says ‘We’ll be here when
you need us.’ You don’t have to break any ground, dig holes or build a
building. All enterprises, when facing this extreme pressure to increase
(data) capacity without increasing budget, look outside.”
The
cloud has another big advantage besides cost savings: speed. For
example, Softlayer, acquired by IBM, can build out a data center for a
client and get it up and running in a couple of days, several analysts
noted.
Cisco Systems, which sells its networking
gear to corporate customers, announced a billion dollar investment in
“cloud infrastructure” two years ago, and “continues to make investments
in engineering and acquisitions to transform other parts of its
portfolio for the cloud era,” a spokesman said.
“In
many ways, Cisco is going to be a strong supplier to everyone who
builds and runs clouds,” said Bartoletti. “It’s all going to depend on
rock solid networking holding it together.”
But
Cisco is facing headwinds as the largest cloud companies, Facebook,
Google and Amazon, develop their own networking hardware.
“Companies
are trying to cut back on internal hardware investments, and the cloud
is very attractive,” said Jack Gold of J. Gold Associates. “They don’t
have to go out and buy a bunch of servers and Cisco routers.”
Another
old-time company, chipmaker Intel, would seem to win no matter what,
since nearly everyone uses the chips it makes for data center servers.
But even Intel is jumping into the cloud. It announced an initiative in
July to help businesses deploy public, private and “hybrid” clouds.
“We love all clouds,” said Intel spokesman Mark O. Miller. “We don’t have to pick winners.”
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