Just a Theory

By David E. Wheeler

Posts about Cloud Computing

Cloudy Ideas

I had an interesting Twitter Discussion last week with cloud guru Simon Wardley and “cloud entrepreneur” Kate Craig-Wood about Apple, iCloud, and Android. It started in response to this tweet from Kate:

My blog post earlier this week, on why Apple should make iCloud open (http://v.gd/icloud) now looks rather prescient (see last paragraph).On August 25, 2011 via TweetDeck

The post, which was published about a week before Steve Jobs’s resignation as CEO of Apple, is worth a read. A number of points came up in the Twitter discussion, but 140 characters prevented me, at least, from being as thoughtful as I’d like. So I’m trying again here.

Enterprise Business

Take this sentence from the first paragraph of Kate’s post:

The recent launch of Apple’s iCloud service has done much to bring mainstream attention and acceptance to the concept of cloud storage and syncing. But unless [Apple] adapt an open cloud standard they are facing an uphill struggle to attract business users. Here’s why.

That’s the setup, but reflects a complete misunderstanding of Apple’s business model. The truth is that Apple does not care about the enterprise. Apple is in the consumer electronics business. Not the enterprise computing business. Certainly not the cloud computing business. Apple is in the business of creating hardware products to sell to consumers. Everything else is secondary to that.

In fairness, Kate does write, toward the end of the piece:

Essentially Apple sees iCloud as a consumer rather than a business service – and Apple have never really been interested in enterprises or business, despite the work they done to support policies and enterprise standards like Microsoft Exchange ActiveSync on the iPhone.

Of course, if Apple is not interested in selling to enterprises or businesses, it stands to reason that they won’t have an uphill struggle attracting those users.

The Android Hurdle

I think the real point of the piece is this:

However most businesses are unlikely to use iCloud until Apple adopt an open cloud standard. The fact that iCloud won’t deliver on other platforms like Android smartphones and tablets are going to be a major hurdle for Apple to overcome.

Again, Apple is not really entering the cloud business. Rather, they’re creating a cloud service to bolster their existing business. Another way to say it is that Apple is not selling cloud services. Apple sells devices that use cloud services. And as a consequence of that, they don’t care about other devices. The point is not the cloud, it’s the devices.

In that vein, via Twitter Simon said:

@theory : Modern devices are a combo of activities, some innovative, most commodity. Android & its ecosystem is commoditising the space.

Yes, that’s just it. Google thinks that they can commoditize the smartphone business, and that the truly valuable business is their cloud services. Apple, on the other hand, believes that cloud services will be the commodities, and that the truly valuable business is selling handheld computers.

Time will tell who’s right. As “cloud entrepreneurs,” Simon and Kate well understand the Google model. Google wants as many devices as possible to be able to access the cloud services they provide. Apple is not interested in that, because they’re not in the cloud business. (I know this is getting redundant; sorry about that).

And, frankly, Google’s not in the cloud business, either. They’re in the advertising business. And how do you show as many ads to as many people as possible? Well, you provide an easy-to-use utility service like search or email and sell ads to appear on those services.

In short, Google is in the business of selling eyeballs to advertisers. Apple is in the business of selling devices to consumers. Both are valid business models, but given existing revenues, I think it’s difficult to argue which seems to be the more successful model.

Kate added:

@swardley but my point stands; in consumer space too they are losing ground, fast. Shiny toys are easy to duplicate – Nokia’s doom.

I don’t follow this reasoning at all, frankly. There were lots of mobile phone manufacturers that were trying to duplicate Nokia’s devices. They failed. Apple succeeded not through duplication, but by creating a completely new device that simply made all preceding devices instantly archaic. And now, yes, Android devices are attempting to duplicate the iPhone, but their sales seem to be mainly at the expense of feature phones. Note that Android’s share of the mobile browser market is about 16%, wheres iOS accounts for 53%, according to an August 2011 MarketShare report. Yes, there are a lot of Android phones, especially in the US, where only one carrier sold iPhones until earlier this year. But it sure seems like most folks use them more like feature phones than handheld computers. In other words, all those users are not being converted into consumers of cloud services.

And other than on phones, Android’s market penetration is effectively zero. iOS completely dominates the tablet (no, iPad) and music player markets. Android tablets currently pose no hurdle for iOS at all, and there is no sign that they will for some time to come. The only other tablet computer likely to succeed is the Kindle. And guess what? It will mainly use Amazon’s walled garden of cloud-based products and services.

Cloud Commoditization

Which then leads to the issue of cloud commoditization. From [Kate’s post]The post:

From a standing start 5 years ago Amazon Web Services has grown to an eye-watering $1.4bn in revenue. Rackspace, their leading competitor in the cloud space, is thought to have about one tenth that figure in revenue from cloud. So, Rackspace and the other out-paced cloud providers have clubbed together to create an open, interoperable cloud system.

I think this is absolutely right. And OpenStack just might, in fact, commoditize the the cloud provider market. If it’s successful, each of the cloud utility companies that emerge will end up competing for that $1.4b in revenue (or, since it’s a growth space, let’s call it $5b in revenue in two years, just for the hell of it). With cloud computing standardized, this will trigger a race to the bottom, and may the cheapest cloud provider win. Already Kate says that her new company’s offering will be “the cheapest on the market.”

This has nothing to do with Apple, however. Apple has zero interest in being in a commodity market. Why? Because long-term there’s no money in it. This is why HP is leaving the PC business. There used to be money in it, but for the last ten years, there is little innovation, just a race to the bottom, just razor thin margins and cost-cutting measures. In the PC business, only one company continues to make large profits from its devices: Apple.

