Sunday, October 26, 2008

Tim O'Reilly on Web 2.0 and Cloud Computing

Insightful article by Tim O'Reilly. Some of my favorite quotes:

Platform as a Service: One step up from pure utility computing are platforms like Google AppEngine and Salesforce's, which hide machine instances behind higher-level APIs. Porting an application from one of these platforms to another is more like porting from Mac to Windows than from one Linux distribution to another.

The key question at this level remains: are there advantages to developers in one of these platforms from other developers being on the same platform? seems to me to have some ecosystem benefits, which means that the more developers are there, the better it is for both Salesforce and other application developers. I don't see that with AppEngine. 

Ideally, the user's data becomes more valuable because it is in the same space as other users' data. This is why a listing on craigslist or ebay is more powerful than a listing on an individual blog, why a listing on amazon is more powerful than a listing on Joe's bookstore. [Also why features like Salesforce to Salesforce have such potential.]
This top level of cloud computing definitely has network effects. If I had to place a bet, it would be that the application-level developer ecosystems eventually work their way back down the stack towards the infrastructure level, and the two meet in the middle. In fact, you can argue that that's what has already done, and thus represents the shape of things. It's a platform I have a strong feeling I (and anyone else interested in the evolution of the cloud platform) ought to be paying more attention to.
What we learned from the history of the IBM personal computer -- a commodity platform built from off-the-shelf parts -- was that it drained value out of the hardware ecosystem, turning it into a low-margin business. But profits didn't go away. Instead, through something that Clayton Christensen calls "the law of conservation of attractive profits," value migrated elsewhere, from hardware to software, from IBM to Microsoft. 
So when Larry Ellison says that cloud computing and open source won't produce many hugely profitable companies, he's right, but only if you look at the pure software layer. This is a lot like saying that the PC wouldn't produce many hugely profitable companies, and looking only at hardware vendors! First Microsoft, and now Google give the lie to Ellison's analysis. The big winners are those who best grasp the rules of the new platform.
The utility layer of cloud computing will be just that, a utility, without outsized profits.

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