The Problems

There are a ton of problems with investing in cloud, but four are top of mind for me:

1. Lack of Pure Play Cloud Companies – Ladies and Gentlemen, the undisputed heavy-weight champion of Cloud Computing, Amazon.  Weighing in at $XXX of revenue and with profit margins of nearly X%.  That’s right, Amazon is far and away the leader in cloud, but they don’t break out a line item for AWS on their income statement.  It makes it difficult to size the market or set expectations for earnings.  An analyst at Investor’s Business Daily estimates that Amazon’s cloud revenue is roughly $1.5B.  That number is roughly 20% larger than their largest pure play competitor, Rackspace, but still only represents 3% or 4% of Amazon’s total revenue.  That means that an investment in Amazon’s stock is almost completely an investment in their retail business and has very little to do with cloud.  There are similar stories to with other major cloud players like Google and IBM.
2. Evolving Market – The next big thing in cloud is probably not what we think it is.  Google Apps had a good run, Box may be stealing its lunch.  OpenStack could commoditize IaaS further or VMWare’s CloudFoundry could emerge and top it.  We know which way the market is generally going, but investing in an individual company is virtually impossible.
3. SaaS is Just a Model – SaaS software is going to be HUGE in taking cost out of large enterprises.  Companies ,like Salesforce, have already proven that large functions, like CRM, which are done essentially the same way by almost every company can be run effectively in the cloud.  The problem with betting on a company like Salesforce is that you’re not just betting that SaaS is the right model, you’re also betting that their software is the best software.  You could bet on Salesforce and be right that CRM will keep moving in to the cloud but be wrong about which company will win that business.
4. Enterprises are Slow – Most of the money that’s out there to be made in cloud computing is hiding in Enterprise IT budgets.  These budgets are REALLY slow to change.  This makes it very difficult to decide whether the really big dollars will start to fall today, tomorrow, or in 10 years.

A Few Early Answers

Microsoft launched their new Windows 8 operating system.  It appears from all of the reviews that this change is more like Windows 3.1 to Windows 95 (When you were like, “woah, what’s this whole Start menu thing?”) than it is like Windows XP to Windows 7 (When you were like, “yep, same old windows but it looks a little cooler”).  In honor of its launch I want to take a few minutes and think about why Microsoft is doing it and what it could mean for them as a company.

What’s On The Line: Avoiding RIM’s Fate

Microsoft’s advantage has always been cost.  PCs are cheaper than Macs because any manufacturer who follows Microsoft’s specifications when they build their computer can use Microsoft’s OS (HP, Dell, etc…).  This drives price competition where none exists for Apple.  This price competition used to drive individuals, but, now that hardware is effectively a commodity, the price difference is down to a few hundred dollars.  Without the price advantage, Macs are growing in usage 20% year over year and Microsoft Windows is increasingly being viewed as something you use at work.

Businesses care about a few hundred dollars per computer, because they buy thousands per year.  They also care that people have a computer that supports the software most white collar workers use every day, MS Office.  Just how biased are businesses towards PCs right now?  I was just helping a friend decide between a Mac and a PC for her work computer.  She chose the Windows machine, in spite of the fact that she uses a Mac and an iPhone at home, because her office would have required her to boot in Windows anyway so they don’t have to support the Mac version of Office.  These stories are still common, but they’re becoming less so.

Microsoft has spent years earning the reputation of producing a product that is business friendly and user unfriendly.  Until now, that model has worked really well for them.  That model worked in a slow internet, thick client, strict physical security, low personal use of tech world.  In the new 4G, broadband, SaaS, Google Docs, BYOD world it’s not going to fly.  People will demand their employers figure out a way to let them do “this cool thing I can do on my iPad” and employers will find more and more ways to enable their employees.

If you don’t believe me, just ask RIM.  For years other phone operating systems started and went nowhere (including Windows CE).  RIM held the market hostage because smartphones were so expensive that only businesses purchased them and it was just too easy for a business to setup a Blackberry Server.  Then iPhone and Android hit the market and employees started asking their employers to “make my phone get my email”.  The resistance from IT only lasted a couple years, and overnight RIM was a wasteland.  The same fate awaits Microsoft without a huge change.  Windows 8 (as well as SkyDrive and Office365) are intended to be that change.

