By George Gilbert
The recent posts about the economics of cloud computing between Nick Carr and Tim O’Reilly (here and here) and the panel at this week’s Web 2.0 have created a lot of buzz. The central question is of great consequence: will the emerging “cloud” operating system generate the monopoly rents and industry control that Microsoft enjoyed with Windows? For the sake of argument, let’s assume VMware is leading in private enterprise clouds and that for now Amazon leads public ones with Google, Yahoo, Rackspace, and Microsoft as contenders. It seems likely so far that Microsoft will have a significant advantage in private clouds, though not to the same extent as with Windows. Public clouds seem years further out, so they’re harder to handicap.
But at the center of the argument is whether dominance in either variety will come via Web 2.0 style “harnessing collective intelligence” or the more traditional “network effects.” I believe we will see Microsoft emerge as a leader in private clouds in 3-5 years and it will be on account of the more traditional network effects. Market share won’t accrue to the leader by virtue of capturing more information every time someone uses the cloud. Instead, it will accumulate the way Windows steadily accumulated application and device support over time.