At its user conference DreamForce’09, Salesforce.com released some impressive statistics on the traction that its Force.com platform has been gathering. The company claims 135,000 custom applications and 10,000 sites are built on Force.com. Already, 55% of the HTTPS transactions the company processes come through the API (i.e., from partner applications) versus only 45% coming from Salesforce’s own applications.

What drives that adoption and how does Force.com stack up against the alternatives?

New research [email info@techalpha.com] by GigaOmPro analyst firm TechAlpha contrasts the strengths and weaknesses of Force.com vs. platforms provided by NetSuite, Workday and Intuit. TechAlpha finds that PaaS is gaining most traction with corporate developers, not independent software vendors (ISVs).

Force.com benefits both corporate and ISV developers

Increased developer productivity is often seen as the biggest benefit, since developers can focus their effort on differentiating, customer-facing functionality, not application ‘plumbing’. Developer can build on existing, pre-defined data objects, security models, user interfaces, business processes and automated management. Building on Force.com reduces average time to deployment by 60% and cost by 54% compared to conventional web-based development platforms like .NET and J2EE.

Improved application manageability is another key benefit. The parent SaaS provider is economically incented to innovate around reducing complexity and automating IT operations, since it is paid a fixed monthly subscription. Moreover, the parent SaaS provider is able to deliver on this because it controls the entire application lifecycle, from design (on its PaaS platform) to operations (in its own data centers).

Additional benefits such as CapEx avoidance and ISV access to the PaaS vendor’s online market place complement the benefits.

But ISV adoption of PaaS will remain mostly at the edge

ISVs that consider building SaaS applications on these PaaS platforms are tying their commercial and technical future to a dominant partner who may or may not remain friendly in the future. Since PaaS vendors are likely to make far more money selling their SaaS application than their PaaS service, they are structurally incented to grow their SaaS footprint, which may eventually encroach on adjacent ISV partners. The direct cost charged by the PaaS vendor for use of functionality and data center infrastructure pales in comparison to these concerns about dependency.

Therefore, mainstream ISVs are unlikely to develop true standalone applications on these PaaS platforms. Rather, ISV applications will typically be adjacent to the PaaS vendor’s SaaS applications, a situation the industry refers to as ‘edge’. Edge applications might include marketing automation, talent management, project management, analytics, or collaboration. These edge applications provide a complementary process and synchronize key data objects with the core application. Core applications such as enterprise resource planning, supply chain management, and other transaction processing or business critical applications are unlikely to be built on another SaaS vendor’s platform.

Corporate developer adoption currently dominates

Corporate developers are usually less concerned than ISVs about long-term technology platform lock-in and are not tying their business model to that of the ISV. We estimate that most of the 188 million lines of Force.com code today come from corporate developers. Many of these would have previously been built on J2EE or .NET and a SQL database.

Advantage of SaaS-vendor provided platforms may be temporary

Over the next 3-5 years, the rationale for building applications on top of SaaS-provided PaaS will become less compelling. We believe that alternative PaaS platforms, evolving from popular web application frameworks, will likely capture greater share among corporate developers and ISVs. As J2EE, SpringSource/VMware, .NET, and LAMP mature into self-managing PaaS services, spanning across hybrid on-premise and cloud deployments, they will come to provide many of the current PaaS benefits while allowing developers to retain much greater control than most SaaS-based platforms. Moreover, these alternative platforms will offer the path of least resistance for the millions of developers trained in these traditional technologies.

It’s too early to gauge the full impact that cloud computing will have on the responsibilities and priorities of chief information officers, but some changes are already evident.

Clearly, CIOs will serve as the change agents as the cloud becomes more pervasive through the enterprise.

They’ll likely need to educate fellow C-level executives from the CEO and CFO on down as to how cloud computing can benefit the organization - and where it may fall short or create security problems.

Likely it will be up to the IT chief to act as a relationship and portfolio manager in negotiating with cloud service providers and monitoring their performance.

And that’s just for starters. Here are five ways the cloud could alter the CIO position

An Opportunity to Be Heroes

“Cloud presents the biggest opportunity since the onset of the client/server era for CIOs to actively reduce complexity and the resulting operational cost,” says Juergen Urbanski, managing director of research firm TechAlpha.

Urbanski sees two trends merging with the utilization of cloud computing.

“On the business side, the cloud’s pay-as-you-go model places the burden of complexity on the service provider and hence seems to align incentives much better,” he says.

