Stanton Jones

Revenue Growth Defeats Multitenancy in Most Recent Cloud Battle

I’ve always been fascinated by medieval warfare. As a kid, I could not get my hands on enough books and movies about cavalry, archers, siege engines and fortifications. Given this, I tend to think about what’s happening today in cloud like a medieval battle: the enterprise is waiting it out in a well-fortified castle, while the cloud invaders use speed and cunning to try to overrun it.

One of the primary things each side is fighting for is how to deploy technology — dedicated or shared. The enterprise defenders have relied for years on dedicated technology to meet their requirements. The cloud invaders have built revolutionary platforms based on the idea that the technology works best when it’s shared amongst customers.

I’ve been talking a lot lately about the opportunities in using multitenant platforms in the enterprise. Specifically, how shared, multitenant platforms create strategic advantages for IT organizations that are routinely spending more than half of their budgets on maintenance. The shared nature of these platforms allows CIOs to turn their attention from maintaining and upgrading to building and integrating.

However, multitenant deployment models are not without challenges. The shared nature of these platforms creates significant security and compliance challenges for enterprises that are accustomed to dictating security and compliance requirements to their vendors. Legacy security policies, mixed with a bevy of external compliance requirements, create moats, gates and inner walls that are not easily breached by upstart cloud vendors, especially when mission-critical data is in scope.

Castle sieges aside, companies that offer shared software and infrastructure platforms are growing like gangbusters. Check out the top-line growth for some leading cloud suppliers compared to their more traditional single-tenant brethren:

Revenue Growth of Leading SaaS Vendors

What’s fascinating here is the recent change in battle tactics: two leading multitenant providers, Amazon Web Services and Salesforce, recently announced dedicated offerings. Amazon is building a private cloud for the Central Intelligence Agency, while Salesforce is partnering with HP to deploy single-tenant instances to large enterprise customers. This is a jarring about-face for these public cloud trailblazers.

Here’s Andy Jassy, senior vice president of Amazon Web Services, in 2010:

“If you look deep into what [private cloud vendors] are offering, you will see that it’s basically an internal data center that is virtualized and has some management tools. Organizations that have private cloud systems will have missed out on all the advantages and benefits of going into the cloud,”

And here’s Marc Benioff, CEO of Salesforce.com, also in 2010:

“The false cloud is not efficient, is not democratic, is not economical and is not environmental”.

According to Benioff, a “true” cloud must have zero hardware and software costs, update automatically, be scalable, be democratic and have access apps marketplaces.

The dedicated software and infrastructure solutions that Amazon and Salesforce recently announced are completely at odds with their positions from three years ago.

Why?

I think it’s about growth. High double-digit revenue growth is sustainable on a small base; it’s much more difficult to sustain as revenue grows. I think the leading cloud vendors see that to continue to maintain revenue growth that investors expect (often at the expense of margins), they will need to bow to pressure and sell dedicated instances of their platforms to further penetrate the large enterprise and government sectors.

Will the siege engines of shared cloud break down the walls of dedicated cloud? For now, it appears that the enterprise defenders have won a reprieve from the cloud invaders. But it’s only a matter of time before the walls are breached.

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Stanton Jones

About Stanton Jones

Stanton Jones helps ISG clients rationalize and capitalize on emerging technology services within the context of the global outsourcing market. Stanton uses his unique background in both IT and outsourcing advisory services to bring a new and unique perspective to ISG clients. Prior to his analyst role, Stanton led corporate technology strategy and global IT operations as TPI’s Chief Information Officer. Stanton played a key role in leading the transition of TPI into a publicly-traded unit of ISG. You can find Stanton on Twitter, Linkedin and Google Plus.