The Best Case Scenario

I’ve worked in a lot of corporate IT shops in my lifetime and I can tell you one thing for certain.  You are NOT going to have Windows 8 on your work laptop or desktop any time soon.  No chance.  Businesses will do the prudent thing and “wait and see”.  They want to see if any security flaws are discovered, they want to see if their printers and third-party software will work on Windows 8, and they don’t really have any reason to pay for it.  If more than 10% of enterprise clients have adopted Windows 8 by the end of 2013, I will be shocked.  So don’t mistake slow corporate adoption for failure.

Microsoft’s best case instead has to do with how people use Windows 8 personally.  Does the new “Metro” interface get the kind of buzz around it that Siri gets around her/him/it/whatever?  Do people start buying touch screen displays to take advantage of the Window’s 8 touch-friendly feel?  Do Windows people start making fun of Apple people because they have a different OS on their phone than they have on their computer?  If the answer’s yes to all of these, then buy some Microsoft stock because what comes next will be huge revenues.

Instead of calling your help desk to say, “Please don’t upgrade my computer from Windows XP to Windows 7 because I’m used to the old way.”  You’ll call them and say, “Hey, when are we doing the Windows 8 upgrade because I love what it gives me at home and I want that joy here?”  These types of questions will make IT departments less likely to allow users to bring their Macs and iPhones to work and more likely to standardize on one platform again.  Or, at the very least, not be tempted to abandon Microsoft.

The Worst Case Scenario

Really, for Microsoft, anything but the Best Case Scenario is bad.  Right now Microsoft has a large open wound, if they half stop the bleeding they’re only prolonging their death.  That said, we did a best case, what’s the worst?

If people don’t like Windows 8 or it’s as buggy Windows ME was, then they won’t buy it.  They’ll buy Macs, iPhones, and Androids in their personal lives and instead of cheering their IT department to bring them Windows 8, they’ll begin asking louder for Macs or Google Docs.  Instead of Windows 8 eventually leading to pressure on the IT department to support Windows, it will force them to stop insisting on it.

A little over two months ago I landed in Washington, DC and was happy to tell you all that I was back in the blogging business after a brief brake.  Turns out, I was full of it.  Life got really exciting down here in DC as the project I’m working on within Fannie Mae picked up exposure and some initial success.  That lead to 60, 70 hour weeks combined with lots of weekend travel.  Long story short, I didn’t have time to blog, let alone to think about what I wanted this blog to be.

I needed to think about what I wanted the blog to be because I am, once again, back in full workaholic mode and not really spending much time in Pittsburgh.  For a few years now, this blog has been focused on Pittsburgh and Startups.  I didn’t really focus on specific types of startups, I looked at companies from sports technology to event promotion.  My career has kept me mostly focused on the enterprise though.  I have consulted for IBM, helped start an enterprise focused startup and independently consulted for two of the largest financial companies in the world.  This time has lead me to the realization that my real calling is helping these corporations better utilize IT to both better enable their customers and create better efficiency in the economy.  This doesn’t mean I don’t still have startup aspirations, it just means they’re enterprise-based.

Another thing has become obvious over the last couple months though, I miss blogging.  In the last couple months I’ve noticed things like Oracle’s cloud announcements, Microsoft’s Windows 8 and Surface Offerings, InformationWeek’s interesting opinions on outsourcing and countless other stories that I have opinions on.  When I’m active in blogging, I take the time to read up on these things, educate myself, create clear opinions and discuss them with friends and colleagues.  When I’m not blogging I’m simply left with a mental to-do list of things I need to think about.

