OpenStack at the Crossroads

NEW YORK ( TheStreet) -- OpenStack, the open source cloud infrastructure foundation, began its annual summit Tuesday in Portland, with the cloud at a critical juncture.

These should be the best of times for OpenStack.

Launched in 2010, it has won endorsements from IBM ( IBM), Hewlett-Packard ( HPQ), Dell ( DELL) and most major phone companies, which want to build public clouds compatible with it. A new version dubbed Grizzly adds support for VMware ( VMW) and Microsoft ( MSFT) hypervisors, the software that creates virtual machines.

Derrick Harris of GigaOm recently went back to 16 cloud companies he'd reported on in June 2010 and found most had closed, changed strategies or gone silent in the face of OpenStack's big corporate endorsements.

But these are also very dangerous times for OpenStack.

The hype cycle has peaked. Amazon.com ( AMZN) dominates the public cloud with its proprietary Amazon Web Services, or AWS. Microsoft still has substantial market share for its Azure cloud platform. When it comes to media storage, so does Apple's ( AAPL) iCloud. And the Google ( GOOG) Compute Engine remains in the league.

Amazon's regular price cuts have made it a de facto standard, a billion-dollar business that could be a $20 billion business by 2020. Companies can create an AWS-compatible private cloud with Eucalyptus, whose CEO, Marten Mickos, yesterday hyped a R.W. Baird study that for every dollar spent on cloud services, $3 to $4 is lost to traditional IT.

Amazon's aggressiveness is leading to rapid consolidation in the cloud space, although Microsoft has promised to meet it, price cut for price cut, writes GigaOm.

The rest of the industry -- the people looking to build their own private clouds or create public clouds compatible with them, so-called "hybrid" clouds -- find themselves choosing among OpenStack, VMware's vCloud and Citrix' ( CTXS) Apache CloudStack for their infrastructure.

They can't all win.

Thus, the Portland meeting. Portland has become a de facto home office for open source. The Linux Foundation is based there. Linus Torvalds lives there. This week the Linux Foundation announced it is making Xen, the hypervisor powering Citrix, a Linux Foundation Collaborative Project.

The OpenStack Summit schedule is filled with glowing testimonials from big companies. Rackspace ( RAX), the original corporate sponsor, opened the show, followed by Red Hat ( RHT), now the second-largest company committed to the project.

There were case studies from Samsung and Best Buy ( BBY). HP threw a party. Dell, Red Hat and Rackspace are also throwing parties. Much beer will be consumed, and many business cards exchanged.

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