The Great Cloud Squeeze

NEW YORK ( TheStreet) -- Everyone now seems to know the Cloud is not just the Next Big Thing, but the biggest thing ever.

An architecture based on a virtual operating system that lets a host of commodity servers do the work of the fastest alternative hardware, cloud was pioneered by Google ( GOOG) early in the last decade, then turned into a business by Amazon.com ( AMZN) as Amazon Web Services.

AWS is an infrastructure for computing, sold as a service. The acronym is IaaS. Add software languages to the infrastructure -- the tools with which you write software -- and you have a Platform as a Service, or PaaS.

Actually do something with your platform, as Facebook ( FB) does in the consumer space and Salesforce.com ( CRM) does in the business sphere, and you have Software as a Service or SaaS.

But it all rides on the infrastructure. IaaS is the base, the operating system, of the cloud. As with Microsoft ( MSFT) a generation ago, he who takes the base takes the game. So the analysts believe.

Amazon's success was followed by the launch of a host of startups, most of them using an open source process to collaborate in new ways. This was highlighted by the launch of OpenStack, a complete open source cloud infrastructure pioneered by NASA, under the initial corporate sponsorship of Rackspace ( RAX), previously known as a Web hosting company.

With IBM ( IBM) having now endorsed the OpenStack IaaS architecture, however, and Amazon constantly cutting prices to dominate the public cloud infrastructure market (making its Application Program Interface or API a de-facto industry standard), the squeeze is on.

Where is Google in all this, for instance? Google offers public cloud services as the Google Compute Engine, but it seems unable to gain traction in that market against Amazon. Where, for that matter, is Microsof? Microsoft was quick to market with its Azure cloud and depends on it to host its own operations, which are increasingly cloud-based. But it sometimes seems like a one-company parade.

The company most squeezed by the new cloud environment is VMware ( VMW), which meets with industry analysts Wednesday. As Gigaom.com notes VMware seems caught between a desire to compete against Amazon with a public cloud and pushing its own infrastructure against IBM because OpenStack uses the KVM virtualization engine rather than vSphere, on which VMware made its reputation.

IBM and OpenStack are building what Jason Bloomberg called at ZDNet a Cloud Service Orchestration system, a way to make cloud workloads portable between public and private clouds. By working together with other vendors and customers, they're putting the squeeze on VMware, while Amazon's price cuts make customers wonder why they need portability at all.

They're also putting the squeeze on Citrix ( CTRX), which is backing an OpenStack alternative called CloudStack and has its own virtualization system called Xen that, like KVM, is open source. Bloomberg says Xen is better than KVM , making Citrix' Cloud Platform look like a competitive offering.

What's missing from this picture? A lot of things.
  • Start with the major computer vendors: Hewlett-Packard ( HPQ) is trying to fork OpenStack while Dell ( DELL) seems to want to integrate Microsoft into the cloud mainstream. But where are the customer benefits?
  • Where are the old phone companies? Verizon ( VZ) and CenturyLink ( CTL) are trying to define what they call an "enterprise public cloud" space, but can they succeed with prices higher than Amazon's and technology inferior to IBM's?
  • Then ask where the startups have gone. This is a market that is not yet fully developed, but the competition between Amazon and IBM seems to be starving new companies, which use customers as a prime funding source, of financial oxygen.

It is not unusual for a technology market to be simultaneously growing and consolidating. However, the importance of cloud and the size of its players seem to be taking this to a new level.

I haven't seen such churn in over 30 years, since IBM exploded into the PC space. It makes me feel young -- even if it gives vendors and investors heartburn.

At the time of publication, the author was long IBM and GOOG.

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

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