Bringing all of these thoughts together, I’ve decided to reshape this blog to meet my life where it is in three ways:

1. The blogging that really makes me happy is when I completely explore an issue from top to bottom.  I simply do not have time to do this on a daily basis.  With that in mind, I’m going to cut back my blogging to once or twice a week.  I intend to blog every single Friday and most Mondays.
2. I’m going to have a more enterprise focus.  That’s not to say I won’t still be fascinated by consumer companies like the Twitters and Facebooks of the world, nor that I’ll ignore them completely here.  It does mean that a higher percentage of my posts will either be about enterprise startups (like my old company) or about enterprise topics (like cloud computing).
3. The blog will have a little less of a Pittsburgh focus.  Pittsburgh will always be my favorite place in the entire world, but DC has a lot going for me at the moment; I love the job I have here and really feel like I’m making a positive direction for what is a surprisingly fun company to work for, I’ve reconnected with a few college friends that live down here and made a couple new ones, and I’ve met a really amazing woman who loves DC the way I love Pittsburgh.  With all this, I think I’ll be spending the vast majority of my time in DC over at least the next couple months and probably won’t be able to provide as much insight in to Pittsburgh and it’s tech scene as I used to.

I hope you’ll be sticking with me for these new changes, and I look forward to continuing a great discussion of technology!

Remember Cavell & Cavell, that consulting company I formed a few months ago?  Well we’re on to our second client, another financial, this time in Washington, DC.  I thoroughly enjoyed my time at Morgan Stanley and I find the project there as interesting as ever, but I was able to transition the work I was doing into the CTO’s organization and move on to what promises to be an even more interesting project.

The financial services firm I’m working with is looking to modernize and standardize the way it approaches software development with a focus on reducing development expenses and increasing the effectiveness of its software.  This engagement gives me the opportunity to dust off my old development hat and create a way to leverage the tried and true concepts of IT Service Management, IT Outsourcing, and IT as a Business at the software development level.

This particular financial firm asked me to contract at a fixed rate (without paying travel expenses), so Cavell & Cavell really had to dig its heals in to work out the logistics.  The last two weeks have consisted of leasing out the house I own in Pittsburgh, acquiring a smaller place there, moving between the two, renting an apartment in DC, and buying a car reliable enough to move between “worlds”.  It has been an exciting process and I’m looking forward to seeing what the DC area has to offer (there are several friends and loved ones down here, so I should be able to make the most of it).

I’m also excited to have everything wrapped up so that I can go back to keeping up with Technology and Pittsburgh news at the rate that I used to.  I’m hoping to resume my usual level of interaction both here and over on Twitter.  As always, feel free to reach out.

So you think that money is the root of all evil?

Have you ever asked what is the root of money? Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. <…> Money is made possible only by the men who produce. Is this what you consider evil?

When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper <…> are a token of honor <…> of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money. Is this what you consider evil?

Have you ever looked for the root of production? Take a look at an electric generator and dare tell yourself that it was created by the muscular effort of unthinking brutes. Try to grow a seed of wheat without the knowledge left to you by men who had to discover it for the first time. Try to obtain your food by means of nothing but physical motions – and you’ll learn that man’s mind is the root of all the goods produced and of all the wealth that has ever existed on earth.  <…> Money is made – before it can be looted or mooched – made by the effort of every honest man, each to the extent of his ability. An honest man is one who knows that he can’t consume more than he has produced.

<…>

Money will not purchase happiness for the man who has no concept of what he wants; money will not give him a code of values, if he’s evaded the knowledge of what to value, and it will not provide him with a purpose, if he’s evaded the choice of what to seek. Money will not buy intelligence for the fool, or admiration for the coward, or respect for the incompetent. <…> Is this the root of your hatred of money?

<…>

Or did you say it’s the love of money that’s the root of all evil? To love a thing is to know and love its nature. To love money is to know and love the fact that money is the creation of the best power within you, and your passkey to trade your effort for the effort of the best among men. It’s the person who would sell his soul for a nickel, who is the loudest in proclaiming his hatred of money – and he has good reason to hate it. The lovers of money are willing to work for it. They know they are able to deserve it.

Let me give you a tip on a clue to men’s characters: the man who damns money has obtained it dishonorably; the man who respects it has earned it.