“On the technical side, developments such as virtualization, unified computing, availability of open-source management software, multi-tenancy … make the shared hosting economics work to enable service providers to address their own complexity through standardization and automation in a way that was not possible in the old dedicated hosting days.”

A Shift in Focus

The CIO will be expected to shift focus from operational excellence in IT delivery to orchestrating alignment of internal and external resource pools with business needs, according to TechAlpha’s Urbanski.

CIOs will spend more time defining capabilities that can deliver business value (including innovation), and selecting, monitoring and managing multiple vendors. Their performance will not be measured by the size of their IT budget, but the effectiveness of IT in supporting business functions.

Collaborators, Not Technology Czars

In the traditional hierarchy, CIOs run a top-down organization supervising the IT infrastructure framework.

However, in an increasingly virtualized enterprise they’ll be interacting across functions with non-IT managers to come up with effective, innovative business solutions.

As Jim Champy, chairman of consulting for Perot Systems, noted at a recent CIO Symposium at MIT:

“CIOs should participate in innovation around the company’s business model, which goes beyond contributions just to product, services and operations. Managing infrastructure is worthless if the business fails.”

Setting Revenue Goals

With cloud computing, CIOs can translate business goals into application and architecture goals. That means they can set revenue goals rather than cost management objectives.

Return on investment of the application portfolio is one of the key metrics here, and this is an area in which cloud computing can have a direct and pronounced impact.

Manage Resistance, Overcome Inertia

Not everyone in the enterprise is eager to embrace the cloud.

Security is a real show-stopper, and for the technology to be accepted CIOs have to ensure that it’s safe — and persuade senior management that’s the case.

At the same time, IT staffers may feel threatened. “One of the biggest barriers will be resistance from IT staff who want clouds to fail since their silo and jobs would be losing power,” says TechWeb’s Urbanski.

“Then, you have to break the organizational inertia of the server huggers. In the enterprise you add about three IT people for every 100 servers, while Amazon presumably can add thousands of servers without incremental staff.”

Laton McCartney is a former editor-in-chief of InformationWeek. He has also been a top editor at several Ziff Davis publications, including Smart Partner. Laton has written for The Washington Post, Fortune and other national publications. He also the author of a number of books, including the best-seller “Friends in High Places: The Bechtel Story.” His latest, “The Teapot Dome Scandal: How Big Oil Bought the Harding White House and Tried to Steal the Country“, will be published in February by Random House.

CIOZone.com is the first of its kind online meeting place for CIOs. It is built upon the foundation of social networking and combines user generated content and expert editorial together around an open source platform.

This post originally appeared on GigaOm here.

VMware has finally joined Microsoft, IBM and Oracle as one of the four horsemen in the market for platforms for building, running and managing corporate and cloud applications. With its SpringSource acquisition, VMware can now compete with specialized platform-as-a-service offerings like Microsoft’s Azure. In addition, SpringSource’s introduction of Cloud Foundry yesterday makes a crucial connection between deploying Spring-based and other Java applications in the enterprise and the cloud while giving developers an increased ability to manage their applications in a self-service mode.

Before the SpringSource acquisition, VMware faced potentially diminishing returns by putting a layer that manages virtualization on ever more of the enterprise infrastructure. That layer, which VMware pioneered and dominated, cracked open Microsoft’s control of the hardware by sliding a hypervisor underneath the operating system.

But the other role of an operating system, and the source of Microsoft’s continuing control over the market, comes from the company’s ownership of application platforms and developer tools. With SpringSource, VMware controls the application framework used by 2 million Java developers and half of all enterprise Java projects. In a research note we wrote over at GigaOM Pro (subscription required), we discuss how both VMware and Microsoft have the pieces to pursue the industry’s shared vision.

The idea behind the shared vision is to offer a single, integrated platform as a service (PaaS) by which the applications have several new layers of intelligence where all the pieces fit together more intelligently. The integration makes it possible for developers to tell administrators what their performance, availability and security needs are in the design of the application itself. It also makes it possible for developers or administrators to push a button to deploy and manage the system on an internal or external cloud with these “set and forget” instructions.

Handicapping the race

VMware now looks to be ahead of Microsoft technically for several reasons. Microsoft’s Azure is still in Community Technology Preview and will likely stay there until late fall. In addition, Microsoft web applications, those developed in Microsoft’s ASP.NET in particular, require modification before they can work in Azure. And most importantly, Redmond’s original design goal for Azure was to use cloud scalability to ensure enterprise compatibility. To be fair, Microsoft has the largest developer community and will be able to move a great many of them to its Azure-based PaaS platform as it makes it more compatible with its enterprise products.

