Bright and Sunny, No Clouds Here!

28 February, 2011

Allow me to indulge in some geek-speak so as to better understand the market opportunity. Broadly speaking, cloud computing refers to computing and services that people can access over the Internet instead of having to install and maintain hardware and software themselves. Isn’t that just a fancy way of describing hosted web applications like email and CRM that we have been using for years now? No, it is not.

 

There are five (or more, depending on which technologist you ask) unique features that distinguish a cloud infrastructure from a simple hosted service:

– Elasticity: adjusting computing resources dynamically based on demand;

– Multi-tenancy: hardware/software resources which can be shared by different customers without compromising privacy;

– On-demand: applications available over the Internet as needed;

– Usage-based metering (also known as subscription-based modeling): where you pay only for what you use; and

– Self-service: simple to use and accessible by APIs.

 

These features ensure that a cloud infrastructure provides the best framework for companies to deploy applications / services and users to consume them. The definitions here are very broad as “computing” and “services” can mean different things in different contexts. Very few companies can address the entire space. Accordingly, there is further categorization of companies that provide solutions in this space:

– Physical Infrastructure as a Service (collocation/managed services);

– Infrastructure as a Service (virtualized data center);

– Platform as a Service (API layer to develop applications); and

– Software as a Service (end user applications).

 

Enterprises can choose to deploy their cloud infrastructure in a “private cloud” model (in the enterprise data center), a “public cloud” model such as Amazon, or a hybrid model. The enormousness and complexity of this space is apparent from the possible permutations and combinations of all the factors mentioned above.

 

This highly dynamic and evolving space provides the perfect backdrop for innovative technology startups to dream about creating the next billion dollar company.  Hundreds of companies globally have been funded in this space over the past few years. Intel Capital has invested in many companies in this space, for instance Joyent, Inc., which is a complete Cloud Platform company. We see companies developing products that span the spectrum from niche products (e.g. secure access), developer tools, management tools, specialized hardware (e.g. accelerators), SIs to entire Cloud platforms. There have been small and large acquisitions in this space, as the larger companies seek to build out complete platforms. Investor interest and potential is evident from the valuation multiples that companies in this space command.

 

The median acquisition price in recently disclosed transactions has seemed to settle around 18.5 times revenues and new investment valuations in the range of about eight times revenues. Public companies in this space seem to be valued at a median valuation of around four times revenues. These rich valuations indicate a land-grab mentality as companies compete to build out the best and complete platforms.

 

How are Indian technology companies addressing this space? Quite a few companies are building out data centers and providing some managed services. Some of these companies (Netmagic, for example) have publicly stated their desire to build out a complete cloud platform, but at this point it seems more of an aspiration than reality. TCS has publicly announced a cloud platform to provide business applications targeted to the SMB market (effectively becoming a SaaS aggregator). Large IT companies are adding to their core consulting business by setting up cloud practices to help companies migrate to the cloud.

Unfortunately, India Technology Inc. seems to have missed the real opportunity, which is to claim global ownership of some key components of a cloud platform, if not the entire platform. From a skills perspective, the Indian IT industry has traditionally been very strong in managing networks, developing process, developing applications, and migrating stuff from one system to another. It seems to me that these are some of the very skills required to build out a cloud platform.  However, I see very few companies in India even attempting to play in this space. Yet again, we see an example of the services mindset win over the innovative product mindset.

 

To all the technology entrepreneurs in India – this is still a wide open space. It’s not too late or difficult to spot gaps in this emerging ecosystem and address them through innovative products. Intel, through its initiatives in Cloud Computing, can help companies with technology enabling, and a global perspective on trends and opportunities. It will take a team with deep domain expertise and customer relationships to develop the right product, but the potential impact and rewards can be significant. I look forward to working with entrepreneurs and co-investors to make an “Indian impact” in this space.

(Views, observations and comments expressed by the author in this article are completely his own personal views and do not represent the views of the company in any circumstances.)

 


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