<…>

You stand in the midst of the greatest achievements of the greatest productive civilization and you wonder why it’s crumbling around you, while you’re damning its life-blood – money. You look upon money as the savages did before you, and you wonder why the jungle is creeping back to the edge of your cities. Throughout men’s history, money was always seized by looters of one brand or another, but whose method remained the same: to seize wealth by force and to keep the producers bound, demeaned, defamed, deprived of honor. That phrase about the evil of money, which you mouth with such righteous recklessness, comes from a time when wealth was produced by the labor of slaves – slaves who repeated the motions once discovered by somebody’s mind and left unimproved for centuries. So long as production was ruled by force, and wealth was obtained by conquest, there was little to conquer. Yet through all the centuries of stagnation and starvation, men exalted the looters, as aristocrats of the sword, as aristocrats of birth, as aristocrats of the bureau, and despised the producers, as slaves, as traders, as shopkeepers – as industrialists.

To the glory of mankind, there was, for the first and only time in history, a country of money – and I have no higher, more reverent tribute to pay to America, for this means: a country of reason, justice, freedom, production, achievement. For the first time, man’s mind and money were set free, and there were no fortunes-by-conquest, but only fortunes-by-work, and instead of swordsmen and slaves, there appeared the real maker of wealth, the greatest worker, the highest type of human being – the self-made man – the American industrialist.

If you ask me to name the proudest distinction of Americans, I would choose – because it contains all the others – the fact that they were the people who created the phrase ‘to make money’. No other language or nation had ever used these words before; men had always thought of wealth as a static quantity – to be seized, begged, inherited, shared, looted, or obtained as a favor. Americans were the first to understand that wealth has to be created. The words ‘to make money’ hold the essence of human morality.

<…>

“Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips and guns – or dollars. Take your choice – there is no other – and your time is running out.”

Just how bad is immigration policy in the United States?  There is a plot being hatched to park a ship in international waters and allow skilled, foreign-born workers the opportunity to work for US companies (including startups) from there.  H1-B visas are capped at 85,000 and were exhausted in 10 weeks this year.

If we don’t want to bring these skilled workers in (and tax both them and the companies they create) then someone else will.

One of the things that will keep the startup bubble from bursting is finding another part of the ecosystem to fund and fund well.  Enterprise IT is one of those homes.  There are several trends in enterprise IT that make software startups a great place to be:

1. Cloud – Enterprises aren’t ready for it yet.  However, a company’s ability to survive the next 20 years is as dependent on whether they can figure out the cloud as it was that they understood and incorporated e-commerce and a web presence 10 years ago.
2. Automation – This isn’t exactly a new trend, but it’s not going anywhere for a while.  Especially with relation to how the enterprise manages workloads.
3. Collaboration – It’s no mistake that Yammer! was a hot pickup for Microsoft: there is a lot of work left to be done on how the enterprise uses the concepts behind social media and cloud to enable higher productivity on the “creative” side of the business.

A word of caution though, the “wild west” will be just as wild as it was with Social Media.  Let’s think back.  In the early days of social media, Friendster and Blogger then mySpace showed a market for something we didn’t know about before.  Then as that market matured, a couple of leaders showed us how to really make it successful (Facebook, Twitter, Foursquare).  Finally, the world went crazy with a boom of startups and $100B valuations for the existing companies.  I can’t decide whether I think Box.com and Rackspace and Engine Yard and Heroku and Eucalyptus are the mySpaces or the Facebooks of this new wave, but I do know that there is about to be some serious money thrown at some seriously flawed ideas.

Occasionally I find a little feature that I like so much that I post it to the blog.  Today, that feature is Google Voice‘s individual contact options.  You can literally customize to the level of having different messages for each of your contacts.  This can also be done at the group level so that friends hear a different message from co-workers who hear a different message from strangers.  Really good idea.

Note: This would make for a great prank.  Pre-record the message, “Hey Dad, what’s up?” and use it just for him.  See how long he goes in the message before he realizes I’m not there.

Malcolm Gladwell made the remark above at a recent appearance and it triggered a number of tweets across my feed.  The question of Gates’ and Jobs’ relative level of accomplishment and how those accomplishments will manifest in the annals of history are spectacularly interesting ones, so I decided a blog post was in order.   As Gladwell points out, the magnitude of Gates’ charitable work is compelling.  I am neither a historian nor a sociologist, so my estimate of how history will view Gates’ charitable work (and Jobs’ near total lack of it) is of little value.  For this reason, I’m going to keep it out of scope and instead assess the long-term value of each man’s work.