IBM and Oracle serve the other half of the Java community with JEE application frameworks and servers. They’re in similar positions, but JEE has been losing ground in custom and web applications to simpler substitutes like Spring. Packaged enterprise applications, however, are still JEE-centric and will likely remain that way. IBM and Oracle so far have not offered a clear path to the cloud from applications developed for their JEE servers. To move to the cloud, developers need to know how to manage applications. Even though Oracle’s Weblogic server runs on Amazon, someone needs to deploy the application to the new environment and manage the Amazon platform. IBM made some confusing announcements several weeks ago, saying the container that deploys the application, in the form of a virtual appliance, is incompatible between the enterprise and the cloud. And one side runs VMware and the other runs Xen. For IBM customers working with Amazon, however, Big Blue’s strategy is more like Oracle’s.

Recalibrating PaaS as a market

PaaS got a big readjustment with VMware’s SpringSource acquisition and Cloud Foundry introduction because the moves highlight a new view of PaaS as mainstream. Before, most PaaS offerings were tied to SaaS applications or proprietary platforms. Salesforce.com positioned Force.com as a general-purpose application platform, even though it had its own security, workflow, look and feel, programming language, pricing model, and regulatory choices. Google’s AppEngine, on the other hand, was designed so developers could exploit the benefits of building applications that run on a practically infinite number of inexpensive machines. Existing enterprise developers are trained in building applications that scale up on a much smaller number of big machines, a very different skill set from what Google’s offering required. In the future, PaaS is likely to have two mainstream approaches:

• Corporate and ISV developers will leverage the PaaS offerings of SaaS vendors like Workday or Salesforce.com. But the attraction will be to integrate these systems with complementary or legacy systems, like recruiting for HR. Standalone applications, like Coda’s financials on Force.com, are unlikely to be common on these platforms because vendors would be tying their business and technology future to one vendor with too little benefit to show for it.

• PaaS offerings from service providers based on VMware/SpringSource, Oracle and IBM (which surely will run on VMware in some cloud scenarios), and Microsoft’s Azure are going to look far more like seamless extensions of enterprise deployments. These will be the mainstream platforms for new, “greenfield” applications. The SpringSource acquisition and Cloud Foundry sure shine a strong spotlight on this direction.

By Juergen Urbanski

The crisis in IT is not about performance or features, it is about complexity.  Complexity makes the enterprise choke on IT operations cost

Performance, in terms of CPU, memory and network bandwidth, is becoming an increasingly abundant commodity that simply gets better, cheaper and faster each year.  The time has passed when any one company can create a sustainable competitive advantage based on hardware alone.

However, there are two scarce commodities that become increasingly prominent year after year relative to the declining costs of the above: latency and human attention.  Latency is forever constrained by the speed of light and the distance between elements of a distributed system.  IT labor does not ride on Moore’s Law either, to the contrary.  As systems increase in scale, complexity increases and more human attention is consumed by the number, relationships and diversity of IT assets in the data center.  Since the number and variety of nodes in an architecture that must be “supervised” by the administrator increases, there are more combinations of things that can go wrong.

Organizational models that date from an earlier, less complicated world contribute to the escalating cost and complexity.

Storage landscapes for instance have evolved as a result of customer efforts to minimize upfront cost and vendor efforts to maximize margin extraction.  Paradoxically, a customer’s motivation to push back additional capex as long as possible may actually increase opex and lifetime TCO.  Since customers are often locked in once the upfront investment is sunk, vendors can realize high margins for software maintenance contracts and other services and support.

Individual buying agents are almost never responsible for costs over the entire lifecycle of the project.

Many customers consider price per GB for storage a top criterion for new purchases, which tends to overlook operational complexity and inefficiencies, particularly as the data ages and gets moved onto secondary and tertiary storage. All too often, the person who negotiates the up-front price of the hardware and software licenses is not responsible for subsequent operating expenses.

Even the choice of block- versus object-based storage is partially influenced by organizational disconnects.

A major difference in usability occurs with the distinction between block-based (SAN’s, pools of LUN’s, volumes, etc.) and object-based (files, database) storage systems.  Block-based approaches are about the management of pools of blocks which, until allocated and used, are fungible and substitutable.  This perspective is appealing to administrators whose job it is to store data “centrally” (i.e., in some location convenient to them).  Object-based approaches (files in particular) are more convenient to applications and users because they can leverage the consistency semantics of the file system, whereas the purely block oriented approach forces the introduction of the concept of a “single master”, along with its attendant complexity and problems.  Block oriented storage, limited by the crude semantics of the SCSI interface, imposes the constraint of a single master to serialize the updates to the store, otherwise data could become inconsistent (i.e., different copies have different values) or worse still, corrupt (i.e., volumes become “un-mountable”). This leads to storage silos and devastating complexity when capacity limits are reached or things fail because applications are written to assume that they have exclusive control of the underlying stack.

