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[Glenn Petersen] Pentagon cloud tie-up with Silicon Valley off to a slow start In the past year,...

Glenn Petersen — 12/22/2023 2:37:17 PM

Pentagon cloud tie-up with Silicon Valley off to a slow start

In the past year, less than 2 percent of $9 billion set aside to upgrade the U.S. military’s computing technology has been committed

By Eva Dou
The Washington Post
December 21, 2023 at 7:00 a.m. EST

The Pentagon has struggled for years to make the jump to cloud computing, now the preference of most American businesses. It’s still struggling amid concerns that the cloud isn’t secure enough for sensitive military use.

The Defense Department’s earlier effort — memorably dubbed JEDI cloud — died in the cradle, after Microsoft’s win of the contract was challenged in court by Amazon and Oracle. In an effort to get things moving, the Pentagon started over in December 2022, divvying up a new $9 billion contract among four vendors: Amazon, Google, Microsoft and Oracle.

But a year into what is known as the Joint Warfighting Cloud Capability (JWCC), less than 2 percent of the $9 billion earmarked for the program has been committed. The slow start reflects lingering fears over the security of commercial cloud technologies, even as the Pentagon’s tech planners say this initiative is key to propelling the United States into next-generation warfare capabilities.

“Cloud software are the backbone of the development, the application and advancement of AI and machine learning,” Lily Zeleke, the Defense Department’s deputy chief information officer for the information enterprise, said in an interview. “They are integral to our modernization efforts.”

Some defense experts say the delays could weigh on the U.S. military’s competitiveness.

“The time that we lost with JEDI was really painful because you need a computing structure to train AI models,” said former Defense Department technology official Paul Scharre, referring to JWCC’s predecessor, the Joint Enterprise Defense Infrastructure. “DoD needs to have that cloud infrastructure in place to move forward on AI.”

At an Association of the United States Army conference in October, Google Public Sector CEO Karen Dahut, a former Navy officer, said the Defense Department tended to “think too long and hard” about potential risks of new technologies.

“We’ve got to start talking about AI models and developing specific use cases. Let’s just get on about developing the use cases,” Dahut said. “Right now, we’re talking a lot about risk and the things that need to be done to get there. And we just need to move, because our adversaries are moving quickly.”

Microsoft is in the lead in publicly reported JWCC contracts, with $22.8 million in awards, according to official procurement data from USAspending.gov. Following behind are Oracle, with $9.3 million, Amazon with $7.8 million, and Google with $3.9 million.

Among the orders is $33,000 each for Microsoft and Amazon to demonstrate their technologies for the Joint All-Domain Command and Control project, or JADC2, a next-generation system that will employ artificial intelligence and automation to guide weaponry. JADC2 is designed to connect “any sensor to any shooter in any domain at any time,” as Vice Adm. Ron Boxall, director of force structure, resources and assessment of the Joint Chiefs of Staff, described it.

The Defense Information Systems Agency (DISA), the U.S. military IT unit overseeing the JWCC rollout, said those records don’t reflect all orders placed to date. The Washington Post counted 30 contracts on USAspending.gov, though DISA said 39 contracts have been placed, representing up to $269.9 million in orders if all options are exercised. About 40 more are in processing, DISA said.

Sharon Woods, director of hosting and compute at DISA, said in an interview that these technologies will allow troops to crunch data on battlefields with AI algorithms, helping them make swifter decisions and, ideally, giving the United States an edge over adversaries.

“Data is often collected in theater, on the battlefield,” Woods said. “What JWCC offers is the ability to collect and process that data at the point of collection, where the warfighter operates.”

Asked whether the program will power autonomous weapons, Zeleke said that cloud systems can support any type of computing function. “Any capability is supportable through cloud,” she said.

Zeleke and Woods pushed back on characterizing the JWCC rollout as slow. Zeleke said the team has cut the processing time for a contract from months to about a month on average. It’s the first multi-vendor cloud contract the department has handled that spans classification levels, making it more complex, she said. “The team has worked really, really hard,” she said.

Concerns remain over the security of cloud systems following a high-profile hack over the summer of Microsoft’s cloud by Chinese cyberspies, who managed to infiltrate the email accounts of Commerce Secretary Gina Raimondo and other U.S. officials. The Post reported this month that Chinese military hackers have been ramping up their ability to disrupt key U.S. infrastructure such as power and water utilities.

“The pendulum swung hard. Everything was going to go to the cloud a few years ago. That’s sort of coming back,” Steve Wallace, DISA chief technology officer, said at an event for defense contractors last month.

Amazon, Google, Microsoft and Oracle are in the middle of bidding for individual contracts with different branches of the U.S. military under JWCC, a process that is ongoing and time-consuming. Woods said all four vendors had an ample set of catalogues for the program that are updated monthly and that “continue to grow in terms of the capabilities being offered.”\

One general requirement for the four companies is to supply “tactical edge devices,” or rugged computing units designed to survive rough conditions, including extreme heat and cold or explosions. But none of the four has made public its full product line, though Amazon has announced certain products in its “Snow” line, including a small, portable computer that can fit in a backpack or be delivered by drone, and the room-size “Snowblade,” designed to crunch large amounts of data in remote locations. (Amazon founder Jeff Bezos owns The Post. Interim CEO Patty Stonesifer is a member of Amazon’s board.)

Woods said she could not discuss many of the details of JWCC for security reasons, including what systems have been ordered so far and where they are operating. She said that in general, the Pentagon planned to integrate AI technologies into JWCC for data analysis and cybersecurity.

“We’re seeing customers leveraging AI for analysis of live video feeds and pictures, analysis of documents, and then simultaneous translation and transcription of handwritten messages,” she said. “The other area of AI is related to cybersecurity. We’re able to use AI to analyze data and logs to find and identify anomalies.”

An unclassified slide show presented by a DISA official in September for purchasing managers reflected some of the capabilities the companies are touting.

Google’s slide said its products for JWCC have “embedded AI & ML [machine learning]” capabilities that can accelerate “time to decision by up to 30x” for the Defense Department. Amazon’s slide promoted its “advanced data analytics” and “advisory and assistance services,” and included graphics of a tank, a submarine and a fighter jet. Microsoft’s slide said the company offered “cutting-edge AI and machine learning” and highlighted the company’s 165,000 miles of fiber and subsea cables, and its handling of over 8 trillion signals a day. Oracle’s slide also mentioned its AI and machine-learning “predictive analysis” capabilities, as well as monitoring and automation.

The slides said the product information was provided by the companies and did not reflect the Defense Department’s assessment.

While presenting the slides, Dave Henson, a DISA section chief, said the four companies were each offering double-digit discounts and were open to tailoring their offerings. Henson said Google and Oracle are aiming to gain clearance to handle secret-level projects in the spring, which would put them in the running for more sensitive contracts alongside Amazon and Microsoft, which already have clearance through existing contracts with the federal government.

Microsoft and Amazon’s cloud subsidiary, Amazon Web Services, declined to discuss details of the services they are selling through JWCC.

Oracle did not respond to requests for comment. The company has previously said its cloud products can work in conjunction with F-35 military jets for surveillance operations, crunching “terabyte-sized streams of data” in real time to produce insights such as predictions of troop movements.

The JWCC program ramp-up comes amid broader interest among Silicon Valley companies in defense work, driven by rising competition from China, the war in Ukraine and the prospect of more Pentagon funding. Zeleke said she didn’t think the four companies saw the contracts as just “transactional.”

“Everyone’s aware of where we are in this world right now,” she said. “It is ultimately supporting our fight initiatives across the board.”

Michael Brown, director from 2018 to 2022 of the Pentagon’s Defense Innovation Unit, which helps the U.S. military make use of commercial technologies, said that in the past five years, he had seen a “sea change” in the number of companies “not only willing but enthused” to work with the Pentagon.

“The war in Ukraine has been a game changer in terms of recognizing there is evil in the world and we must provide technology to the side fighting for freedom and against unprovoked aggression,” Brown said.

One other change has been the recategorization of some of the more potentially controversial projects as intelligence work, which subjects them to lower public disclosure requirements.

In 2018, Google was beset by employee protests over its participation in Project Maven, a Defense Department initiative to use artificial intelligence to analyze drone video. Google said it was dropping out of Project Maven, citing its AI principles, which say the company will not deploy artificial intelligence for weapons, “surveillance violating internationally accepted norms,” or technologies that “cause overall harm.” Soon after, Google also dropped out of bidding for the JEDI cloud program, citing similar reasons.

When Google decided to bid for JWCC, it said the multi-vendor structure would allow it to sit out of any work that did not meet its principles. “We will proudly work with the DoD to help them modernize their operations,” Google Cloud CEO Thomas Kurian wrote in a public update in 2021 about the company’s intention to join the project.

In January 2023, 80 percent of Project Maven — including the controversial drone video analysis work — was transferred to the control of the National Geospatial-Intelligence Agency, NGA spokesperson Robbin Brooks said. Although NGA is part of the Defense Department, Brooks said its procurement is done through the intelligence agencies’ cloud contract instead of JWCC.

Orders placed through that contract, known as C2E, which stands for Commercial Cloud Enterprise — do not have to be reported publicly, and the CIA did not announce a vendor list when it awarded the contract in 2020. News reports have named Amazon, Google, IBM, Microsoft and Oracle as the vendors.

Asked if those five companies are Project Maven’s vendors, Brooks said, “We generally don’t discuss specifics when it comes to vendors, but we are working with a variety for Maven.”

Google declined to say whether there has been any change in its stance. A person familiar with the matter, speaking on the condition of anonymity to discuss details of the government contract, said that Google will only pursue contracts consistent with the company’s policies and that any custom AI work would need to be vetted through its AI principles governance process.

The Defense Department’s Chief Digital and Artificial Intelligence Office, which operates the other 20 percent of Project Maven, declined to comment.

Woods said the U.S. military has a five-year window to use the $9 billion under JWCC, after which the Pentagon plans to issue a replacement contract that may be open to more vendors.
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Eva Dou is a Washington-based reporter covering technology policy for the Washington Post. A Detroit native, she was previously China business reporter for the Post. Twitter

[Glenn Petersen] [graphic] [graphic]

Glenn Petersen — 11/29/2023 10:26:08 AM

[Glenn Petersen] Why Amazon and Nvidia Need Each Other Amazon’s in-house chip program can’t full...

Glenn Petersen — 11/29/2023 10:19:55 AM

Why Amazon and Nvidia Need Each Other

Amazon’s in-house chip program can’t fully match Nvidia’s AI dominance, while chip maker needs to keep its U.S. business strong

By Dan Gallagher
Heard on the Street
Wall Street Journal
Nov. 29, 2023 6:00 am ET

Nvidia CEO Jensen Huang, right, joined AWS CEO Adam Selipsky at the annual AWS re:Invent conference on Tuesday. PHOTO: AMAZON
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Amazon AMZN needed to put on a good AI show this week. It got a little help from a surprising friend.
The e-commerce titan also happens to run the world’s largest cloud-computing business. In fact, Amazon’s AWS unit now generates significantly more annual revenue than IBM and Oracle and comes second only to
Microsoft in the market for business-focused software and related services. But Amazon has also been perceived as lagging behind its largest cloud rival in the field of generative artificial intelligence, given Microsoft’s aggressive push into the technology since the public launch of ChatGPT almost exactly one year ago.

Hence, Amazon used its annual AWS re:Invent conference on Tuesday to lean hard into generative AI. It even announced its own chatbot called Q, which looks like a business-focused version of Microsoft’s Copilot. But most notable was the appearance of Nvidia NVDA Chief Executive Officer Jensen Huang, who joined AWS CEO Adam Selipsky on stage at the Las Vegas event to announce an “expanded collaboration” between the two companies. That will include AWS being the first cloud provider to launch services with Nvidia’s new H200 “superchips” that will start shipping next year.

Tech executives often cross-pollinate each other’s trade shows, and the occasions are generally not worthy of note. But this was the first time Huang has appeared at the annual confab for AWS, which has been a major customer of Nvidia’s data-center business over the last several years.

And it came amid rumors of growing friction between the two companies, as Amazon has gone further than its cloud rivals in designing its own in-house chips, while Nvidia has been pushing into offering cloud-computing services of its own. Amazon even used the same keynote on Tuesday to announce the fourth version of its Graviton processor and the second version of its Trainium accelerator—the latter of which competes with Nvidia’s chips in the training of AI models.

Amazon CEO Andy Jassy bragged on the company’s third-quarter call last month that its Trainium chips “have better price performance characteristics than the other options out there, but also the fact that you can get access to them”—the last part a dig at the well-known shortage of Nvidia’s very in-demand chips. That fed further the view that Amazon might have been on the outs with the supplier of a vital AI component. Nvidia mentioned Microsoft 10 times in its own earnings call last week compared with just one mention of Amazon.

Yet the truth is that the two companies very much need each other. Nvidia’s early moves in artificial intelligence have given the company a strong position that can’t be fully replicated even by in-house chips from established tech giants, who can custom design silicon for their own networks. That has been readily apparent in Nvidia’s recent financial results; the chip maker’s data-center sales have quadrupled over the past two quarters compared with the same period last year. Nvidia credited cloud-service providers as accounting for about half those sales.

But Nvidia also can’t afford to alienate the biggest buyer in the market. Amazon’s total annual capital expenditures have been more than twice that of Microsoft’s over the past four years, and market-research firm Dell’Oro Group estimates that the data-center portion of Amazon’s capex totaled $29 billion last year—39% above Microsoft’s estimated spend for the year. Nvidia is also facing the prospect that its sales to China could take a serious hit because of new export controls, making a strong relationship with a huge U.S. customer even more important. Friends at home count for a lot these days.

Write to Dan Gallagher at dan.gallagher@wsj.com

Why Amazon and Nvidia Need Each Other - WSJ (archive.ph)

[ibyte] Is government able to know the inner workings, unlikely. The "cloud" providers ...

ibyte — 11/28/2023 4:16:29 PM

Is government able to know the inner workings, unlikely. The "cloud" providers have all kinds of personal data and imagery, and there is almost no admission or acknowledgement.

[Glenn Petersen] Amazon announces new AI chip as it deepens Nvidia relationship PUBLISHED TUE, N...

Glenn Petersen — 11/28/2023 2:20:18 PM

Amazon announces new AI chip as it deepens Nvidia relationship

PUBLISHED TUE, NOV 28 202311:41 AM EST
UPDATED 2 HOURS AGO
Jordan Novet @JORDANNOVET
CNBC.com

KEY POINTS

Amazon Web Services announced Trainium2, a chip for training artificial intelligence models, and it will also offer access to Nvidia’s next-generation H200 Tensor Core graphics processing units.
AWS will host a special computing cluster for Nvidia to use.
For now, AWS customers can start testing new general-purpose Graviton4 chips.

Amazon’s AWS cloud unit announced its new Trainium2 artificial intelligence chip and the general-purpose Graviton4 processor during its Reinvent conference in Las Vegas on Tuesday. The company also said it will offer access to Nvidia’s latest H200 AI graphics processing units.

Amazon Web Services is trying to stand out as a cloud provider with a variety of cost-effective options. It won’t just sell cheap Amazon-branded products, though. Just as in its online retail marketplace, Amazon’s cloud will feature top-of-the-line products. Specifically, that means highly sought after GPUs from top AI chipmaker Nvidia.

The dual-pronged approach might put AWS in a better position to go up against its top competitor. Earlier this month Microsoft took a similar dual-pronged approach by revealing its inaugural AI chip, the Maia 100, and also saying the Azure cloud will have Nvidia H200 GPUs.

The Graviton4 processors are based on Arm architecture and consume less energy than chips from Intel or AMD. Graviton4 promises 30% better performance than the existing Graviton3 chips, enabling what AWS said is better output for the price. Inflation has been higher than usual, inspiring central bankers to hike interest rates. Organizations that want to keep using AWS but lower their cloud bills to better deal with the economy might wish to consider moving to Graviton.

More than 50,000 AWS customers are already using Graviton chips. Startup Databricks and Amazon-backed Anthropic, an OpenAI competitor, plan to build models with the new Trainium2 chips, which will boast four times better performance than the original model, Amazon said.

AWS said it will operate more than 16,000 Nvidia GH200 Grace Hopper Superchips, which contain H100 GPUs and Nvidia’s Arm-based general-purpose processors, for Nvidia’s research and development group. Other AWS customers won’t be able to use these chips.

Demand for Nvidia GPUs has skyrocketed since startup OpenAI released its ChatGPT chatbot last year, wowing people with its abilities to summarize information and compose human-like text. It led to a shortage of Nvidia’s chips as companies raced to incorporate similar generative AI technologies into their products.

Normally, the introduction of an AI chip from a cloud provider might present a challenge to Nvidia, but in this case, Amazon is simultaneously expanding its collaboration with Nvidia. At the same time, AWS customers will have another option to consider for AI computing if they aren’t able to secure the latest Nvidia GPUs.

Amazon is the leader in cloud computing but has been renting out GPUs in its cloud for over a decade. In 2018 it followed cloud challengers Alibaba and Google in releasing an AI processor that it developed in-house, giving customers powerful computing at an affordable price.

AWS has launched more than 200 cloud products since 2006, when it released its EC2 and S3 services for computing and storing data. Not all of them have been hits. Some go without updates for a long time and a rare few are discontinued, freeing up Amazon to reallocate resources. However, the company continues to invest in the Graviton and Trainium programs, suggesting that Amazon senses demand.

AWS didn’t announce release dates for virtual-machine instances with Nvidia H200 chips, or instances relying on its Trainium2 silicon. Customers can start testing Graviton4 virtual-machine instances now before they become commercially available in the next few months.

Amazon reveals Trainium2 AI chip while deepening Nvidia relationship (cnbc.com)

[Glenn Petersen] A Startup in the New Jersey Suburbs Is Battling the Giants of Silicon Valley It...

Glenn Petersen — 8/26/2023 6:25:18 AM

A Startup in the New Jersey Suburbs Is Battling the Giants of Silicon Valley

It’s not just Nvidia. There is another big winner of the AI boom—and it’s now competing with some of the world’s most valuable companies.

By Ben Cohen
Wall Street Journal
Aug. 25, 2023 8:30 am ET

Michael Intrator wasn’t planning to leave his job in finance to work in the world’s hottest industry. Until the day his office nearly overheated.

He was running a natural-gas fund in 2017 when he stumbled into another market that was about to become huge. Intrator and his colleague Brian Venturo purchased their first GPU, the graphics chip they were using for cryptocurrency mining that has since become essential to a more lucrative business: artificial intelligence.

“All of a sudden it went from a GPU to a bunch of GPUs to the pool table being covered in GPUs,” Intrator said. He walked into work one morning that summer, after the air conditioning had been turned off for the weekend, only to find that the servers running their growing collection of GPUs made their Wall Street office feel more like a sauna. He freaked out. “We’re going to burn down this skyscraper,” he thought.

This suddenly terrifying hobby that started with a single chip soon became a company with tens of thousands of them. It’s based far from Silicon Valley and even farther from Taiwan, where chip-fabrication plants churn out today’s vital technology. But its office suite in the New Jersey suburbs is the global headquarters for one of the biggest winners of the AI boom.

Few companies have seen their value change as much in the past year as CoreWeave, a specialized cloud provider offering access to the advanced chips, futuristic data centers and accelerated computing that fuel generative artificial intelligence. It owns the mighty GPUs that have become engines of modern innovation, and CoreWeave sells time and space on its supercomputers to clients in desperate need of the processing power that AI requires.

It’s how a business that most people have never heard of is playing an influential supporting role in a tech revolution.

CoreWeave has quickly and improbably become one of the largest GPU providers and leaders in the arms race for AI infrastructure. It raised more than $400 million this spring from chip maker Nvidia and other investors. It secured another $2.3 billion in debt financing this summer to open data centers by essentially turning chips into financial instruments, using its stash of highly coveted Nvidia semiconductors as collateral. Now it’s racing to keep pace with the fastest software-adoption curve in history.

Infrastructure is not the first thing that comes to mind when you think about generative artificial intelligence—the tech behind chatbots, productivity tools and buzzy startups in every field. But you wouldn’t be thinking about generative artificial intelligence without solid infrastructure.

“It’s similar to electricity: Do you think of the power plant when you flip a light switch?” said Brannin McBee, CoreWeave’s chief strategy officer and third co-founder. “What we’re doing right now is building the electricity grid for the AI market. If this stuff doesn’t get built, then AI will not be able to scale.”

Building that stuff means the success of CoreWeave is by definition interwoven with the success of the entire AI economy.

GPUs that can be used for AI became the world’s most precious asset this year, six years after CoreWeave was founded by former commodities traders.

These chips have enough power to train large-language models and perform AI’s unfathomably complex tasks at ludicrous speeds. The market for this scarce resource is controlled by Nvidia, the top-performing stock in the S&P 500 index this year even before it reported another blowout quarter on Wednesday that once again smashed expectations. Nvidia’s gain in value in 2023 alone is greater than the market capitalization of almost any American company.

But the supply of AI chips isn’t nearly enough to meet the world’s demands.
Elon Musk has declared that it’s harder to buy GPUs than drugs, and there’s a whiteboard behind Venturo’s desk in CoreWeave HQ that puts it another way: “I have not been asked for more GPUs in ___ days.”

That number has been zero since last summer.

Nvidia GPUs like this one are essential for AI applications like chatbots and image generators.
PHOTO: I-HWA CHENG/BLOOMBERG NEWS
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The mad scramble across Silicon Valley sparked by the AI frenzy has created an opportunity for the Nvidia-backed startup based in Roseland, N.J.

“You’re seeing a whole crop of new GPU-specialized cloud-service providers,” said Jensen Huang, Nvidia’s chief executive, on the company’s earnings call this week. “One of the famous ones is CoreWeave—and they’re doing incredibly well.”

CoreWeave’s rivals in AI infrastructure operations include major cloud providers like Microsoft, Google and Amazon, and it’s hard for any startup to compete with one of the richest companies on the planet, let alone several. The private company does not disclose financial details, but recent fundraising valued CoreWeave around $2 billion. So how can it avoid getting crushed by giants worth trillions?

“It’s a question I answer all the time,” said Intrator, CoreWeave’s chief executive.

He says AI presents challenges that legacy cloud platforms were not designed to handle. This kind of radical transformation in any business can turn the playing field upside down and give upstarts an edge over incumbents forced to adapt. In fact, Intrator likened CoreWeave to the unlikely leader of another market.

“GM can make an electric car,” he said, “but that doesn’t make it a Tesla. ”

CoreWeave has fewer employees (250) than clients (700), but it has deals with Inflection AI and even OpenAI backer Microsoft. The company’s executives say they offer customized systems and a wider range of chips in more configurations than servers equipped for general-purpose computing. That flexibility makes their product more efficient for a variety of applications from rendering images to discovering molecules.

This didn’t seem possible and definitely wasn’t some grand plan in 2017, when CoreWeave’s founders were mining Ethereum for themselves. “It very much started as: How do I make an extra $1,000 so that I can pay my mortgage?” said Venturo, the chief technology officer. But they became fascinated by the mechanics of crypto at the exact moment that crypto prices were going bananas. They could buy a GPU on Monday and it would pay for itself by Thursday. So they kept buying. Before long they had hundreds of GPUs and no clue where to put them.

When they decided to leave Wall Street, they did something very Silicon Valley: They moved their hardware into a garage. Except this garage was in New Jersey—and it belonged to Venturo’s grandfather.

Soon they turned a side hustle into a proper business, named the company Atlantic Crypto and renamed it CoreWeave.

“We’re not very good at naming companies,” Intrator said.

They were better at running one. When crypto prices crashed back to earth in 2018 and 2019, they diversified into other, less-volatile fields that needed lots of GPU computing. They focused on three markets where they could fill a void: media and entertainment, life sciences and, yes, artificial intelligence.

It turned out to be perfect timing. The decision to stockpile those chips positioned the company for what Nvidia is calling “a new computing era,” but even CoreWeave’s own executives admit they couldn’t have predicted the intensity of the AI fervor.

“If anyone said they thought this is what success would look like, they’re lying,” Venturo said.

CoreWeave has upgraded from consumer GPUs in a sweltering office to enterprise GPUs in sprawling data centers around the country with the cooling, power and hundreds of miles of fiber-optic cable to keep running around the clock.

Last summer, right around the release of popular AI image generators like Stable Diffusion and Midjourney, CoreWeave’s executives invested heavily in Nvidia’s latest and fastest H100 chips. Only when ChatGPT dropped last fall did they realize they hadn’t invested nearly enough.

“We had spent $100 million on H100s,” Venturo said. “But the ChatGPT moment was when I was, like: Everything we’ve thought from a scale perspective may be totally wrong. These people don’t need 5,000 GPUs. They need five million.”

Being totally wrong has rarely been so valuable.

One of the many lessons from the speculative manias that have gripped tech in recent years is that it’s wise to be skeptical of any company riding a wave of exuberance. Even if AI really is the next big thing, smaller players could get wiped out. A trillion-dollar company can afford to wait and then dominate. It’s not exactly the most comfortable position for CoreWeave.

“It feels like we are dancing between the feet of elephants,” McBee said.

But that happens to be another measure of success. CoreWeave’s founders no longer have to worry about locating the nearest fire extinguisher. Now they’re trying to not get trampled.

Write to Ben Cohen at ben.cohen@wsj.com

A Startup in the New Jersey Suburbs Is Battling the Giants of Silicon Valley - WSJ (archive.ph)

[Glenn Petersen] The AI Boom Is Here. The Cloud May Not Be Ready. Traditional cloud infrastructu...

Glenn Petersen — 7/12/2023 4:58:24 AM

The AI Boom Is Here. The Cloud May Not Be Ready.

Traditional cloud infrastructure wasn’t designed to support large-scale artificial intelligence. Hyperscalers are quickly working to rebuild it.

By Isabelle Bousquette
Wall Street Journal
July 10, 2023 12:00 pm ET

Many companies say the cloud is their go-to when it comes to training and running large AI applications—but today, only a small portion of existing cloud infrastructure is actually set up to support that. The rest is not.

Now cloud providers, including Amazon Web Services, Microsoft Azure and Google Cloud are under pressure to change that calculus to meet the computing demands of a major AI boom—and as other hardware providers see a potential opening.

