Many Will Lose if Private Cloud Never Happens

NEW YORK (TheStreet) -- Cloud computing, in which data centers replace dedicated servers with racks of commodity hardware and run software from any operating system that scales instantly, has a road map.

That road map starts with public clouds like those of Amazon.com ( AMZN), then moves to private clouds run by big enterprises beginning this year, and finally to "hybrid" clouds combining the two sometime mid-decade.

So this was supposed to be the big year for private cloud, and for companies like Dell ( DELL) and Hewlett-Packard ( HPQ) it was to be a year of redemption, with customers finally ready to write big checks to gain the economics of cloud with the privacy and security they claimed to demand.

But that future may not come. Dell's move to go private, and last Thursday's resignation of HP's Cloud Services general manager, Zorawar "Rai" Singh, reported by AllThingsD, indicate the private cloud revolution may not be taking off as planned.

This is mainly due to economics.

Public clouds are dirt cheap. Google ( GOOG) has joined Amazon in a vicious cloud price war, which Microsoft ( MSFT) has reluctantly joined, TechCrunch notes. The blog Maildistiller says this will kill many smaller cloud providers in their virtual cribs, but it could be doing something else as well.

It could also be killing the idea of private cloud. Why build your own data center for cloud if it's going to cost you 10 or 100 times more than you might pay for renting capacity somewhere else?

Rackspace ( RAX), Intel ( INTC), Facebook ( FB) and other small cloud players are working together on what they call the Open Compute Project aimed at dropping cloud construction and management costs, encouraging private and hybrid clouds.

The group held its fourth summit meeting in Santa Clara last week, VentureBeat reports, and it was sold out at 1,900 seats.

Open source guru Tim O'Reilly keynoted the meeting, emphasizing the need to use common standards in building private clouds. It was a nice little meeting, but no one was burning dollar bills in the aisles. When industries move at Internet speed, you expect them to scale at that speed. As Data Center Knowledge noted in a short photo essay, this was still a technical meeting, not a trade show. Will it ever become one?

Start-ups like Cloudability are giving top managers great visibility into their cloud costs, meaning the word on public cloud economics is out. Private clouds can't match it.

Some groups, like the U.S. Department of Defense, will always need private clouds for security, and their efforts in cloud are all about that, as GCN notes, but most enterprises have different bottom lines than your average general. Depending on public clouds to do their own security, despite the risk, is the economical bet.

One thing I learned about open source early in the last decade is that its benefits tend to fall most heavily on users, on those who commit to the software, rather than on those who create it and try to make money off it.

Cloud is the first computing revolution for the era of open source, and it is beginning to look like it will follow this path of open source economics where the users win and the builders lose.

At the time of publication the author had positions in INTC, MSFT, IBM and GOOG.

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

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