Yes, Apple has a cloud offering, but as with iTunes and the App store, it exists to enhance the experience of using Apple’s devices. The devices don’t exist to bring customers to iCloud; iCloud exists to bring customers to iOS. And note that in the second quarter of this year, iOS devices accounted for 75% of Apple’s profits. That’s $7.34b in profits, not revenue. For a single quarter ending last May. That’s a far larger, more lucrative business to be in than Amazon’s $1.4b in revenue over, what? A year? I think Apple will be happy to leave that substantially smaller business to others.

In fact, given the revelation last week that Apple’s using Azure and AWS as the foundation for iCloud, the commoditization of cloud services will only help Apple’s bottom line: they can always switch to less-expensive providers (assuming everything else is equal, of course). So yeah, cloud commiditization just might happen. And Apple, not being in the cloud business, won’t care, except to the extent that it might reduce its expenses and thus contribute to its bottom line.

Innovation

Following up on his tweet about commoditization, Simon wrote:

Combine this with ability of ecosystems to innovate, then Android is likely to be fairly lethal over time.

As to the second point, I don’t know how lethal Android will be if it a) doesn’t make much money for anyone; b) isn’t used as a handheld computer often enough; and c) cannot compete in the iPad market. But the first point I have a hard time following. How does an “ecosystem” innovate? It needs agents to do that, no?

Fortunately, a couple days ago Simon published a piece entitled “The abuse of innovation.” His overall argument there is that the term “innovation” has been overused to mean all kinds of things. No question in my mind. But to which part of his taxonomy might he be referring in his tweet? I suspect it’s this one:

5. Enablement and acceleration of the innovation of higher order systems through commoditisation of lower order subsystems (i.e. creative destruction and componentisation)

So perhaps for the example of cloud computing, “ecosystem innovation” is the creation of applications that run on the cloud? That is, a cloud app is a “higher order system” running on the cloud, and the cloud is the commoditized “lower order subsystem.” I think that makes a lot of sense. I expect people will do all kinds of things building on clouds, and the commoditiazation means they can run such systems on any standardized, inexpensive cloud utility. Cool.

But what has this to do with Apple? Well, they’re one of those innovators building services on cloud infrastructures. Furthermore, Apple has created its own ecosystem, and there is a ton of innovation going on there. (And, yeah, a lot of duplication: but that’s a sign of the huge success of the ecosystem.) iOS provides a commoditized platform for the development of innovative applications. The fact that iOS 5 is adding a cloud API is just another piece of that ecosystem. It’s one detail among many, and possibly key to the ongoing success of the platform. But the cloud is not the foundation of the ecosystem.

Landgrab

And that last paragraph of Kate’s post? Let’s take it a apart:

I firmly believe that adoption of open cloud standards is one of the keys to unlock the full and global potential of cloud computing and to breaking down the duopoly of Amazon’s IaaS and Google’s consumer SaaS.

I think that may well be right, but there’s unlikely to be much long-term profit in it. Unless you do something like sell ads to display on the apps running on your cloud utility service. If so, Apple won’t be a customer, ever.

Jobs & co may be making astonishing profits, and will likely continue to do so for some time, but unless they either out-landgrab Android in the smartphone and tablet market or open their doors to cross-platform services their success may be short-lived.

This assumes that Apple wants success in the cloud business. It doesn’t. It wants success in the sale of devices. Sure, if Apple stopped innovating it might eventually lose sales and have to start depending more on its cloud services like iTunes and the App Store for profits. But if Apple has shown anything in the last 14 years, it’s that it doesn’t stand still. Building a business to try to cash in on one or two products for as long a possible is not in its DNA. Apple thinks far further ahead than that. While Android focuses on commoditizing the handheld computer market to the benefit of Google’s existing services over the next year, rest assured that Apple is already focused on the next great product that five years from now will change the way we look at things. Again.

But maybe that is not a concern. Maybe, with Jobs’ rumoured ill health, he has decided that there are few more golden apples to lay and that he should cash in while the going is good.

Mixed metaphors aside, it should be noted Steve Jobs has never been interested in profit. In 1987 he told Playboy:

You know, my main reaction to this money thing is that it’s humorous, all the attention to it, because it’s hardly the most insightful or valuable thing that’s happened to me in the past ten years.

Apple has been modeled on this point of view. It is a product-driven company far more interested in the next great thing than in cashing in.

Upshot

Apple is not in the cloud business. It’s not in the enterprise computing business. It’s not interested providing utility services. And it’s unlikely ever to be. Apple’s actual business is far more successful, interesting, and profitable to them. So the question of whether or not iCloud should be “open” is unlikely to even be on Apple’s radar. What’s on their radar is not “being open,” but selling great products.

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Another Short Visit to Alamosa

Stellar clouds
Shot over the prop engine Big, angry clouds Crop circles Roads or dry creeks? Shot under the wing Clouds over the wing The Clarion's lobby

I made another brief trip to Alamosa last week. This is the first chance I’ve had to writ anything about it! I was doing two days of training for Adams State College, where they’re implementing a campus-wide content management solution built on Bricolage. But the real reason I’m writing is because of the neat photos I took. Most of them I took from the plane on the way in to Alamosa. But the photo of the lobby of the Clarion hotel I stayed in is, um, interesting as well. Enjoy!

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