Industry Shakeout 101
According to my strategy professor, Gordon Walker, “the trigger point [for shakeout to begin] is when one or more firms achieve a level of productivity that neither weaker rivals nor potential entrants can match. Thus, the shift in entry and exit rates is ultimately caused by successful and sustainable growth strategies. Only the presence of one or more firms whose dynamic capabilities create dominant, defendable market positions can deter entrants and force weak competitors to leave the industry.” (page 137)
Shake it on, Baby
Now, I can tell you, that to be sure, there is no shortage of entrants into the cloud application platform industry. Force.com may have started things off a few years ago, but today there are at least 40 companies, and probably more than that, who play in the space. An upcoming Gartner report profiles many of these companies. I don’t think we’re in the shakeout period yet; however, I put better-than-even money on the idea that we’re in the last stages of expansion before a shakeout gets started. I submit as evidence the following:
1. CogHead, a leading (but small) technology company in the Cloud application platforms space, went bust last December. Its assets were ingested by the large, enterprise-flavored SAP. I am not sure what SAP plans to do with those assets, but I don’t believe they bought CogHead’s stuff to put it in a museum.
2. Microsoft Azure (and .NET Services), which is kind of a hybrid approach somewhere between Amazon EC2 (cloud system infrastructure) and Google App Engine (APaaS), will hit general availability sometime soon. This will mark the first big-time enterprise software player to have their own Cloud application platform offering.
3. VMWare has jumped into the fray with its planned acquisition of SpringSource – whose CloudFoundry offering constitutes a Cloud application platform has to be the main reason the company shelled out over 400 million, for what is a tiny open-source company (admittedly, Spring, around which the core business of SpringSource is built, is a great and widely-adopted framework for Java programmers). It will be interesting to see how VMWare plans to incorporate the SpringSource and Hyperic assets into its portfolio, and what (if any) other complementary acquisitions they will make. I’m not sure what to expect, but if I were a small Cloud application platform startup counting on a neutral VMWare container within which to run my “shared-hardware” multi-tenant platform, I’d be a little bit more worried than I was a few weeks ago.
Twist and Shout
The future for APaaS and other types of Cloud application platforms looks very bright to me. I’m particularly bullish on APaaS because of the productivity benefits available to developers using a combination of development of new code and composition of business-oriented services and components offered by the provider. I don’t think there’s a big enough market for all of the companies producing Cloud application platform software to wind up as “winners”, though. I also think that the time is drawing close where the other “mega-vendors” – IBM, Oracle, and SAP – must either launch their own Cloud application platforms or acquire one, or risk being left behind. Keep your eyes open for acceleration in the demise of Cloud application platform companies, and deceleration among new entrants.