Product vendors are not incented to reduce complexity on the data center floor, unlike service providers.

The extraction of margin by the vendors turns from the up-front capex costs into service and support fees to fix the bugs, inefficiencies and inadequacies in these products long after the sales transaction based on a “price per GB” criterion has taken place.

A side effect of this profit maximizing behavior is insufficient attention to customer total cost of ownership.  For too long, vendors have been able to get away with products that are not designed, architected and tested with a view towards eliminating downstream operational complexity.  Example pitfalls we see frequently include lengthy deployments, management that requires highly specialized skills, poor scalability, superfluous functionality and consumption of more storage space than necessary for specific functions.

Open source does not alleviate this conflict, because business models for open source are often founded solely on maintenance and services margin.

Crucially, a pay-as-you-go model that places the burden of complexity on the service providers seems to align incentives much better.  In the long run, that may turn out to be the biggest benefit of cloud computing and storag

By Juergen Urbanski

Our Summer poll among enterprise storage customers suggests that appetite for experimentation with innovative technologies is low in the current environment.

Key themes emerging from our in-depth survey of 60 enterprises include:

• Cutting cost today: Customers are concentrating storage spend on a smaller number of leading OEMs (e.g., EMC, IBM, HP, DELL, NetApp, SUN), who may not always be the lowest cost providers, presumably in the hope of wringing volume discounts out of their established vendors and avoiding the complexity and management overhead that can come with more heterogeneous environments. In a notable departure from past practice, they push storage vendors to quote software separately from hardware. Many consider price per GB a top criterion for new purchases, a slightly short-sighted view perhaps that neglects lifetime TCO per GB. Customers are rolling out storage efficiency technologies as fast as they can. The motivation for this move though is to push back additional capex as long as possible, rather than keep more data around for longer.
• Low expectations for 2010: Our respondents did not expect spending to ‘snap back’ in 2010, which suggests the current investor optimism may be due for a correction.
• Innovation on the back burner: Adoption of new technologies or new practices was a low priority overall, whether the topic was flash solid state disk, cloud, unified computing or unified converged networking. The only exception to this pattern was the rapid adoption of storage efficiency technologies (thin provisioning, de-duplication, compression). Oddly, while 75 percent will not deploy flash solid state disk into production before 2011 due to concerns over resilience, cost or use cases, 46 percent expect to realize savings as flash enables replacement of FC disks with SATA disks, which cost only half as much.

Q: Jeff, what percentage of enterprise IT demand for storage will be fulfilled by service provider (i.e., external) clouds in 3-5 years? What drives that?

A: In 2014, 80% of new storage capacity and 50% of spend may go to the cloud, driven by the complexity crisis you laid out. The opex for sustaining IT is driving the majority of TCO, even though disk and array prices continue to decline. Most IT organizations will lack the time, budget or experience that will be required to successfully fulfill their own storage needs. Against that, we can deliver our service to customers at one fifth to one tenth the TCO of equivalent NAS-class enterprise storage arrays, assuming street pricing and a 3-year depreciation cycle.

Q: What percentage of enterprise IT demand for storage will be fulfilled by enterprise (i.e., private) clouds in 3-5 years?

A: Longer term we expect to see very few private clouds in the general enterprise space, except for government and perhaps some extreme high performance computing situations. I doubt the average enterprise customer will be able to successfully buy, configure, deploy, manage and grow a private storage cloud. If they couldn’t keep up with data growth in the legacy world, in spite of attempts to standardize on fewer vendor products and interfaces and more storage monitoring and management, what makes anyone think they will be able to handle more hardware, more variable performance components, more monitoring that would be typical of a private cloud?

Q: TechAlpha believes enterprise clouds will play a more prominent role in the large enterprise than external clouds. Where do you see most demand today for infrastructure as a service today?

A: Storage is the one area within IaaS that is ripe for the fastest adoption. Storage access interfaces are already standardized (SAMBA/CIFS, NFS, iSCSI, etc.), application compatibility is defined
by POSIX, and virtualization (aka thin provisioning) is something most storage/IT administrators are already using today.

