To Cloud or Not to Cloud: IT Vendors Ponder the Question

Arms merchant or army? That's a fundamental question for vendors in the cloud computing space. Do they just sell their tooling to any and all comers, who then become the actual purveyors of hosted infrastructure, developer platforms, and software? Or do they offer their own cloud-based services, perhaps even keeping much of their technology in-house for competitive advantage?

It's no simple question. And the answer depends not only on an individual vendor's strategy and worldview, but on how they think cloud computing will develop in the Big Picture.

In theory, lines are often drawn based on whether a company sees itself as primarily providing technology and products to end users or as delivering complete business solutions. In practice, the lines are blurrier than that.

For example, at a recent analyst day, EMC Corp. (NYSE: EMC) chief executive officer Joe Tucci spoke of how "book, build, and ship is the focus of EMC." Yet, this is the same EMC that just finished inking a joint pact with Cisco Systems Inc. (Nasdaq: CSCO) that involves, in no small part, services.

Tucci argues EMC uses services to enable product sales, whereas "polar opposite" IBM Corp. (NYSE: IBM) is all about its "big global services business." While there's some truth to this relative positioning, both are large, sophisticated vendors who will engage with customers in many different ways, depending on the requirements of a specific deal.

That said, some companies are certainly less predisposed to operating computing services on behalf of others. Selling products and selling services are two different business models. One is not necessarily better or worse than the other. But they do have significantly different capital requirements and operational models. Amazon Web Services LLC and Oracle Corp. (Nasdaq: ORCL) may both invest heavily in technology. But just about everything else about the two organizations is markedly different.

But do vendors really have the choice to eschew running their own clouds, given where the market is headed?

The answer depends on the specific vendor's situation. Relatively new companies such as Google (Nasdaq: GOOG), Amazon, and Rackspace Managed Hosting have established themselves as powers to be reckoned with. But it doesn't now appear that they'll actually replace the makers of infrastructure, as once seemed possible. And the widespread creation of "private clouds" within enterprise data centers seems a near-certainty.

In short, you can be a relevant technology vendor without operating your own cloud.

That's not to say that there may not be reasons to do so. Whether hosted in-house or elsewhere, application companies will increasingly have to deliver at least some of their software in the form of a service. Oracle Siebel CRM offers a good example: The vendor sells both a version to install on-premise and an On Demand version that Oracle hosts.

For Microsoft Corp. (Nasdaq: MSFT), which has long operated a wide range of hosted services (albeit with far less profit than its Windows and Office franchises), Azure is the developer on-ramp for a new generation of applications that make use of Microsoft technologies running in many different places.

Others just find hosting to be a good business. IBM's Supercomputing On-Demand centers are one example.

We'll see a variety of approaches. Of course, those who choose to just sell the arms will have to make sure they're relevant to those actually offering cloud services -- their customers. But when has a company not had to keep up with changing customer requirements?

— Gordon Haff, Senior Analyst at Illuminata Inc. on grids/supercomputing