Sunday, August 04, 2013

Can OpenStack dominate IaaS?

tl;dr : only if it embraces ecosystem over egosystem.

To understand why, we need to cover some basics regarding the market as it is and examine how to win the space.

First, the basics :-
  • Users (as in companies) are flocking to AWS because lets face it - it's useful. Many aspects of IT are evolving from a world of products (and rental services) to commodity (and utility) and this process is driven by competition (both supply and demand). As I've said for the last eight years, this is unavoidable.
  • Despite any inertia that we may have to the change from past practices and past business models, competition not only forces the process of change, it also forces us to adapt and adopt. The reason for this is that utility provision is not just about efficiency but also agility in building higher order systems which are new sources of wealth. As competitors become more efficient, agile and able to extract new sources of wealth then the pressure on us mounts - this is the Red Queen effect.
  • That mounting pressure has a network effect, as more competitors adapt then the pressure on us  to adapt also increases. This is why a trickle becomes a flood with respect to these changes and the speed of change occurs more rapidly than we expect. This is known as a Punctuated Equilibrium and it's why Amazon has exponential growth.
  • An ecosystem model known as ILC (innovate-leverage-commoditise) can be built around utility services by exploitation of consumption information. Under this model, a company creates a utility which allows other to innovate. As those innovations diffuse and evolve this pattern can be spotted through consumption. Hence the company can use the ecosystem to spot new and successful change. This can then be commoditised to new components to grow the ecosystem. 

    Under a well run ILC model then a company can simultaneously appear to be :-
    1. highly innovative, as others are actually taking the high risk gamble of innovation for it and successful changes are being included as components.
    2. highly customer focused, as data on consumption in the ecosystem is being used to determine successful changes.
    3. highly efficient, through volume operations and economies of scale in provision of the core utility components
    4. highly stable revenue, by being a first mover to industrialise a component to utility services the company gains large (volume operations) but well established revenue streams.
    5. maximum wealth generation, by being a fast follower to any spreading successful change then the company maximises new benefits without incurring risky and costly R&D.
All five of the above factors will increase simultaneously with the size of the ecosystem which can in turn increase in a super linear fashion to the physical size of the company.

Ok, now we have some basics lets understand the situation:-
  • Cloud is simply about the shift from product to utility. Infrastructure as a Service is no different. Companies have inertia but we are experiencing a punctuated equilibrium hence the change is likely to be very rapid as we're all forced to adapt.
  • Amazon is playing what looks very like an ILC model and it has dominant ecosystem which is growing exponentially in terms of revenue. As AWS gets bigger it will get more innovative, more efficient, more customer focused, more stable revenue and more wealth opportunities. It is literally chewing up the future market and it's way beyond the 800 lb gorilla in the room.
At first glance it looks a pretty dire situation and to be frank it is. This situation can be fought against by exactly the same mechanisms I described six years ago but its just much more difficult to play the game today.

The way you play the game is as follows :-
  • Companies have a concern which is about second sourcing options and buyer / supplier relationship. What they want is a competitive market of IaaS providers. This concern is your friend and so embrace it.
  • The ecosystem effects can be neutralised by co-opting the ecosystem i.e. building a market of AWS clones. This will also make it easier for existing AWS users to use the market. NB. 
    1. you don't have to implement all of AWS but the most commonly used aspects of it to begin with. 
    2. innovation needs to focus behind the interface (APIs) on operational efficiency.
    3. you are only temporarily beholden to Amazon. As the ecosystem around the market grows to exceed the ecosystem around Amazon then the market of AWS clones actually takes control of the AWS APIs and can set the direction.
  • Compute demand is elastic but building data centres is time and resource constrained. Hence by introducing a price war, a market can increase demand beyond the ability of a competitor to supply and hence naturally fragment a market in its favour.
Now, ideally this game would have been played many many years ago (2008 was ideal). But It wasn't. However it's still possible to play it today (just about). What is needed is:-
  • a large player willing to spending billions on building an AWS clone around OpenStack.
  • consolidation of OpenStack providers around this effort and the creation of a market of AWS clones.
  • co-operation with other open source projects (Eucalyptus, CloudStack) to build an AWS compatibility suite and hence extend the AWS clone market to other technology platforms.
  • introduction of assurance services which monitor the market for compatibility.
However, it's worth also noting what is not needed and what will almost certainly drive OpenStack into a niche from which it won't recover. These are :-
  • continued focus on differentiation on the API as though the interface for a commodity is somehow a game changer.
  • continued misunderstanding of the power of ecosystems and why they have to be neutralised. 
  • focus on a temporary transitional market such as private cloud. Yes, you can win some space from VMware but that's buying into a market which is heading for niche under its own steam.
  • the collective prisoner dilemma of OpenStack with everyone differentiating for their own position and existing product sets.
OpenStack's chance of success has IMHO been severely harmed over the last few years by what I can only describe as "flat earther" opinions e.g. a product mentality of feature differentiation and company competition applied to a utility world ruled by service quality differentiation and a battle of ecosystems. In terms of strategic play, pretty much the only thing OpenStack has got right is being open.

They need to stop using product examples to justify differentiation plays and realise they are ultimately not in a product game. If they lose the public arena then its niche time. They need to change soon. They need to learn how to play the game.

And this is the problem. OpenStack appears to have become a battle of egosystem over ecosystem. Without a forceful player changing this then the prognosis doesn't look good. This lack of strategic play is why I hold the view that OpenStack is a dead duck. Its future is with niches. I can't see this changing unless a miracle happens e.g. some level headed knight rides to the rescue with a few billion to spare.