We are seeing demand across multiple use cases simultaneously. Roughly in order of descending performance and aggregate feature requirements, these are:

1. Business Continuity
2. Data Warehousing
3. File share/Home Directories
4. eDiscovery
5. Data Migration
6. Bursting/Roll-off
7. Compliance
8. Active Archive

Q: What does that imply for the longer-term level of profitability for storage clouds? Will scale matter more than customer intimacy or service innovation?

A: Innovation that drives automation and operational efficiency matters much more than purely scale. The original crop of storage service providers failed because their business model and underlying
technology were too costly. Storage Networks for instance raised $400m+ and grew to more than $100m in run rate revenue. What makes the economics of our business work as we grow is the combination of low capex costs, leveraging commodity off the shelf systems, with our unique file system that was purpose built to enable us to sell, operate and scale at low cost.

Q: As storage demand goes to cloud services, is there any way for legacy storage OEMs to serve that market profitably, given their business model and technical constraints (no scalability, poor automation, legacy design point)?

A: Commercially, their component costs (using custom ASICs, etc.) and packaging are cost prohibitive when compared to the commodity off-the-shelf model.

Technically, most file systems and array architectures were built for customer on-premise usage. Features like native multi-tenancy (i.e., not thin provisioning) are non-existent. Today’s array architectures are largely “blocking based” in terms of the view/data path from the application interface to the disks themselves. No amount of clustering, virtualization or other attempts can belie the fact that the costs and complexities of those architectures will limit any service built upon them.

Culturally, building and operating an enterprise class storage service is a completely different organizational design point than trying to compile and ship hardware or software products. Their ethos, history, talent, sales model, etc. are all geared toward selling and licensing product to customers.

Q: What go-to-market approach works for you? Is this an infrastructure buying decision, or is it driven by the platform or application buying decisions which have traditionally driven storage
spend?

A: All enterprise storage clouds will have to be app aware to survive. Most of those apps only really work where there is a POSIX compliant, secure, protected storage system that can be accessed by native protocols and delivers a strong consistency model. In enterprise class cloud storage there is also no such thing as “storage-only without compute” if done properly. Zetta for instance has a
significant amount of general purpose compute already provisioned as part of our storage system.

We’ve already signed quite a few partners in the VAR and SI space. These are usually folks who are traditionally selling storage arrays and networking equipment or asked to develop and execute technology transition strategies and projects. Longer term, significant value will be driven by those that can help the ISV community really crack automation and optimization of storage.

This post originally appeared on GigaOm here.

Data Domain today finally agreed to be acquired by EMC for $33.50 per share, triggering payment of a $57 million break-up fee to NetApp. For EMC the buy is very much about “keeping your friends close but your enemies closer.”

Storage efficiency (notably de-duplication) is the enemy of a business model predicated on pushing more disk capacity out the door year after year (GigaOM Pro note, sub required), which is why customers we spoke to would have preferred to see such a disruptive technology remain in the hands of an independent vendor. And where, exactly, does this leave NetApp?

By acquiring Data Domain, EMC:

- controls the pace of innovation, possibly pushing out the time when Data Domain’s technology becomes applicable to ever broader classes of workloads

- reduces pricing pressure, since Data Domain reported running into EMC on 50-60 percent of deals; EMC’s reported tactic was to bundle de-duplication functionality into these deals at no extra cost

- precludes archrival NetApp from getting inside EMC accounts via a “Trojan horse,” in that Data Domain’s customer base is focused on secondary storage in accounts that tend to have lots of EMC primary storage

- provides EMC with more of a proven solution compared to selling its own Avamar product or products from partner Quantum

NetApp, however, is now stuck in the middle between two storage mega trends. The first involves fully integrated infrastructure solutions, notably for small- and medium-sized enterprises, aiming to bring unprecedented levels of integration to virtualized, previously siloed resource pools of storage, servers and networking. While many of the point products in each silo are commoditizing, customer total cost of ownership has not come down because the data center has gotten more complex to operate, not simpler. Hence, mega-vendors such as HP, IBM, Cisco + EMC, Sun + Oracle, or potentially Dell + TBD are hoping to justify high margins on an integrated solution — unified computing is an example — if they can bring customers’ operational costs down. Since the mega-vendors rarely have the focus to create best-of-breed solutions across all their product lines, they are most successful at selling storage as part of a larger deal, notably with servers.

The second involves innovative best-of-breed storage solutions optimized for specific workloads. A host of challengers –- ankle biters –- are attacking the legacy storage OEMs by driving innovation in virtualization, flash solid-state disk, storage efficiency and cloud computing (GigaOM Pro note, sub required).

