Celebrity Death Match in the Clouds
There has been an interesting discussion between Tim O’Reilly and Nick Carr about the significance of lessons learned from Web 2.0 on the world of Cloud Computing providers and consumers. Tim O’Reilly:
But the cloud platform, like the software platform before it, has new rules for competitive advantage. And chief among those advantages are those that we’ve identified as “Web 2.0″, the design of systems that harness network effects to get better the more people use them. (Source)
Nick Carr has doubts that network effects are the main competitive advantage:
The Google example, far from providing support to O’Reilly’s argument that the network effect is the main way to achieve dominance on the modern web – that it is the secret to the success of “all Web 2.0 superstar applications” – actually undercuts that argument. And there are other examples we might point to as well. Apple’s iTunes online store and software system has achieved dominance in digital music distribution not through the network effect [...] but rather through superior product and software design, superb marketing and branding, smart partnerships, and proprietary file standards that tend to lock in users. (Source)
In a comment Tim O’Reilly clarifies his understanding of “network effect”:
I suppose that I am using the term a bit differently than most people do when I suggest that Google, and Amazon, and Wikipedia gain advantage from network effects in user contribution. These systems all do get better the more people use them.
and in a blog post he writes:
Nick only sees first order network effects, what you might call endogamous networks, those that require the user to be part of the tribe. Thus, phone networks, and networks like Facebook. But the internet is an exogamous network; its benefits increase by the extent to which it reaches out to new groups, increases cross-breeding, and thus the total robustness and variety of the gene pool. This is why links matter, why web services matter, because they extend the reach of the network. (Source)
Nick Carr mentions another interesting idea:
There’s one layer in the cloud that O’Reilly failed to mention, and that layer is actually on top of the application layer. It’s what I’ll call the device layer – encompassing all the various appliances people will use to tap the cloud – and it may ultimately come to be the most interesting layer. (Source)
What both are missing
I believe that Tim O’Reilly is right with his assumption that network effects have a huge impact on the Cloud Computing marketplace. The only thing is: who is the user of Cloud Computing services? Both, Tim O’Reilly and Nick Carr, are missing the main point here in assuming that end-users are Cloud-users. But Cloud Computing is a developer-facing business. The network effect does not directly depend on the number of end-users that use the Cloud of a certain provider but on the number (and quality) of developers using the Cloud to develop, test and deploy their applications and services.
Network effect is probably the main differentiator between the Google App Engine and Amazon Web Services. In an earlier blogpost I wrote:
[...] Amazon’s Web Services are more loose coupled and Google’s services are glued together. Seems like Amazon has taken the Linux approach to Cloud computing, whereas Google follows the Microsoft business model. Where Amazon Web Services offer greater flexibility because they can be combined with third-party services, integrated into (open source or commercial) frameworks and software products, Google provides a more easy-to-use model (auto-scaling, sweet APIs) at the cost of vendor lock-in.
This might explain (besides that fact that they were among the first in the business) why Amazon is much more successful in the Cloud Computing business than Google is.