The past few weeks has seen a flurry of acquisitions, mergers, joint ventures and significant deals from software companies demonstrating a robust uptick in the cloud computing market.

Michael Capellas, former CEO of First Data Corporation—better known as a former CEO of Compaq who sold the company to HP in 2002— takes charge of vBlock and the company behind it: Acadia. Acadia is a joint venture between Cisco and EMC with additional investments from Intel and VMWare focused on providing private cloud products and services.

Private clouds are the most popular cloud deployment model for large enterprises for security and privacy reasons. One of the big gaps we identified in our recently concluded research is the lack of availability of enterprise grade private cloud management tools. In our interviews, a VP at one consumer Internet company noted:

"There is no viable enterprise ready central cloud management solution today to manage servers, [to] dial up and [dial] down compute, processor power and efficiency, [to] move applications around, [to] understand application to physical mapping, and so on. That's where you get into a very sophisticated problem."

vBlock's design approach standardizes the underlying virtual building blocks of the infrastructure. The block approach has many advantages including:

• Isolation (fault, performance and change impact)
• Re-use of common design, with well known operating characteristics and failure modes (better supportability)
• Better differentiated service levels, while still providing increased utilization through 'pooling'
• Better operational practices that lead to better workload balancing and recoverability
• Lower costs by deferring capital purchases to when they are required (Moore's Law works)

"EMC and Cisco said they are seeing strong demand for its vBlock, pre-integrated technology packages for virtualized data centers. VCE has 45 partners and six integrators selling Vblocks and 2000 other partners in the certification phase. The Vblock tethers Cisco's UCS servers with EMC storage gear and VMware software."

Read More:
Capellas to lead Cisco-EMC Acadia joint venture: Larry Dignan, ZDNet
Cisco-EMC Cloud Venture Names CEO: David Gardner, Information Week

Cloud Drives Software Growth in 2010

In a recent Sand Hill Group study "Software CEO Outlook 2010: New Decade, New Realities", more than 100 software CEOs, COOs and CFOs we surveyed are planning for significant growth in 2010. But some software vendors face challenges from customer organizations' increasing adoption of cloud computing and their preference for moving away from the traditional software licensing model. In a Webinar discussion on the study results, Rob Reid, CEO of Intacct, emphasized the need for software companies to make an internal shift in managing customers' buying needs of cloud computing services:

"The cloud computing environment causes the software company and the customer to be completely aligned to create ongoing value. If we don't do a good job from a cloud vendor perspective, then the customer will stop paying. The recurring revenue model of pay-as-you-go really aligns the software organization much more closely with the client than what has been seen traditionally. There are lots of strategic and operational benefits which explain why people are moving to the cloud...

I predict that cloud solutions are going to grow five-times faster in 2010 than more traditional software products."

Given the new opportunities in the cloud, it is no surprise to see traditional software vendors scrambling to grab a piece of the cloud computing pie and searching for faster ways (acquisitions, mergers etc) to increase their presence and share of the market.

(Don't miss the "Top 5 Cloud Strategies for Cloud Vendors" in the previous newsletter at "Leaders in the Cloud" blog and the Oped Battle in the Cloud where Marten Mickos of Eucalyptus systems, Chris Barbin of Appirio, Peter Coffee of Salesforce.com and myself take a stand on what's important in the evolution of the cloud computing market.)

VMForce: Vmware and Salesforce Join Forces to "Cloudify" Java

Boiled down to the simplest terms, VMforce is basically VMware vSphere tweaked to execute the SpringSource virtual Java Stack on Saleforce's cloud infrastructure. The claim is that almost any Java-based applications developed traditionally or in the Cloud can now be deployed seamlessly to VMForce by a simple drag-and-drop interface. The offering will be released later this year.

The battle for dominance in the Enterprise-class Cloud Platforms market space is heating up.

Microsoft has long demonstrated that the path to software success and dominance lies in attracting and "locking-in" enterprise developers (and the applications that naturally follow) to their platform (Windows OS) and associated ecosystem. Windows Azure Platform is Microsoft's attempt to repeat the past success in the new cloud market by providing an enterprise-class platform aimed at capturing enterprise developers, Microsoft channel Partners, and other cloud services providers.

