There is a Great Cloud Squeeze taking place, even while the cloud market grows at an amazing rate.
On the one hand, technologies are consolidating. If you’re interested in building a private cloud, or linking a private cloud to public clouds to create what is called a hybrid cloud, your technology choices are decreasing almost by the day. This is actually good news for the market as a whole, but to those whose technologies get squeezed out, it’s time to head for the exits.
At the same time, the public cloud is being consolidated by Amazon.com, Inc. (NASDAQ:AMZN), whose dominance in that sector, and whose unwillingness to take profits, is threatening everyone else in the space.
Let’s take these events one at a time, and see if there are some Foolish opportunities.
Amazon leads the public cloud squeeze
As Jason Bloomberg of ZapThink noted this week, computer vendors are facing an existential threat from Amazon.com and its Amazon Web Services, usually known as AWS, because Amazon doesn’t think like a computer vendor.
Amazon.com, Inc. (NASDAQ:AMZN) thinks like a merchant. While computer vendors would think that, if you invent a business you squeeze it for profits, as a merchant Amazon thinks that if you have an exclusive on the market, you take over the market before anything else. And cloud could be a trillion-dollar opportunity.
So long as investors applaud this attitude, and they are applauding it, to the point of giving Amazon’s retail revenue a valuation of price-to-sales that’s closer to the level of International Business Machines Corp. (NYSE:IBM) than retailers like Wal-Mart, Amazon.com, Inc. (NASDAQ:AMZN) is going to keep pressing its advantage, meaning regular price cuts will continue and rivals will keep getting squeezed.
Among those recently squeezed heavily was Rackspace Hosting, Inc. (NYSE:RAX), whose hosting services are based on the open source OpenStack, a system from NASA it pioneered as lead sponsor. Its stock fell out of bed, as I noted last month, and it has yet to recover.
But, as with Mark Twain, reports of Rackspace’s demise may be exaggerated, because of the other end of the cloud squeeze.
IBM creates a private cloud squeeze
That end is held up by IBM, which as I noted last week is now committing to OpenStack.
Rackspace benefits from this announcement because it has more committers delivering code to the OpenStack project than any other company. If you’re looking to support OpenStack, then, you will find more talent at Rackspace than anywhere else, even IBM. Its recent move down may be over-done.
International Business Machines Corp. (NYSE:IBM)’s move is drawing rave reviews but the company now faces the problem of delivering on its promises. IBM’s steady rise since its OpenStack announcement reflects the credibility the market has in the company meeting promises. But if you want real OpenStack credibility your choice should be Rackspace, not IBM. I wonder how long it will take the market to recognize this? It could make RAX a relative bargain.
VMware, Inc. (NYSE:VMW) suffers the squeeze
If IBM and Amazon.com are doing the squeezing, who is getting squeezed?
That would be VMware.
VMware, Inc. (NYSE:VMW) has long been the Amazon.com, Inc. (NASDAQ:AMZN) of the virtualization space with its vSphere hypervisor. But the success of Amazon in taking public cloud market share has encouraged VMware to respond, with rumors that it, too, will soon launch a public cloud.