The “Cloud” market is not a market – it’s a construct. The SSP market 10 years ago wasn’t a market either – it was a bad idea. Both had absurd levels of “buzz” which led to absurd levels of VC money being poured in. Both will end the same way – with disillusionment.
The reason the SSP market never was is fairly simple to understand – the premise was fundamentally flawed. The SSP wanted to solve a problem that didn’t really exist. Companies were not interested in pushing their critical data assets out the door to be handled by a third party – unless the cost advantage was so stunningly compelling to merit them doing so. Well, turns out it wasn’t cheaper – if anything it was more expensive. Multi-tenancy wasn’t real nor trusted and as such there was almost zero economic benefit delivered – which destroyed any hope of this market ever becoming legitimate.
When the “buzz” of the SSP was at its height, VCs couldn’t throw enough money at enough wanna-be entities fast enough. There were dozens of SSPs, but not one had a legitimate business model, because there wasn’t a legitimate market opportunity. They all died. Money flushed down the can. A lot of disillusionment.
What survived that horrible time – and in turn prospered – was not “capacity” based services. What survived were solutions to legitimate problems experienced by a legitimate market. How strange. Backup service providers have thrived while capacity providers died. Why? Because solving a backup problem is a real market opportunity. It’s not a nice to have – it’s a need to have. The arms dealers in that market have made a fantastic living selling the means to the end. The service providers themselves have built solid businesses – and don’t call themselves SSPs. Delivering actual value has a way of driving sustainability. This sub-industry did what all successful companies/markets do – intersected a long term secular trend. Data growth isn’t going to abate and backup/recovery isn’t going to become easier. Those two truths make up a wonderful long term secular trend. Long term secular trends are waves you want to ride – go ask VMware or Data Domain. Trying to create a trend is almost impossible. Intersect one instead.
I see the same thing happening again with Cloud. There are a zillion wanna-be providers of “capacity” services. VCs are pouring money into anything that says Cloud. They will die. You can’t build a sustainable business selling capacity unless you have a distinct advantage – like you build disk drives or you have a model so vastly superior to everyone else that you dictate the terms (Amazon, for example). It’s going to be hard for even an outrageously well funded startup to beat EMC, or IBM, or AT&T or Seagate at this game. I’ll go so far as to say it will be impossible.
Someone will fail soon. Then it will be a snowball effect. VCs will swing to the other end of the pendulum and run and hide from all things Cloud. Companies that have branded themselves Cloud will panic and try to remove the stigma from themselves. Valuations will plummet.
Side Note: There is no such thing as a private cloud. A private cloud is called IT. We don’t need more terms for the same stuff.
Remember Arsenal Digital? They were an SSP. When the ship started sinking they rapidly switched gears and became a backup service provider. IBM then bought them. You see where this is heading?
It is inevitable that this happens again. My advice to those who want to survive the coming collapse is to quickly find a legitimate valuable service to offer the market – something they actually need. It’s fine to use “Cloud” as an enabling component to that service – economically or technically – but if you believe that simply being “cloud” is going to provide you sustained value, you are screwed.
You need to change your messaging, and change it quickly. Plus, I hate to tell you this, but it wasn’t working anyway. People don’t buy “clouds” just like they don’t buy “ILM.” They are constructs. They use the constructs, but they don’t buy them as a “product.” They buy solutions to problems they have. Sell them that and you’ll be fine. Message to the solution and the problem, not to the enabler, especially when it’s apparent to me that the enabler is going to have negative value in the coming year.
Companies that provide arms and means to leverage the cloud will do fine. 99% of companies that are cloud will not. You got a great A round valuation by being cloud yesterday, but your B round will be a death march if you are still clinging to that moniker in six months. Use the cloud – don’t be the cloud. Use the cloud to deliver your high value services that everyone needs and you’ll do fine. Sell “cloud” capacity and you’ll be gone within a year.
Read Steve’s other blog entries at The Bigger Truth.
Share