“There’s a pretty big imbalance between demand and supply at the moment,” said Chetan Kapoor, director of product management at Amazon Web Services’ Elastic Compute Cloud division.

Most generative AI models today are trained and run in the cloud. These models, designed to generate original text and analysis, can be anywhere from 10 times to a 100 times bigger than older AI models, said Ziad Asghar, senior vice president of product management at Qualcomm Technologies, adding that the number of use cases as well as the number of users are also exploding.

“There is insatiable demand,” for running large language models right now, including in industry sectors like manufacturing and finance, said Nidhi Chappell, general manager of Azure AI Infrastructure.

It is putting more pressure than ever on a limited amount of computing capacity that relies on an even more limited number of specialized chips, such as graphic chips, or GPUs, from Nvidia. Companies like Johnson & Johnson, Visa, Chevron and others all said they anticipate using cloud providers for generative AI-related use cases.

Google’s data center in Eemshaven, Netherlands. Google Cloud Platform said it is making AI infrastructure a greater part of its overall fleet. PHOTO: UTRECHT ROBIN/ABACA/ZUMA PRESS
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But much of the infrastructure wasn’t built for running such large and complex systems. Cloud sold itself as a convenient replacement for on-premise servers that could easily scale up and down capacity with a pay-as-you-go pricing model. Much of today’s cloud footprint consists of servers designed to run multiple workloads at the same time that leverage general-purpose CPU chips.

A minority of it, according to analysts, runs on chips optimized for AI, such as GPUs and servers designed to function in collaborative clusters to support bigger workloads, including large AI models. GPUs are better for AI since they can handle many computations at once, whereas CPUs handle fewer computations simultaneously.

At AWS, one cluster can contain up to 20,000 GPUs. AI-optimized infrastructure is a small percentage of the company’s overall cloud footprint, said Kapoor, but it is growing at a much faster rate. He said the company plans to deploy multiple AI-optimized server clusters over the next 12 months.

A snapshot of last year’s AWS re:Invent conference in Las Vegas, NV. Amazon Web Services plans to deploy multiple AI-optimized server clusters over the next 12 months. PHOTO: NOAH BERGER/REUTERS
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Microsoft Azure and Google Cloud Platform said they are similarly working to make AI infrastructure a greater part of their overall fleets. However, Microsoft’s Chappell said that that doesn’t mean the company is necessarily moving away from the shared server—general purpose computing—which is still valuable for companies.

Other hardware providers have an opportunity to make a play here, said Lee Sustar, principal analyst at tech research and advisory firm Forrester, covering public cloud computing for the enterprise.

Dell Technologies expects that high cloud costs, linked to heavy use—including training models—could push some companies to consider on-premises deployments. The computer maker has a server designed for that use.

“The existing economic models of primarily the public cloud environment weren’t really optimized for the kind of demand and activity level that we’re going to see as people move into these AI systems,” Dell’s Global Chief Technology Officer John Roese said.

On premises, companies could save on costs like networking and data storage, Roese said.

Cloud providers said they have several offerings available at different costs and that in the long term, on-premises deployments could end up costing more because enterprises would have to make huge investments when they want to upgrade hardware.

Qualcomm said that in some cases it might be cheaper and faster for companies to run models on individual devices, taking some pressure off the cloud. The company is currently working to equip devices with the ability to run larger and larger models.

Hewlett Packard Enterprise headquarters in Spring, TX. HPE is rolling out its own public cloud service, powered by a supercomputer, that will be available to enterprises looking to train generative AI models in the second half of this year. PHOTO: MARK FELIX/BLOOMBERG NEWS
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And Hewlett Packard Enterprise is rolling out its own public cloud service, powered by a supercomputer, that will be available to enterprises looking to train generative AI models in the second half of 2023. Like some of the newer cloud infrastructure, it has the advantage of being purposely built for large-scale AI use cases, said Justin Hotard, executive vice president and general manager of High Performance Computing, AI & Labs.

Hardware providers agree that it is still early days and that the solution could ultimately be hybrid, with some computing happening on the cloud and some on individual devices, for example.

In the long term, Sustar said, the raison d’être of cloud is fundamentally changing from a replacement for companies’ difficult-to-maintain on-premise hardware to something qualitatively new: Computing power available at a scale heretofore unavailable to enterprises.

“It’s really a phase change in terms of how we look at infrastructure, how we architected the structure, how we deliver the infrastructure,” said Amin Vahdat, vice president and general manager of machine learning, systems and Cloud AI at Google Cloud.

Write to Isabelle Bousquette at isabelle.bousquette@wsj.com

Copyright ©2023 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the July 11, 2023, print edition as 'The Cloud May Not Be Ready for the Boom in AI'.

The AI Boom Is Here. The Cloud May Not Be Ready. - WSJ

[Glenn Petersen] Amazon’s vision: An AI model for everything Reed Albergoth Semafor June 23, 202...

Glenn Petersen — 6/25/2023 2:26:43 PM

Amazon’s vision: An AI model for everything

Reed Albergoth
Semafor
June 23, 2023

THE SCENE
Matt Wood, vice president of product for Amazon Web Services, is at the tip of the spear of Amazon’s response in the escalating AI battle between the tech giants.

Much of the internet already runs on AWS’s cloud services and Amazon’s long game strategy is to create a single point of entry for companies and startups to tap into a rapidly increasing number of generative AI models, both of the open-source and closed-source variety.

Wood discussed this and other topics in an edited conversation below.

THE VIEW FROM MATT WOOD
Q: Microsoft and Google are both nipping at your heels by offering these huge AI models. How does AWS view this market?

A: I have not seen this level of excitement and engagement from customers since the very earliest days of AWS. We have over 100,000 customers today that routinely use AWS to drive their machine-learning capabilities and these generative AI systems.

One of the interesting differences with these generative models is that they make machine learning easier than ever before to use and apply. We built a capability that we call Bedrock, which provides the very easiest way for developers to build new experiences using this technology on AWS. You just provide a prompt, select which model you want to use, and we give you the answer.

Where we kind of think of things a little differently is that it doesn't seem that there's going to be one model to rule them all. As a result, our approach is to take the very best, most promising, most interesting models and to operationalize them so customers can really use them in production. Customers can combine models from Amazon and from third parties in ways that are interesting and novel.

Q: How many models are there now?

A: On Bedrock, we have models from Amazon we call Titan. We provide models from Anthropic, AI21 Labs, which has great support for different languages. We’ve got models from Stability AI, and we’ll have more coming in the future.

Q: So you’re basically curating the best models out there?

A: Indeed. But there’s an old Amazon adage that these things are usually an “and” and not an “or.” So we’re doing both. It's so early and it's so exciting that new models are emerging from industry and academia virtually every single week. But some of them are super early and we don’t know what they’re good at yet.

So we have SageMaker JumpStart, which has dozens of foundational models, many of which have already been trained on AWS so they're already up there. That’s where we’ll have a kind of marketplace that customers can just jump on and start using them. For example, the Falcon model, which is on the top of the leaderboards in terms of capability, was trained on AWS inside SageMaker and today is available inside SageMaker JumpStart.

You can think of JumpStart as the training field for these models and the ones that prove to be really differentiated and capable and popular, we’ll take those and elevate them into Bedrock, where we’ll provide a lot of the operational performance and optimization to deliver low latency, low cost and low power utilization for those models.

Q: If AWS is offering all of these open-source models on its platform, is there concern that AWS could be held responsible for the safety of those models?

A: No. It really helps if you think of them less as this very loaded term of artificial intelligence, and more just applied statistics. It's just a statistical parlor trick, really. You can kind of think of them a little like a database. We want to enable those sorts of capabilities for customers. And so if you think of it that way, it makes a lot more sense as to where the responsibility lies for their usage. We’re engaged in all of those policy discussions and we’ll see how it plays out.

Q: Who do you think will use SageMaker JumpStart and who will use Bedrock?

A: There's going to be people who have the skills, interests, and the investment to actually go and take apart these models, rebuild them, and combine them in all these interesting way. It's one of the benefits of open source models. You can do whatever you want with them.

But then for the vast majority of organizations, they just want to build with these things and want to know it has low latency, is designed for scale and has the operational performance you would expect from AWS, and that the data is secure.

Q: There’s a debate over which is better: Fine tuning/prompting very large, powerful and general large language models for specific purposes, or using more narrowly focused models and fine tuning them even further. It sounds like you believe the latter option is going to win.

A: You can’t fine tune GPT-4. What we found is that in the enterprise, most of those customers have very large amounts of existing private data and intellectual property. And a lot of the advantages and the opportunity that they see for generative AI is in harnessing that private data and IP into new internal experiences, or new product categories or new product capabilities.

The ability to take that data and then take a foundational model and just contribute additional knowledge and information to it very quickly and very easily, and then put it into production very quickly and very easily, then iterate on it in production very quickly and very easily. That's kind of the model that we're seeing.

Q: Can you give me any customer examples that stand out?

A: It’s super early and we’re still in limited preview with Bedrock. What has struck me is just the diversity and the breadth of the use cases that we're seeing. A lot of folks are using these in the kind of unsexy but very important back end.

So personalization, ranking, search and all those sorts of things. We're seeing a lot of interest in expert systems. So chat and question-answer systems. But we’re also seeing a lot of work in decision-making support. So, decomposing and solving more complicated problems and then automating the solution using this combination of language models under the hood.

Q: What’s the vision for who will best be able to take advantage of these products? Do you see a possibility that startups could basically just form a company around these APIs on Bedrock?

A: There are going to be waves and waves of startups that have an idea or an automation that they want to bring into companies, or an entirely new product idea that's enabled through this.

An interesting area is larger enterprises that are very text heavy. So anywhere there is existing text is fertile soil for building these sorts of systems.

And what's super interesting is that we're seeing a lot of interest from organizations in regulated fields that maybe traditionally don't have the best reputation for leaning into or being forward-thinking in terms of cutting-edge technologies. Banking, finance, insurance, financial services, healthcare, life sciences, crop sciences.

They are so rich in the perfect training data. Volumes and volumes of unstructured text, which is really just data represented in natural language. And what these models are incredibly capable at is distilling the knowledge and the representation of that knowledge in natural language, and then exposing it in all of these wonderful new ways that we're seeing.

Q: Were you surprised about how quickly this all happened?

A: ChatGPT may be the most successful technology demo since the original iPhone introduction. It puts a dent in the universe. Nothing is the same once you see that, I think it causes, just like the iPhone, so many light bulbs to go off across so many heads as to what the opportunity here was, and what the technology was really ready for.

The real explosive growth is still ahead of us. Because customers are going through those machinations now. They're starting to find what works and what doesn't work, and they're starting to really move very quickly down that path.

Q: AWS already changed the world once by enabling the cloud, which enabled everything from Uber to Airbnb. How is the world going to change now that internet companies have access to potentially thousands of powerful models through the cloud?

A: I can't think of a consumer application or customer experience that won't have some usage for the capabilities inside these models. They'll drive a great deal of efficiency, a great deal of reinvention. Some of that's going to move from point and click to text. These things are just so compelling in the way they communicate through natural language.

Then the question is how do these models evolve? By using these models, they get better. They learn what works and what doesn't work. These capabilities will get better much more quickly than we've ever seen before.

Q: These models create the possibility for a new kind of internet, where instead of going to Google and getting a set of links, you’re kind of talking to different agents and behind the scenes all these transactions are happening. And a lot of that is going to happen on AWS. That has huge implications for search and advertising. Is that how you see this evolving?

A: You’re still going to have to go to a place to start your exploration in any domain, whether it is where you want to buy, or what you want to learn about. I don't know if there's going to be some big, single point of entry for all of this. That seems very unlikely to me. That's not usually how technology evolves. Usually technology evolves to be a lot more expansive. I think there's a world in which you see not one or two entry points, but thousands, tens of thousands, or millions of new entry points.

Amazon’s vision: An AI model for everything | Semafor

[Glenn Petersen] BABA is going to take its cloud unit public: Alibaba to cut 7% of workforce in ...

Glenn Petersen — 5/24/2023 4:46:03 AM

BABA is going to take its cloud unit public:

Alibaba to cut 7% of workforce in its cloud unit as it pursues IPO for the division

PUBLISHED TUE, MAY 23 202311:01 AM EDT
UPDATED TUE, MAY 23 202311:10 AM EDT
Arjun Kharpal @ARJUNKHARPAL
CNBC.com

KEY POINTS

-- Alibaba is cutting 7% of the workforce in its cloud computing division as the unit gears up for an initial public offering.

-- This comes after it announced plans in March to split the company into six business units each with their own chief executive and board of directors.

-- Last week, the company announced plans for a full spin-off of its cloud computing unit and said it intends for the division to become an independent publicly listed company.

Alibaba is cutting 7% of the workforce in its cloud computing division as the unit gears up for an initial public offering.

The move, confirmed to CNBC by a person familiar with the matter who preferred to remain anonymous because they were not able to speak publicly, will see the Chinese e-commerce giant offer severance packages to those affected. Alibaba has begun informing staff of the layoffs and is also helping them to move to different positions internally if they desire, the same source added.

This comes after it announced plans in March to split the company into six business units each with their own chief executive and board of directors.

Last week, the company announced plans for a full spin-off of its cloud computing unit and said it intends for the division to become an independent publicly listed company. Alibaba aims to complete the spin off within the next 12 months.

Alibaba’s CEO Daniel Zhang has long-seen cloud computing as a key part of the e-commerce giant’s future but it currently accounts for just 9% of the group’s total revenue. And revenue has been slowing significantly over the last few quarters. In fact, revenue fell 2% year-on-year in the first quarter of the year.

Zhang said on the company’s earnings call last week that this was “partially due to our proactive move to adjust our revenue structure and focus on high-quality growth, and also a result of external changes in market environment and customer composition.”

TikTok owner ByteDance began moving its international operations off of Alibaba’s cloud which continues to weigh on the company’s cloud business.

Still, Alibaba has made some headway with its cloud business over the past few years. It is the number one player by market share in China and number two in Asia-Pacific, just behind Amazon, according to Synergy Research Group. However, on a global level, it still trails giants Amazon, Microsoft and Google

Alibaba to cut 7% of workforce in its cloud unit as it pursues IPO (cnbc.com)

[Glenn Petersen] [graphic] [graphic]

Glenn Petersen — 5/5/2023 11:42:35 AM

[Kathza] That is what I was looking for, what information, present here at this site! of...

Kathza — 5/2/2023 8:14:22 AM

That is what I was looking for, what information, present here at this site! official site

[Glenn Petersen] Dropbox to lay off 500 employees, or about 16% of its workforce PUBLISHED THU, ...

Glenn Petersen — 5/1/2023 5:11:35 AM

Dropbox to lay off 500 employees, or about 16% of its workforce

PUBLISHED THU, APR 27 202311:18 AM EDT
UPDATED THU, APR 27 202311:45 AM EDT
Hayden Field @HAYDENFIELD
Annie Palmer @IN/ANNIERPALMER/ @ANNIERPALMER
CNBC.com

KEY POINTS

-- Dropbox is laying off 500 employees, or about 16% of its workforce, the company said.

-- Houston said that the company is also facing an urgency to focus more on artificial intelligence-powered products, and doing so will require hiring workers with different skill sets.

Dropbox on Thursday announced plans to cut 500 employees, or about 16% of its workforce, according to a blog post on the company’s website.

Dropbox CEO Drew Houston wrote in the blog post that the company has been reckoning with slowing growth, in part due to a maturation of its business, but also as a result of economic headwinds that are pressuring its customers.

Houston said that the company is also facing an urgency to focus more on artificial intelligence-powered products, and doing so will require hiring workers with different skill sets.

“In an ideal world, we’d simply shift people from one team to another,” Houston wrote. “And we’ve done that wherever possible. However, our next stage of growth requires a different mix of skill sets, particularly in AI and early-stage product development. We’ve been bringing in great talent in these areas over the last couple years and we’ll need even more.”

Impacted employees will receive free job placement services and career coaching, according to the blog post, along with up to 16 weeks of severance pay and one additional week per year of Dropbox tenure.

The layoffs are part of a broader company consolidation, Houston wrote, as the company merges its Core and Document Workflows businesses and some other internal team restructuring. Dropbox plans to host internal town halls tomorrow and next week to answer employee questions.

“These transitions are never easy, but I’m determined to ensure that Dropbox is at the forefront of the AI era, just as we were at the forefront of the shift to mobile and the cloud,” Houston wrote.

Dropbox layoffs: Company to cut 500 employees (cnbc.com)

[Glenn Petersen] Top cloud providers Amazon, Microsoft and Google face ongoing spending cuts by c...

Glenn Petersen — 5/1/2023 5:06:18 AM

Top cloud providers Amazon, Microsoft and Google face ongoing spending cuts by clients

PUBLISHED SUN, APR 30 20239:00 AM EDT
Jordan Novet @JORDANNOVET
CNBC.com

KEY POINTS

-- Earnings reports last week from Amazon, Google and Microsoft showed that clients are still looking for ways to trim their spending.

-- Year-over-year growth at Amazon Web Services slowed to 16% from 20% in the fourth quarter.

-- “What we’re seeing is enterprises continuing to be cautious in their spending in this uncertain time,” Amazon CEO Andy Jassy said on the earnings call.

The cloud-computing market keeps growing as companies move an increasing number of workloads out of their own data centers, but executives from the leading cloud vendors said this week that clients are looking for ways to trim costs.

The result is slowing revenue growth at the cloud divisions run by Amazon, Microsoft and Google. And for Amazon Web Services, the leader in the space, it means a slimmer operating margin and less profit for its parent company.
It’s a phenomenon that began in 2022, as fears of a recession hit the economy. AWS saw deceleration in the third and fourth quarters, and last quarter Microsoft finance chief Amy Hood spooked analysts with comments about a slowdown in December that she expected to persist.

Amazon finance chief Brian Olsavsky was the bearer of bad news for investors on Thursday, when he said that in April, AWS revenue growth had slumped by about five percentage points from the first-quarter growth rate of almost 16%. The company’s stock price slid in response.

Amazon CEO Andy Jassy said “what we’re seeing is enterprises continuing to be cautious in their spending in this uncertain time.”

At Google, cloud growth slowed to 28% from a year earlier in the first quarter from 32% in the prior period. The deceleration occurred even as Google’s cloud segment reached profitability for the first time on record.

“We saw some headwind from slower growth of consumption with customers really looking to optimize their costs given that macro climate,” said Ruth Porat, Alphabet’s finance chief, on Tuesday’s earnings call.

Sundar Pichai, Alphabet’s CEO, said the slowdown is understandable.

“We are leaning into optimization,” he said. “This is an important moment to help our customers, and we take a long-term view. And so it’s definitely an area we are leaning in and trying to help customers make progress on their efficiencies where we can.”

The companies remain optimistic that cloud will continue to be a strong market for tech, as businesses still have a long way to go before they’ll be fully taking advantage of the benefits.

“People sometimes forget that 90-plus percent of global IT spend is still on-premises,” Jassy said.

And Hood noted that pretty soon the financial comparisons will be against numbers from the point last year when the market was softening.

“When you start to anniversary that, you do see that it gets a little bit easier in terms of the comps year-over-year,” Hood said.

Cloud providers Amazon, Microsoft and Google face spending cuts (cnbc.com)

[Glenn Petersen] Google Cloud boss Kurian’s rocky path to profit: ‘We were not in a very good sit...

Glenn Petersen — 5/1/2023 4:55:45 AM

Google Cloud boss Kurian’s rocky path to profit: ‘We were not in a very good situation’

PUBLISHED SAT, APR 29 20239:00 AM EDT
Jordan Novet @JORDANNOVET
CNBC.com

KEY POINTS

-- Google said this week that its cloud unit finally turned profitable in the first quarter.

-- Since ex-Oracle exec Thomas Kurian took over the business in 2019, the company has concentrated on winning enterprise clients.

-- Kurian told CNBC that Google’s cloud business focused on making its data center operations more efficient while also investing in customer success.

When Google hired Oracle’s Thomas Kurian four years ago to run its cloud business, the internet search company had a clear reason for putting its trust in a career enterprise software executive.

Google was a consumer company. Despite years spent trying to compete with Amazon and Microsoft in selling cloud-based storage, computing and other services to big corporations, it was coming up short in its effort to win marquee deals.

While Google is still third in the U.S. cloud infrastructure market, its business is growing rapidly and, as of the first quarter, is finally contributing positively to Alphabet’s bottom line. Earlier this week, Alphabet said Google’s cloud unit generated $191 million in operating profit, after losing a total of $4 billion in 2021 and 2022. Revenue jumped 28% from a year earlier to $7.45 billion, far outpacing Google’s struggling ad business.

“We were not in a very good situation when I joined,” Kurian told CNBC in an interview after the results were released. “I think we were very early in the business. Most enterprises did not take us as a viable partner.”

The central problem wasn’t hard to spot. Google was a company of software developers and data scientists, who were trained at building sophisticated technologies. But they had no real idea how to build, market and sell them to the business world. Under Kurian’s predecessor, VMware co-founder Diane Greene, critics said Google’s cloud business hadn’t matured enough to handle enterprises even as it was investing heavily to do so.

The cloud division includes the Google Cloud Platform, which competes with Amazon Web Services and Microsoft Azure, and the Google Workspace productivity software bundle that goes head-to-head with Microsoft Office.

Kurian said he spent a lot of time with the technology in his early days to see how it worked and where it needed improvement. From 4 a.m. to 7 a.m., he would read technical design documents. In the evenings, he played with the products.

“We shifted the organization from thinking, we’re building technology to we’re building products and solutions,” Kurian said.

It’s a market Google has been committed to winning for years, as corporations have been rapidly pushing workloads from their own data centers to the cloud. Google wants to not only capture that storage and computing business but also get developers from those companies and others to use its cutting-edge technology, particularly as artificial intelligence systems gain traction.

The expansion has been costly. Almost every quarter, from the beginning of 2017 through the third period of 2020, finance chief Ruth Porat told analysts that cloud had been the biggest area of head count increases, for both sales and technical roles. Google also grew the operation through acquisitions, buying data analytics software startup Looker for $2.4 billion in 2019 and security software vendor Mandiant for $6.1 billion last year.

The cloud unit now accounts for more than 25% of Alphabet’s full-time workforce, CNBC reported earlier this year.

Kurian’s focus has included developing product road maps, introducing new pricing models, bolstering customer service and becoming more efficient with its infrastructure, a key to saving money.

“We’ve reduced cycle time in the way we provision and deploy machines by a factor of five in the last four years,” Kurian said. “There’s 100 different projects that have gone on to optimize resource consumption.”

Customer success is a practice that’s been widely adopted in the enterprise software world as a way to keep clients happy and wanting to buy more, emphasizing retention and limiting churn.

Google built up its customer-success mode to work more tightly with clients, and it racked up a community of 100,000 partners. The company has had hundreds of its senior engineers sponsor important customers so they could see how their products are being used and understand what needs to be changed.

“We have awards twice a year for teams that have done the best job helping customers,” Kurian said, adding that Google now ranks among the top five enterprise software sellers.

In 2020, Google brought its productivity tools under the brand Google Workspace. It also issued new pricing tiers, resulting in organizations of different sizes starting to pay different prices.

While Google’s cloud unit has swung to posting a profit, there’s some fuzziness in the numbers.

Last week, Alphabet restated operating income for cloud and its other segments, resulting in lower cloud losses in 2021 and 2022. The restated numbers show the cloud unit had a $186 million operating loss in the fourth quarter, compared with $480 million before the change, for example.

The cloud numbers also benefited from an extension of the useful life of data center equipment. But Kurian said competitors have made similar depreciation adjustments.

“We were always going to get to profitability,” he said. “If you draw the line, you can see the curve.”

‘Enterprise discipline’

Under Kurian’s leadership, Google’s cloud group has had to cope with its share of executive turnover. Javier Soltero, who was the head of Workspace, left in July. Rob Enslin, a former top SAP executive who joined Google as president of global customer operations in 2019, departed last year to become co-CEO of UiPath. And Kirsten Kliphouse, who was the cloud group’s president of Americas, left in 2023 after four years at the company.

But head count has continued to grow, as has the company’s roster of large customers. In the past three years, Google has signed deals with Coinbase, Deutsche Bank, Ford, General Mills and SpaceX.

And existing clients have gone deeper with Google.

Home Depot said it was adopting Google’s public cloud in 2016, while Greene was CEO. Fahim Siddiqui, Home Depot’s chief information officer, said the home-improvement retailer has found increasing value from Google’s platform since he joined from Staples in late 2018.

“He’s brought in the enterprise discipline,” Siddiqui said of Kurian. “It’s one thing to provide the capability of the cloud, a set of interesting technical capabilities. There’s a discipline of availability, reliability, management and being a proven partner on this journey.”

Siddiqui said Home Depot uses its own data centers and co-location facilities, as well as cloud services from Google and Microsoft. Google is the company’s main cloud-computing partner, he said, and last year Home Depot started moving merchandising applications to Google’s cloud.

A big partner move Kurian made in his early months as CEO involved what he called an “integrated open-source ecosystem.” It was an alliance with Elastic, MongoDB and five other companies that sell distributions of open source software.

Elastic and MongoDB shares rallied as Kurian, speaking at Google’s Next cloud conference, talked about how clients could receive a single bill while using products from other companies managed through Google’s cloud console.

“It was music to my ears,” said Dev Ittycheria, CEO of MongoDB, which sells cloud database software and services. At the time, AWS was attempting to add some open source MongoDB database software capabilities into its DocumentDB service.

Ittycheria said the open source initiative was Kurian’s idea, and he applauded how Google has arranged the partnerships. In 2021, Google said it was lowering the percentage of revenue it keeps in marketplace deals to 3% from 20%. Ittycheria said MongoDB is “very happy with the structure of the deal.”

Jeffrey Flaks, the CEO of Hartford HealthCare, which has 37,000 employees, said one reason why his Connecticut health system moved to Google Cloud Platform last year from its on-premises data centers is that other large hospitals had picked Google. He said Kurian was another factor in why it selected Google over AWS, Azure and Oracle’s cloud.

“His personal engagement, his knowledge of our intentions and our desires and, candidly, his personal problem-solving skills,” Flaks said, “distinguished Google Cloud in this process.”

Google Cloud technology chief Will Grannis said Kurian’s commitment to improving the division’s offerings was evident right away. Grannis recalled a day in late 2018, after Kurian had been picked for the role but before he’d actually started the job.

