A Tale of Two Cloud Strategies

These are the best of times. These are the the worst of times. These are the times of the "cloud era" where two technology leaders are struggling to dominate the IT infrastructure, private cloud, and public cloud markets.

Two recent announcements lead me to making an interesting business strategy observation about two opposing approaches to dominating these markets:

• VMware's recent announcement that it intends to venture into the public cloud (assessment courtesy of James Staten)
• Amazon Web Service's recent (re) announcement of its Virtual Private Cloud (VPC) functionality as it ventures into the enterprise (on AWS Blog) as well as their recent teaming with Equinix and Netapp

As they mature, each company is trying to stake a claim in the others' territory. VMware venturing into Amazon's domain, and Amazon's venturing into customers dominated by VMware. 

AWS: A Strategy Going from Public to Enterprise

Let's first examine Amazon AWS. These guys essentially pioneered the public IaaS cloud. Early users were dev/test engineers, experimenters, and special projects teams to see how far they could push the cloud. Arguably these users remain the mainstay of AWS. But Amazon realized that it needed to grow beyond these early-adopter audiences.

And, AWS has steadily improved on their platform. Not just in raw size, but in services. It seems not a week goes by that AWS doesn't announce another service API for their cloud. One could argue that taken in total, AWS is constructing the de facto public cloud operating system.

But they've also recognized that growth depends upon expanding into and winning-over the enterprise with additional services, security and business-models that CIOs expect. I see VMware pursuing 3 strategies to do so:

1. VPC - Creating an extension of an enterprise's network and data center within a virtual private cloud hosted on Amazon's infrastructure
2. Public API - Tacitly (or explicitly) allowing 3rd parties with an enterprise presence to use the AWS set of APIs. Be it Eucalyptus, OpenStack, ASF CloudStack or others, Amazon knows that when enterprise software and IT skills are designed around their APIs, they ultimately win - since switching costs from deploying in the enterprise to deploying in EC2 become nearly zero.
3. Channel distribution - Amazon also knows that enterprises like to buy through trusted distributors and value-added resellers. AWS has been savvy in allowing the traditional channel distribution mechanisms to have access to AWS (at a reseller discount, of course).  Traditional channel VARs know that they ultimately have to develop business models with AWS, lest they be cut-out of the value-chain by customers going direct.

VMware: A Strategy Expanding from Enterprise to Public

In somewhat contrast, we have VMware. A leader in enterprise virtualization and management, VMware has been pursuing domination in enterprise IT focusing on its own virtualization and infrastructure management technologies - not to mention a cloud framework and sophisticated management tools.

VMware also believes that a strong ecosystem of hosting providers and cloud service providers will help it cement its technology in the market. By encouraging those partners to build their own clouds and services on top of its products, technologies and APIs they hope to expand the prevalence of their platform and use by enterprises - since many of these partners already have relationships with the CIO.

But recently (IMO) VMware has acquiesced that it needs more clout in the public cloud space to maintain growth in a quickly-saturating Enterprise virtualization market (threatened by Microsoft, Citrix, and others). Thus, they recently announced the intent to develop a hosted Hybrid Cloud service.  The intent would be to offer existing VMware customers what would appear to be a seamless extension of their virtual infrastructure into VMware's own hosted virtual infrastructure.

Whether this turns out to be a true public cloud (as in a direct competitor to AWS) remains to be seen. And even though this new service is expected to be sold through VMware's existing channel, there is no doubt that it will cause some channel conflict with their existing hosted service providers.

Nonetheless, this strategy clearly marks VMware's move into the public cloud style of business, perhaps encroaching into Amazon's VPC space.

What's Next: More of the Same

These sorts of growth strategies are not new to business. Companies continually try to go expand into adjacent markets when growth begins to stagnate or when competition gets fierce. No difference here.

These will be extraordinary strategies to observe over time. We all know that even the most dominating companies/technologies eventually meet their match (or their disruption).  Both VMware and AWS have appeared at times to be unstoppable. As they converge, it will surely be a battle of gladiators.  Unless (or until) of course, third, fourth and dark-horse players disrupt the party. As they always do.

Follow-on Blog: A Tale of Three Cloud Strategies (added October 2013)