Erik Schonfeld over at TechCrunch has a very interesting post revealing that big enterprises are adopting Amazon's EC2/S3 services at a far faster pace than previously imagined:
A high-ranking Amazon executive told me there are 60,000 different customers across the various Amazon Web Services, and most of them are not the startups that are normally associated with on-demand computing. Rather the biggest customers in both number and amount of computing resources consumed are divisions of banks, pharmaceuticals companies and other large corporations who try AWS once for a temporary project, and then get hooked.
This is epochal stuff -- banks and pharma are notorious late adopters of early-stage technology, so to see them in the vanguard of cloud computing (or perhaps I should say utility computing, but everyone says cloud) is astonishing. But it illustrates a very important detail that's been overlooked: that there are significant network effects to the cloud computing business.
There are two basic underlying forces behind the network effects:
- Code that works with large amounts of data needs to be close to the data (in the network topology sense).
- Any processing that consumes data generates data.
So, once one enterprising group within a company decides to place some data in S3 and the code to process it on EC2, it becomes a whole lot easier for someone else within the company who needs to run some other code on the data, to move the processing to EC2. And since all this processing generates even more data, we have a virtuous cycle building up. The stable state is for all of a company's data processing tasks to move into the same utility computing cloud, to take advantage of the co-location and minimize data transfer latency and costs.
The network effect extends across companies as well. Often data created by company A is consumed by company B. When this "data interface" is voluminous, it makes economic sense for company B to move into the same utility cloud as company A. There are some ecosystems where utility computing players are already exploiting this trend; for example, AppNexus is creating a utility cloud optimized for the use of ad networks and their associated ecosystem: analytics for publishers and advertisers. There is so much data being shared here (on ad campaigns and their performance) that there is significant advantage to being in the same cloud.
The network effects argument leads to the interesting possibility that cloud computing becomes a winner-take-all game, like auctions; we might end up with one winner (maybe Amazon?) A more likely outcome is, we might end up with a couple of big general-purpose clouds (Amazon and Google, perhaps?) and a few niche clouds optimized for different ecosystems (such as ad networks and social networks).