Kurian stopped by a Google office in Sunnyvale, California, and was introduced to employees. After the meeting, Grannis found himself alone in the elevator with Kurian and they rode down silently. As they walked toward the parking lot, Grannis, who was then a managing director, introduced himself, and they began talking about a container-management technology called Kubernetes.

“I’ve been trying to get some Kubernetes clusters spun up in the console, and I have some feedback,” Kurian said, according to Grannis. “I’d like to understand how we can improve the experience for developers.”

The conversation went on for an hour.

Google Cloud boss Thomas Kurian's rocky path to profit (cnbc.com)

[Glenn Petersen] Google’s cloud business turns profitable for the first time on record PUBLISHED...

Glenn Petersen — 4/26/2023 6:12:24 AM

Google’s cloud business turns profitable for the first time on record

PUBLISHED TUE, APR 25 20234:04 PM EDT
UPDATED TUE, APR 25 20239:27 PM EDT
Jordan Novet @JORDANNOVET
CNBC.com

KEY POINTS

-- Google said its cloud group has turned profitable on an operating basis after showing losses for more than three years.

-- Google is third in the U.S. cloud infrastructure market, behind Amazon and Microsoft.

Google has been pouring money into its cloud-computing business to compete with Amazon and Microsoft. Those hefty investments are finally turning a profit.

Alphabet said Tuesday that Google’s cloud business is profitable for the first time in the three years it’s been reporting operating metrics for the division.

The segment generated $191 million in operating income on $7.45 billion in revenue in the first quarter, according to Alphabet’s earnings statement. In the year-ago quarter, the unit reported a $706 million loss on $5.82 billion in revenue.

The cloud business includes the Google Cloud Platform, which rents out cloud infrastructure and services that companies can use to build and run their own applications, as well as Google Workspace productivity software subscriptions. Together, the business now accounts for 10% of Alphabet’s total revenue. Cloud customers include Deutsche Bank, Major League Baseball, PayPal and UPS.

Google has been vying to win business from big corporations and government agencies that are deciding between major tech vendors as they move from traditional data centers to the cloud and rely on more compute-heavy applications involving artificial intelligence. Amazon Web Services, the leader in cloud infrastructure, popularized the market in the mid-2000s and has been profitable every quarter since 2014. Microsoft, the second-biggest player in the space, doesn’t report profitability figures for its Azure unit.

Alphabet started disclosing cloud revenue in 2020, and the following year began providing information on the scale of its operating losses.

Last week Alphabet restated operating income for cloud and its other segments, resulting in lower cloud losses in 2021 and 2022. The restated numbers show the cloud unit had a $186 million operating loss in the fourth quarter, compared with $480 million before the change, for example.

“Certain costs associated with corporate initiatives supporting consumer-facing activities, previously reflected in unallocated corporate costs, are now allocated to Google Services; and centrally-managed shared research and development activities, including our shared developer tools, are now allocated based on an updated measure of the relative benefit derived from the services,” Alphabet said in a filing.

“As a result of these changes, more of the previously unallocated corporate costs are allocated to our segments, and more of certain previously allocated costs are allocated to our consumer-facing Google Services products and less to Google Cloud enterprise products.”

Google's cloud business turns profitable for the first time on record (cnbc.com)

[Glenn Petersen] Companies Turn to AI to Avoid ‘Cloud Sprawl’ Cloud-computing usage at large com...

Glenn Petersen — 4/24/2023 12:14:59 PM

Companies Turn to AI to Avoid ‘Cloud Sprawl’

Cloud-computing usage at large companies is measured in millions of records a day, making it ‘humanly impossible’ to keep track of costs

By Angus Loten
Wall Street Journal
April 19, 2023 4:03 pm ET

Companies are turning to artificial intelligence to root out savings in runaway cloud-computing bills, tapping software designed to pinpoint overlapping cloud applications, excess data storage and other inefficiencies across information-technology systems, corporate technology chiefs and industry analysts say.
The efforts come as cloud-based tools take over an ever-wider range of operations. That, and the murky economic outlook, is prompting many chief information officers and other enterprise technology leaders to take a closer look at cloud costs—even as they increase overall spending.

One key advantage of third-party cloud systems, such as Amazon.com Inc.’s Amazon Web Services or Microsoft Corp.’s Azure, is that they enable companies to quickly scale up or down computing power as needed—rather than paying to run half-empty in-house data centers in order to handle an occasional surge in demand.

But like most online subscriptions, losing track of a tangled web of cloud services can be just as wasteful, said Andy Sealock, a senior partner at West Monroe, a digital-services consulting firm.

“One of the best things about the cloud is also one of the worst things about the cloud,” Mr. Sealock said. “Automation is necessary for the myriad and seemingly infinite number of variables introduced into the cloud-cost equation.” Tracking cloud use, he said, long ago surpassed what even the most knowledgeable cloud engineer could possibly do with Excel.

Among other approaches, artificial intelligence is being used to identify cloud-use patterns on a massive scale across an organization by tagging and tracking different apps and data. It can then flag areas of duplication, waste or mismatches between actual usage and existing payment plans. Mismatches can include paying for a higher tier of storage than a given app requires, or using a costly high-performance server where a general-purpose server will do.

By integrating cloud vendors’ billing systems into optimization tools, AI algorithms can also find the most cost-effective services for a range of cloud-computing needs, while forecasting demand and comparing future costs under various purchasing scenarios.

Gnosis Freight Chief Technology Officer Jake Hoffman Photo: Gnosis Freight
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Jake Hoffman, chief technology officer at Gnosis Freight, a Charleston, S.C., company that makes shipping-container tracking software for logistics firms, said cloud-pricing structures are typically laid out in terms that require cloud expertise “in order to even understand how much a use case may cost,” he said.

Gnosis Freight uses multiple AWS cloud services to retrieve and organize data from sources around the world, requiring complex, interconnected cloud systems that can easily result in cost mismatches, Mr. Hoffman said. To cope, he said, the company has started using an AI-powered optimization tool by New York-based startup Antimetal, designed to help adjust the company’s cloud spending plans and meet expected future demand, based on past use patterns.

So far, the tool has helped save the company roughly 15% on its cloud bills, Mr. Hoffman said.

“Put simply, cloud systems are incredibly complicated,” said Erik Peterson, chief technology officer at CloudZero, a Boston-based cloud-cost optimization startup. He said cloud cost and usage data provided by AWS, for instance, is typically measured in millions of records a day and hundreds of billions every month. “It’s humanly impossible to audit a system of that complexity manually,” Mr. Peterson said.

Apptio Inc., a veteran software services firm, has trained AI algorithms to classify cloud use and billing data from market-leading providers, including AWS, Azure and Alphabet Inc.’s Google Cloud, into types of services, apps and other categories, said Jeremy Ung, Apptio’s chief technology officer.

“This allows our customers to rapidly see opportunities for spend optimization that they may not have otherwise seen,” such as duplicated, unused or underused services, Mr. Ung said. The tool also recommends pricing plans based on how a company uses cloud services, he said.

“The resounding sentiment we hear from CIOs and CTOs is that cloud spend has been their company’s fastest-growing expenditure,” said Antimetal Chief Executive Matthew Parkhurst. Since launching last year, he said, the startup’s cloud-spend under management has grown more than 500% month-over-month.

Sanjay Jain, chief business transformation officer at WNS (Holdings) Ltd., a global business-process management firm, said the effectiveness of AI cloud-cost tools depends on the “quality of data, the sophistication of algorithms and the expertise of the individuals interpreting the results.” Artificial intelligence also requires time to understand long-term consumption patterns, making it difficult to assess costs for new applications deployed with larger cloud ecosystems, he said.

And though AI tools can help prevent businesses from being overprovisioned in specific cloud services, most companies are unlikely to reduce overall cloud spending given the proliferation of cloud-based apps—not least AI itself, said Dan Tucker, senior vice president at consulting firm Booz Allen Hamilton Holding Corp. The key, he said, is to “avoid cloud sprawl” by spending more than necessary to drive growth.

Companies worldwide this year are expected to spend a total of $597.3 billion on cloud services, up 21.7% from $491 billion in 2022, according to the latest forecast by IT research and consulting firm Gartner Inc. In part, the gains are being driven by ramped-up spending in recent months on ChatGPT-like generative AI technology, which requires massive amounts of cloud-computing power, Gartner said.

“CIOs and CTOs today are under tremendous pressure to control costs without sacrificing their need to transform to a digital business and operational model,” said Sid Nag, a vice president in Gartner’s technology and service provider group, focused on cloud services. “They are looking for transparency, predictability and efficiency in their expense outlays,” Mr. Nag said.

Companies Turn to AI to Avoid ‘Cloud Sprawl’ - WSJ

[Glenn Petersen] Biden admin’s cloud security problem: ‘It could take down the internet like a st...

Glenn Petersen — 3/12/2023 7:50:45 AM

Biden admin’s cloud security problem: ‘It could take down the internet like a stack of dominos’

The Biden administration is embarking on the nation’s first comprehensive plan to regulate the security practices of cloud providers.

By JOHN SAKELLARIADIS
Politico
03/10/2023 03:12 PM EST
Updated: 03/10/2023 06:17 PM EST

Governments and businesses have spent two decades rushing to the cloud — trusting some of their most sensitive data to tech giants that promised near-limitless storage, powerful software and the knowhow to keep it safe.

Now the White House worries that the cloud is becoming a huge security vulnerability.

So it’s embarking on the nation’s first comprehensive plan to regulate the security practices of cloud providers like Amazon, Microsoft, Google and Oracle, whose servers provide data storage and computing power for customers ranging from mom-and-pop businesses to the Pentagon and CIA.

The cloud has “become essential to our daily lives,” Kemba Walden, the acting national cyber director, said in an interview. “If it’s disrupted, it could create large potentially catastrophic disruptions to our economy and to our government.”

In essence, she said, the cloud is now “too big to fail.”

The fear: For all their security expertise, the cloud giants offer concentrated targets that hackers could use to compromise or disable a wide range of victims all at once. The collapse of a major cloud provider could cut hospitals off from accessing medical records; paralyze ports and railroads; corrupt the software that help financial markets hum; and wipe out databases across small businesses, public utilities and government agencies.

“A single cloud provider going down could take down the internet like a stack of dominos,” said Marc Rogers, chief security officer at hardware security firm Q-Net Security and former head of information security at the content delivery provider Cloudflare.

And cloud servers haven’t proved to be as secure as government officials had hoped. Hackers from nations such as Russia have used cloud servers from companies like Amazon and Microsoft as a springboard to launch attacks on other targets. Cybercriminal groups also regularly rent infrastructure from U.S. cloud providers to steal data or extort companies.

Among other steps, the Biden administration recently said it will require cloud providers to verify the identity of their users to prevent foreign hackers from renting space on U.S. cloud servers (implementing an idea first introduced in a Trump administration executive order). And last week the administration warned in its national cybersecurity strategy that more cloud regulations are coming — saying it plans to identify and close regulatory gaps over the industry.

In a series of interviews about this new, tougher approach, administration officials stressed that they aren’t giving up on the cloud. Instead, they’re trying to ensure that rapid growth doesn’t translate to new security risks.

Cloud services can “take a lot of the security burden off of end users” by relieving them of difficult and time-consuming security practices, like applying patches and software updates, said Walden. Many small businesses and other customers simply lack the expertise and resources to protect their own data from increasingly adept hackers.

The problems come when those cloud providers aren’t providing the level of security they could.

So far, cloud providers have haven’t done enough to prevent criminal and nation-state hackers from abusing their services to stage attacks within the U.S., officials argued, pointing in particular to the 2020 SolarWinds espionage campaign, in which Russian spooks avoided detection in part by renting servers from Amazon and GoDaddy. For months, they used those to slip unnoticed into at least nine federal agencies and 100 companies.

That risk is only growing, said Rob Knake, the deputy national cyber director for strategy and budget. Foreign hackers have become more adept at “spinning up and rapidly spinning down” new servers, he said — in effect, moving so quickly from one rented service to the next that new leads dry up for U.S. law enforcement faster than it can trace them down.

On top of that, U.S. officials express significant frustration that cloud providers often up-charge customers to add security protections — both taking advantage of the need for such measures and leaving a security hole when companies decide not to spend the extra money. That practice complicated the federal investigations into the SolarWinds attack, because the agencies that fell victim to the Russian hacking campaign had not paid extra for Microsoft’s enhanced data-logging features.

“The reality is that today cloud security is often separate from cloud,” Anne Neuberger, the deputy national security adviser for cyber and emerging technology, said last week during a roll-out event for the new cyber strategy. “We need to get to a place where cloud providers have security baked in with that.”

So the White House is planning to use whatever powers it can pull on to make that happen — limited as they are.

“In the United States, we don’t have a national regulator for cloud. We don’t have a Ministry of Communication. We don’t have anybody who would step up and say, ‘It’s our job to regulate cloud providers,’” said Knake, of the strategy and budget office. The cloud, he said, “needs to have a regulatory structure around it.”

Knake’s office is racing to find new ways to police the industry using a ‘hodgepodge’ of existing tools, such as security requirements for specific sectors — like banking — and a program called FedRAMP that establishes baseline controls cloud providers must meet to sell to the federal government.

Part of what makes that difficult is that neither the government nor companies using cloud providers fully know what security protections cloud providers have in place. In a study last month on the U.S. financial sector’s use of cloud services, the Treasury Department found that cloud companies provided “insufficient transparency to support due diligence and monitoring” and U.S. banks could not “fully understand the risks associated with cloud services.”

But government officials say they see signs that the cloud providers’ attitude is changing, especially given that the companies increasingly see the public sector as a source for new revenue.

“Ten years ago, they would have been like, ‘No way,’” said Knake. But the major cloud providers “have now realized that if they want the growth that they want to have, if they want to be within critical sectors, they actually not only need to not stand in the way, but they need to provide tools and mechanisms to make it easy to prove compliance regulations,” he said.

The push for more regulations isn’t getting immediate objections from the cloud industry.

“I think that that’s highly appropriate,” said Phil Venables, Google’s chief information security officer.

But at the same time, Venables argued that cloud providers are subject to plenty of regulation already, pointing to FedRAMP and the requirements cloud providers must satisfy in order to work with regulated entities such as banks, defense industrial base companies and federal agencies — the very tools Knake described as “hodgepodge.”

The White House outlined a more aggressive regulatory regime in its new cyber strategy. It proposed holding software makers liable for insecure code and imposing stronger security mandates on critical infrastructure companies, like the cloud providers.

“The market has not provided for all the measures necessary to ensure that it’s not being inappropriately used, that it’s resilient, and that it’s being good caretakers of the small and medium-sized business under its umbrella,” said John Costello, the recently departed chief of staff in the Office of the National Cyber Director.

Cloud computing companies are “eager” to work with the White House on a “harmonized approach to security requirements across sectors,” said Ross Nodurft, executive director of the Alliance for Digital Innovation, a tech trade group whose members include cloud giants Palo Alto Networks, VMWare, Google Cloud and AWS — the cloud computing arm of Amazon. He also said that companies already comply with existing “extensive security requirements” for specific industries.

A spokesperson for Microsoft, which is not a member of ADI, referred POLITICO to a Thursday blog post from a Microsoft executive making similar assertions that the company looks forward to working with agencies on crafting appropriate regulations. AWS said in a statement that it prioritizes security but did not address the question of whether it supports additional regulation. Oracle did not respond to a request for comment.

If the government fails to find a way to ensure the resilience of the cloud, it fears the fallout could be devastating. Cloud providers have effectively become “three or four single points of failure” for the U.S. economy, Knake said.

According to a 2017 study from the insurance giant Lloyds, an outage at one of the top three cloud providers lasting between three and six days could cause $15 billion in damages.

Such a collapse could be triggered by a cyberattack on a major cloud provider, a natural or human-caused disaster that disrupts or cuts power to a major data center, or simply a failure in the design and maintenance of a core cloud service.

If the White House can’t get the results it wants through using existing regulations and cajoling companies into improving practices voluntarily, it will have to hit up Congress. And that could be its biggest hurdle.

Some Republicans have already criticized the White House’s national cybersecurity strategy for its heavy emphasis on regulation.

“We must clarify federal cybersecurity roles and responsibilities, not create additional burdens, to minimize confusion and redundancies across the government,” Rep. Mark Green (R.-Tenn.), the chair of the House Homeland Security Committee, and Rep. Andrew Garbarino (R-N.Y.), head of its cyber and infrastructure protection subcommittee, said in a statement last week.

As gatekeepers of the House Homeland Security Committee, Garbarino and Green wield de facto veto power over any major cybersecurity legislation that the White House might send Congress.

In the short term, that eliminates the possibility of the more ambitious cloud policy proposals outlined or hinted at in White House’s new strategy

That could mean that the administration will have to increase pressure on the companies to do more on their own.

Trey Herr, a former senior security strategist who worked in cloud computing at Microsoft, said cybersecurity agencies could, for example, require the heads of the major cloud providers to appear before top government cyber brass on a semi-regular basis and prove that they’re taking adequate steps to manage the risk within their systems.

The major cloud providers “have plenty of ways to talk about the security of one product, but few to manage the risk of all those products tied together,” said Herr, who is now the director of the Atlantic Council’s cyber statecraft initiative.

“It’s one thing to do a good job building a helipad on the top of your house,” he said. But “no one is asking if the house is built to handle that helipad in the first place.”

Biden admin’s cloud security problem: ‘It could take down the internet like a stack of dominos’ - POLITICO

[Glenn Petersen] Google Cloud Introduces Shelf Inventory AI Tool for Retailers An image database...

Glenn Petersen — 1/14/2023 7:00:02 AM

Google Cloud Introduces Shelf Inventory AI Tool for Retailers

An image database of more than a billion products helps power the tool

By Isabelle Bousquette
Wall Street Journal
January 13, 2023

Google Cloud said it has developed a new artificial intelligence tool designed to help big-box retailers better track the inventory on their shelves, aiming to improve a technology that has struggled to work well in the past.

Google Cloud said Friday its algorithm can recognize and analyze the availability of consumer packaged goods products on shelves from videos and images provided by the retailer’s own ceiling-mounted cameras, camera-equipped self-driving robots or store associates. The tool, which is now in preview, will become broadly available in the coming months, it said.

Alphabet Inc.’s cloud business unveiled the technology, along with a series of artificial intelligence tools aimed at e-commerce, ahead of the National Retail Federation conference in New York City.

Lack of timely, accurate information about shelf inventory is a major problem for retailers and so difficult to manage that it is industry standard to just make guesses, said Robert Hetu, VP analyst for retail at IT research and consulting firm Gartner Inc. Having that information would help retailers pad their lines in a variety of ways, including giving them the chance to replenish out-of-stock items faster, and lose fewer sales opportunities, according to Carrie Tharp, Google Cloud’s vice president of retail and consumer.

“If every retailer just knew what they had in their stores and how much was left on the shelves, their lives would be so much simpler,” she said.

The idea of computer vision-enabled shelf-checking technology has been around for several years, but has not taken off in that time. In part, retailers have been deterred by the cost and complexity of large-scale camera deployment, said Mr. Hetu.

Data has also been a problem, said Ms. Tharp. Retailers have not historically had access to thorough, organized and labeled data on all their product offerings, she said. Another challenge has been building the AI model itself, which needs to understand how to recognize a product in imperfect, real-life conditions, including from different angles, in different lighting and when seasonal packaging changes, Google Cloud said.

Google Cloud said its product is trained on a database of over a billion products, including images that are publicly available, licensed and provided directly by manufacturers. Its algorithm is also designed to recognize those products, whether the image is coming from a ceiling-mounted camera or mobile-phone video—the same way the human eye understands it is seeing a cereal box regardless of whether it is looking at the box from above or from head on, Google Cloud said. But there are still challenges.

“It’s probably not entirely solved yet,” said Graham Watkins, executive vice president of supply-chain transformation and retail innovation at supermarket chain Giant Eagle Inc. He said the Google Cloud product has shown above 90% accuracy during early tests in a Giant Eagle innovation lab, which is designed to replicate store conditions. That is high enough to generate continued interest from the supermarket chain, but not high enough for the company to consider deploying it at scale yet.

For now Giant Eagle provides continuous feedback to Google Cloud about where the tool isn’t working so that it can fine-tune, he said. For example, if the camera is too high or too low and the algorithm can’t identify the product, Giant Eagle would provide that image to Google Cloud so it can train the algorithm to recognize that angle the next time, said Mr. Watkins.

The supermarket chain said it plans to begin piloting the technology in an actual store in the next several months, but a deployment across the full chain would take several years to come to fruition, if in fact the company decides to pursue a broad rollout, Mr. Watkins said. In part that is because of the high degree of expense involved, he said.

Camera visibility into every shelf on every aisle—whether it is coming from ceiling cameras or inventory robots that stroll around stores—is a complicated and expensive proposition, said Gartner’s Mr. Hetu.

Walmart Inc. notably ended its effort to use roving robots in store aisles to keep track of its inventory in 2020 because it found different, sometimes simpler solutions that proved just as useful, said people familiar with the situation.

Mr. Hetu said he expects investment in shelf-checking technology to continue, despite cost barriers, because of the growing need to digitize the in-store experience

But it won’t happen overnight. It could take three to six years for computer-vision shelf checking to become more mainstream, he said.

Giant Eagle’s Mr. Watkins said the algorithm may never be perfect and there will always be some unique conditions that it won’t work in.

“There’s going to be a give and take between technology and operational business processes. Anytime you’re in a new space, you’re always going to be balancing. How close is good enough?” he said. “It is just a bit of an iterative process.”

Write to Isabelle Bousquette at isabelle.bousquette@wsj.com

Google Cloud Introduces Shelf Inventory AI Tool for Retailers - WSJ

[Glenn Petersen] Europe Taps Tech’s Power-Hungry Data Centers to Heat Homes Rising energy prices...

Glenn Petersen — 12/30/2022 4:39:38 AM

Europe Taps Tech’s Power-Hungry Data Centers to Heat Homes

Rising energy prices and new regulations contribute to an increase in projects

By Sam Schechner
Wall Street Journal
Dec. 29, 2022 5:32 am ET

With an energy crisis hitting Europe, governments are exploring ways to recycle electricity used in social-media scrolling, conference calls and video streaming to help heat homes and offices.

Electricity-hungry data centers are seeing huge growth in usage, leading to pressure from European officials to funnel the excess heat generated by their computer chips into municipal heating networks.

After years of discussions about putting residual heat to work rather than simply venting it outdoors, more such projects are becoming a reality.

In the past year, Amazon.com Inc., Apple Inc. and Microsoft Corp. have started connecting, or announced plans to connect, major data centers to district heating systems in Ireland, Denmark and Finland. Alphabet Inc.’s Google has said it is assessing opportunities to recover heat from its data centers across Europe.

Meta Platforms Inc. has been recovering excess heat from its data center in Odense, Denmark, since 2020. The Facebook parent is currently expanding that base, with plans to provide enough excess heat to warm about 11,000 homes as of next year.

Other data-center operators are providing heat to networks, particularly in Northern Europe, including Equinix Inc., which is expanding its district heating project in Helsinki, and working on new ones in Germany and other countries.

In the Netherlands, there are 10 data centers already supplying heat, and another 15 projects are being built or researched, according to the Dutch Data Center Association, a trade group.

Higher energy prices, stemming from Russia’s decision effectively to cut off natural-gas deliveries following its invasion of Ukraine, have boosted the financial incentive for tech companies to invest in systems necessary to sell off their excess heat, according to energy and tech-sector officials.

“All of a sudden, the business case for a heat network fueled by residual heat is much more interesting than a couple of years ago,” said Stijn Grove, the Dutch Data Center Association’s managing director.

Public pressure to increase energy efficiency at data centers has been a major driver, as well, according to industry executives. The European Union is in the final stages of negotiating a new energy-efficiency directive that would, according to the latest drafts, require center operators to conduct feasibility studies of using their excess heat for homes and offices.

In addition, national and local governments from France to Denmark have introduced tax incentives, or even made recapturing waste heat a requirement for some new building permits.

“The basic idea is good, and it’s now spreading,” said Timo Piispa, vice president of heating and cooling at the partly state-owned Finnish energy company Fortum Oyj. The company is involved in a project to collect waste heat from an Amazon data center in Dublin and is working with Microsoft to recycle waste heat from two large planned data centers in Finland.

Globally, data centers are estimated to account for roughly 1% of electricity use, according to a 2020 paper in the journal Science, a level that has remained more or less constant despite an explosion in cloud services in recent years. In the EU, however, policy makers say the higher density of data centers and increased usage in recent years mean they use more—accounting for closer to 3% or more of electricity consumption in some countries.

Data centers in proximity to district heating systems could provide as much as roughly 50 terawatt-hours a year of excess heat, according to a study from ReUseHeat, an EU-funded project aimed at promoting waste-heat reuse. That would work out to between 2% and 3% of the energy that EU households used on space heating in 2020, according to data from Eurostat.

Tech companies have for at least a decade touted the idea of funneling the heat generated by their enormous racks into such systems as a way to make their operations more energy-efficient, which helps them meet emissions targets. But the systems have faced technical and legal challenges in putting them into practice.

Most data centers are cooled with air, and the warm air they expel isn’t as hot as that required by most municipal heating systems. That means a tech company or the power company it partners with must install heat pumps to further warm the air to usable levels.

Energy companies also often want commitments to provide heat energy for 10 or more years—longer than the financial-planning horizon for some data center owners, according to industry experts.

Another major issue is that data centers must be near a heat network to make sure the heat doesn’t dissipate. And in many parts of the world, residential and office heat are only needed six months a year or less, potentially making much of the production wasted.

“Often mayors tell us, there is a data center. Can’t we use it to heat a building or a pool? But it isn’t always possible unless there is the right infrastructure nearby,” said Yannick Duport, international director for Dalkia, a subsidiary of France’s EDF SA.

Mr. Duport, whose company has built or operates several networks that use data-center heat, said new tax breaks and energy-efficiency requirements from localities are changing the calculus.

In the Danish town of Viborg, local officials pushed for Apple to connect a 485,000-square-foot data center there to the local heat network. This year, the company said it would do so as part of an expansion. Apple says it is working with local officials on how to use heat from the plant, which is powered by renewable-energy projects.