I tend to be of the school of thought that technological evolution is, for the most part, fixed.  I have explained this in blog posts before, but will attempt to summarize.  Essentially, I believe there are several laws of technical evolution (technical devices are getting smaller, technology makes global communication increasingly easier, etc.).  In general, the laws don’t change, we just make progress down the path.  There are exceptions; the micro-chip started the law of smaller and smaller devices, the telephone/telegraph started the law of global communication, the assembly line started a law of standardization, etc…. Neither Gates nor Jobs had this level of impact.  Neither they (nor their companies) invented a technology that changed the laws of technical evolution.  Instead, both men accelerated our journey down one or more of these paths.

Gates primary achievement was in accelerating the development of personal computing at least 5 or 10 years.  The idea that the operating system was separate from both the hardware and the software allowed companies to make innovations on the hardware and software independently.  One doesn’t have to look any further than the drubbing that Microsoft gave Apple to know that it was the superior model.  Gates deserves credit for helping computers go from novelty to necessity much faster than anyone could have dreamed.  The MS Office line of products also introduced the corporate world to standardization and cross company communication.  Even though Hotmail was an acquisition rather than an in-house project, I think Microsoft deserves some credit for shepparding in the era where an email address would identify you as often (more often?) than a phone number.  The rest of Gates’ successful business career is a result not of fruitful innovation but cunning business.  It’s hard to give points for knock offs of Netscape (Internet Explorer), iPhone (windows phone), or AOL (Live Messenger).

I have said it before, but I’ll say it again in this context, Jobs’ significant achievements come mostly in popularizing forms of technology that would have taken many more years to reach the masses if he hadn’t been there.  The Macintosh made us comfortable with a computer in our homes.  The iPod made us comfortable with music in our pockets.  The iPhone (probably his greatest achievement) made us comfortable with being tethered to the internet constantly.  The App Store made cell phones the domain of anyone who knew how to code.  Without the iPhone, Twitter (and instant broadcast messaging in general), Foursquare (along with all location based features), face-to-face chat (along with many other communications vehicles that require the internet), and hundreds of other things we take for granted today would still be years from being plausible.  Jobs has more minor achievements in film making too, but I believe those to be mostly out of scope for this conversation.  The iPad is also something that I think is just a phase in evolution.

Comparing the two is easy.  Jobs (with the help of his team at Apple) moved the laws of technology forward further than anyone I can think of.  I can not underscore how much further behind we would be right now if smartphone development had been left to Android and RIM.  I don’t think it’s unreasonable to guess that smartphone adoption would be 50% lower in this country.  We may not all have smartphones in 50 years, but we will have something that connects us in a very similar way to how smartphones connect us today (a skin implant, a pair of glasses or contacts, etc.).  So 50 years from now, if history was a technologist, Jobs would have the upperhand.  Gladwell is probably right though, niether man changed technology the way Alexander Graham Bell or Johann Gutenberg did.  If it weren’t for Gates’ billions and the enormous good he is doing with them, both would probably fade from history’s memory.  Maybe someone will Google (or whatever they’ll do then) this post and remember just for a second what Jobs’ did.

Everything in Texas is big right?  Well, they’re taking that to a new extreme with the “Great Bratbino”, a new bratwurst available at the Texas Rangers’ stadium in Arlington.  The brat (pictured above) is 2 feet long and comes with only one standard ingredient… sauerkraut.

On to the purpose of Sauerkraut Sundays… As I go through the week, I use Twitter to send out little updates and links.  I realize that I do this quite a bit and that not all of you use Twitter, so with that in mind I’d like to take Sunday to do sort of a week in review.  I’ve selected the most useful of my tweets from the last week and placed them in to the categories that I use in this blog.

Pittsburgh AND Startups/Social Media

Join me today at 12p on #techvibe 104.7 FM with @PittsTechAudrey & @Jkersting to dicuss Best of the Batch Foundation & Tech too!”

