Recently, I got a chance to read the Bernstein research report titled “The Long View: Netbooks, Wireless and Cloud Computing - Client Software's Imperfect Storm?”. Larry Dignan of ZDNet has already written about it along with his take. I was somewhat skeptical about the report and its conclusion when I read Larry’s post and it was confirmed further when I actually read the report. The authors of the report have done extensive research compiling quite a bit of data. But, I have my own reservations on their assumptions and analysis. Let me take the relevant portions of their report and offer my own opinions on them.

Before I pick on the report findings, let me offer some perspective on Cloud Computing. Unlike some of the other technological evolutions, Cloud Computing is actually a paradigm shift from the way we used software in the traditional desktop and on-premise world. It needs an entirely new thinking and mindset. Whenever such paradigm shift occurs in the technology world, we could see fear, skepticism, reluctance, etc. towards its adaption. The shift from status quo to new technology also happens suddenly because once the critical mass is reached, the adaption becomes more widespread and it doesn’t follow any linear trend. Many times, the growth in the market becomes almost exponential leaving the pundits wondering how they went wrong.

This report is trying to make predictions about a paradigm shift based on the current market trends and, as Ed Cone correctly pointed out, the future doesn’t end with 2012. Since the enterprises are always slow to adapt a paradigm shift, expecting a complete embrace in such a short time (compared to the eon-scale timeline of enterprise technological adoptions) is too much to ask. Let me now pick from their report and offer my take on them.

• The report says they still see the future of data processing as heterogeneous both in the clouds and in the device. Well, they are not alone in such predictions about hybrid nature of enterprise computing in the future. People assume that the hybrid computing is the end of the evolution in enterprise computing. Rather, it is an intermediate step in the evolution of the enterprise from the traditional world to a Clouds based world. An intermediate point in the evolutionary process cannot be construed as the end point of the process. Given enough time and with maturation of cloud based technologies, the dinosaur-like enterprises will eventually move to Cloud. I would prefer the analysts to see a long term picture than making predictions based on short term possibilities.
• They quote the lack of complete internet coverage (whether wired or wireless) in many geographies and, also, talk about users need to have offline apps and data for travel in the airplanes, etc.. This, again, fits my argument against short term view while making predictions. It is just a matter of time before we get the ubiquitous internet. It may or may not happen in the time period they are considering but it is definitely going to happen. While making a case against the netbooks and its emergence along with Cloud Computing, they also point out that most of the applications benefit greatly from local caching, processing and rendering, especially if the host side has less than total availability. Then they quote that a Blackberry device is still valuable when disconnected from a wireless network because a user can still read cached emails and generate responses offline that will be sent and synchronized when the device reconnects with an implication that Cloud Computing lacks any such features and hence of lesser utility value. They are wrong again. Google has released Gears technology as open source. It is now used in many SaaS apps including Google Apps, Zoho Suite and, also, by smaller players like Mindmeister. In fact, they do mention the presence of Gears technology at the later part of their report but they never connected it with the above argument. If they had actually made the connection, they wouldn’t have made this argument in the first place.
• They are using the results of Pew Internet and American Life project. They argue that consumer usage of online apps is technically greater than enterprise usage and is an important mechanism by which users become familiar with online applications in their workplace. There is no problem with this argument but the Pew research they quote includes people with the age of 65+ in the calculation of the national average in SaaS usage. If this average was taken as a data point in their analysis, I would say that their analysis has some flawed assumptions. People over 65 rarely play a major role in shaping the enterprise IT usage. Under such circumstances, including them while calculating the average and then using it to extrapolate the trends is not a correct approach.
• Their report terms the impact of Cloud Computing on Software and OS development as moderately disruptive in the next 5 years. They quote the annual revenues of Amazon in 2012, through their Cloud services, to be 50 Million and the annual revenue of Google, through its PaaS and SaaS offerings, to be a very moderate 1.5 Billion, as one of their arguments to minimize the disruptive potential of Cloud Computing. Such smaller revenues aren’t surprising at all because it is the main selling point of SaaS, in particular, and Cloud Computing, in general. Instead of paying bloated amounts for software like Microsoft Office, users can save tons of cash by using SaaS based productivity apps. Also, unlike the case of Microsoft Office, the consumer side of SaaS productivity apps like Google Docs or Zoho Apps are free. They only charge for the premier edition, usually used by medium sized companies and enterprises. This, along with the fact the SaaS applications are designed to be cheaper, will contribute to the heavily reduced revenues. This reduction is an unavoidable aspect of the software market in the future and it is, in fact, an advantage for SaaS. While making any comparison between Cloud based companies with the traditional software companies having comparable products, it is not right to make an argument just by comparing their respective revenues. The competitive advantage of the cloud over the traditional software is, actually, the huge cost savings it offers. It is just not possible any cloud vendor to earn comparable earnings while offering such heavy cost savings.

There are some glaring mistakes too.

• Though I wouldn’t keep this against them, I want to point out a trivial mistake in their report. While discussing about Netbooks, they talk about the cost of Linux license being $5. This is plain wrong. Linux licenses doesn’t cost a dime but support services might cost money. Even though this doesn’t go against their analysis, it will be better to avoid such glaring mistakes.
• They also claim that Google locks up users into their platform by using Python. First, Python is an open source language. Second, Google App Engine SDK is also open source. Finally, Google App Engine is already ported to Amazon EC2. Their argument about vendor lock-in is plain wrong.

But I am neutral about their quote on the lack of flexibility and customization and being locked into an ongoing cost with a single cloud provider, as a disadvantage against cloud proliferation. This is true right now. But it is changing fast with more and more vendors opening up and adapting data portability and interoperability. Such moves will ensure that clients are not struck with a single vendor.

However, the report also correctly points out the trends we see in the market.

• They do not deny the increased use of clouds in the consumer segment, small and medium business segments and, even, enterprise segments.
• They are right about their prediction that there will be increase in the SaaS revenues and enterprises moving to clouds, even if it is on a hybrid level. They also mention that SaaS will have substantial savings on the software costs.
• They also correctly identify that SaaS is the fastest growing sector in the software market.
• They are right on target when they identify Microsoft as the biggest loser due to the current cloud push by various vendors.

I am disappointed with the short sightedness of this report. I wish the authors had spoken more with the Cloud vendors and analysts before coming to these conclusions. As I pointed out in the beginning of this post, paradigm shifts cannot be predicted by the current market trends alone.

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