NetApp’s efforts to grow into four adjacent markets have met only modest success, by and large. Buying its way into game-changing innovation seems limited to tuck-in deals, given NetApp’s moderate cash pile relative to EMC and lack of a track record of successful M&A. Meanwhile, the company’s revenue from large enterprise accounts looks to be down about a quarter year-over-year, and its attempt to penetrate the core of the data center with its “unified storage” solution has gained only moderate traction. Moreover, given that Facebook and Yahoo seem to have turned away from NetApp, the company may feel exposed to cloud computing, since cloud service providers have taken to buying cheap commodity hardware straight from the factory in Asia instead of buying the hardware and software as a solution from storage OEMs like NetApp.

It remains to be seen how NetApp will fare longer term as a stand-alone entity in a consolidating industry. Perhaps it might be driven closer into the arms of partner IBM, which already OEMs NetApp solutions and will be competing with Cisco and HP for fully integrated infrastructure solutions.

This post originally appeared on GigaOm here.

As Mike Speiser discussed recently, flash solid-state drives (SSD) will enable a once-in-a-decade improvement in storage price-performance. Crucially, flash SSDs enable storage to keep up with the rapid advances in CPU speeds driven by Moore’s Law. This may enable customers to dramatically scale back purchases of expensive Fibre Channel (FC) disks and, potentially, high-end FC arrays. However, some early flash SSDs implementations come with a set of limitations that customers need to be aware of, notably around usability and resilience.

Why now?
Solid-state disks have been proclaimed the “future of storage” in the past, but we are now approaching an actual inflection point because:

- SSD pricing is declining at more than 50 percent per year, and SSDs have recently become cheaper than their nearest competitior (FC disks) as measured by effectively usable capacity; the gap will continue to widen in favor of SSD, as disk prices decline just 25-30 percent annually.

- The exciting (and cost-effective) use case for SSD is as a cache for frequently accessed data that front-ends lower-cost SAS and potentially SATA disks, rather than as primary storage.

- Weaknesses of using SSDs as flash memory are starting to be addressed through smart firmware that sits in the controller.

Pace of adoption
Overall, TechAlpha believes flash SSD is one of the most disruptive trends in storage, but it will only become material to the market beyond 2010. Customers we interviewed for our GigaOM Pro research note (subscription required) tend to focus more on cost per GB in the current economic climate, and less on cost per Input/Output Operations Per Second (IOPS), which is where flash SSD excels. However, the vendor executives we interviewed agree that flash SSD is the single most disruptive trend for which their companies are preparing, causing them to completely rethink how and where data is stored.

Three developments are likely to converge in 2011 and drive broader adoption:

- Vendors will bring more robust flash SSD solutions to market.

- Customers will look beyond short-term IT cost savings toward business value enabled by technological innovation. One large bank we heard from estimated that every millisecond of storage response time reduction translates to tens of millions of dollars in incremental annual profit, because securities trades are executed faster.

- Flash SSD pricing will be comfortably below that of FC on a cost-per-effective-GB basis.

We believe flash SSD will start to replace a good share of the high-performance (i.e., FC) disk market in the next 2-3 years. Already, flash SSDs are starting to take off in the high IOPS use cases, delivering much reduced power consumption and radically better read performance. The speed of broader adoption, though, will largely depend on how well vendors address some limitations (which we describe in more detail in our GigaOM Pro note). The early adopter workloads will likely be search, video rendering, email and potentially other mission-critical applications.

This post originally appeared on GigaOm here.

Moore’s Law has enabled new applications by powering computing on an exponential price/performance curve. But increasingly, the proliferation of a new generation of large-scale applications is being constrained by another price/performance curve that hasn’t shown much improvement: IT operations and the cost of delivery. To create ever more sophisticated applications that can be delivered from public or private clouds, we have to ride a delivery cost curve that looks more like Moore’s Law. Otherwise, we’ll choke on our systems.

Timothy Chou, ex-president of Oracle On Demand, has written a book (“Cloud: Seven Clear Business Models“) that takes a fresh perspective on cloud computing. To him, the key promise of the cloud is to reduce the cost of delivering applications by improving IT operations. Traditional legacy applications such as Oracle or SAP have a fully loaded cost of delivery of $1,000-$1,500 per user per month. Several years ago, Oracle On Demand got that cost down to $50-$100, whether it was Oracle-hosted or customer-hosted. SalesForce.com has squeezed that cost down even more to $7-$10, though admittedly just for the much lighter-weight CRM portion of the suite.

