The Anti-Buzz: Cloudy Investment

by Andrew Emmott on April 10, 2012

in Anti-Buzz,Future Tech,Software

The Question From Last Time: Who is investing in Cloud Computing?

Last week I explained that cloud computing is a somewhat vague umbrella concept, which only exacerbates its use as a buzzword. Some claim that it is yet another speculative bubble, which I cautioned doesn’t mean what it sounds like: cloud computing is certainly the emerging paradigm, and no amount of foolish investing is going to change that.

The question I left you with was how can cloud computing be a bubble in the first place? Who is investing in it? Who stands to lose something?

Let’s describe cloud computing in a more concrete way. For you, the reader, the cultural impact of cloud computing is that people trust the Internet now. They trust it a lot, and that trust is really what enables cloud computing. This blog, for example, is ostensibly owned by my father, but none of it exists on any of his computers. Every article, every picture, is stored on the Internet, on someone else’s machine. That’s a lot of trust, and we give it pretty freely nowadays. Access versus physical ownership is the key concept: We have access to change the data that comprises this blog, and you have access to read it, while the data could be held by a Nigerian prince for all we care.

If I’m a software company, the impact of cloud computing is a question of whether I develop traditional software, or if I develop something hosted online. The technical advantages of the latter are a topic for another day, but this question provides a lot of insight into the question of who stands to lose something from investing in cloud computing: software developers.

Notice that there is not a sea of investment capital being poured in cloud computing. Writers often want to say “speculative bubble” to invoke the drama of those inglorious busts of the late 90s but this is disingenuous. A bubble like that is unlikely to happen again.

The technology and culture of the Internet is better understood today, and so there isn’t going to be the mass hysteria of yesteryear, where everyone just takes a plunge on this thing they don’t understand and hope for the best. There are start-ups that wave the banner of cloud computing, and there are investors sinking money into them – some shirts will be lost, and one of these little start-ups is bound to hit it big – but the real money is coming from the established software companies; they are the ones who have everything to gain or lose during our transition to cloud-based computing.

Established companies are in a bind because they are faced with more questions. Do they invest in a new product that is cloud based? Do they convert an existing product to the cloud? How much do they invest on the infrastructure to host this? The cute start-up just commits to doing everything on the cloud from day 1, but the industry giant has their entire infrastructure at risk. Do they convert and risk overspending, or even alienating their customers? Do they stay the course and risk getting left behind?

It’s the latter question that is dangerous. When doing nothing feels like a big risk, that’s when mistakes get made. So, yes, we have a bubble.

To give you a more concrete example, I’m going to highlight Microsoft.

Don’t tell me you haven’t seen the commercials. Young professionals have to do a thing for a boss, and then someone says “To the cloud!” in a parody of the old Batman show, and then they all work together in some magic shared space online and get it done. The marketing budget alone tells you how much Microsoft wants you to be excited by this. They push the idea like they invented the buzzword, (maybe they did?), and they are doing it because they have invested so much in this that they want everyone to just be excited about cloud computing, even if that excitement spills over into their competitors – that’s still more business for them than if the cloud had no buzz around it at all. (This is similar to how Intel’s marketing just wants you to be excited about microprocessors).

I’m not fit to do an actual product review of Microsoft’s private cloud but for perspective this sort of thing is competing with Amazon’s hosting service. Microsoft is targeting businesses more, offering a suite of software and technical support, where Amazon’s is more open-ended, straightforward, and “for everybody.” Where this turns to speculation is: which one is more sustainable? More profitable? Because they have different targets, they can both win, but both of these services represent financial risks for the investing company.

Microsoft has recently cloudified their Office suite too, which seems like a superlatively smart move. Microsoft Office is the best software of its kind, but when Google has a free alternative “in the cloud” complacence seems risky. Right now, Office 365 is sold as a business solution, which is fine, but I think a subscription-based Office Online For Regular Folks would be a good move too. Something like GoogleDocs except I get an interface that feels like I have a directory of files, (Just like how gmail feels like you have a collection of mail). And they should get Microsoft Access on the cloud too. Subscription based hosting of the database you make with Access seems like a natural fit, and could be very popular.

Let’s wrap up. This isn’t supposed to be “My Advice to Microsoft” but just an example of the kind of things established companies face and have to think about and the sort of risks they are currently taking in the field of cloud computing. This time if the bubble bursts it isn’t going to be a crash of start-ups, but the destruction of a lot of expensive infrastructure funded by the current giants.

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