FUD!  An acronym used in industry to invoke Fear, Uncertainty and Doubt!  It’s a marketing term that is based on emotion and is very affective when placed in the right context.  FUD is used in Press Releases, Marketing collateral and even in Keynote addresses.  Its main purpose is to throw off the status quo and create a mind shift for what is perceived to be right and true.  According to Wikipedia, “FUD is generally a strategic attempt to influence public perception by disseminating negative information designed to undermine the credibility of their beliefs.”

So what is the FUD about Cloud Computing and Hosting Providers using SaaS as a delivery mechanism for applications?  Well first we have to look at the negative press of late regarding the cost of deployment.  From a recent NY Times article, a quote regarding a McKinsey & Co report states “Its study uses Amazon.com’s Web service offering as the price of outsourced cloud computing, since its service is the best-known and it publishes its costs. On that basis, according to McKinsey, the total cost of the data center functions would be $366 a month per unit of computing output, compared with $150 a month for the conventional data center.”  According to this data, Cloud Computing is not cost affective and therefore “a faulty assumption“.  This article goes on to state, “We should focus on things we know work now, and virtualization works“. Since I work for Citrix it would seem only natural that I would also take this stance in support of everything virtual.  But what the article and (McKinsey) data don’t explain is that Amazon EC2 is virtualization.  Isn’t it?

It sure seems like we spend an inordinate amount of time in the IT world polarizing one system against another.  The truth is Cloud Computing is an evolution of what has been going in the virtualization world for years.  If you believe the Forrester statistics, about half of the server/computing world are virtualized today.  While that number is staggering it also leaves a huge opportunity for companies to deliver applications via a virtualized approach.  The Forrester data also shows “Firms surveyed showed growing interest in pay-per-use-hosting of virtual servers, one of many types of cloud service offerings in the market.”  This statement would seem to be contrary to the McKinsey report.  So who is telling the truth?  The reality is it’s too early to tell because the eco system has not yet been fully defined.  But one thing is for sure, companies both big and small are looking for ways in which to do business differently in regards to their IT costs. 

The “nirvana” of Cloud Computing would be any single device would be able to access any single application securely and seamlessly with the only cost being usage on an hourly basis.  No IT infrastructure cost.  No IT labor cost.  Just one utility bill and instant access to any application.  Well we’re not there yet and we need a roadmap to make that happen.  It starts with what we have and builds from there.   Large enterprise companies are already deploying private clouds. The future is bright but there are several steps to go before nirvana is achieved.  This brings us to the core of this blog.

Wouldn’t it make sense to engage the hosting service providers who are in business today when it comes to Public Clouds?  With over 5,000 worldwide these providers are the core to a cloud based offering.  In the purest sense, each uses the cloud on a daily basis to deliver their applications to the thousands of businesses and end points in their subscription network.  The hosting providers making real money have already virtualized their applications and in some cases their data centers as well.  In order for these hosting providers to grow rapidly they will need a utility based offering to expand their data center and minimize upfront costs.  They are looking at companies like Amazon and Microsoft to do just that.  And why not, if they already have a sustainable business model, using Cloud Computing Utilization as a means for growth makes a lot of sense. 

For sanity sake, we should use a company like Rackspace as a baseline for this type of business.  These guys were one of the few successful IPOs in 2008 for IT (or for any segment for that matter).  In December of ’08 they posted revenues of $540 Million with Operating Income of $40 Million.  That doesn’t sound like a business with a flawed operating model.  Rackspace does three types of business; Managed Hosting, Cloud Hosting and Email Hosting.  This is a killer combination and one of the reasons that they continue to grow despite the FUD about Cloud Computing.

System Builders (who usually service the SMB with IT services) are also great candidates for Cloud Computing.  Tens of thousands of these small IT shops could access the huge server farms and storage arrays available from Cloud Computing companies to produce an offering to their end customer for critical functions such as business continuity.  This helps the System builder to expand their model without having to spend capital to do it.

I’ve spoken to several Hosting Providers and System Builders recently about this model and they are cautiously optimistic about it.  Notice I didn’t say they are fearful of it.  Why?  Because they know the value of what they produce for their end customers is in their value added services and not in utility based pricing.  The SMB especially wants ‘one throat to choke’ when something goes haywire with their data or applications.  These Hosting Providers and System Builders have built a rapport with their customers and have become their trusted advisor.  So will the SMB go directly to the big cloud in the sky for help with their IT solutions… not likely in the near term… but will Hosting Providers and System Builders use Cloud Computing to expand their existing offering and prolong capital outlay… you better believe it!

Has it all shaken out yet?  No way.  Will there be modifications to the existing pricing structure, usage characteristics and even end customers? Most definitely.  FUD will not answer the critical questions that need to be answered to make Cloud Computing a reality.  But neither will statements about nirvana happening in the next few months.

The next time you hear “Cloud Computing is here now and it will change forever the way we do IT” just ask yourself what the eco system looks like today, how it will evolve and who stands to benefit most by adopting the uber data center?  Sure there is a model for success, but it will not be a radical departure from the business models used today.  Just ask the ASPs of 2000.  Or better yet, talk to the folks who are actually using Rackspace or Amazon EC2/S3. You’ll get a better understanding of why they continue to succeed… despite all of the FUD.