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Facebook II: Battle in the Clouds

Stocks in this article: AMD AMZN ARMH FB GOOG IBM MSFT

NEW YORK (TheStreet) -- While most analysts looking at Facebook's (FB) earnings results will be focused on its social networking service and mobile ad revenue, CEO Mark Zuckerberg has a second act that's far more interesting.

He wants to save the cloud for competition.

But first, Facebook needs to keep making money, and it is doing that. Yesterday, Jan. 29, Facebook announced earnings of 31 cents per share on revenue of $2.59 billion. Analysts had been expecting earnings of 27 cents per share on revenue of $2.33 billion. FB shares surged 8.3% to $57.96.

Facebook means to continue its success through its Open Compute Project. The group had one of its periodic "summit meetings" Jan. 28 and 29.

At the summit, IBM (IBM) and Microsoft (MSFT) announced that they're joining the group. Microsoft even shared its cloud server specifications. 

The purpose of Open Compute is to create an open specification for cloud servers that can compete on costs with the do-it-yourself solutions of Google (GOOG) and Amazon (AMZN). This helps the vendors but it also helps Facebook.

That's because Mark Zuckerberg's goal is not just to create a social networking environment. His aim is to compete directly with Google for dominance of tomorrow's Web.

Just as Google used search to become an Internet infrastructure company based on advertising, so Zuckerberg wants to use social toward the same end.

But to accomplish that goal Facebook needs to access a network of scaled data centers around the world, filled with data traffic in order to justify the cost. They need centers that can be bought and managed for prices similar to those Google itself pays.

That means turning "cloud" from infrastructure into a product, the way a PC is a product. Facebook already claims to have saved $1.2 billion over the last three years with its approach, reducing not just hardware and software costs, but energy and management costs as well.

That's what IBM, Microsoft and the other server vendors need, too. They see their very survival at stake in this fight.  If they can't sell into the lowest-cost cloud installations, the top end of the future computing market will be closed to them.

So top executives were in San Jose this week talking seriously about their designs, and trying to push toward a common infrastructure. They were "crowdsourcing" their work, looking for commonalities, for cost-cutting hints and for standards they could agree upon.

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