Cloud Computing Report Card: Grading Our Predictions

A year ago I laid out my predictions for cloud computing in 2011. In the spirit of honesty and willingness to display my errors in public, I thought it would be useful to recap those predictions, grade them, comment on them and review an exciting, tumultuous year.

Below are my five predictions for cloud service providers and five for end users, followed by comments and a grade for each one.

Cloud Service Providers Predictions

Prediction 1: The CSP business explodes ... and then implodes CSPs will continue to pour money into building cloud computing offerings. Large companies will invest billions of dollars constructing data centers, buying machines and infrastructure, implementing software platforms, and marketing and selling cloud services. Regional and local players will likewise do the same, albeit on a smaller scale.

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A year ago I laid out my predictions for cloud computing in 2011. In the spirit of honesty and willingness to display my errors in public, I thought it would be useful to recap those predictions, grade them, comment on them and review an exciting, tumultuous year.

Below are my five predictions for cloud service providers and five for end users, followed by comments and a grade for each one.

Cloud Service Providers Predictions

Prediction 1: The CSP business explodes ... and then implodes CSPs will continue to pour money into building cloud computing offerings. Large companies will invest billions of dollars constructing data centers, buying machines and infrastructure, implementing software platforms, and marketing and selling cloud services. Regional and local players will likewise do the same, albeit on a smaller scale.

Comment: Essentially, I noted that being a CSP is a capital-intensive, complex business, and after sinking money into building a cloud offering, many players would recognize that their me-too, undifferentiated offerings were never going to be able to compete with the largest, best-funded and most technically sophisticated CSPs. Once the smaller players realized this, they would throw in the towel and look to be acquired.

The counter-argument is that many providers, despite their lack of size, will offer customized service, industry knowledge, and, possibly, a willingness to live on thinner margins. After all, there are numerous small hosting companies -- why would cloud computing service providers be any different?

Grade: Incomplete.

Clearly, I was too early on this one. Far from a consolidating market, as we reached the end of 2011, more companies were announcing that they, too, were getting into the CSP business. I still stand by this prediction, long-term, and perhaps last week's announcement is a harbinger of the future. Maybe small players can thrive on service, but I think cloud computing represents a step change in infrastructure, akin to mass production, and inefficient providers will be squeezed out -- eventually.

Prediction 2: Market Segmentation via Customer Self-Selection Many vendors and commentators feel that the SMB market is a natural for infrastructure-as-a-service (IaaS) computing because of their lack of large, highly skilled IT staffs. Sometime next year everyone will realize that removing tin still leaves plenty of challenging IT problems, and cloud computing delivers a few new problems besides. Once that realization sinks in, everyone will agree that SMB are a natural fit for SaaS and that only larger companies should imagine themselves as IaaS users. Consequently, SaaS providers will gain an even higher profile as adoption rates increase. However, SaaS will by no means be only an SMB phenomenon -- far from it. SaaS will become the default choice for organizations of all sizes that wish to squeeze costs on non-core applications.

Comment: Got this one right, I think. I hear much less of the "IaaS is great for small business" discussion today and SaaS is on fire. The Q4 acquisitions of SuccessFactors and RightNow by SAP and Oracle, respectively, illustrate that even the largest packaged software vendors can read the handwriting on the wall.