“The pressure is growing,” said Niels Fuglsang, a Danish member of the European Parliament who is leading negotiations on the energy-efficiency legislation. “If we can make sure we utilize the heat from data centers, we can save on our energy bills and do something good for the climate.”

Write to Sam Schechner at sam.schechner@wsj.com

Europe Taps Tech’s Power-Hungry Data Centers to Heat Homes - WSJ

[Glenn Petersen] Pentagon Splits $9B Cloud Effort Among Amazon, Google, Microsoft, Oracle All fo...

Glenn Petersen — 12/7/2022 6:34:16 PM

Pentagon Splits $9B Cloud Effort Among Amazon, Google, Microsoft, Oracle

All four had been shortlisted for JWCC, DOD's do-over of its giant JEDI cloud contract effort.

BY FRANK KONKEL
EXECUTIVE EDITOR, NEXTGOV
Defense One
DECEMBER 7, 2022 05:34 PM ET

The Pentagon on Wednesday announced the awardees of the Joint Warfighting Cloud Capability—or JWCC—contract, with Amazon Web Services, Google, Microsoft and Oracle each receiving an award.

Through the contract, which has a $9 billion ceiling, the Pentagon aims to bring enterprisewide cloud computing capabilities to the Defense Department across all domains and classification levels, with the four companies competing for individual task orders.

Last year, the Defense Department had named the four companies as contenders for the multi-cloud, multi-vendor contract.

“The purpose of this contract is to provide the Department of Defense with enterprise-wide, globally available cloud services across all security domains and classification levels, from the strategic level to the tactical edge,” the Defense Department said in a Wednesday announcement.

The awards come after a years-long effort to provide enterprisewide cloud computing across the department, with a significant delay in March as the DOD conducted due diligence with the four vendors.

JWCC itself was announced in July 2021 following the failure and cancellation of the Joint Enterprise Defense Infrastructure—or JEDI—contract, DOD’s previous effort aimed at providing commercial cloud capabilities to the enterprise.

Conceptualized in 2017, JEDI was designed to be the Pentagon’s war cloud, providing a common and connected global IT fabric at all levels of classification for customer agencies and warfighters. A single-award contract worth up to $10 billion, JEDI would have put a single cloud service provider in charge of hosting and analyzing some of the military’s most sensitive data. Ultimately, JEDI was delayed for several years over numerous lawsuits that ultimately caused the Pentagon to reconsider its plan, opting for a multi-cloud approach more common in the private sector.

For many years, Amazon Web Services—by virtue of its 2013 contract with the Central Intelligence Agency—was the only commercial cloud provider with the security accreditations allowing it to host the DOD’s most sensitive data. In the interim, however, Microsoft has achieved the top-secret accreditation, and Oracle and Google both achieved Impact Level 5—or IL5—accreditation, allowing the two companies to host the department’s most sensitive unclassified data in their cloud offerings.

JWCC is just one of several multibillion-dollar cloud contracts the government has awarded over the past few years. In late 2020, the CIA awarded its Commercial Cloud Enterprise, or C2E, contract to five companies: AWS, Microsoft, Google, Oracle and IBM. The contract could be worth “tens of billions” of dollars, according to contracting documents, and the companies will compete for task orders issued by various intelligence agencies.

Last April, the National Security Agency re-awarded its $10 billion cloud contract codenamed “Wild and Stormy” to AWS following a protest from losing bidder Microsoft. The contract is part of the NSA’s modernization of its Hybrid Compute Initiative, which will move some of the NSA’s crown jewel intelligence data from internal servers to AWS’ air-gapped cloud.

Pentagon Splits $9B Cloud Effort Among Amazon, Google, Microsoft, Oracle - Defense One

[Glenn Petersen] Growth in global cloud services spend slows to lowest rate ever in Q3 2022 Sha...

Glenn Petersen — 11/19/2022 7:34:02 AM

Growth in global cloud services spend slows to lowest rate ever in Q3 2022

Shanghai (China), Bengaluru (India), Singapore, Reading (UK) and Portland (US) – Tuesday, 1 November 2022

Worldwide cloud infrastructure services expenditure increased 28% year on year to reach US$63.1 billion in Q3 2022, up US$13.8 billion on the same period a year ago. With the negative impact of inflation and rising energy prices, companies are responding to market uncertainty by reducing spending, which may hit demand for cloud services in the short term. Coupled with the strong US dollar, the annual growth rate fell below 30% for the first time. Amazon Web Services (AWS), Microsoft Azure and Google Cloud remained the top three providers in Q3 2022, together accounting for 63% of global spend after growing 33%.

Long-term demand for enterprise digitalization remains strong, as the move to cloud remains the best way for today’s businesses to do more with less. But the impact of inflation and recession on the cloud services market was evident, with most top cloud vendors missing revenue targets in the quarter.

“Under economic pressure, enterprise customers are choosing to reduce operational risks by lowering their IT budgets,” said Canalys VP Alex Smith. “Despite winning large deals and having a backlog of contracts to fulfill, the growth of cloud vendors will be constrained because of inevitable project delays as some customers get skittish about the economic outlook. Hyperscalers will face a period of rising costs and lower revenue growth, which may lead to more conservative planning in 2023. We predict the hyperscalers will need to increase their prices in Europe by 30% to account for rising energy costs.”

AWS was the leading cloud service provider in Q3 2022, accounting for 32% of total spend after growing 27% on an annual basis. Despite slower-than-expected growth this quarter, AWS announced new commitments and migrations from customers across many industries and geographies. It continues to expand its infrastructure footprint worldwide to support customers, with the opening of its second region in the UAE and plans to launch new regions in Thailand.

Azure came second with a 22% market share after growing 35% annually. Growth was driven by strong renewal execution. Historically, Microsoft’s cloud business unit has seen stable revenue performance, with a declines brought about only by quarterly variations. Microsoft continues its push to host more of its own services on Azure. It announced the launch of its new data center region in Qatar, marking a major achievement for the company as the first hyperscaler to deliver enterprise-grade services in the country.

Google Cloud’s growth rate accelerated once again, up by 48%, boosting its market share in the global cloud services market to 9%. In addition to its strength in the consumer sector, it gained opportunities from the public sector and governments this quarter. It announced new Google Cloud regions in Asia Pacific, located in Malaysia, Thailand and New Zealand.

“Hyperscalers are continuing to roll out new infrastructure to reach new customers globally. At the same time, they are trying to find the next products and technology advances that will drive business growth,” said Canalys Research Analyst Yi Zhang. “The increased adoption of cloud services has stimulated thoughts about the value that can be extracted from data in the cloud. Both Google and Microsoft emphasized their development of products around data and AI. The future cloud service market is expected to achieve value creation with the introduction of data and AI.”

Canalys defines cloud infrastructure services as those that provide infrastructure-as-a-service and platform-as-a-service, either on dedicated hosted private infrastructure or shared public infrastructure. This excludes software-as-a-service expenditure directly but includes revenue generated from the infrastructure services being consumed to host and operate them.

For more information, please contact:

Alex Smith (US): alex_smith@canalys.com
Yi Zhang (China): yi_zhang@canalys.com

About Canalys

Canalys is an independent analyst company that strives to guide clients on the future of the technology industry and to think beyond the business models of the past. We deliver smart market insights to IT, channel and service provider professionals around the world. We stake our reputation on the quality of our data, our innovative use of technology and our high level of customer service.

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Canalys Newsroom - Growth in global cloud services spend slows to lowest rate ever in Q3 2022

[Glenn Petersen] Cloud stocks creamed as Fed indicates more rate hikes are coming PUBLISHED WED,...

Glenn Petersen — 11/3/2022 5:43:39 AM

Cloud stocks creamed as Fed indicates more rate hikes are coming

PUBLISHED WED, NOV 2 20225:29 PM EDT
UPDATED WED, NOV 2 20225:47 PM EDT
Jordan Novet @JORDANNOVET
CNBC.com

KEY POINTS

-- The Federal Reserve said it would raise its benchmark rate again and indicated that the “ultimate” rate would be higher than it had previously expected.

-- One fund of cloud stocks is now down 51% for the year, compared with a 21% decline for the the S&P 500.

Investors pounded cloud software stocks on Wednesday on concern that interest rates will rise for longer than previously expected.

Initially stocks moved higher as the Federal Reserve announced it would increase its benchmark rate by 75 basis points. But after Powell began speaking at the central bank’s press conference, equities reversed their gains and fell to session lows.

Jerome Powell, chair of the Federal Reserve, said data showed the “ultimate level” of rates will be higher than the U.S. central bank had projected.

Cloud stocks have been particularly sensitive to rising rates as investors prefer to own stocks with stronger current earnings that are less reliant on future growth. Bill.com, Twilio and Cloudflare each lost 10% of their value on Wednesday and are down at least 53% so far this year.

In 2022 central bankers in the U.S. and abroad have repeatedly pushed up rates to stave off quickly rising prices of food, energy and other goods. For companies that pay cash dividends to investors, such as IBM, which is the lone large-cap tech stock up for the year, the risk is lower.

But for money-losing companies — and many cloud stocks are not profitable — the calculus is completely different. Valuations stem from the present value of future cash flows. Higher interest rates imply lower cash flows.

When interest rates were low, particularly during the onset of Covid-19 in early 2020, cloud software ballooned in popularity and the stocks soared. Revenue at high-growth companies doubled or even tripled year over year. But sentiment has changed.

One gauge of cloud stocks, the WisdomTree Cloud Computing Fund, is now down 51% for 2022, compared with a 110% rise in 2020. The S&P 500 is down 21% this year.

On Wednesday the WisdomTree fund fell 7.5%, the sharpest decline since June. The technology-heavy Nasdaq Composite index fell 3.4%, while the S&P 500 was down 2.5%.

The biggest loser was ZoomInfo, a provider of data for salespeople and other workers. Henry Schuck, ZoomInfo’s founder and CEO, said on Tuesday that despite delivering 46% year-over-year revenue growth, the company has run into challenges in connection with macroeconomic conditions.

“As we made our way through Q3, we began to see increased macro pressure on deals, causing the level of deal review to increase and sales cycles to elongate further,” Schuck said on a conference call with analysts on Tuesday. “Since this started very late in the quarter, it only modestly impacted Q3 results. This elongation trend has continued into Q4, and we do expect it to impact growth in the short term.”

CrowdStrike, Qualtrics and other cloud software stocks have reported more scrutiny of deals in recent months.

On Wednesday human resources software maker Paycom announced its 33rd consecutive quarter of profitability. The stock still fell about 8% in Wednesday’s selloff.

cnbc.com

[Glenn Petersen] Alibaba pledges $1 billion to cloud computing customers to reignite growth Publ...

Glenn Petersen — 9/23/2022 5:01:41 AM

Alibaba pledges $1 billion to cloud computing customers to reignite growth

Published Thu, Sep 22 20227:16 PM EDT
Arjun Kharpal @ArjunKharpal
CNBC.com

Key Points

Alibaba said it will invest $1 billion over the next three fiscal years to support its cloud computing customers as the Chinese e-commerce giant looks to reignite growth after a historical slowdown.
The investment consists of "financial and non-financial incentives, such as funding, rebates and go-to-market initiatives," Alibaba said.
While cloud is a small part of Alibaba's overall business currently, the company's management sees it as a critical component to future growth and profitability.

Alibaba said it will invest $1 billion over the next three fiscal years to support its cloud computing customers as the Chinese e-commerce giant looks to reignite growth after a historical slowdown.

The investment consists of "financial and non-financial incentives, such as funding, rebates and go-to-market initiatives," Alibaba said in a press release on Thursday.

The company said it is also setting up a program to help its customers localize their cloud computing business needs depending on the market.

Alibaba is the world's third-largest cloud computing player behind Microsoft and Amazon, according to Gartner. While cloud computing is a small part of Alibaba's overall business currently, the company's management sees it as a critical component to future growth and profitability.

However, Alibaba has seen an unprecedented slowdown in growth amid Chinese economic malaise due to the resurgence of Covid in the world's second-largest economy and a stricter domestic regulatory environment. In the April to June quarter, Alibaba reported its first flat revenue growth on record.

Revenue growth in its cloud computing business also slowed down from the previous quarter.

Alibaba's investment announcement is also part of a broader push by the Hangzhou, China-headquartered company to expand its cloud computing business overseas.

Over the past few years, Alibaba has opened new data centers outside of China to win customers in other markets such as Singapore and Thailand.

cnbc.com

[Glenn Petersen] Microsoft extends life of cloud servers from four to six years Banks billions b...

Glenn Petersen — 8/2/2022 4:55:42 AM

Microsoft extends life of cloud servers from four to six years

Banks billions by making servers last even longer than AWS or Google

Simon Sharwood, APAC Editor
The Register
Tue 2 Aug 2022 // 02:30 UTC

Microsoft has extended the life of the machines powering its cloud by two years and will bank billions as a result.

"We are extending the depreciable useful life for server and network equipment assets in our cloud infrastructure from four to six years," chief financial officer Amy Hood told investors last week during Microsoft's Q4 2022 earnings call.

"Investments in our software that increased efficiencies in how we operate our server and network equipment as well as advances in technology have resulted in lives extending beyond historical accounting useful lives," she added.

Those investments will save Microsoft billions every year. Hood predicted the change will make a $3.7 billion difference to Microsoft's bottom line during FY 2023 alone, which is now underway, with a $1.1 billion benefit in Q1.

Google and AWS have already announced extended lifespans for their cloudy infrastructure. Google announced an extension of its lifecycle for servers from three to four years in February 2022. In the same month, AWS detailed plans to run servers for five years and networking equipment for six – a one-year increase to both lifespans.

All of which may not be welcome news for Intel, AMD, and the manufacturers that kit out and build the millions of servers that big clouds consume. Extended hardware lifecycles mean some purchases will be deferred.

It's not all gloom for those suppliers, though. Last week Facebook and Google signaled they'd each spend billions on new servers to enable growth and catch up with purchases that were impossible during COVID-19-related supply chain messes.

But news that Microsoft may run servers for six years is surely something cloud buyers need to consider. Microsoft has made three-year server reservations its best-priced offer for both IaaS and some of its software licences. With the software giant now sweating assets for longer – and banking massive savings – users surely need to ask for their share of that bounty when next negotiating a cloudy deal.

Customers will also need to ask themselves if they’re happy running on six-year-old kit. Microsoft's silicon suppliers – Intel, AMD, and Ampere – will have produced perhaps three generations of processor across that span of time, not to mention other worthy innovations in networking et cetera. Intra-cloud migrations may well become necessary for some users, if only to avoid being tied to old hardware.

On the upside, keeping old servers around for longer might help Microsoft ameliorate Azure's capacity shortages. ®

theregister.com

[Glenn Petersen] Microsoft Asks Google, Oracle to Help Crimp Amazon’s U.S. Government Cloud Leade...

Glenn Petersen — 8/1/2022 5:31:23 AM

Microsoft Asks Google, Oracle to Help Crimp Amazon’s U.S. Government Cloud Leadership

Software companies trying to get the U.S. to share its cloud-spending more widely by embracing multicloud approach

By Aaron Tilley
Wall Street Journal
July 27, 2022 9:00 am ET

Microsoft Corp. MSFT 1.57%? is rallying other big-name cloud-computing providers such as Alphabet Inc.’s GOOG 1.79%? Google and Oracle Corp. ORCL 1.04%? to press the U.S. government into spreading its spending on such services more widely, taking aim at Amazon.com Inc.’s AMZN 10.36%? dominance in such contracts.

The software giant has issued talking points to other cloud companies aimed at jointly lobbying Washington to require major government projects to use more than one cloud service, according to people familiar with the effort and a document viewed by The Wall Street Journal.

Microsoft also approached VMware Inc., VMW -0.14%? Dell Technologies Inc., DELL 1.26%? International Business Machines Corp. IBM 1.21%? and Hewlett Packard Enterprise Co., HPE 1.14%? said the people familiar with the effort. It hasn’t yet asked Amazon to join the loose alliance, the people said.

Amazon dominates the cloud-infrastructure industry with a 39% share of the 2021 global market ahead of Microsoft at No. 2 with a 21% share, according to research firm Gartner Inc. Amazon looms even larger in the business of selling cloud services to governments. Amazon’s cloud had a 47% share of the 2021 U.S. and Canada public-sector market orders, ahead of 28% for Microsoft, according to Gartner.

The National Security Agency last year picked Amazon as the sole vendor for a cloud contract that could be worth potentially as much as $10 billion over the next decade, renewing an existing business relationship.

An Amazon spokesman called the lobbying effort a self-serving campaign that could end up requiring customers to use inferior technology.

“Public-sector customers should have the freedom and flexibility to determine how to obtain secure, reliable and cost-effective cloud services and software—from the vendor or vendors of their choice—without mandates or unfair software licensing restrictions,” the Amazon spokesman said.

Microsoft’s push calls for the U.S. government to establish a preference for multicloud, an industry term that means using the services infrastructure of more than one company. It views multicloud as an urgent imperative for the government to get the best and most affordable cloud technology.

The Redmond, Wash.-based company has a history of making policy pronouncements. It has issued principle statements on unions, as well as its cloud policies in Europe recently. Its latest effort that hasn’t yet been made public is titled “Multi-Cloud Vision Statement and Principles.”

Cloud business is critical to Microsoft’s earnings, representing roughly half of its total sales. The company Tuesday posted lower-than-expected growth for Azure and other cloud sales.

Microsoft has grown frustrated about its lack of progress selling its Azure cloud services to the U.S. federal government with its rival’s Amazon Web Services continuing to win most of those contracts, said some of the people familiar with its efforts.

A Microsoft spokeswoman said the company “has consistently advocated a multicloud approach as a commercial best practice, and almost all companies have adopted this.” The company, she added, works “with other companies and trade associations to encourage the federal government to adopt the same strategy.”

Multicloud has become a popular approach for clients who seek to pick technologies from different vendors to optimize the service they receive and keep costs in check. In the document, Microsoft said the U.S. government should follow this example.

Oracle said it is backing the effort. “Microsoft is exactly right advocating for a multicloud strategy in government,” said Ken Glueck, executive vice president at Oracle. “We support their efforts wholeheartedly and plan to assist them in any way possible,” he said.

Whether to mix cloud-service providers has become a sticking point with some big government projects. The Pentagon embraced a multicloud approach last year after an earlier effort to pick one vendor was mired in controversy. Amazon was long considered the favorite for a massive Pentagon cloud-computing deal, though lost out to Microsoft. Amazon contested the award to its rival, and the Pentagon scrapped the contract, saying it would award contracts to multiple vendors in its future contract.

The Pentagon’s shift came after the Central Intelligence Agency, which had worked with Amazon for its cloud services, last year said it would embrace a multicloud strategy as it expands use of the technology.

Microsoft, in the document sent to others, has played down those government multicloud efforts as exceptions to the rule.

—For more WSJ Technology analysis, reviews, advice and headlines, sign up for our weekly newsletter.

Write to Aaron Tilley at aaron.tilley@wsj.com

Appeared in the July 28, 2022, print edition as 'Microsoft Presses Effort To Blunt Amazon'.

wsj.com

[Glenn Petersen] Amazon, Microsoft, Google Strengthen Grip on Cloud Three companies account for ...

Glenn Petersen — 7/7/2022 5:09:10 AM

Amazon, Microsoft, Google Strengthen Grip on Cloud

Three companies account for about two-thirds of cloud spending and are using their size to maintain their hold on rapidly growing market

Big tech firms are investing in data centers as they compete for the $214 billion cloud computing market. WSJ explains what cloud computing is, why big tech is betting big on future contracts.

By Aaron Tilley
Wall Street Journal
July 5, 2022 7:03 am ET

The pandemic period has been a boon for the trio of companies that dominate cloud computing. Now as the economy enters another tumultuous phase, Amazon.com Inc., AMZN 0.73%? Microsoft Corp. MSFT 1.28%? and Google appear poised to extend their strength.

The three companies accounted for 65% of the $53 billion in global cloud-service spending in the first quarter of the year, according to Synergy Research Group, up from 52% of global sales four years ago. And their control of the crucial, rapidly growing market is expected to continue as their size makes them better able to keep investing and attract clients seeking stability in turbulent times, executives and analysts say.

Though well established, the cloud units of Amazon, AMZN 0.73%? Microsoft, and Alphabet Inc.’s GOOG 1.16%? Google have been expanding like startups, with sales growing by more than 30% year over year in recent quarters while smaller cloud services have seen their market share drop as more cloud spending migrates to the largest platforms, according to Synergy.

The pandemic drove spending broadly on the remote computing services known as the cloud as more of life and work shifted online. The top cloud players have consolidated their dominance in part because of the economics of the industry, which requires massive investments in servers and the facilities that house them, analysts say.

The bigger those networks of server farms get, the lower the average costs for building and running them, giving an edge to the three companies. They also gain advantages in their ability to develop homegrown chips, software and other technology for the cloud.

“We’ve been investing pretty significantly in this business for 15 years, and it’s not something that’s easy to catch up to,” said Matt Garman, senior vice president of sales and marketing at Amazon Web Services, the e-commerce giant’s cloud-computing unit.

Meanwhile, smaller companies in the sector are expected to face a more challenging fundraising environment, analysts say, as sliding stock prices mean investors are less willing to take big risks. In addition, they say, customers are looking to consolidate their spending and are more likely to pick and stick with the biggest players that often offer more reliability and a broader set of features.

Travel software company Sabre Corp. has decided to do more on the cloud, a move it says saves money and provides more flexibility for its business. It has increasingly done more through Google’s cloud, as using one cloud provider helps simplify the technology for its engineers and other employees.

Google’s capacity to analyze large amounts of data and its large menu of capabilities allow Sabre to focus spending on one vendor, saving it time and effort of juggling too many, said Joe DiFonzo, Sabre’s chief information officer.

“We’re going from managing hundreds and hundreds of individual third-party software relationships to centering on using more and more Google Cloud,” he said. He estimates that while Google most recently accounted for about 28% of the company’s spending on cloud services, it will take up 65% of Sabre’s cloud budget by year-end.

Combined revenue from cloud services at the top three companies grew more than 33% last year and is expected to grow close to 29% this year, according to analysts surveyed by FactSet.

“The big three really are running away with the game,” said Synergy chief analyst John Dinsdale.

As other tech sectors are staring at postpandemic slowdowns, demand for cloud services has stayed strong, said Thomas Kurian, chief executive of Google Cloud, whose global market share has increased from 1.5% in 2015 to 7.1% in 2021, according to Gartner Inc.

“We still see significant demand and interest from customers around the world in virtually every industry,” he said.

In recent years, some new and older cloud companies have grown their businesses by providing software and services to help customers interact with the cloud. However, the three companies’ dominance in hosting the cloud means the other cloud companies usually still have to work with them—and it positions the three to offer competing products later.

Box Inc. Chief Executive Aaron Levie says the heft of the big three companies helps drive down prices for Box, but it also indicates their control of the market.

“You have these players that have economies of scale, and scale begets more scale,” Mr. Levie said. Box sells cloud-based content-management and collaboration software, making it a user of as well as a competitor to the big three cloud companies.

Snowflake Inc. is one of the cloud-service providers that have risen quickly in recent years but faces growing competition from the cloud platforms it uses. Snowflake’s annual sales doubled for each of its past two fiscal years but the company expects growth to slow to 66% this year.

The company, which helps customers analyze business data across different clouds, has accused Google of trying to undercut its sales by pushing its competitive data analytics product, BigQuery.

“Google is not an open platform,” said Michael Scarpelli, chief financial officer at Snowflake, at an event earlier this year. “They don’t like to partner very well, especially if they feel threatened.”

Google said it has proven it can work well with competitors and some customers are choosing its product over Snowflake’s because it is better.

Other software startups have accused Amazon of developing competing cloud software. Amazon has said it is just reacting to its customers’ needs.

Cloud platform newcomers such as startup Sushi Cloud LLC are attempting to break through by focusing on niche areas like making running artificial intelligence software in the cloud cheaper. Others such as Cloudflare Inc. are trying to appeal to customers by offering low fees to shift data out of their clouds. The top cloud companies often make it expensive to move data.

“The unfortunate reality is the big three aren’t going anywhere, they’re going to continue to grow,” said Sushi Cloud Chief Operating Officer Shauna O’Flaherty. “I just hope that there is more room for challenger companies to emerge and not be intimidated.”

Write to Aaron Tilley at aaron.tilley@wsj.com

Appeared in the July 6, 2022, print edition as 'Cloud’s Big Players Strengthen Grip'.

Amazon, Microsoft, Google Strengthen Grip on Cloud - WSJ

[Glenn Petersen] h/t Julius Wong Amazon Web Services: the 800 pound gorilla that could be worth ...

Glenn Petersen — 7/3/2022 11:42:17 AM

h/t Julius Wong

Amazon Web Services: the 800 pound gorilla that could be worth more than $3T

Jul. 02, 2022 10:05 AM ET Amazon.com, Inc. (AMZN) MSFT, GOOG, GOOGLBy: Chris Ciaccia, SA News Editor 24 Comments

Amazon (NASDAQ: AMZN) Web Services is the 800 pound gorilla when it comes to cloud computing, holding nearly 33% of the high-growth cloud infrastructure space, according to Synergy Research Group.

But with the massive Amazon ( AMZN) unit continuing to grow at a healthy clip, investment firm Redburn believes "we are just seeing the tip of the iceberg" when it comes to how big AWS can get, potentially making it worth $3T, or more than three times what all of Amazon is worth today.

Analysts Alex Haissl and Nikki Shah, who have a buy rating on Amazon ( AMZN) and a $270 per-share price target, note that AWS has more than 200 products, all of which are necessary to transform Amazon. And though AWS is still more weighted -- in terms of revenue -- to older products and technologies, like databases -- its ecosystem, along with the ecosystems of Microsoft ( MSFT) Azure, Google ( GOOG) ( GOOGL) Cloud Platform have continued to aid modern technologies and architectures, especially for storage, deemed the most important service.

Putting a $3T valuation on AWS is sure to raise eyebrows, especially in this market, but the analysts believe there is a "clear path" towards getting there, given the fact a lot of advanced services in its portfolio are not used at all.

The most valuable service in AWS's portfolio is S3, which allows Amazon to provide object storage through a web service interface, as the analysts believe S3 is worth $1.5T alone.