Private clouds are critical to the success of this new way of computing because trillions of dollars are locked up in the enterprise installed base. Some of that has to be brought forward, and more of it has to interoperate with the infrastructure and applications build in the private cloud. Some level of compatibility with what’s come before in the enterprise, starting with the management tools, is likely. Those tools, however, will have to manage more than just Infrastructure as a Service (IaaS). Ultimately, management tools will also have to measure, monitor and remediate application service problems in a highly automated fashion in order to achieve the industry’s price/performance improvements.

Tackling Infrastructure Without Wrecking QoS
For most businesses, the journey starts with standardizing, consolidating and virtualizing the very bottom layers of the stack: servers, storage and networks. Add in self-service so the application owners can bring online the required infrastructure themselves. Add a metering capability so IT can measure and charge the application owners for the exact amount of infrastructure they consume. At this point, IT has a private infrastructure as a service.

One of the big challenges with IaaS is to ensure more business-critical applications can meet their Quality of Service (QoS) requirements. Historically, QoS was ensured by heavy over-provisioning and by hardwiring each application from top to bottom with its own dedicated infrastructure. The whole point of IaaS is that applications can share infrastructure and are no longer hardwired to it.

Virtualization looks like it can make a new type of IaaS possible. Previously, vendors such as EMC and IBM specialized their individual products in one layer, selling products as storage or servers. Each was optimized to be best in class in price, performance, or cost of ownership. But no one delivered them with vertical integration similar to a mainframe so that they were collectively optimized for TCO — until now. Cisco’s Unified Computing System is the first hardware to be integrated across individual product categories and still deliver the two critical ingredients of IaaS. First, virtualization can still make individual layers look like pools of servers or storage. Second, Cisco automated how the hardware configures itself so that the software running on it thinks it’s hardwired for QoS.

A Cloud OS Becomes the New Management Layer
A cloud OS ultimately has to be able to see inside an end-to-end business service as well as understand how all the physical and virtual infrastructure fits together. Then it has to orchestrate how the infrastructure will support the QoS requirements the application owner requested, including availability, performance and security.

Only a small number of cloud operating systems will be technically and economically viable. No one vendor can write all the “hooks” for all the applications. Drawing ISVs and corporate developers onto one or a few platforms is likely. The dark horse in this race is Microsoft. Because Windows is the highest volume deployment platform in the enterprise, the company may be able to draw developers into writing its hooks for Systems Center.

Two other scenarios are worth watching. Apps and infrastructure could remain as incredibly heterogeneous as they’ve always been in the enterprise. As a result, the cloud OS might be only partly software and largely custom code that systems integrators stitch together for each customer. Alternatively, the storage and networking vendors might resist a cloud OS layer that virtualizes and homogenizes each vendor’s differentiating functionality. Instead, they might try to “punch through” a thin cloud OS layer that is forever trying to keep up with storage or networking vendor-specific functionality. That certainly appears to be happening even between VMware and the storage layer it has partially put on top of EMC, NetApp, et al.

Hurdles Ahead for a Future Cloud OS
A single vendor software solution like Microsoft’s is most likely in small and medium enterprises that don’t have the heterogeneity and complexity of the large enterprise. Large enterprises may ultimately rely on a mixture of off-the-shelf products and custom integration to make their cloud operating system work.

Making a new cloud OS work requires changes to the people and processes managing IT operations. IT administrators have traditionally organized themselves into server, storage, network and application tribes. Dramatically reducing the cost of IT operations will require unprecedented levels of standardization, specialization and automation across these traditional administrative silos.

And finally, the transparency created by more visible service level agreements and charge-backs enables benchmarking internal IT against large and well-run external service providers. New organizations and processes will come from external pressure. Because IT operations can be metered and billed back to each application owner, IT itself will have to compete for resources with external cloud service providers.