Force.com was Salesforce's strategy to become the platform of choice for enterprise IT to develop and deploy cloud applications. However, enterprises were slow to adopt Force.com for a variety of reasons not the least of which is a concern with lock-in to Force.com's proprietary languages and interfaces. What we saw instead was that Force.com was deployed more widely amongst existing salesforce's CRM customer base and to a lesser degree amongst ISV's and start-ups.

VMware realizes that it needs to move beyond its virtualization strategy—which is in danger of total commoditization—into the upper layers of the cloud stack including SaaS and PaaS and into enterprise-grade systems management of private and hybrid cloud deployments. It's recent acquisition of SpringSource signals Vmware's entry into the application development space.

By joining hands, VMware and Salesforce are positioning themselves to compete directly with Microsoft Azure and to gain the mind-share of the Java-based enterprise development community, who until now, have been undecided about which direction to go with their PaaS platform choices.

Based on our own research study "Leaders in the Cloud", we believe that companies which have a strong hybrid model strategy will win in the cloud market. With seamless drag-and-drop Java application and deployment capabilities, VMForce makes it extremely easy and less expensive to integrate, upgrade and maintain such hybrid environments—a sure recipe for success in the enterprise cloud world.

Read More:
Steve Herrod CTO of VMWare describes the VMForce Open PaaS Strategy

Yet Another Hybrid Cloud Enabler: IBM's acquisition of Cast Iron
Cast Iron's "drag and drop" technology to integrate internal and external cloud services is an easy and cheap way to provide hybrid cloud services such as migration, aggregation, federation, and integration of a hybrid environment. IBM's press release clearly articulates the value-proposition:

"Through Cast Iron Systems, IBM is gaining the ability to help businesses rapidly integrate their cloud-based applications and on-premise systems. The acquisition also advances IBM's capabilities for a hybrid cloud model, which is attractive to enterprises because it allows them to blend data from on-premise applications with public and private cloud systems."

"Cloud application use is exploding, but just because you like Salesforce.com doesn't mean you are going to throw out SAP, Oracle or other applications you have on-premise. It's a hybrid world where companies have a combination of cloud and on-premise locations," said Chandar Pattabhiram, vice president of Channel and Product Marketing for Cast Iron Systems, earlier this year. "You don't maximize the value of your cloud applications unless you get all the data into it - so you need integration."

Read More:
> IBM to build out hub for cloud of clouds with Cast Iron acquisition: ZDNet Dana Garner
IBM buys itself a cloud integration toolbox: Phil Wainewright

SuccessFactors buys CubeTree and Lands The Planet's Biggest SaaS Deal of 2.1 Millions Seats

Social Networking and cloud-based collaboration is the next big in the enterprise. SalesForce with Chatter is leading the way; Google with Wave, and Microsoft with Sharepoint 2010 online also have cloud-based applications and platforms that promise to bring facebook- and twitter-like social networking features to the enterprise.

SuccessFactors is a company which provides SaaS applications to help companies with business execution and alignment with Human Resource performance. Since its software touches pretty much every employee of an enterprise, it is in a unique position to accelerate the adoption of social networking and collaboration capabilities. Acquiring CubeTree plays straight into its strategy of maximizing business value through social networking within the enterprise.

"CubeTree has been able to convince SuccessFactors to give its team and investors $20 million in SuccessFactors stock initially, plus a contingent cash payment three years from the transaction closing date which will bring the total value to $50 million based on the long-term promise of enterprise social networks."

In other news, SuccessFactors closed a history-making SaaS deal, the largest ever with 2.1 million seats at a "large retailer". Although SuccessFactors has not disclosed the customer name, many analysts have put two and two together to figure out who that is: WalMart.

Read More:
What SuccessFactors' Cube Tree Acquisition Means for Cloud Computing, SaaS Industry: Jeff Kaplan, THINKStrategies
SuccesssFactors Acquires CubeTree: eWeek
Global CIO: Wal-Mart Picks SuccessFactors For Largest Enterprise Deal Ever: Bob Evans, Information Week

UPCOMING CLOUD EVENT: We are co-hosting a Software Executive Networking Dinner "Achieving Technology Leadership in the Cloud" on Wednesday May 26 at 6:00 pm at Hiller Aviation Museum in San Carlos, CA. If you are based in the Bay Area or are visiting, please join us for the dinner and enhance the quality of the interactions and networking. Please drop me a note if you can make it to the dinner.

Kamesh Pemmaraju heads cloud research at Sand Hill Group. He welcomes your comments, opinions, and questions. Drop in a line to kamesh@sandhill.com.