The Mind of Kenney Young

Enterprise IT executives are struggling to answer the question: Should we go with a public or private cloud solution to meet business demands?  Or should we start with public and then switch to private when we catch up?  Or do  we do hybrid?  And if we do hybrid, what goes where and why? 

Start-up and expansion stage software companies in the cloud computing market are asking themselves what these IT executives will decide in the end.  Or rather, what portion of IT executives will determine what, and what market opportunities will arise from providing or enabling private, public, and hybrid clouds?

Venture capital investment funds are making an attempt to answer these questions as well, as are significant tech companies deciding on their business growth strategies and acquiring expansion stage companies in the cloud market.

Here’s what I’ve noticed so far:

• Very large organizations are the only ones for whom it makes economic sense to build a genuine private cloud.  For instance, just this week it was announced that IBM is building a private cloud for NATO.  NATO is an extremely significant organization, and so this makes sense for them.  A number of studies have deduced this by running the numbers, such as this one, Microsoft’s current white paper, and internal studies by big enterprises that are not public. 
• While security and compliance difficulties are holding enterprises back from current public cloud providers, the providers and the vendors servicing them will overcome these concerns (for example, Amazon just attained PCI Level 1 compliance).
• Enterprise compliance departments will grow to be more used to the concept of sensitive data in public cloud computing environments, particularly as they become more compliant and secure.
• It is difficult to build private clouds.  Turning on a public cloud instance from a 3rd party provider is easy.   Even the large enterprises who intend to in the end rely on a private cloud are likely to start off with some sort of a public cloud deployment. 

Net net, this implies that the public cloud market will be much bigger than the private cloud market over time.  The post on 2011 cloud predictions captures this sentiment well.  It notes :

• “You will build a private cloud, and it will fail”
• “Hosted private clouds will outnumber internal clouds 3:1.”
• “Cloud security will be proven, but not by the providers alone.” 

That said, both cloud markets will be sufficiently large enough to help a number of competing vendors.  The public cloud market is just likely to tolerate more.  

Igor Altman is a Senior Associate at OpenView Venture Partners.

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