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Google's Move and the Cloud's Future

As Google and Amazon keep driving down their prices it becomes increasingly unlikely that any vendor without their kind of scale -- and willing to take on their pricing -- is going to make much headway.

This doesn't just impact upon vendors such as Rackspace  (RAX), which bet its future on a public cloud-based  OpenStack, but phone companies including AT&T  (T), CenturyLink (CTL) and Verizon  (VZ) -- Verizon unit Verizon Terremark recently lost the Healthcare.gov contract -- as well as HP, which now handles the government Web site.

All these players and more thought unique platforms or consulting services or public-private "hybrid" clouds or dedicated sales forces and systems could give them a profitable place in the market. In a world of self-service and commodity pricing, that looks increasingly like a long-shot bet.

There are going to be niches remaining in the cloud market. Some countries are going to demand that data be hosted locally. Some companies are going to pay the price of building their own public clouds. Moving corporate workloads onto cloud will remain a viable niche.

But the mainstream cloud business is a commodity business, a low-margin business, a business dominated by scale and focused mainly on bringing lower costs directly to customers as fast as possible.

The big profits will be in using clouds, not building them. It's what Amazon and Google are doing with their clouds that will drive their profits. That's an important lesson investors need to keep in mind as 2013 draws to a close and the future grows increasingly cloudy.

At the time of publication the author had a position in GOOG and IBM.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Stock quotes in this article: GOOG, AMZN, IBM, HPQNFLX, MSFT, CRM, ORCL, RAX, T, CTL, VZ 

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