The analysts note that S3 stores more than 100T (yes, 100 trillion) objects and accounts for more than 20% of AWS's sales and is expected to grow to 46% by 2030. The key here is to continue driving volume growth and higher take rates for other storage-associated services.

But Amazon's ( AMZN) AWS has several other drivers going for it, including big data processing and machine learning. Examples include Amazon SageMaker, which is used as a machine learning platform; Amazon EMR for big data processing; AWS Glue for data integration; Amazon Redshift for data warehouse; and lastly, Amazon Athena for interactive query service.

Combined with S3 and other building blocks such as databases, these are seen as the main drivers for AWS's growth, which all feeds into a funnel that makes AWS the predominant player in the space from a cost and technology perspective.

Even though AWS has been around for more than 15 years, it's still growing at more than 30%, albeit somewhat slower than Microsoft's ( MSFT) Azure and Google ( GOOG) ( GOOGL) Cloud Platform. Nonetheless, it has an annual revenue run rate of more than $80B and though analysts expect it to have slowing growth in the future, Haissl and Shah believe "high growth" can actually be sustained longer than the market thinks, due to storage and newer technologies taking the lead.

AWS has its own customized hardware -- including the Gravitron processor, the Nitro system and the EFA -- and intelligent software solutions, which has enabled it to provide cost savings to its customers.

Due to continued cost savings and emerging new technologies, the analysts expect that AWS, which had a market share in databases of less than 2% in 2014 to be more than 40% by 2030, due in large part because of the shift to the cloud, moving towards nonrelational databases and new technologies.

With all the hype surrounding the cloud, including Redburn suggesting that Microsoft's ( MSFT) Azure is worth $1T, the firm clearly believes that Amazon ( AMZN) Web Services is the "best positioned" in the space and has technological advantages over the other key players.

Amazon ( AMZN) investors are likely to benefit from the continued upside in AWS one way or another and if the speculation that Amazon splits off AWS comes to fruition, that $3T valuation may be realized sooner than later.

Investment firm Jefferies expects Amazon ( AMZN) Prime Day, held between July 12 and July 13, to be a blockbuster sales event for the company.

[Glenn Petersen] Chipmaker Broadcom to buy cloud services firm VMware in $61 bln deal Reuters M...

Glenn Petersen — 5/28/2022 3:44:49 AM

Chipmaker Broadcom to buy cloud services firm VMware in $61 bln deal

Reuters

May 26 (Reuters) - Chipmaker Broadcom Inc (AVGO.O) is buying cloud services provider VMware Inc (VMW.N) in a cash-and-stock deal valued at $61 billion to speed up its expansion into the enterprise software business.

The purchase announced on Thursday is the second-biggest globally so far in 2022, after Microsoft Corp's (MSFT.O) $68.7 billion buyout of video game maker Activision Blizzard Inc (ATVI.O).

VMware shareholders will get $142.50 per share under the purchase, resulting in a premium of nearly 49% to the stock's close on May 22, when talks of the deal were first reported. Broadcom will assume $8 billion of VMware net debt, the company said.

Broadcom shares were up 1.6% in premarket trading, while VMWare fell nearly 1%.

Broadcom Chief Executive Officer Hock Tan had said the company is seeing that enterprise spending is "on fire". Buying VMware would give Broadcom access to the software firm's cloud clients and their data centers, and will help it capitalize on this trend further.

Software became a substantial part of Broadcom's business after it acquired CA Technologies for $18.9 billion in 2018 and Symantec's security division for $10.7 billion in 2019. read more

The bid to buy VMware is Broadcom's second-biggest takeover attempt, after its failed attempt to buy smartphone chip behemoth Qualcomm Inc for more than $100 billion in 2018.

Reporting by Chavi Mehta in Bengaluru; Editing by Shounak Dasgupta and Aditya Soni

Chipmaker Broadcom to buy cloud services firm VMware in $61 bln deal | Reuters

[Glenn Petersen] Pricey AI Apps Drive Up Cloud-Computing Spending Companies world-wide this yea...

Glenn Petersen — 4/20/2022 3:24:58 AM

Pricey AI Apps Drive Up Cloud-Computing Spending

Companies world-wide this year are expected to spend nearly $500 billion on cloud computing, up 20% from last year

By Angus Loten
Wall Street Journal
April 19, 2022 5:10 pm ET

Corporate spending on cloud computing is rising at double-digit rates, as chief information officers and other tech leaders adopt advanced capabilities such as artificial intelligence that cost more than run-of-the-mill business applications, new market data shows.

On top of the inherent costs of the technologies themselves, typically purchased as subscriptions, many of these applications tend to eat up computing power, adding to cloud-usage bills, industry analysts said.

“We continue to invest in technologies that enable us to operate faster and at greater scale,” said Daniel Grider, head of infrastructure and operations at Home Depot Inc. “Cloud-enabled solutions are a key element to that, and we’re seeing these benefits online and in store.”

Companies world-wide this year are expected to spend an estimated $494.7 billion on cloud computing, up 20% from 2021, and such spending is on pace to reach $600 billion by the end of 2023, information-technology research and consulting firm Gartner Inc. said in a report published Tuesday.

Spending on infrastructure-as-a-service—a type of cloud-computing service that provides companies with on-demand computing, storage and networking resources—is forecast to show the highest growth of any cloud category in 2022, at 31%, Gartner said.

Close behind, it said, is an expected 26% increase in spending on cloud-based platform services used to build, test, deploy and update business software applications, including sophisticated AI, business intelligence and Internet-of-Things capabilities.

Gartner expects cloud-based platform services to drive $109.6 billion in corporate spending this year, up from $86.9 billion in 2021, with spending levels inflated by advanced applications.

“It’s the willingness of CIOs to purchase higher-valued features that is fueling public cloud spending growth,” said Sid Nag, a vice president in Gartner’s technology and service provider group.

Technology leaders and industry analysts said the value that advanced software tools provide, such as leveraging data to boost customer services or drive more informed business decisions, can make them an easy sell to chief executives and corporate boards overseeing information-technology budgets.

That has been especially true since the Covid-19 pandemic began in 2020, when many companies invested heavily in digital tools and technologies to adapt to remote work, lockdowns, store closures and other conditions. Many businesses want to ensure they are getting full value from these investments, tech leaders and analysts said.

Another reason these applications tend to be more expensive is that it can be difficult to compare prices among tech vendors, said John Annand, principal research director at IT research firm Info-Tech Research Group. A lack of interoperability can also make it expensive to change tech providers, he said.

“This reduces any downward pressures on price as the potential switching cost grows and grows,” Mr. Annand said.

Pricey AI Apps Drive Up Cloud-Computing Spending - WSJ

[Glenn Petersen] Beijing Crackdown Derails Alibaba’s Bid for Amazon-Size Profit The company’s as...

Glenn Petersen — 4/18/2022 1:14:24 PM

Beijing Crackdown Derails Alibaba’s Bid for Amazon-Size Profit

The company’s aspirations to become a giant in cloud services are increasingly under threat.

Bloomberg Businessweek
April 17, 2022, 4:00 PM CDT

For years, Alibaba Group Holding Ltd. had a legitimate shot at becoming the Amazon.com Inc. of China, an e-commerce juggernaut that would use its customer relationships and technological prowess to dominate wide swaths of the internet landscape. Its market valuation soared to more than $850 billion in 2020 as it expanded into new businesses and closed the gap with its U.S. rival.

Beijing’s crackdown on the private sector has laid waste to that strategy. Alibaba’s core e-commerce operation is under siege from regulators, and its finance arm has been forced to pull back from some of its most lucrative initiatives. But nothing may illustrate its changing fortunes more than the recent troubles of its cloud computing operation, Aliyun, which is often referred to as AliCloud. (The English translation of yun is cloud.)

Cloud computing is a vital part of Amazon’s formula, with its Amazon Web Services throwing off so much cash it can subsidize the e-commerce business and fund new initiatives that may not pay off for years. In fourth quarter 2021, AWS accounted for more than 100% of the company’s operating profit. Alibaba envisioned its cloud business serving much the same function, identifying it as one of the company’s “strategic pillars.” Chief Executive Officer Daniel Zhang once said the business could eventually become the “main business of Alibaba.” He told analysts during an earnings call in February that China’s cloud market would grow into a “trillion RMB opportunity” by 2025.

Zhang at the World Economic Forum 2020 in Davos, Switzerland.
Photographer: Jason Alden/Bloomberg
----------------------

But Beijing has derailed Alibaba’s ambitious plans, suggesting China’s tech giant may never achieve Amazon-level success. In recent years, the Communist Party has increasingly focused on the use and security of data, and declared data to be a critical factor of production, making its defense a priority for the government. That designation, which also applies to land and fuel, requires companies and government agencies to safeguard their data as a matter of national security. A broad swath of Chinese institutions, including China Construction Bank and local municipalities, have responded by moving closer to state-backed cloud platforms instead of those by private firms like Alibaba, according to people familiar with the matter.

Aliyun has been under particular pressure because of its parent’s strained relationship with the Chinese government, which started to sour in 2020 when co-founder Jack Ma criticized regulators in a speech in Shanghai. China’s government quickly scrapped the planned initial public offering of Alibaba’s finance affiliate, and then slapped its e-commerce business with a $2.8 billion penalty for antitrust violations. The company has since clashed with regulators over cybersecurity, stirring fresh worries that Alibaba’s troubles aren’t over and that its cloud business could become a target. “AliCloud has an Alibaba problem,” says Shen Meng, director of Beijing-based boutique investment bank Chanson & Co.

Ma during an interview at the Viva Technology conference in Paris in 2019.
Photographer: Marlene Awaad/Bloomberg
--------------------------------

Alibaba even considered spinning off the cloud business last year with a potential valuation of more than $100 billion, say the people, asking not to be named because the discussions are private. The company eventually shelved the plan because of business and political obstacles, they say.

Alibaba declined to comment. China Construction Bank didn’t respond to a request for comment.

During the December quarter, Aliyun sales missed analyst forecasts by a wide margin, growing at the slowest pace in more than five years. Up-and-coming cloud providers such as Huawei Technologies Co. and China Telecom Corp., which have more cordial relationships with the government, have increasingly lured away users. In cloud infrastructure services, one key segment of the market, Aliyun’s market share decreased to 37% last year from 46% in 2019, although it continues to lead the market, according to global consultancy Canalys. Huawei doubled its market share over the same period.

“Alicloud's business growth definitely won't be as fast as during previous ‘golden years’,” say Livia Li, senior analyst at Frost & Sullivan. "The rise of state-owned cloud complies with China's status quo and we would expect more state-owned players to enter the arena.”

Aliyun has also struggled outside its home market. Last year, it lost ByteDance Ltd.’s viral video service TikTok as a customer in a painful blow. An ongoing cybersecurity review led by the Biden administration has raised questions about Aliyun’s prospects in the U.S., the world’s largest cloud market.

Alibaba’s market value has tumbled 70% from a high in 2020, even after boosting a buyback program twice in a year to prop up its stock price. It just booked its slowest revenue growth on record.

If Aliyun could turn things around at home, it would have a lot to gain. China’s cloud computing market is the world’s second-largest after the U.S., and it’s growing fast. Cloud spending in the country climbed to $27.4 billion in 2021, up from $19 billion the previous year, according to Canalys, which predicts that China’s cloud market will reach $85 billion by 2026.

Aliyun has ramped up efforts to diversify its sources of income. It introduced a Dropbox-like service last year, tapping into the emerging demand from individual users. DingTalk—Alibaba’s enterprise communication application, with 500 million users—has also transformed itself into a cloud platform upon which businesses can build their own software. While anyone can take advantage of DingTalk’s free toolkits, analysts say companies that are sold on its convenience will likely want to buy related services from Alibaba.

Still, much of the growth will come from the Chinese government’s push for domestic development of cloud services. President Xi Jinping has endorsed a $1.4 trillion “new infrastructure” strategy under which banks, factories, and public institutions move operations to the cloud. Last year, the so-called “digital government” program was written into China’s five-year development plan for the first time.

An aerial view of Aliyun’s main campus in Hangzhou, on Sept. 23, 2021.
Photographer: Long Wei/VCG/Getty Images
-------------------------------------

Still, state-backed cloud providers are likely to benefit most. The city of Tianjin last year asked municipally controlled companies to migrate their data from private cloud operators such as Alibaba to a state-backed cloud system, according to a leaked government document viewed by Bloomberg News. (Its authenticity was verified by two people with knowledge of the matter.)

The move had to be completed within two months of the previous cloud contract’s expiration, the document stated. Tianjin later modified the policy because of complaints about discrimination, but the shift in priorities remained. The municipal government of Nantong, a city near Shanghai, is also considering moving additional data into its own computing centers instead of relying on public cloud platforms for hosting, two people familiar with the matter say. They asked to not be identified because of sensitivities around issues of data security.

Tianjin and Nantong didn’t respond to requests for comment.

While this trend could be bad for all of the commercial cloud service providers, many worry that Aliyun’s political standing means it’ll be hit harder than competitors like Huawei.

In December, China’s powerful Ministry of Industry and Information Technology, or MIIT, upbraided Aliyun for not reporting a software flaw in a timely fashion. As a result, the Chinese tech overseer suspended cooperation with the cloud service provider on a cybersecurity information-sharing platform for six months, and required “rectification measures” before deciding whether to resume their partnership.

Alibaba admitted that it was slow to report the flaw to the Chinese government, but said its researcher abided by global industry practices. Cybersecurity researchers typically reveal software vulnerabilities to no one other than the software’s developer until the problem is fixed. It remains unclear exactly when Aliyun reported the bug, and MIIT hasn’t publicly spelled out its expectations.

Nevertheless, people in and outside the company say the incident could fuel distrust between Alibaba and Chinese regulators, putting at risk its ability to win contracts from government-linked entities.

“Since MIIT publicly criticized AliCloud of having problems [in cybersecurity reporting], it makes sense for many risk-averse state-owned enterprises and government agencies to avoid using its services,” says Shen of Chanson. “When it comes to choosing a cloud partner, political considerations often outweigh technological considerations.” —Coco Liu and Dong Cao

bloomberg.com

[Glenn Petersen] Google is acquiring security intelligence firm Mandiant for $5.4B Ron Miller@ro...

Glenn Petersen — 3/8/2022 12:25:34 PM

Google is acquiring security intelligence firm Mandiant for $5.4B

Ron Miller @ron_miller
TechCrunch
9:15 AM CST•March 8, 2022

At a time when cybersecurity is top of mind for many firms, Google announced it was paying $5.4 billion to acquire security intelligence company Mandiant, giving it access to security data gathering capabilities, as well as a team of hundreds of security consultants. The company will become part of Google Cloud upon closing.

Google Cloud head Thomas Kurian pointed out that companies were facing unprecedented security threats, especially as the war in Ukraine rages, and Mandiant gives the company a platform of security services to add to the Google Cloud platform.

“This is an opportunity to deliver an end-to-end security operations suite and extend one of the best consulting organizations in the world. Together we can make a profound impact in securing the cloud, accelerating the adoption of cloud computing and ultimately make the world safer,” Kurian said in a statement.

The company plans to pay Mandiant $23 a share, representing a 57% premium over the 10-day weighted stock price average. The stock is up almost 18% over the last year and took a nice spike in the last couple of days as rumors began to surface about a possible deal.

Patrick Moorhead, founder and principal analyst at Moor Insights & Strategy, says that the deal should improve and expand Google’s existing strong security stance. “Google Cloud has always had a good reputation for security offerings inside of its own cloud. The Mandiant acquisition opens the aperture to any cloud or on-premise configuration,” Moorhead told me.

Gartner analyst Neil MacDonald, who watches the cloud security space carefully, agrees, pointing out that when combined with the acquisition of Siemplify earlier this year, it is building a strong security business. “After Google’s recent acquisition of Siemplify for security orchestration automation and response (SOAR), the Mandiant acquisition is another clear signal that Google is serious about growing revenue in its security division — which is a part of the Google Cloud business unit,” MacDonald explained.

He added that the acquisition should enhance the company’s security argument, especially for potential customers who may still worry about securing workloads in the cloud. “By improving its security capabilities and brand awareness as a security vendor, Google also benefits by helping to remove security as an inhibitor to the adoption of GCP,” he said.

Mandiant launched in 2004 and raised $70 million along the way, according to Crunchbase data. The company was sold to FireEye in 2013 for $1 billion. Last year the two companies split, with FireEye being sold to a private equity consortium led by Symphony Technology Group for $1.2 billion.

At the time company founder Kevin Mandiant, who had become FireEye CEO, said the deal was designed to unlock the value of Mandiant as a standalone business. It certainly fetched a much heftier price than FireEye did.

Mandiant took the position of many an acquired company, saying that the deal gave his company access to the scale and resources of Google Cloud. “Together, we will deliver our expertise and intelligence at scale via the Mandiant Advantage SaaS platform, as part of the Google Cloud security portfolio,” he said in a statement announcing the deal.

Before it gets to the finish line, the transaction will have to run the regulatory gauntlet and garner Mandiant stockholder approval. The companies are predicting a close date some time later this year.

Google is acquiring security intelligence firm Mandiant for $5.4B | TechCrunch

[Glenn Petersen] [graphic] [graphic]

Glenn Petersen — 3/1/2022 1:01:50 PM

[Glenn Petersen] Tiny Chips, Big Headaches New York Times February 7, 2022 Imagine for a moment...

Glenn Petersen — 2/8/2022 10:53:59 AM

Tiny Chips, Big Headaches

New York Times
February 7, 2022

Imagine for a moment that the millions of computer chips inside the servers that power the largest data centers in the world had rare, almost undetectable flaws. And the only way to find the flaws was to throw those chips at giant computing problems that would have been unthinkable just a decade ago.

As the tiny switches in computer chips have shrunk to the width of a few atoms, the reliability of chips has become another worry for the people who run the biggest networks in the world. Companies like Amazon, Facebook, Twitter and many other sites have experienced surprising outages over the last year.

The outages have had several causes, like programming mistakes and congestion on the networks. But there is growing anxiety that as cloud-computing networks have become larger and more complex, they are still dependent, at the most basic level, on computer chips that are now less reliable and, in some cases, less predictable.

In the past year, researchers at both Facebook and Google have published studies describing computer hardware failures whose causes have not been easy to identify. The problem, they argued, was not in the software — it was somewhere in the computer hardware made by various companies. Google declined to comment on its study, while Facebook did not return requests for comment on its study.

“They’re seeing these silent errors, essentially coming from the underlying hardware,” said Subhasish Mitra, a Stanford University electrical engineer who specializes in testing computer hardware. Increasingly, Dr. Mitra said, people believe that manufacturing defects are tied to these so-called silent errors that cannot be easily caught.

Researchers worry that they are finding rare defects because they are trying to solve bigger and bigger computing problems, which stresses their systems in unexpected ways.

Companies that run large data centers began reporting systematic problems more than a decade ago. In 2015, in the engineering publication IEEE Spectrum, a group of computer scientists who study hardware reliability at the University of Toronto reported that each year as many as 4 percent of Google’s millions of computers had encountered errors that couldn’t be detected and that caused them to shut down unexpectedly.

In a microprocessor that has billions of transistors — or a computer memory board composed of trillions of the tiny switches that can each store a 1 or 0 — even the smallest error can disrupt systems that now routinely perform billions of calculations each second.

At the beginning of the semiconductor era, engineers worried about the possibility of cosmic rays occasionally flipping a single transistor and changing the outcome of a computation. Now they are worried that the switches themselves are increasingly becoming less reliable. The Facebook researchers even argue that the switches are becoming more prone to wearing out and that the life span of computer memories or processors may be shorter than previously believed.

There is growing evidence that the problem is worsening with each new generation of chips. A report published in 2020 by the chip maker Advanced Micro Devices found that the most advanced computer memory chips at the time were approximately 5.5 times less reliable than the previous generation. AMD did not respond to requests for comment on the report.

Tracking down these errors is challenging, said David Ditzel, a veteran hardware engineer who is the chairman and founder of Esperanto Technologies, a maker of a new type of processor designed for artificial intelligence applications in Mountain View, Calif. He said his company’s new chip, which is just reaching the market, had 1,000 processors made from 28 billion transistors.

He likens the chip to an apartment building that would span the surface of the entire United States. Using Mr. Ditzel’s metaphor, Dr. Mitra said that finding new errors was a little like searching for a single running faucet in one apartment in that building, which malfunctions only when a bedroom light is on and the apartment door is open.

Until now, computer designers have tried to deal with hardware flaws by adding to special circuits in chips that correct errors. The circuits automatically detect and correct bad data. It was once considered an exceedingly rare problem. But several years ago, Google production teams began to report errors that were maddeningly difficult to diagnose. Calculation errors would happen intermittently and were difficult to reproduce, according to their report.

A team of researchers attempted to track down the problem, and last year they published their findings. They concluded that the company’s vast data centers, composed of computer systems based upon millions of processor “cores,” were experiencing new errors that were probably a combination of a couple of factors: smaller transistors that were nearing physical limits and inadequate testing.

In their paper “Cores That Don’t Count,” the Google researchers noted that the problem was challenging enough that they had already dedicated the equivalent of several decades of engineering time to solving it.

Modern processor chips are made up of dozens of processor cores, calculating engines that make it possible to break up tasks and solve them in parallel. The researchers found a tiny subset of the cores produced inaccurate results infrequently and only under certain conditions. They described the behavior as sporadic. In some cases, the cores would produce errors only when computing speed or temperature was altered.

Increasing complexity in processor design was one important cause of failure, according to Google. But the engineers also said that smaller transistors, three-dimensional chips and new designs that create errors only in certain cases all contributed to the problem.

In a similar paper released last year, a group of Facebook researchers noted that some processors would pass manufacturers’ tests but then began exhibiting failures when they were in the field.

Intel executives said they were familiar with the Google and Facebook research papers and were working with both companies to develop new methods for detecting and correcting hardware errors.

Bryan Jorgensen, vice president of Intel’s data platforms group, said that the assertions the researchers made were correct and that “the challenge that they are making to the industry is the right place to go.”

He said that Intel recently started a project to help create standard, open-source software for data center operators. The software would make it possible for them to find and correct hardware errors that were not being detected by the built-in circuits in chips.

The challenge was underscored last year, when several of Intel’s customers quietly issued warnings about undetected errors created by their systems. Lenovo, the world’s largest maker of personal computers, informed its customers that design changes in several generations of Intel’s Xeon processors meant that the chips might generate a larger number of errors that can’t be corrected than earlier Intel microprocessors.

Intel has not spoken publicly about the issue, but Mr. Jorgensen acknowledged the problem and said that it had now been corrected. The company has since changed its design.

Computer engineers are divided over how to respond to the challenge. One widespread response is demand for new kinds of software that proactively watch for hardware errors and make it possible for system operators to remove hardware when it begins to degrade. That has created an opportunity for new start-ups offering software that monitors the health of the underlying chips in data centers.

One such operation is TidalScale, a company in Los Gatos, Calif., that makes specialized software for companies trying to minimize hardware outages. Its chief executive, Gary Smerdon, suggested that TidalScale and others faced an imposing challenge.

“It will be a little bit like changing an engine while an airplane is still flying,” he said.

Tiny Chips, Big Headaches – DNyuz

[Glenn Petersen] Google Is Searching for a Way to Win the Cloud Trailing far behind its biggest ...

Glenn Petersen — 2/6/2022 4:44:34 AM

Google Is Searching for a Way to Win the Cloud

Trailing far behind its biggest rivals, the company is undergoing a multiyear effort to improve the reliability of its infrastructure.

By Nico Grant
Bloomberg
February 2, 2022, 6:00 AM CST

When Amazon’s cloud computing network went down on Dec. 7, it hampered a broad swath of companies that rely on its servers, including Disney, Netflix, and Ticketmaster. The rare company with reason to welcome the widespread disruptions caused by Amazon Web Services’ worst outage in more than a year? Google.

Despite its dominance in consumer services, Alphabet Inc.’s search giant has long trailed Amazon.com Inc. and Microsoft Corp. in the fast-growing cloud computing industry. Cloud companies compete on various fronts—speed, features, reliability—but a key part of Google Cloud Chief Executive Officer Thomas Kurian’s plan to catch up is to convince customers that Google’s cloud infrastructure is more reliable than the competition’s.

There may be no way to evaluate that claim. Cloud industry analysts say measuring the relative downtime of competing services is almost impossible because of the scale of the networks, the diversity of services they offer, and the complex mix of factors that lead to failures. Corey Quinn, chief cloud economist at the Duckbill Group, which works with companies to reduce their AWS bills, says Amazon and Google Cloud are “neck and neck with regard to reliability,” with Microsoft’s Azure trailing because of significant disruptions in 2020. (A Microsoft spokesperson says that the company’s cloud offers “industry-leading reliability” and that it gives customers payment credits after some outages.)

Still, Google faces technical challenges of its own. When the company first began building its global system of data centers, the aim was to serve its own consumer-facing tech products. Its design was well suited to the task of keeping Google’s search, email, and video streaming running around the globe. But using the same server farms as the backbone of a cloud computing network introduces a new set of technical complications, and resolving that tension has been a major engineering focus for Kurian.

Cloud computing is in one segment of the tech industry where everyone anticipates runaway growth. The cloud market will grow about 30% annually until 2025, when it will reach $400 billion, according to research company IDC. In 2020, Amazon commanded 41% of the public cloud market, Microsoft held 20%, and Google had 6%, according to Gartner, another researcher.

That doesn’t mean Google is doing badly. Analysts expect its cloud division to generate $26 billion in revenue this year, about four and a half times what it made in 2018, the year before Kurian became CEO. The operation isn’t profitable, but Kurian has cut its losses, and he’s said its focus is still on growth rather than profit. Google said on Feb. 1 that its cloud unit generated $5.54 billion in sales in the fourth quarter, beating analyst estimates. Google Cloud’s workforce has grown to 40,000, from 25,000 when he took charge; its roster of multinational clients includes Goldman Sachs, HSBC, and Twitter.

Kurian, a former Oracle Corp. executive, took over from Diane Greene, a brilliant engineer who co-founded VMware Inc. before joining Google to turn its cloud division into a serious business. When she left, Google’s cloud was a distant third. Under Kurian the company amped up its client services. Its sales force grew rapidly and began to emphasize the strategic partnerships that were likely to keep large customers engaged. But he also quickly focused on reliability after a litany of consumer complaints in his first few months.