June 9, 2012 2:02 pm via Twitter for iPhoneReplyRetweetFavorite

@CharlieBatch16

Charlie Batch

BlueTree Allied Angels hires Donald Morrison as new Chairman and Executive Director. http://t.co/nGAPxfUE

June 6, 2012 11:41 am via Pittsburgh Business TimesReplyRetweetFavorite

@rlunak

Richard Lunak

Read how @theresumator helped HootSuite grow from 20 to 200 employees! http://t.co/GNM8xLKE

June 5, 2012 2:54 pm via webReplyRetweetFavorite

@dmonarko

Dan Monarko

The Trib looks at the effect of FB and Mobile on Pittsburgh's Tech Scene: http://t.co/NenBEq74

June 5, 2012 4:20 pm via TweetDeckReplyRetweetFavorite

@BurgherJon

Jonathan Cavell

Cloud and Enterprise IT

This iweek article is a phenomenal "State of the Cloud", especially as it relates to enterprise adoption. http://t.co/W4Tg1xVK

June 4, 2012 11:29 pm via Twitter for AndroidReplyRetweetFavorite

@BurgherJon

Jonathan Cavell

AWS will win the war to host SAP in the cloud, it won't be close. http://t.co/FUxRJCrN

June 4, 2012 11:15 pm via Twitter for AndroidReplyRetweetFavorite

@BurgherJon

Jonathan Cavell

Social Media

The job that @timwilliamsP2 does covering the #Pirates farm system and draft is proof that main stream media is in serious trouble.

June 6, 2012 6:50 pm via TweetDeckReplyRetweetFavorite

@BurgherJon

Jonathan Cavell

Sports

RT @BucsDugout: Pirates Baserunning http://t.co/y1un7Sot << Charlie performs an absolutely brilliant analysis here. #InventingStats

June 7, 2012 3:12 pm via TweetDeckReplyRetweetFavorite

@BurgherJon

Jonathan Cavell

If the @Dejan_Kovacevic column this morning doesn't make you buy a ticket to AJ Burnett's next home start, nothing will http://t.co/bpBLui1a

June 6, 2012 2:41 pm via TweetDeckReplyRetweetFavorite

@BurgherJon

Jonathan Cavell

Startups

I love @FredWilson's policy on social proof... I think it's the biggest mistake VCs are making these days: http://t.co/5Pr7GSyE

June 6, 2012 2:38 pm via TweetDeckReplyRetweetFavorite

@BurgherJon

Jonathan Cavell

Tech News

Apparently Gladwell said that in 50 years Gates will be revered, Jobs forgotten... REALLY interesting question, might be a blog post coming.

June 8, 2012 4:48 pm via TweetDeckReplyRetweetFavorite

@BurgherJon

Jonathan Cavell

Other

Mr. Rodgers remixed... holy crap, that was awesome: http://t.co/KbzrqiBc

June 8, 2012 4:54 pm via TweetDeckReplyRetweetFavorite

@BurgherJon

Jonathan Cavell

Unsolicited Advice

Ha! RT @annimaniac: "People using PowerPoint rarely have power and never have a point." -Fareed Zakaria #CGIAmerica

June 7, 2012 4:01 pm via Twitter for iPhoneReplyRetweetFavorite

@swathyprithivi

Swathy Prithivi

Blog Posts From This Blog

Blog Post: My blog post yesterday looks at how hard the Facebook IPO might hit the software startup funding industry: http://t.co/dkEaopYJ

June 7, 2012 2:14 pm via TweetDeckReplyRetweetFavorite

@BurgherJon

Jonathan Cavell

Blog Post: As I read the Great Gatsby for the second time, I couldn't help but take away lesson on entrepreneurship: http://t.co/p1FLdDLi

June 5, 2012 4:21 pm via TweetDeckReplyRetweetFavorite

@BurgherJon

Jonathan Cavell

Blog Musing: Could men be as discriminated against at the end of this century as women were at the beginning? http://t.co/BbqGEzvA

June 4, 2012 12:26 pm via TweetDeckReplyRetweetFavorite

@BurgherJon

Jonathan Cavell