Two trends shape big picture industry strategy

We think the storage industry is at an inflection point and may be about to face serious business model disruption from a combination of factors, including virtualization, flash solid state disk, increased storage efficiency and the advent of cloud computing. Against that context, it seems to us that the sweet spot currently is in one of two camps:

1. Fully integrated infrastructure solutions, notably for small- and medium-sized enterprises, from HP, IBM, Cisco + EMC, Sun + Oracle, or Dell + TBD. HP, IBM and Cisco in particular are driving a major vendor and technology re-alignment in the data center. That re-alignment, let’s call it data center tectonics, aims to bring unprecedented levels of integration across virtualized resource pools of storage, servers and networking. The general idea behind this strategy is that, while many of the point products in each silo are commoditizing, customer total cost of ownership has not come down as a result because operational complexity has not come down. In other words, IT labor does not ride on Moore’s law, particularly as the data center gets more complex not more simple. Hence, these mega-vendors are hoping to justify high margins on an integrated solution - unified computing for example - if they can bring customers’ operational costs down. This is particularly relevant for small- and medium-sized enterprises, since those tend to lack the human and financial resources to stitch together best-of-breed point solutions from various vendors. Moreover, since the mega-vendors rarely have the focus to create best-of-breed solutions across all their product lines, they are most successful at selling storage as part of a larger deal, notably with servers. Finally, those mega-vendors also leverage their commercial clout with suppliers (e.g., large volumes beget low input costs) and customers (e.g., one-stop-shop solution and account control). So that can be a very sustainable, profitable position.

2. Next generation best-of-breed solutions targeting the large enterprise and service provider space. A host of challengers are attacking the legacy storage OEMs with innovative point solutions optimized for specific workloads or environments. Not surprisingly, a lot of that innovation falls into four areas: virtualization, flash solid state disk, storage efficiency and cloud computing. Most of these challengers are small ankle-biters. Data Domain is the largest of the challengers in revenue terms, and has carved out a leading position in just one area – de-duplication to achieve higher storage efficiency. In general, the only long-term future we see for these ankle-biters is in the arms of the mega-vendors. Given the data center tectonics trend and the commercial rationale for further consolidation described above, it makes a lot of sense for the mega-vendors to resell, OEM or buy the ankle-biters. (It remains to be seen whether the other large challenger, 3PAR, can carve out a large enough position at the high-end next to IBM, HDS and EMC to remain independent long term.)

NetApp is stuck in the middle

The basic strategic challenge for NetApp is that the company is ’stuck in the middle’ between these two trends / sweet spots. Fundamentally, NetApp suffers from the fact that it is, for the most part, still a single product line with limited growth opportunity in its core market. Its attempt to penetrate the data center with its “unified storage” message has met only moderate success and its WAFL (wide area file layout) is actually limiting its growth in different segments. While goodwill / sentiment towards NetApp is still very positive among the customers and channel partners we spoke with, the company’s revenue from large enterprise accounts seems down about a quarter year over year. At the same time, the company may feel exposed to the downside from cloud computing, given that Facebook and Yahoo seem to have turned away from NetApp. Meanwhile, arch rival EMC has relied on more than a dozen acquisitions for access to innovation and a broader portfolio, and has aligned itself closely with Cisco. In essence, NetApp seems very exposed and needs to increase its relevance to customers for continued growth.

Acquiring Data Domain provides some growth for NetApp but does not solve strategic challenges

Data Domain not only provides NetApp with industry-leading storage efficiency technology but also, and this is often overlooked, provides a back door into EMC accounts.

• NetApp management estimates that NetApp, which has a leading position in de-duplication for primary storage, will have only 6 percent customer overlap with Data Domain, which dominates de-duplication in backup settings.
• On the offensive, NetApp can leverage Data Domain as a way to penetrate new accounts where EMC or HDS may be entrenched in primary storage, with the eventual goal of cross-selling NetApp primary storage into those accounts.
• On the defensive, Data Domain products can be cross-sold into NetApp’s large enterprise customer base (60-70 percent of NetApp revenue) and to international markets (45 percent of NetApp revenue, but only 22 percent of Data Domain revenue). In particular, this should prop up NetApp sales into top enterprise accounts, which have been underperforming of late.

With a cash pile of only a fraction the size of EMC’s, and lacking a track record of successful M&A, it remains to be seen though how NetApp will fare longer term as a stand-alone entity in a consolidating industry. Perhaps it might be driven closer into the arms of its partner IBM who already OEMs NetApp solutions.

EMC’s bid for Data Domain seems primarily a defensive move

EMC’s bid prevents EMC competitors and its partners (e.g., Dell) from accessing a technology that is reasonably strategic to the industry. It also precludes arch-rival NetApp from getting inside EMC accounts via a “Trojan horse.” Moreover, it provides EMC with more of a proven solution compared to selling its owns Avamar product or products from partner Quantum. And finally, it may reduce pricing pressure, since Data Domain reported running into EMC on 50-60 percent of deals. EMC’s reported tactic was to bundle de-duplication functionality into these deals at no extra cost.