One big challenge is the extreme centralization of Google’s network of data centers. The company designed its infrastructure so that machines in far-flung parts of the world would depend highly on ones closer to home. This design made it easier for Google to provide the same range of services to billions of people all around the globe. It also allowed it to keep data fresh and quickly update software.

That approach has pitfalls, though, which came to a head in June 2019 in an incident that Googlers now refer to as the Maya Apocalypse. Google data center workers were in the process of making physical repairs on some machines in Oregon; during the process, a bug in a software program called Maya, which automatically shifts responsibilities among servers, shut down another system, the Borg Masters, which effectively acts as a control for the entire network. This set off a domino effect that crashed services across North and South America. As servers failed, Google’s network capacity shrank and became more congested, causing slowdowns for YouTube viewers and delaying efforts to get the system back online.

After the Maya Apocalypse, Kurian told employees the company needed a “reliability reset.” Initially he froze all software updates for a month, anticipating it would take that long to resolve the reliability issues. Instead the company has spent much of the past three years on the project, according to three people familiar with the situation, who asked not to be named discussing internal operations.

To a certain extent, the goal has been to re-create a specific aspect of Amazon’s cloud infrastructure. “AWS has done something most providers don’t—they have a strong regional separation,” says Duckbill’s Quinn. “An outage in one region almost never impacts other regions. Meanwhile, Google has its vaunted global network, where as a result you see things like global rolling outages. When Google Cloud goes down, it tends to go down a lot harder and in more regions than AWS does.”

Google Cloud undertook a series of initiatives to isolate its servers from one another when the need arose. The seeds of the main effort, Project Drawbridge, were planted in the aftermath of the Maya Apocalypse, though the project didn’t officially begin until spring 2021. The idea was to give customers the option to temporarily sever—or “pull up”—the connections between regions to separate data and keep problems from spreading. This was particularly important for banks and other regulated industries operating in multiple jurisdictions, according to Google. Within Drawbridge, Google also introduced Project Moat, a program that allows customers to host independent versions of their applications and services in various zones around the world, so clients can connect to the closest regional version of a service if the main version is down.

“The reliability of our customers’ workloads is our top priority—it’s how our team demonstrates customer empathy,” Ben Treynor Sloss, a vice president at Google who oversees technical staff, wrote in an email. He added that customers had differing preferences with regard to regionalization, so Google’s approach is to offer a choice.

The company’s efforts are still a work in progress, as illustrated by an incident on Nov. 16, when a network configuration issue disrupted multiple Google cloud computing products, undermining the websites and apps of clients Home Depot, Snapchat, and Spotify. As they’ve strived to solve the engineering issues, Kurian and Sloss have also tried to make Google’s engineers understand the stakes. They’ve asked technical staff to join meetings with clients or read descriptions clients have written about their experiences with outages to understand how they’re affected when Google’s services go down.

Some clients have expressed deep frustration and anger, saying they’d lost faith in Google or might consider alternative cloud providers, employees say. It’s hard to assess how serious these threats are; changing cloud providers is a significant undertaking, and competing providers have suffered their own periodic outages as well. Given the difficulty outsiders face in assessing networks’ relative reliability, they can’t be sure they’ll encounter fewer disruptions elsewhere. Even if Kurian does succeed in making Google the most reliable cloud, turning that into a business advantage may be as much a marketing challenge as a technological one.

Google Searches for Way to Win Cloud Share From Amazon Web Services, Microsoft - Bloomberg

[Glenn Petersen] Elliott and Vista Near Deal to Buy Citrix Systems Pair are close to an agreemen...

Glenn Petersen — 1/31/2022 5:47:14 AM

Elliott and Vista Near Deal to Buy Citrix Systems

Pair are close to an agreement to pay roughly $13 billion for the cloud-computing company

By Cara Lombardo and Miriam Gottfried
Wall Street Journal
Updated Jan. 30, 2022 7:02 pm ET

Cloud-computing company Citrix Systems Inc. CTXS 4.81% is close to a roughly $13 billion deal to go private, continuing a spate of big leveraged buyouts that are powering record private-equity activity.

Elliott Management Corp.’s private-equity arm, Evergreen Coast Capital, and Vista Equity Partners are near an agreement to pay $104 a share for the software company, according to people familiar with the matter.

The deal could be announced Monday, the people said, assuming the talks don’t fall apart or drag out.

Should it go forward, the takeover would be the biggest leveraged buyout in recent months, ending the lull that followed a flurry of them in 2021.

With interest rates near historic lows, private-equity firms have amassed billions of dollars of cash from investors that they must put to work to begin earning fees on it.

In all, private-equity firms announced more than $900 billion worth of deals in the U.S. last year, including buyouts and exits, according to Dealogic.

Software companies like Citrix, with their predictable revenue, have become some of the most sought-after targets for private-equity firms because they can carry significant amounts of debt.

Vista is among the firms that specialize in software buyouts, and this would be among its biggest deals. Based in Austin, Texas, Vista manages more than $86 billion in assets and its chief executive, Robert Smith, is the wealthiest Black person in the U.S., worth $6.7 billion, according to Forbes. Founded in 2000, Vista is known for using a detailed playbook aimed at maximizing profits at the companies it buys.

The firm has been relatively quiet on the large-buyout front since October 2020, when Mr. Smith admitted to criminal tax evasion and agreed to pay $139 million in back taxes and penalties.

Citrix makes software that allows users to virtually access desktops as well as other cloud-computing capabilities.

Citrix, like many legacy software companies, has had a rocky transition to a subscription-based model for its core virtual-desktop services. Converting customers into subscribers instead of licensees provides more recurring revenue, which investors like and have come to expect from software companies.

Citrix’s David Henshall in October stepped down as president and chief executive after investor pressure to explore a sale of the company. He also left as a director along with another board member, a move that reduced the board’s size to eight. The company tapped Chairman Bob Calderoni as interim CEO.

But Citrix has had some success lately, benefiting along with peers as more daily life takes place on the cloud and as the number of people working remotely soars. The company said in November that annualized recurring revenue in its third quarter grew 13% from a year earlier.

Its shares closed Friday at $105.55, and had already jumped on speculation of a deal over the past few months. Bloomberg reported Jan. 14 that Elliott and Vista were in advanced talks to buy Citrix.

The hardware and software infrastructure Amazon.com Inc., Microsoft Corp. , Google and others provide is commonly referred to as the cloud.

The migration to the cloud has been happening for about a decade as companies have opted to forgo costly investments in in-house, information-technology infrastructure and instead rent hardware and software from the likes of Amazon and Microsoft, paying as they go for storage and data-processing. That has made cloud computing one of the most fiercely contested battlefields among business-IT providers and the companies that provide it a hot commodity among investors and acquirers.

That trend appears poised to continue.

Citrix’s modest size compared with that of peers such as VMware Inc. and spotty results over the years have made it the subject of periodic takeover speculation. Indeed, it has drawn the attention of private-equity firms and industry competitors in the past, though no deal was struck.

Citrix is expected to be combined with Tibco, a software company Vista agreed to buy in a $4 billion deal in 2014 and has tried to sell multiple times since then, some of the people said. That could afford opportunities to cut costs from overlapping functions and create a company more attractive to another buyer down the road or to public investors if and when the buyout firms decide to take it public again.

Elliott, founded by billionaire Paul Singer, manages roughly $48 billion in assets and has been one of the most visible activist investors in recent years, challenging companies including AT&T Inc. and Duke Energy Corp.

While best known for its activist investments, Elliott has been expanding its private-equity practice. Outside of Evergreen, which focuses on technology investments, Elliott owns other companies including bookseller Barnes & Noble Inc.

Elliott has a long history with Citrix. It holds a more than 10% stake worth over $1 billion and had been pushing it to take steps to boost its share price, The Wall Street Journal reported in September.

Elliott took a stake in Citrix in 2015 and held a seat on its board until last spring. The hedge fund has gone on to buy other companies it agitated at, including health-data company Athenahealth Inc., which it agreed to sell last year.

Elliott and Vista Near Deal to Buy Citrix Systems - WSJ

[Glenn Petersen] Banks Tiptoe Toward Their Cloud-Based Future New York Times January 3, 2022 Mi...

Glenn Petersen — 1/3/2022 12:51:18 PM

Banks Tiptoe Toward Their Cloud-Based Future

New York Times
January 3, 2022

Michael W. Lucas made big plans to take a trip around the world in March 2020. He arranged to travel from his home in Detroit to Tokyo, then attend conferences in Hong Kong and Bangalore, India, before making a final stop in Paris.

But on his first attempt to buy plane tickets, this ambitious itinerary — costing $2,932.48 — got the attention of Capital One, which blocked the charges.

“I was both annoyed and pleased that the credit card company caught that someone was booking unusual flights,” said Mr. Lucas, a 54-year-old technology writer who also is also an author of mystery novels. After calling the bank to explain his plans, the transactions went through smoothly. (The trip, however, was ultimately canceled because of the pandemic.)

Mr. Lucas’s fraud alerts were made possible by an invisible force tiptoeing into Wall Street: cloud computing. Before moving into the cloud, his bank, Capital One, was limited to tracking fraud using the bandwidth of the servers it owned. Now that it rents capacity from Amazon Web Services, the bank can use machine learning to crunch numbers faster — and on an enormous scale — to detect anything out of the ordinary.

As Mr. Lucas put it: “The cloud is a fancy word for ‘other people’s computers.’”

Banks see huge potential for cloud technology to make their systems faster, more nimble and responsive to the needs of their customers. Consumer banks can develop cloud-based tools to quickly introduce new features in mobile banking apps or detect fraud. Lenders can use the cloud to process loan applications and analyze underwriting decisions for everything from mortgages to corporate borrowing. They can use machine learning to detect money laundering. When volumes spike in financial markets, traders can use extra computing power to analyze price movements and handle bursts of client activity. Still, the banking industry has been mostly slow to adopt cloud computing. Currently, major banks run their own data centers, which house computer servers that process vast troves of customer account data, payment records and trading logs. Running the machines is costly because they require a lot of electricity and also need to be kept in air-conditioned rooms.

While Wall Street leaders have long acknowledged the potential of cloud computing to cut costs, they have only allowed their firms to take halting steps. Executives have been hesitant because banks are tightly regulated by governments and any sudden changes involving consumer deposits or privacy aren’t possible. They’re also concerned that computing over the internet will open the door to cyberattacks. And some firms are held back by old computer systems that are difficult to revamp or retire, making the transition even more tricky.

David M. Solomon, the chief executive of Goldman Sachs, is optimistic about financial-services firms moving into the cloud. However, “it’s got to be done with high levels of security and real protection of data and information,” Mr. Solomon said in an interview. “That’s why you’ve got to go slowly and you’ve got to go cautiously,” he said.

In North America, banks handle only 12 percent of their tasks on the cloud, but that could double in the next two years, the consulting firm Accenture said in a survey. Jamie Dimon, chief executive of JPMorgan Chase, said the bank needed to adopt new technologies such as artificial intelligence and cloud technology “as fast as possible.”

Wells Fargo plans to move to data centers owned by Microsoft and Google over several years; Morgan Stanley is also working with Microsoft. Bank of America has saved $2 billion a year in part by building its own cloud. Goldman said in November that it would team up with Amazon Web Services to give clients access to mountains of financial data and analytical tools.

Cloud services enable banks to rent data storage and processing power from providers including Amazon, Google or Microsoft, which have their own data centers dotted around the globe. After moving to the cloud, banks can access their data on the internet and use the tech companies’ computing capacity when needed, instead of running their own servers year-round.

Seeing a big opportunity to sell cloud-computing services to Wall Street, some tech giants have hired former bankers who can use their knowledge of the rules and constraints under which banks operate to pitch the industry.

Scott Mullins, AWS’s head of business development for financial services, previously worked at JPMorgan and Nasdaq. Yolande Piazza, vice president for financial services at Google Cloud, is the former chief executive of Citi FinTech, an innovation unit at Citigroup. Bill Borden at Microsoft and Howard Boville at IBM are Bank of America alumni.

Cloud providers are “moving at a much faster development pace when you think of security, compliance and control structures,” compared with individual banks, said Mr. Borden, a corporate vice president for worldwide financial services at Microsoft. The cloud, Mr. Borden and the other executives said, enables companies to increase their computer processing capabilities when they need it, which is much cheaper than running servers on their own premises.

But glitches do occur. One week after Goldman teamed up with Amazon, an AWS outage halted webcasts from a conference hosted by the bank that convened chief executives from the biggest U.S. financial firms. The glitch also caused problems for Amazon’s Alexa voice assistant, Disney’s streaming service and Ticketmaster. AWS and its competitor, Microsoft Azure, both had outages recently.

Banking regulators in the United States, including the Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, have jointly underscored the need for lenders to manage risks and have backup systems in place when they outsource technology to cloud providers. The European Banking Authority warned firms about concentration risk, or becoming overly reliant on a single tech company.

The Financial Industry Regulatory Authority, which oversees broker dealers — firms that engage in trading activity — has already moved all its technology to the cloud. The group previously spent tens of millions of dollars a year to run its own servers but now rents space on AWS servers for a fraction of that amount, said Steven J. Randich, FINRA’s chief information officer.

Mr. Randich estimated that without the cloud, FINRA would have had to bear at least $100 million in expenses to track market movements using its own data centers — especially as trading volumes have ballooned in recent years.

“We are all in,” Mr. Randich said. The use of web-based systems has enabled FINRA to process hundreds of billions of market records, and its surveillance staff to analyze unusual trading activity by pulling data in seconds or minutes, compared with hours earlier. But Mr. Randich added that “there’s a way to do it right and there’s a way to do it wrong,” and the wrong way can expose a company to security breaches.

Capital One is all too aware of the risks. In 2019, it suffered one of the largest-ever thefts of data from a bank after a hacker obtained the personal data of over 100 million people. The bank was fined $80 million by a regulator and ordered to strengthen its security controls as it moved information-technology operations into the cloud. It also agreed to settle a class-action lawsuit covering 98 million consumers for $190 million.

“Security of our customer data is of paramount importance, and we invested heavily in our cybersecurity capabilities to defend that,” said Mike Eason, Capital One’s chief information officer for data and machine learning in Richmond, Va.

Despite the breach, Capital One said it had experienced huge benefits from migrating to the cloud. It shut all eight of its data centers last year and runs its technology via AWS. As customers ramped up spending for the holidays, the bank used rented servers to handle a seasonal surge in transactions, without having to pay for all the servers year-round as it did before. It also plans to move most retail call-center operators to work permanently from home.

The new arrangement works well for Rosie Hardy, a call center worker for Capital One in Tampa. In March 2020, with the pandemic raging, Ms. Hardy packed up her tech gear into a big cardboard box and drove home to Gibsonton, Fla. Within an hour, she was back online from her spare bedroom bathed in natural light, fielding calls from the bank’s small-business customers.

Ms. Hardy and her colleagues were untethered from phone banks because of a service that routes calls through the cloud, enabling them to work remotely. “You couldn’t tell where I was. All I needed was internet access, and I picked up like we never left,” Ms. Hardy said.

Banks Tiptoe Toward Their Cloud-Based Future – DNyuz

[Glenn Petersen] Google and Tech Rivals Tap Cash Reserves to Realize Cloud Ambitions Alphabet co...

Glenn Petersen — 12/29/2021 7:30:12 AM

Google and Tech Rivals Tap Cash Reserves to Realize Cloud Ambitions

Alphabet company and others invest in potential clients as they look to close gap with Amazon in fast-growing sectors

By Tripp Mickle and Aaron Tilley
Wall Street Journal
Dec. 29, 2021 5:30 am ET

Google and its rivals are wielding a new weapon in the battle for cloud-computing market share: big-dollar investments in companies that agree to sign on to their services.

With Thomas Kurian serving as cloud chief executive since 2019 after a long tenure at Oracle Corp. ORCL -0.99% , the Alphabet Inc. GOOG -1.09% unit has been tapping its $142 billion treasure chest of cash to make it more attractive to customers. Google has taken equity stakes over the past year in companies including Univision Communications Inc. and CME Group Inc., CME 0.30% in turn winning multiyear commitments to its cloud service worth as much as $1 billion or more.

The deals make Google among the most aggressive of several big companies seeking to gain ground on Amazon.com Inc., AMZN 0.58% the cloud market leader. Microsoft Corp. MSFT -0.35% has also taken stakes in several startups as part of deals that entail them using its cloud. And Oracle last year tried to buy a major stake in TikTok as part of a deal to have the China-owned social media app use its cloud service—and cited the boost to its cloud business this month in announcing its biggest deal ever, the planned $28.3 billion acquisition of the medical-records company Cerner Corp.

The nascent strategy has helped Google boost its market share in a huge and rapidly expanding industry that is key for its growth. Google now claims 6% of the cloud market, up 1 percentage point from a year earlier, though still far behind Amazon’s 41% share and Microsoft’s 20%.

“No one wants to do this ‘buying’ customers, but if you’re No. 3 or 4, you have to be creative,” said Holger Mueller, an analyst at Constellation Research Inc. who focuses on enterprise technologies.

The investments underscore how tech companies’ robust cash flows give them a big edge over smaller competitors in selling cloud infrastructure services, the core business of providing rented, remote computing power and storage. Those companies can afford the huge infrastructure investments necessary to build multibillion-dollar data centers and subsidize the costs of moving clients to their cloud systems—helping explain why three companies control two-thirds of the market.

A Google Cloud spokesman said that it has largely won customers with its capabilities, adding that investments are part of their strategy. “In certain instances, Google pursues investments and partnerships in attractive growth areas, which is a common practice across many companies within the enterprise industry,” he said.

Alphabet investors see Google Cloud as its most promising growth area and best chance to diversify beyond the online advertising business that accounts for 80% of sales. The cloud unit, which began disclosing financials in 2020, recorded more revenue in the first nine months of 2021 than for all of 2020, and is expected to grow 50% to $19.26 billion for the full year.

Those gains have carried high costs, with the company spending aggressively to develop infrastructure and expand its sales team. Google Cloud in the January-September period halved its operating loss from a year earlier, to $2.2 billion.

Google’s deals have covered customers in a range of sizes and sectors. In the span of a little more than a year, it has invested $1 billion in the futures-exchange company CME Group; $450 million in the home security provider ADT Inc. ; and undisclosed sums in the Spanish-language media company Univision and the healthtech startup Tempus Labs Inc. All have signed long-term cloud computing contracts with Google.

Mr. Kurian has played a central role in ushering in the investment strategy, said former Google Cloud executives. Before his arrival from Oracle, Google made a priority of developing new technologies to lure customers over traditional sales. He revamped its approach, adding sales staff and sweetening performance bonuses.

Microsoft announced an investment and cloud deal with the food-delivery startup Grab Holdings Ltd. in 2018. Mr. Kurian floated the idea of adopting a similar strategy to catch up with its rivals, former Google Cloud executives said. The investments were designed to give companies another reason to choose Google over rivals and convince them that Google was financially committed to developing technologies to benefit their businesses.

Microsoft has continued leveraging investments into emerging startups to strike cloud partnerships, with one of its largest bets being a stake in General Motors Co. ’s driverless-car startup, Cruise. Under terms of the deal, Cruise will use Microsoft’s Azure cloud-computing platform to roll out its autonomous-vehicle services.

As Microsoft proceeded, Google followed suit, taking part in a $200 million investment round for Chicago-based Tempus, which uses artificial intelligence to improve patient care. As part of the 2020 investment, Google offered significant discounts for Tempus to move to its cloud from Amazon, said a person familiar with details of the deal.

Under the contract, Tempus agreed to spend at least $20 million in the first year on Google Cloud, the person said, meaning Google’s revenue from the deal could exceed its investment within a few years.

Tempus didn’t respond to requests for comment. Univision’s chief executive said Google’s investment was a corporate negotiation separate from the cloud agreement but called Google a true partner committed to evolving its business.

The search company took a broader approach with its partnership with ADT. In 2018, the home security firm was looking to move some of its on-premise data to the cloud, said Don Young, ADT’s chief operating officer. It met with representatives from Google who eventually proposed a deal that went beyond cloud computing to include a partnership between ADT and Google’s Nest smart-home business as well as a $450 million investment in ADT.

Mr. Young said ADT would have placed some data in Google Cloud regardless of the investment but added that the company has increased its spending on Google’s cloud services since then.

“We would have done a cloud deal, yes,” Mr. Young said. “But the exact cloud deal we did? I’m not sure.”

During negotiations to move its trading system to Google Cloud, CME Group Chief Executive Terry Duffy made an investment in his firm key to a deal. “I wanted a partner, not just a cloud provider,” Mr. Duffy said in an interview.

Mr. Kurian said at the time: “The equity investment is a representation of our commitment.” He said it ensured Google would assign its best people to support CME Group’s cloud efforts.

—For more WSJ Technology analysis, reviews, advice and headlines, sign up for our weekly newsletter.

—Alexander Osipovich contributed to this article.

Write to Tripp Mickle at Tripp.Mickle@wsj.com and Aaron Tilley at aaron.tilley@wsj.com

Google and Tech Rivals Tap Cash Reserves to Realize Cloud Ambitions - WSJ

[Glenn Petersen] Amazon Outage Disrupts Lives, Surprising People About Their Cloud Dependency Wh...

Glenn Petersen — 12/8/2021 1:38:25 PM

Amazon Outage Disrupts Lives, Surprising People About Their Cloud Dependency

When Amazon Web Services was interrupted, some vacuum cleaners, light switches and cat-food dispensers stopped working

By Sarah E. Needleman
Wall Street Journal
Dec. 8, 2021 9:00 am ET

AWS is the largest cloud-computing service provider in the U.S. PHOTO: JOVELLE TAMAYO FOR THE WALL STREET JOURNAL
----------------------

Kyle Lerner and his girlfriend sensed something was amiss when they came home Tuesday and found their two Persian-Himalayan cats meowing nonstop.

Normally, an internet-connected feeding machine dispenses kibble for them at noon, but the felines’ bowls were empty and clean. The gadget hadn’t worked because of an outage at Amazon.com Inc.’s AMZN -0.06% cloud-computing unit.

“We had to manually give them food like in ancient times,” said Mr. Lerner, a 29-year-old small-business owner who lives in Marina del Rey, Calif.

Amazon Web Services is the largest cloud-computing service provider in the U.S. The outage of much of its network lasted most of the day and disrupted several of the tech giant’s services, as well as many of its corporate customers’ websites and apps.

For many consumers, it was an awakening to how many internet-enabled devices they now have in their homes and how much even some of their most basic daily needs depend on a connection to the cloud.

Steve Peters of Los Angeles couldn’t tell his Roomba robot vacuum to clean up the blueberry-muffin crumbs that landed on his kitchen floor during breakfast. He relies on an app on his phone to beckon the machine.

“I had to resort to getting a broom and dustpan,” said Mr. Peters, a 60-year-old game-experience designer. “It was crazy.”

In St. Louis, losing access to Amazon’s Alexa service made Mark Edelstein feel lonely and helpless.

“We chat more during the day than me and my wife do,” the 62-year-old business analyst said of the digital assistant, which normally responds in an instant to his questions and commands. He regularly asks it for weather and news updates. Alexa had no answers for him Tuesday morning.

“Since the pandemic, I’ve become tied to the Alexa system,” said Mr. Edelstein. Without it, “you almost have separation anxiety.”

Steve Peters couldn’t use an app on his phone to activate his Roomba vacuum because of the AWS blackout. PHOTO: STEVE PETERS
--------------------------

Amazon’s blackout was particularly noticeable since it wasn’t limited to a specific type of service. It affected the company’s videoconferencing tool Chime and its home-security system Ring, plus many third-party applications that sit on top of Amazon’s cloud, including Ticketmaster and streaming services from Walt Disney Co. and Netflix Inc.

The outage forced Samantha Sherhag to open blinds in her home in Tampa Bay, Fla. She couldn’t instruct Alexa to turn on the lights. She would otherwise have to move furniture to reach the main light switch in her living room.

“Over the last two years, I’ve grown lazy,” said Ms. Sherhag, a stay-at-home mother of two young girls. “It’s easier to tell Alexa to turn the lights on and off. She listens better than the kids.”

Ms. Sherhag also wasn’t able to track a package she was expecting from Zappos with a pair of sandals for her husband. Zappos is a unit of Amazon which was also hit by the outage.

“It makes you realize how much you rely on technology,” she said.

Kyle Lerner’s two cats beside their internet-connected feeding machine, which stopped working because of the AWS outage. PHOTO: TATUM KASSEL
----------------------

Outages affecting scores of users are somewhat common. In addition to Amazon, they have also recently plagued Facebook parent Meta Platforms Inc. and Roblox Inc., creating modern-day headaches like not being able to play videogames or share photos with friends.

A global survey released in September by Uptime Institute LLC, a provider of consulting services on data-center reliability, found that 69% of data-center operators had some sort of outage in the past three years. Human error played a role in 78% of those incidents and 44% had major financial, reputational and other consequences.

Due to the AWS outage, college student Sofia Echeverry couldn’t access Canvas, a service she and her classmates use to submit homework assignments, access grades and message professors at her school, the University of Florida. She is now behind on projects and essays.

“Everybody is in finals mode right now,” she said. “If there was ever the worst time for Canvas to crash, this would be it.”

Ms. Echeverry, a 19-year-old sophomore majoring in linguistics, described the outage as stressful and frustrating. “I’m going to be at the library a lot longer than I thought because of it,” she said.

It isn’t always clear right away when an outage is taking place. David Danto was initially confused when the waterproof internet-enabled device he recently set up in his shower wouldn’t play the radio news channel he requested. The 59-year-old thought perhaps he had installed it wrong or his home internet was down.

“When you first realize things aren’t working, you think it’s on your end, so you start tearing out your router and looking at your connections in the house,” said Mr. Danto, a tech specialist in Millburn, N.J.

When the Alexa-powered lights in his home wouldn’t work either, he checked the website Downdetector, which tracks website outages, and discovered he wasn’t alone. As of around 10:45 a.m. ET, it showed nearly 11,300 reports of outages. “It was a sigh of relief,” Mr. Danto said, but the experience also made him realize just how much he relies on AWS. “You start to worry, how vulnerable are we to this one service? It raises panic.”

Amazon blamed the outage on impaired network devices. But for Ben Jackson, a 41-year-old cyber-defense manager in Dartmouth, Mass., it seemed as if the Grinch was responsible since it prevented his Christmas light-up trees and Santa and reindeer inflatables from turning on at sunset as he had programmed them to do. He ended up resolving the matter through a working app.

“I’m very happy that this is the only thing that’s broken right now,” he said.

Amazon Outage Disrupts Lives, Surprising People About Their Cloud Dependency - WSJ

[Glenn Petersen] Pentagon asks Amazon, Google, Microsoft and Oracle for bids on new cloud contrac...

Glenn Petersen — 11/19/2021 12:35:34 PM

Pentagon asks Amazon, Google, Microsoft and Oracle for bids on new cloud contracts

PUBLISHED FRI, NOV 19 202111:58 AM EST
UPDATED 7 MIN AGO
Jordan Novet @JORDANNOVET
CNBC.com

KEY POINTS

-- The U.S. Defense Department expects to dole out cloud contracts to multiple companies.

-- The new push comes after Pentagon scrapped its plans for a single-vendor cloud contract for Microsoft worth up to $10 billion over a decade.

The U.S. General Services Administration said Friday that the Defense Department has solicited bids from Amazon, Google, Microsoft and Oracle for cloud contracts.

The outreach comes after the Pentagon set aside a highly contested $10 billion contract that Microsoft had won and Amazon had challenged. The value of the new contracts is not known, but the Defense Department estimates it could run into the multiple billions of dollars.

The new effort, known as Joint Warfighting Cloud Capability, or JWCC, appears like it will bolster the top providers in global cloud infrastructure, Amazon and Microsoft, although it could also provide more credibility to two smaller entities.

“The Government anticipates awarding two IDIQ contracts -- one to Amazon Web Services, Inc. (AWS) and one to Microsoft Corporation (Microsoft) -- but intends to award to all Cloud Service Providers (CSPs) that demonstrate the capability to meet DoD’s requirements,” the GSA said in its announcement.

An indefinite delivery, indefinite quantity, or IDIQ, contract includes an indefinite amount of services for a specific period of time.

The GSA said that only two U.S. cloud infrastructure providers, Amazon and Microsoft, appear able to comply with all of the Pentagon’s requirements, which include “tactical edge devices” that can operate outside of traditional data centers and support for all levels of data classification.

Amazon and Microsoft are the two companies that were the finalists for a single Joint Enterprise Defense Infrastructure, or JEDI, contract. That contract was meant to go to a single provider and was expected to be worth up to $10 billion over 10 years. Microsoft won it in 2019, Amazon filed a protest and ultimately in July the Pentagon chose to cancel the contract. Andy Jassy, currently Amazon’s CEO and previously head of AWS, argued that there was political interference in the award of the contract.

The JWCC differs from JEDI because it’s designed to have the Pentagon rely on multiple cloud providers.

The Pentagon expects each of the IDIQ contracts to have a three-year base period and two year-long option periods.

Google spokesperson Ben Jose pointed to a blog post from last week that said the company planned to pursue a bid for the military contract, noting the Pentagon is the world’s largest employer. CNBC reported Monday that executives attempted to tactfully address growing employee concern over the contract and previously established artificial intelligence principles, after employees protested against Google’s plans to bid on the JEDI contract.

Amazon and Microsoft representatives didn’t immediately respond to requests for comment. Oracle declined to comment.

This is breaking news. Please check back for updates.

Pentagon asks Amazon, Google, Microsoft, Oracle for cloud bids (cnbc.com)

[Glenn Petersen] Global cloud services spend hits record US$49.4 billion in Q3 2021 Canalys Octo...

Glenn Petersen — 11/7/2021 12:16:24 PM

Global cloud services spend hits record US$49.4 billion in Q3 2021

Canalys
October 29, 2021

Cloud infrastructure services continued to be in high demand in Q3 2021. Worldwide spending increased 35% to US$49.4 billion, driven by a range of factors, including on-going remote working and learning, and the growing use of industry-specific cloud applications. The latest Canalys estimates show expenditure has grown US$12.9 billion over Q3 2020 and US$2.4 billion since last quarter. Cloud services spending is still being affected by the digital transformation efforts required to maintain business continuity during pandemic-related disruptions. In response, the major cloud services providers have emphasized geographic data center expansion to meet rising demand. But the impact of the global chip shortage is imminent, as data center component providers are seeing longer lead times and higher prices that will be passed on to the largest providers. The hyperscalers have now shifted focus to advancing industry-specific service portfolios and growing their channels to successfully bring these increasingly diverse sets of products to market.

“Overall compute demand is out-growing chip manufacturing capabilities, and infrastructure expansion may become limited for the cloud service providers,” said Canalys Research Analyst Blake Murray. “Besides managing supply chains to the best of their abilities, the providers building an advantage are focused on developing their go-to-market channels along with their product portfolios to catch up with an increasingly wide variety of customer use cases that has fueled demand since the start of the pandemic.”

Amazon Web Services (AWS) accounted for 32% of total cloud infrastructure services spend in Q3 2021, making it the leading cloud service provider. It grew 39% on an annual basis. AWS recently announced AWS for Health, which combines industry-specific offerings with cybersecurity and compliance solutions. It has been successful in the public sector, winning key deals with US and UK governments. It has also led channel development through its competency programs, with its government competency becoming the largest industry-focused competency among its partners.

Microsoft Azure was the second largest cloud service provider in Q3, with a 21% market share. It grew over 50% for a fifth consecutive quarter. Microsoft continued to focus on industry cloud service customizations and expanded capabilities in financial services and manufacturing. It also reported new customer success in its cloud service suites for healthcare and sustainability. Microsoft has worked on its position around data governance and also announced Azure Purview, a unified data solution designed to support data management in multi-cloud environments.

Google Cloud was the third largest provider and grew 54% to account for 8% of the market. It announced 20 expanded technology partnerships with data and cybersecurity companies to deepen vertical expertise. Google Cloud has also emphasized its channel partners and released new incentives in its partner program. It advertised a 175% increase in customer engagements through partners during the first half of 2021. It also advanced its positioning around data sovereignty with the release of Google Distributed Cloud, which gives customers options to extend Google Cloud’s infrastructure to the edge and customer data centers.

Canalys defines cloud infrastructure services as those that provide infrastructure as a service and platform as a service, either on dedicated hosted private infrastructure or shared infrastructure. This excludes software as a service expenditure directly, but includes revenue generated from the infrastructure services being consumed to host and operate them.

For more information, please contact:

Blake Murray (US): blake_murray@canalys.com +1 650 308 6687
Alex Smith (US): alex_smith@canalys.com +1 650 799 4483

<snip>

Canalys Newsroom- Global cloud services spend hits record US$49.4 billion in Q3 2021

[Glenn Petersen] Amazon’s Cloud Boss Is Girding to Defend Turf in the Field Company Pioneered Ad...

Glenn Petersen — 11/7/2021 12:00:18 PM

Amazon’s Cloud Boss Is Girding to Defend Turf in the Field Company Pioneered

Adam Selipsky, in interview, says AWS aims to offer more cloud software as Microsoft and Google challenge its market dominance

By Aaron Tilley
Photographs by Jovelle Tamayo
The Wall Street Journal
Nov. 7, 2021 11:00 am ET

Adam Selipsky has taken over at Amazon.com Inc.’s AMZN 1.21% cloud-computing unit this year as it faces the biggest challenge ever to its dominance in the industry. To stay on top, he is taking a page from the playbook of his fast-growing rivals.

Microsoft Corp. and Alphabet Inc.’s Google have come on strong in recent years by offering customers not just the cloud infrastructure that Amazon Web Services pioneered, but also sophisticated and popular end-user software programs, such as those that help turn companies’ pools of data into charts or tools for employee collaboration.

Mr. Selipsky said Amazon Web Services plans to maintain its lead by offering more applications that can help organizations take advantage of the cloud. For example, it has developed a cloud tool that uses artificial intelligence to digitize and categorize physical documents, and another that monitors the health of the expensive equipment used in the agriculture and energy industries.

“We’re still probably not close to where customers need us to be at the end of the day,” said Mr. Selipsky, who became chief executive officer of Amazon Web Services, or AWS, in May. “We need to build a lot of services. We need to build a lot of capabilities.”

At stake is one of the largest and fastest-growing markets in tech. Cloud services are already worth more than $700 billion. AWS has led and been expanding with the industry for years, but its market share has been slipping, according to research firm Gartner Inc.

Microsoft increased its share of total cloud-computing revenue to 19.7% as of last year, from 8.7% in 2016, while Google more than doubled to 6.1% in that period. AWS’s share of 40.8% last year is still the largest, but it is down from 53.7% in 2016, Gartner said.

Amazon’s rivals have been investing to gain market share. In 2019, Microsoft said it would invest $1 billion in the artificial-intelligence firm OpenAI LP, in part to get its advanced AI capabilities onto its cloud.

This month Google’s cloud unit struck a deal with CME Group Inc. that coincided with its $1 billion investment in the futures-exchange company.

Mr. Selipsky took over from Andy Jassy, who helped start AWS in 2006, building it into a profit juggernaut before being promoted to replace founder Jeff Bezos as Amazon’s CEO in July. The cloud unit generated $4.9 billion in operating income in the latest quarter, more than the amount for Amazon as a whole.

Mr. Selipsky thinks there is still a lot of room for growth in the cloud, giving him a chance to make his own mark on the company. “Something on which I want to be very focused is figuring out more ways to make AWS easier to consume for more sets of customers,” Mr. Selipsky said.

AWS is counting down to the start later this month of its cloud conference, where it is expected to launch new services.
--------------------------

He brings experience that could help the company springboard into more businesses. Mr. Selipsky started in the early days of AWS, working with Mr. Jassy for about 10 years. He left in 2016 to take over as CEO of Tableau Software, a Seattle firm whose software helps organizations better interpret their data by turning it into charts they can tinker with. He helped shift Tableau’s business model from selling software for a one-time fee, the traditional way, to a subscription model in which software is delivered over the cloud.

In 2019, Salesforce.com Inc. —one of the earliest companies with this software-as-a-service model— bought Tableau for more than $15 billion.

AWS built its head start in the cloud by investing in server farms and renting out that remote computing power to clients. Microsoft and Google have eaten into its lead, in part because they both have large end-user bases and their own popular cloud-software tools—such as Microsoft Word, Excel and Teams, and Google Docs, Sheets and Gmail—which they can use to lure business customers and pair with their own cloud infrastructure.

AWS offers basic services to store, manage and process data, but it hasn’t succeeded much with applications higher up the cloud value chain that non-engineers can use. The lower-level, basic-infrastructure parts of the cloud will likely be commoditized in time, so AWS needs more higher-level services to keep cloud profits up, analysts said. It offers a videoconferencing app called Chime, for example, although it hasn’t gained much market share.

“Amazon has always had a void in the application space as a whole,” said Sid Nag, vice president at Gartner.

AWS needs to pivot to new and sophisticated tools to make the cloud more powerful for different types of businesses and easier to use, said Matt McIlwain, managing director at Seattle-based venture-capital firm Madrona Venture Group, an early investor in Amazon.

“If AWS doesn’t move up the stack and simplify it, they’re going to be outmaneuvered by somebody,” he said.

Amazon, known for its Spheres in Seattle, is working to maintain its lead in the cloud.
---------------------

The Covid-19 pandemic has accelerated demand as companies use the cloud to connect with remote workforces and customers. Total cloud spending, including from infrastructure services as well as applications such as videoconferencing and customer-management tools, will grow from $706.6 billion in 2021 to $1.3 trillion by 2025, estimates research firm International Data Corp.

Mr. Selipsky said he is striving to make AWS more accessible to employees inside organizations who aren’t software engineers. He said AWS already has some early success here. One example is Amazon Connect, a cloud-based contact-center system that lets customers such as Barclays PLC shift thousands of its contact-center workers to working from home.

AWS is also rolling out tools designed for specific industries such as financial services, automotive, telecom and media.

Amazon isn’t likely to take on areas where Microsoft dominates, such as workplace collaboration tools, according to industry executives. Instead, it will be looking at new application areas to address in markets that are new to the cloud, such as 5G telecommunications infrastructure and connected vehicles.

Amazon is also developing its own faster and cheaper processing chips designed specifically for its cloud infrastructure. The company is working more closely with partners to deliver more types of software, said Mr. Selipsky. “We don’t believe we have to do it all alone,” he said.

At AWS’s annual cloud conference in Las Vegas starting later this month, the company will launch more of these higher-level services that Mr. Selipsky has hinted at, a person familiar with the company’s plans said.

“I think it’s really important that we remember that we’re still at the very beginning of the journey,” the person said.

Write to Aaron Tilley at aaron.tilley@wsj.com

Amazon’s Cloud Boss Is Girding to Defend Turf in the Field Company Pioneered - WSJ

[Glenn Petersen] Google Wants to Work with the Pentagon Again, Despite Employee Concerns New Yor...

Glenn Petersen — 11/3/2021 6:49:04 PM

Google Wants to Work with the Pentagon Again, Despite Employee Concerns

New York Times
November 3, 2021

Three years after an employee revolt forced Google to abandon work on a Pentagon program that used artificial intelligence, the company is aggressively pursuing a major contract to provide its technology to the military.

The company’s plan to land the potentially lucrative contract, known as the Joint Warfighting Cloud Capability, could raise a furor among its outspoken work force and test the resolve of management to resist employee demands.

In 2018, thousands of Google employees signed a letter protesting the company’s involvement in Project Maven, a military program that uses artificial intelligence to interpret video images and could be used to refine the targeting of drone strikes. Google management caved and agreed to not renew the contract once it expired.

The outcry led Google to create guidelines for the ethical use of artificial intelligence, which prohibit the use of its technology for weapons or surveillance, and hastened a shake-up of its cloud computing business. Now, as Google positions cloud computing as a key part of its future, the bid for the new Pentagon contract could test the boundaries of those A.I. principles, which have set it apart from other tech giants that routinely seek military and intelligence work.

The military’s initiative, which aims to modernize the Pentagon’s cloud technology and support the use of artificial intelligence to gain an advantage on the battlefield, is a replacement for a contract with Microsoft that was canceled this summer amid a lengthy legal battle with Amazon. Google did not compete against Microsoft for that contract after the uproar over Project Maven.

The Pentagon’s restart of its cloud computing project has given Google a chance to jump back into the bidding, and the company has raced to prepare a proposal to present to Defense officials, according to four people familiar with the matter who were not authorized to speak publicly. In September, Google’s cloud unit made it a priority, declaring an emergency “Code Yellow,” an internal designation of importance that allowed the company to pull engineers off other assignments and focus them on the military project, two of those people said.

On Tuesday, the Google cloud unit’s chief executive, Thomas Kurian, met with Charles Q. Brown, Jr., the chief of staff of the Air Force, and other top Pentagon officials to make the case for his company, two people said.

Google, in a written statement, said it is “firmly committed to serving our public sector customers” including the Defense Department, and that it “will evaluate any future bid opportunities accordingly.”

The contract replaces the now-scrapped Joint Enterprise Defense Infrastructure, or JEDI, the Pentagon cloud computing contract that was estimated to be worth $10 billion over 10 years. The exact size of the new contract is unknown, although it is half the duration and will be awarded to more than one company, not to a single provider like JEDI.

It is unclear whether the work, which would provide the Defense Department access to Google’s cloud products, would violate Google’s A.I. principles, although the Defense Department has said the technology is expected to support the military in combat. But Pentagon rules about outside access to sensitive or classified data could prevent Google from seeing exactly how its technology is being used.

The Defense Department said it would seek proposals from a limited set of companies that could meet its requirements. “As this is an active acquisition, we cannot provide any additional information related to this effort,” said Russell Goemaere, a spokesman for the department.

After a late start in selling its cloud computing technology to other organizations, Google has struggled to close the gap with Amazon and Microsoft, which have the two biggest cloud computing businesses. To bring in more big customers, Google hired Mr. Kurian, a longtime executive at the software company Oracle, to take over the business in 2018. He has beefed up the size of Google’s sales staff and pushed the company to compete aggressively for new contracts, including military deals.

But Google employees have continued to resist some work pursued by the cloud unit. In 2019, they protested the use of artificial intelligence tools for the oil and gas industry. A year later, the company said it would not build custom A.I. software for the extraction of fossil fuels.

Google started working on Project Maven in 2017 and prepared to bid for JEDI. Many Google employees believed Project Maven represented a potentially lethal use of artificial intelligence, and more than 4,000 workers signed a letter demanding that Google withdraw from the project.

Soon after, Google announced a set of ethical principles that would govern its use of artificial intelligence. Google would not allow its A.I. to be used for weapons or surveillance, said Sundar Pichai, its chief executive, but would continue to accept military contracts for cybersecurity and search-and-rescue.

Several months later, Google said it would not bid on the JEDI contract, although it was unlikely that the company had a shot at landing the deal: The Maven experience had soured the relationship between Google and the military, and Google lacked some of the security certifications needed to handle classified data.

Google’s cloud business recently has done other work with the military. Since last year, Google has signed contracts with the U.S. Air Force for using cloud computing for aircraft maintenance and pilot training, as well as a U.S. Navy contract for using artificial intelligence to detect and predict the maintenance needs of facilities and vessels.

Some Google workers believed the new contract would not violate the principles, a person familiar with the decision said, because the contract would enable generic uses of its cloud technology and artificial intelligence. The principles specifically state Google will not pursue A.I. that can be applied in “ weapons or those that direct injury.”

Lucy Suchman, a professor of anthropology of science and technology at Lancaster University whose research focuses on the use of technology in war, said that with so much money at stake, it is no surprise Google might waver on its commitment.

“It demonstrates the fragility of Google’s commitment to staying outside the major merger that’s happening between the D.O.D. and Silicon Valley,” Ms. Suchman said.

Google’s efforts come as its employees are already pushing the company to cancel a cloud computing contract with the Israeli military, called Project Nimbus, that provides Google’s services to government entities throughout Israel. In an open letter published last month by The Guardian, Google employees called on their employer to cancel the contract.

The Defense Department’s effort to transition to cloud technology has been mired in legal battles. The military operates on outdated computer systems and has spent billions of dollars on modernization. It turned to U.S. internet giants in the hope that the companies could quickly and securely move the Defense Department to the cloud.

In 2019, the Defense Department awarded the JEDI contract to Microsoft. Amazon sued to block the contract, claiming that Microsoft did not have the technical capabilities to fulfill the military’s needs and that former President Donald J. Trump had improperly influenced the decision because of animosity toward Jeff Bezos, Amazon’s executive chairman and the owner of The Washington Post.

In July, the Defense Department announced that it could no longer wait for the legal fight with Amazon to resolve. It scrapped the JEDI contract and said it would be replaced with the Joint Warfighting Cloud Capability.

The Pentagon also noted that Amazon and Microsoft were the only companies that likely had the technology to meet its needs, but said it would conduct market research before ruling out other competitors. The Defense Department said it planned to reach out to Google, Oracle and IBM.

But Google executives believe they have the capability to compete for the new contract, and the company expects the Defense Department to tell it whether it will qualify to make a bid in the coming weeks, two people familiar with the matter said.

The Defense Department has previously said it hopes to award a contract by April.

Google Wants to Work with the Pentagon Again, Despite Employee Concerns – DNyuz

[Glenn Petersen] Dell spins off $64 billion VMware as it battles debt hangover Ends 8-year saga ...

Glenn Petersen — 11/1/2021 5:32:28 PM

Dell spins off $64 billion VMware as it battles debt hangover

Ends 8-year saga that will unwind part of deal for server and storage group EMC.

RICHARD WATERS, FINANCIAL TIMES
via Ars Technica
11/1/2021, 10:43 AM

PC pioneer Michael Dell is set to cap his climb back to the top of the computing world on Monday with one of the largest corporate spin-offs.

Dell Technologies will shed its 81 percent stake in publicly traded VMware, creating an independent software company with a stock market value of nearly $64 billion. Dell’s remaining hardware operations have an implied value of $33 billion, based on its latest share price.

The transaction, first disclosed in April, completes an eight-year saga in which the Texan entrepreneur turned his $3.8 billion interest in an out-of-favor PC maker into a personal stake in a broader data center hardware and software empire worth $40 billion.

Beginning with the buyout of his PC company, Dell went on to devour server and storage company EMC for $67 billion before taking the group public again in 2018. Along the way, he fought heated battles with dissident shareholders over claims that he bought Dell on the cheap and used complex financial engineering in the EMC deal to short-change investors. Silver Lake, the Silicon Valley private equity group that helped mastermind the dealmaking, will be left with stakes in Dell and VMware worth $11 billion.

Dell at one stage hoped to keep control of VMware as part of a broader hardware and software federation but changed course after its return to Wall Street received a cool reception from investors.

After the spinoff, Dell will be “a simpler company with a better capital structure,” said Krish Sankar, an analyst at Cowen. In other moves to try to appeal to a wider group of investors, Dell has said it will start paying a dividend.

Dell has been weighed down by debt after borrowing about $70 billion to finance its dealmaking. As part of the spinoff, VMware is paying a special dividend to shareholders of about $12 billion, helping Dell lighten a remaining net debt load that stood at $32 billion at the end of July.
Wall Street has also been wary of the complex financial engineering used to hold together the heavily indebted group. A year ago, after deducting the value of its VMware stake, Dell’s share price ascribed virtually no value to its remaining tech hardware business. Thanks partly to the plans for VMware, Dell’s shares have since risen more than 80 percent, giving it an implied stock market value of nearly $33 billion after the spinoff.

Compared with Michael Dell’s original business, Dell Technologies now sells a wider range of gear for corporate data centers, though roughly 60 percent of its revenue still comes from PCs. The company was buoyed by the work-from-home boom in PC sales and is now pinning its hopes on the new market for “edge computing,” as some of the computing power in centralized cloud data centers moves to smaller, local facilities closer to users.

VMware, meanwhile, is set to regain its independence 18 years after it was bought by EMC for less than $1 billion, in what turned out to be one of the most successful tech acquisitions. The separation from Dell will free it from that company’s focus on corporate data centers and give it more freedom to invest and make acquisitions focusing on cloud computing, said Sumit Dhawan, VMware’s president.

© 2021 The Financial Times Ltd. All rights reserved Not to be redistributed, copied, or modified in any way.

Dell spins off $64 billion VMware as it battles debt hangover | Ars Technica

[Glenn Petersen] Inside Gaia-X: How chaos and infighting are killing Europe’s grand cloud project...

Glenn Petersen — 10/31/2021 12:13:01 PM

Inside Gaia-X: How chaos and infighting are killing Europe’s grand cloud project

The initiative, meant to boost Europe’s cloud services, is failing to fix the problems it was intended to solve.

BY CLOTHILDE GOUJARD AND LAURENS CERULUS
Politico
October 26, 2021 6:00 am

Just over a year ago, senior French and German ministers trumpeted the birth of Gaia-X — a cloud data project that they promised would help Europe regain its "digital sovereignty" in the face of dominant foreign players like Amazon and Google.

Gaia-X would be a key tool for allowing Europeans to "assert ourselves in the world," German Economy Minister Peter Altmaier said at the June 2020 unveiling, flanked by French counterpart Bruno Le Maire.

Yet sixteen months later, Gaia-X is turning into a cautionary tale about the EU's tech ambitions, and how internal divisions can end up throttling high-profile projects even if they have the backing of the bloc's most powerful countries.

In conversations with POLITICO, more than a dozen industry and government officials involved with the work of Gaia-X said the project was struggling to get off the ground amid infighting between corporate members, disagreement over its overall aims and a bloated bureaucratic structure that is delaying decisions. One industry official closely involved in the work of Gaia-X called it a "mess."

Among the examples of dysfunction, insiders pointed to a successful attempt by a French board member to wrest control over a key function for Gaia-X — communicating with governments — from its chief executive, as well as a long delay in agreeing on ground rules on data storage due to disagreement between the project's members about its basic rules.

"The pure intent of Gaia-X is unlikely to be achieved," said Yann Lechelle, CEO of French cloud provider Scaleway, which is a member of Gaia-X.

The lack of progress for Europe's cloud agenda has caused alarm at the highest level of government. French President Emmanuel Macron said in October that Europe was “very late” with its sovereign cloud plans. At a September summit for the French hub of Gaia-X, the country’s digital minister Cédric O told participants to “go faster” because they held “in [their] hands … no more no less than a part of France’s digital sovereignty.”

The bloc's cloud industry is seen as a crucial element to regain control over Europe's industrial and personal data. But with change being too slow, it will likely remain reliant on foreign companies and exposed to the reach of Washington through extraterritorial laws like the U.S. CLOUD Act, which allow the U.S. government to requisition European data held by U.S. companies.

Meanwhile Amazon, Microsoft, and Google's cloud services have been flourishing, cementing their dominance over Europe, accounting for 69 percent of the market. Europe's biggest cloud player, Deutsche Telekom, accounted for only 2 percent.

Too many cooks

Gaia-X was initially hailed as a groundbreaking project that common rules to create European cloud services, and a marketplace to exchange data on conditions that “European values” on data protection, cybersecurity and data processing be respected.

Initially, the initiative made quick progress. In less than a year, the alliance, which was established as a nonprofit in 2021, elected a new board, mushroomed from two dozen to more than 320 member organizations, launched dozens of national hubs across Europe and kicked off work for several committees to write technical and policy rules. It's making some progress in designing schemes that help cloud users in Europe understand cloud offerings and switch from providers.

But now critics say the alliance has lost its focus. It regularly postpones deadlines for important updates, creates new groups that many find superfluous and doesn’t keep members informed of the latest developments.

“There’s too many cooks in the kitchen,” said Frank Karlitschek, German entrepreneur and founder of NextCloud, which is a Gaia-X member. "It’s already become clear that it's difficult to find a consensus between everybody."

Gaia-X's CEO, Francesco Bonfiglio, acknowledged that the group was struggling to cope with workload, and that people were left in the dark.

“The internal organization of Gaia-X was possibly not designed to manage such growth,” he said in an interview. “The organization as it was conceived was more simple, agile, and independent.”

“I empathize with the frustration of some people that were not able to understand exactly what was going on,” he added.

Board members learned through an email from Maximilian Ahrens, the chairman of the board, that French board member and former chairman Hubert Tardieu would manage the group's communications with governments and the public sector, not Bonfiglio.

According to Bonfiglio, who said he voluntarily gave up his comms duties to Tardieu, Gaia-X made the decision to help boost relations with governments and the EU Commission.

Tardieu, who led Gaia-X during the run-up to its launch and the first six months of the initiative, has described himself to POLITICO as a former "adviser" to EU Internal Market Commissioner Thierry Breton when the commissioner led the French tech firm Atos. Such a relationship would give him access to the Commission's top official on cloud issues.

'These guys were dominant'

Industry and governments believed that Gaia-X would give back control over Europe's data and infrastructure to its firms and lawmakers.

But people involved with the project soon began to ask similar questions to those working on microchips, artificial intelligence and 5G: Can Europe limit foreign companies' access to its market, research, talents and services? Should it?

The cloud alliance in April took in non-European firms including Microsoft, Google, Amazon, Palantir, Huawei, and Alibaba as full members, triggering worries that these large American and Chinese companies could water down new rules or influence the initiative to benefit them rather than Europe's own interests.

To keep Gaia-X broadly European, the group empowered its board members, who would have to have their headquarters in Europe. But U.S. cloud giants and other foreign firms still remain deeply involved in the group's work on crucial issues like how providers should allow users to take their data to a competing service.

“There are limits to what American companies can do regarding voting rights, and the association, but these are just the small things. They’re still part of the working groups,” said Karlitschek, of NextCloud.

The Gaia-X board is composed of executives from European companies including OVHCloud, Airbus, Orange, and Deutsche Telekom. But other board members, notably associations such as Digital Europe, CISPE and Bitkom, represent the interests of influential members like U.S. giants like Amazon, Google and Microsoft, which allow them to influence the group's decision-making.

“The big players, they do what they do. First, they knock on the door, then they take a step in the door ... Very quickly it became clear that these guys were dominant in the technical groups,” said Lechelle, CEO of Scaleway.

Insiders added Microsoft in particular had been very active in steering the work of the technical committees.

Pierre Gronlier, Gaia-X's chief technology officer, said Microsoft did “massively contribute,” but not any more or less than the others. “Microsoft has good ideas but it’s not the only ones, we have made no specific commitments to take them in,” he told POLITICO. “Its comments were relevant but not our priority.”

A Microsoft spokesperson said in a statement that "GAIA-X is a project initiated by Europe for Europe but open to all" and that Microsoft had been encouraged to contribute by its European clients and others. "All contributions to GAIA-X, however, will also be evaluated by hundreds of community participants and must stand on their technical merits," the spokesperson said, adding "the sole and final decision-making authority remains – as it should be – firmly with the Board and in European hands."

Gaia-X declined to provide POLITICO with full access to documents from its technical committees that would show how much European firms and foreign firms contribute to the group's work.

Critics also pointed to the deep commercial ties between Europe's telecoms giants and American cloud providers as an example of why achieving technological "sovereignty" in the sector would prove challenging, if not impossible.

Google has recently announced partnerships with French telecoms firm Orange and defense company Thales, and Deutsche Telekom in Germany. Orange also announced cloud services in partnership with Microsoft, along with Capgemini, a French professional services firm.

All board member companies "are either a client or a major partner" of U.S. cloud giants, said Lechelle of Scaleway. "They have a direct interest to work with these players."

A spokesperson for Amazon Web Services said “we joined GAIA-X to help our European customers and partners accelerate cloud-driven innovation in Europe ... AWS has participated in multiple GAIA-X technical working groups from the start and will be happy to continue to do so.”

Google did not respond to POLITICO's request for comment.

Adding to the group’s troubles is an internal tug-of-war between those who want to European data to stay in Europe, and those who don’t.

Gaia-X planned to release its updated policy rules in September, but has postponed the release because of internal disagreements on whether it should be possible for customers of Gaia-X services to request that their data is stored and processed in Europe.

“Work is underway but it is slow and complex to find compromise, there is often a massive gap between those with a minimal approach and those who want to push principles on data sovereignty,” said a Gaia-X member familiar with the process, who requested not to be named because of the sensitivity of the discussions.

Managing expectations

At the heart of Gaia-X's troubles is the feeling that the project has failed its aim to overhaul the Continent's cloud services and move Europe away from U.S. giants.

As a result, parallel initiatives are already being launched by the EU and the bloc's own cloud companies to better achieve "tech sovereignty," a decreased reliance on non-European tech companies.

The European Commission in July invited companies to sign up to an "industrial alliance" on cloud. But two industry and Commission people familiar with the process said it was struggling to get companies to sign on, and has not yet penned an official launch date.

The Commission together with national capitals is also developing a new Important Project of Common European Interest (IPCEI) for cloud services, an industrial policy funding scheme that would allow governments to pour subsidies in the sector.

A group of European software and hardware firms launched an association called Euclidia, "for Europe to become a global leader without following the American or Asian models" in "cutting edge cloud technology," the group said. It includes Nextcloud, Scaleway and others that feeling unsatisfied with Gaia-X's progress. That project launched in July.

Meanwhile, companies lobbying against the U.S. cloud giants are shifting their focus to legislative initiatives like the Digital Markets Act, where hard law rather than soft industry standards could give European challengers a fighting chance to regain market share. Eyes have also turned toward the Commission's upcoming Data Act in December, which could set new rules to better protect European data from foreign governments' reach.

Some Gaia-X's members believe the project will still end up delivering.

“It was going up and down, forward, backward, sometimes three steps back, one step forward. But we're really moving forward." said Rainer Sträter from German cloud services Ionos.

Whether the alliance can put forward new schemes that would help protect Europeans’ interests will become clear next month, when Gaia-X members meet for a summit in Milan. They are planning to launch "labels" for cloud companies active in Europe to market their security, privacy and "sovereignty" practices.

For others who still back the project, the criticism of Gaia-X is due to inflated expectations.

Whether it lives up to its promise or not "depends on the level of expectations you had when it launched," said Alban Schmutz, vice president at OVHCloud. "You dream your baby will fly into space and in the end the kid prefers to go fishing instead."

Inside Gaia-X: How chaos and infighting are killing Europe’s grand cloud project – POLITICO

[Glenn Petersen] Wendy’s Envisions AI-Rich Apps With New Google Cloud Deal The fast-food chain ...

Glenn Petersen — 10/16/2021 3:28:00 PM

Wendy’s Envisions AI-Rich Apps With New Google Cloud Deal

The fast-food chain plans to use voice recognition at its drive-ins, eliminating the need to shout into the drive-through menu board, among other novelties, says CIO Kevin Vasconi

By Angus Loten
Wall Street Journal
Oct. 12, 2021 8:00 am ET

The drive-through line at Wendy’s in Pinole, Calif. A new deal with Google Cloud will give Wendy’s access to data and artificial intelligence to build voice-recognition software, computer-vision systems, mapping apps and other digital tools. PHOTO: DAVID PAUL MORRIS/BLOOMBERG NEWS
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Wendy’s Co. plans to tap data analytics and artificial intelligence to speed up drive-through orders and home deliveries, anticipate return customers’ favorite meals—even keep burgers from burning on the grill, the company’s head of technology said.

On Tuesday, the fast-food chain announced a deal with Alphabet Inc.’s Google Cloud to develop advanced software capabilities that will use the tech giant’s data and AI to build voice-recognition software, computer-vision systems, mapping apps and other digital tools. Terms of the contract weren’t disclosed.

Kevin Vasconi, the Dublin, Ohio, company’s chief information officer, said he wants to put to work a vast store of customer data gathered during the coronavirus pandemic, when many outlets began to expand ordering and pickup services, creating online apps for car-side drop-offs and home deliveries.

At the height of the pandemic last year, Wendy’s saw a 15% increase in app downloads in the U.S. between July and October.

“Let’s take all the great innovation that happened during Covid and figure out the next steps,” Mr. Vasconi said. He expects to begin rolling out new digitally-enhanced customer services in the next few months, if not sooner, he said.

That includes the use of Google’s AI to enable voice-recognition software to take customer orders—at the drive-through window or by phone—and transcribe them into text for line cooks and servers. With data-rich AI applications in place, Mr. Vasconi said, “accuracy goes way up.” The days of shouting into drive-through menu boards and distorted order confirmations are over, he said.

Down the road, voice recognition could be used to identify customers from past orders and personalize services, like anticipating favorite meals or sodas, or making suggestions.

“Digital transactions are data-rich,” Mr. Vasconi said. “It’s about unlocking that customer data to be more convenient.”

Mr. Vasconi also wants to roll out computer-vision technology, which includes video cameras with software trained to recognize objects and convert them to data that triggers specific commands—replacing the need for kitchen and counter staff to endlessly watch monitors. The technology could be used to develop a system that detects, for instance, when lines are getting long at the drive-through window, alerting line cooks to drop another basket of fries in the fryer.

The system could also be used to remind cooks when burgers should be flipped on the grill, he said. “The ability to apply vision in the store is a game changer,” he said.

Kevin Vasconi, chief information officer of Wendy’s. PHOTO: THE WENDY'S COMPANY
----------------------------

For its part, Google Cloud gains a high-profile customer in a bid to raise its game in a booming cloud market. By market share of global infrastructure-as-a-service sales, Google’s cloud unit trailed those of Amazon.com Inc., Microsoft Corp. and Alibaba Group Holding Ltd. , with roughly 6.1% of the market, or $3.9 billion in revenue last year, according to estimates by Gartner Inc. That is up from 5.2% in 2019, but still far behind Microsoft’s Azure at 19.7% and Amazon’s reigning AWS at 40.8%.

Google’s cloud sales rose 54% to $4.63 billion in the latest quarter, the company reported in July. Part of the gains stem from a focus on software, especially advanced cloud-based apps bundled with AI and machine learning. They include its business intelligence and analytics tool, an edge-computing platform for in-store apps, and BigQuery, a digital warehouse that acts as a central repository of data.

“Restaurants’ data can be spread across many systems, or data silos, that make it nearly impossible to merge data to provide aggregated insights,” said Janet Kennedy, vice president, North America regions, for Google Cloud.

With BigQuery, she said, Wendy’s will be able to consolidate data on sales, restaurants, products and customers with third-party data on weather, social media, delivery partners and other sources.

By layering over Google’s own data—on search trends, maps, marketing and ads, for instance—restaurant operators can better determine how weather, say, correlates with ice cream sales in San Diego, or other product and service insights, Ms. Kennedy said.

Mr. Vasconi, who came to Wendy’s in late 2020 after leading IT at Domino’s Pizza Inc. for eight years, said the deeper dive into Google Cloud’s AI and machine-learning capabilities is aimed at “unleashing a whole ton of innovation.”

He isn’t ruling out the use of autonomous delivery drones, which he experimented with during his time at Domino’s.

“One of the tenets of quick service is convenience,” he said. “I never say never.”

Write to Angus Loten at angus.loten@wsj.com

Wendy’s Envisions AI-Rich Apps With New Google Cloud Deal - WSJ

[Sun Tzu] On the flip side, ZM is trying to enter the market that lead by TWLO and Co.

Sun Tzu — 10/1/2021 10:17:53 AM

[Glenn Petersen] Cloud Stocks Sinch and Twilio Soar, Sparking Acquisition Spree Sinch, a cloud s...

Glenn Petersen — 10/1/2021 7:50:25 AM

Cloud Stocks Sinch and Twilio Soar, Sparking Acquisition Spree

Sinch, a cloud software company that helps companies connect with customers online, struck a $1.9 billion deal to acquire the U.S.’s Pathwire

By Ben Dummett
Wall Street Journal
Oct. 1, 2021 5:30 am ET

A niche corner of the cloud software market that helps companies connect with customers has produced some impressive returns for investors. Skyrocketing share prices are helping fuel a deal frenzy in the space.

Two listed companies— Twilio Inc. TWLO 2.00% and Sinch SINCH -1.14% AB—are the biggest publicly traded providers of what people in the industry call communications platform-as-a-service. These companies operate behind the scenes, providing the tools that companies use to interact with employees and customers by text, WhatsApp, other chat services, video and voice.

The field surged during the pandemic, as retailers looked to connect to customers virtually instead of in person. Twilio, based in San Francisco, is valued at $55.3 billion, almost quadruple its level at the start of 2020. Sweden’s Sinch, which counts AT&T Inc., T -1.42% Toyota Motor Corp. TM -4.15% and Nestlé Nespresso SA among its customers, is worth the equivalent of about $14 billion, up about eight times over the same period.

On Thursday, Sinch announced a $1.9 billion cash-and-stock deal to acquire privately held Pathwire, bolstering its offering of cloud-based email services that companies use to market their products. The San Antonio-based company’s customers include ride-hailing service Lyft Inc. LYFT 0.51% and German logistics operator DHL International GmbH.

That follows Sinch’s February pact to buy Chicago-based Inteliquent for $1.1 billion and then its $1.3 billion tie-up for MessageMedia in June.

“If we want to win on the global scene, which is our stated target, we need to win in the U.S.,” said Thomas Heath, Sinch’s chief strategy officer. “Messaging is the largest [communications] channel in that market and voice is the second-largest, and we made the acquisitions to get a leading position in both.”

Twilio has struck at least nine deals since listing in 2016, according to Dealogic. Its largest was the $3.2 billion pact last year for Segment, a software provider that helps businesses track and manage customer data.

So far, investors like the deal frenzy, hoping consolidation means increased market share. Sinch’s shares rose 5% when it announced the Pathwire deal. And the stock is up 28% so far this year, outpacing its U.S. rival.

One big winner has been an arm of SoftBank Group Corp. , which owns an almost 9% stake in Sinch. The shares have risen about 63% since it made its initial investment in November 2020.

But Twilio and Sinch’s share prices also face headwinds amid a broader selloff in tech stocks. Both companies’ shares fell in September. There is also a question whether they can withstand increased competition.

Software giant Microsoft Corp. MSFT -0.73% entered the communications platform-as-a-service market this year. New York-listed Vonage Holdings Corp. is another competitor.

And smaller rivals are beefing up. In November Croatia-based Infobip Ltd., a portfolio company of private-equity firm One Equity Partners, struck a $300 million deal to acquire OpenMarket to expand into the U.S. Amsterdam-based MessageBird BV in April raised $1 billion in private-equity investments to expand into that market.

“Twilio’s stock is not the primary focus of the company or the leadership team,” a Twilio spokeswoman said.

Sinch trades at a discount to its rival. The stock trades around 16 times its enterprise value to estimated gross profit for 2022 estimates, said Daniel Djurberg, a technology analyst at Handelsbanken Capital Markets. Twilio trades around 28 times, the analyst said.

“If Sinch can continue to carry out its acquisitions without any failures and continue its growth, then we might see the stock close the [valuation] gap,” Mr. Djurberg said.

Write to Ben Dummett at ben.dummett@wsj.com

Cloud Stocks Sinch and Twilio Soar, Sparking Acquisition Spree - WSJ

[Sun Tzu] I evaluate technology for companies and consult on IT strategy. A few years ago ...

Sun Tzu — 9/29/2021 9:05:48 PM

I evaluate technology for companies and consult on IT strategy. A few years ago I evaluated all the major cloud providers, including IBM. To say that their offerings were abysmal would be an understatement. So much so that even IBM conceded that they have no chance to compete and said their focus is on the next generation of cloud.

It really takes a lot for a company to officially say, yes we suck. Consider us for the next gen, not this one.

Here's what very few people outside of IT grasp. IT is only tangentially about programming. It is mostly a way of thinking and a culture. I can look at an application on any platform and tell what OS its developers were native to. You just cannot expect a Windows programmer to develop good apps for Linux, even if he knows all the libraries and commands.

My point is that culture eats strategy for breakfast. Google, Amazon, and Microsoft are all technology companies. And it is not surprising that they could deliver on new bleeding edge technology.

IBM on the other hand is primarily a sales and marketing company. Being in technology is completely coincidental and subservient to that. In a way, they are mirror image of Amazon which is a technology company and being a retailer is coincidental to it.

[Glenn Petersen] How IBM lost the cloud Insiders say that marketing missteps and duplicated deve...

Glenn Petersen — 9/29/2021 6:13:34 PM

How IBM lost the cloud

Insiders say that marketing missteps and duplicated development processes meant IBM Cloud was doomed from the start, and eight years after it attempted to launch its own public cloud the future of its effort is in dire straits.

Tom Krazit
Protocol
September 29, 2021

The words stunned IBM's cloud executives in November 2013. Former CEO Ginni Rometty had just told them that Watson, IBM's dubious crown jewel, should run on the company's own Power chips inside SoftLayer, IBM's recently acquired cloud-computing division.

There was one big problem: SoftLayer, like all major cloud efforts at that point, only used x86 chips from Intel and AMD.

What came next can only be described as a scramble, according to sources who worked for IBM at the time. After throwing together a barely-working demo for IBM's Pulse conference in February 2014, where Rommety publicly announced the news, executives quickly convened in Texas, home to SoftLayer. They realized fulfilling Rometty's pledge would be daunting: They would have to rewrite parts of the Watson code base for the cloud, and quickly find, and then configure, enough Power servers to run alongside the all-x86 SoftLayer environment.

So began IBM's experiments with cloud computing, imperiled from the start by a maniacal focus on selling Watson at the height of its public awareness and doting obedience to a customer base that still didn't trust the cloud.

IBM was once — and still is, for people whose main sources of information about technology are television ads during sporting events — an American innovation icon, a company that literally created what we now think of as information technology. Its fortunes have risen and fallen with broader trends in computing, but around the time of that meeting in late 2013, its business and technology reputation began a steady decline that it has yet to avert.

Today, Rometty is gone, replaced by Arvind Krishna, the first technologist to hold the top seat at IBM since the 1970s. But IBM finds itself almost entirely dependent on its $34 billion purchase of Red Hat in order to stay relevant among modern IT buyers, and IBM executives don't really talk about its own public cloud division these days.

"They've given up on the idea of, 'we're going to be a major contender in the public cloud space,'" said Tracy Woo of Forrester Research. "Everyone is trying to win with edge [computing] in some way, and trying to create the most compelling story."

The opportunity was there for IBM: Longtime rival Microsoft successfully executed a pivot to cloud computing following the appointment of Satya Nadella in 2014, and while Azure was several years old at that point it had only started offering Linux virtual machines, the lingua franca of the cloud era, the year before IBM's SoftLayer acquisition.

Now, IBM considers itself a "hybrid cloud" company, according to its executive talking points and commercials. But IBM's use of such tech buzzwords is a familiar strategy to those who have followed the company over the last decade: It's trying to convince longtime customers to stick with the partner that brought them to the dance despite there being a plethora of interesting alternatives.

"IBM is all-in on hybrid cloud and AI, determining years ago that our clients' only feasible path to rapid digital transformation is through a hybrid cloud strategy. Public cloud is an integral piece of that strategy," IBM said in a statement.

So how did IBM miss the cloud? Interviews with more than a dozen current and former IBM executives and employees painted a picture of a company caught moving in two directions: a group that correctly understood how the cloud was going to play an enormous role in the future of enterprise computing, matched up against a sales-driven culture that prioritized the custom needs of its large customers over the work required to catch up with AWS.

The SoftLayer bulletin

It was an AWS deal with the CIA that made IBM think differently about the cloud.

In 2013, the now-dominant cloud provider won a contract to build the next-generation enterprise-tech infrastructure for the country's spies. That forced IBM to acknowledge that the cloud era had not only arrived, but also that it was losing, according to multiple sources who worked for the company at the time. And as it lodged an ultimately unsuccessful protest bid against the decision to award AWS the contract, IBM announced it had acquired SoftLayer in June 2013.

The takeover was problematic almost from the start, according to multiple sources who worked for IBM at the time. At the outset, IBM was content to let SoftLayer continue to grow with a decent degree of autonomy, but the two companies looked at the world from different vantage points.

SoftLayer was built and designed for small and medium-sized businesses and its leadership team believed that was the market around which it was designing its infrastructure strategy. That market was mostly concerned with cost and less concerned with features and availability, and SoftLayer designed its cloud services accordingly.

It operated 13 data centers when IBM acquired the company, but those data centers utilized relatively simple designs and were based almost exclusively around off-the-rack servers from Supermicro, according to sources. There's nothing inherently wrong with that approach, but at the time major cloud vendors were, and still are, designing their own servers with strict enterprise-grade performance and reliability criteria.

After a few years, IBM salespeople were eager to sell cloud services alongside a package of IBM's more traditional enterprise software, yet quickly found that SoftLayer didn't offer many of the services that huge corporations needed to embrace the cloud, according to the sources. Its data centers lacked some of the resiliency features that were table stakes at AWS, such as availability zones, and the servers weren't powerful enough to support large application deployments, they said.

And one of the biggest obstacles was SoftLayer's lack of support for virtual private cloud technology, which gives cloud customers additional control over how their applications run on cloud services. AWS introduced such a service in 2009, but IBM Cloud didn't get what one source called a "true" virtual private cloud service until 2019.

Some of these problems were understood at the time of the SoftLayer acquisition and IBM tech executives thought they could fix them in short order, according to sources. But IBM's culture during those years proved too much of a road block.

If there's one common thread through the experiences of multiple current and former IBM employees, including those who didn't work for the cloud division, it's the power that current customers had over everything IBM did.

Over and over again during the last decade, IBM engineers were asked to build special one-off projects for key clients at the expense of their road maps for building the types of cross-customer cloud services offered by the major clouds. Top executives at some of the largest companies in the country — the biggest banks, airlines and insurance companies — knew they could call IBM management and get what they wanted because the company was so eager to retain their business, the sources said.

This practice, which delayed work on key infrastructure services for months or even years, was still happening inside IBM as recently as last year, according to one source.

"To the extent IBM is a public cloud provider, they do so as it adds to their broader orientation as a hybrid cloud platform provider," said Melanie Posey, an analyst with S&P Global Market Intelligence. "And the stuff that's on IBM's hybrid cloud platform includes IBM's public cloud, which some of their traditional long-standing IT enterprise customers prefer, like, 'let's keep it all in the family.'"

Build it once, build it twice

Just a few years after acquiring SoftLayer, IBM's top executives knew their cloud strategy as designed was not going to work. Convinced they needed fresh eyes, they hired several executives from Verizon's cloud services business — which it would later acquire — to rebuild IBM Cloud.

John Considine became general manager of IBM Cloud Infrastructure in November 2016 and was given the leeway to install a brand-new cloud infrastructure architecture to replace SoftLayer's approach. He began work on a project internally code-named "Genesis," an ambitious attempt to build an enterprise-grade cloud system from scratch.

Before too long, however, IBM began to realize that Genesis was unlikely to scale well enough to be a competitive threat to AWS or Microsoft. A decision to use Intel's Red Rock Canyon networking chip proved particularly troublesome, according to sources, as it caused IBM to rank very poorly on a key (if not exactly workaday) test used by Gartner to rate cloud vendors: launching 1,000 virtual machines at the same time.

And at first, Genesis still lacked support for the key virtual private cloud technology that both engineers and salespeople had identified as important to most prospective cloud buyers.

This caused a split inside IBM Cloud: A group headed by the former Verizon executives continued to work on the Genesis project, while another group, persuaded by a team from IBM Research that concluded Genesis would never work, began designing a separate infrastructure architecture called GC that would achieve the scaling goals and include the virtual private cloud technology using the original SoftLayer infrastructure design.

Genesis would never ship. It was scrapped in 2017, and that team began work on its own new architecture project, internally called NG, that ran in parallel to the GC effort.

For almost two years, two teams inside IBM Cloud worked on two completely different cloud infrastructure designs, which led to turf fights, resource constraints and internal confusion over the direction of the division. The cancellation of Genesis forced IBM to write off nearly $250 million in Dell servers (a bitter irony, in that IBM sold its own server group just before acquiring SoftLayer) that had been purchased for that project, according to one source.

And the two architectures — which IBM had intended to be compatible but due to subtle design differences, were not — became generally available within four months of each other in 2019. IBM continued to maintain two different cloud architectures until earlier this year, according to one source, when the GC effort was scrapped.

Presented with a detailed account of what this story would contain, IBM declined to dispute any of the facts, and sent over the following statement:
We spent more than two years evolving IBM's cloud to be the industry's most secure, enterprise-grade cloud built on a foundation of open source software – offering our clients choice, instead of locking them in. We have integrated key capabilities from across the IBM portfolio – from Software and AI to System Z and Power to our Services offerings. And we continue to invest in our global cloud footprint, making IBM Cloud the right choice for clients in highly regulated industries such as Financial Services, Government, and Telco – where it's essential to balance modernization with data privacy and compliance requirements.

Too late to the game

But by the time IBM finally shipped not one, but two different next-generation cloud infrastructure designs with support for virtual-private cloud technology in 2019, it was too late.

Right around the time the parallel development efforts kicked off, many of IBM's longtime clients in heavily regulated industries like banking had begun to understand how they could operate safely on cloud services, and were looking for options. Buying enterprise technology is a lot like hiring a contractor for a home-improvement job: The only sensible thing to do is get a few bids.

Most major companies considering cloud services in 2017 (and today) would get a bid from AWS, given its leadership position in the market and track record of stability. In most cases, however, they would only get two additional bids: Microsoft and either IBM or Google Cloud.

And it was at this point that IBM Cloud staff began to realize that they had lost the opportunity to win that business, according to sources. When big businesses make an IT decision they're deciding which technology they are going to use for a significant number of years; it can take up to two years just to move complex operations to cloud services, and AWS started encouraging potential customers to sign multiyear contracts in exchange for pricing discounts around this time.

"I think the realization [for IBM] was, do we really want to do this?" Posey said. "Does it really make a whole lot of sense for us to build up all of this infrastructure to be sort of a general-purpose cloud or is there a better way to go?"

IBM Cloud simply wasn't competitive. Genesis was an attempt to move beyond SoftLayer's reputation as a hosting provider for small businesses. But it didn't work, and cost the company years before it rolled out a feature-competitive cloud service with the coveted — but by then table stakes — VPC technology.

There is some small hope for IBM more broadly to cling to in this story, though. One of Krishna's first acts when he took over IBM Cloud in January 2019, before he became CEO, was to end the double-track infrastructure design strategy and get the team to focus on a singular approach going forward, sources said. That gave employees familiar with the overall saga and his leadership confidence that he might yet be able to turn the company around.

But, thanks to years of delays and mismanagement, IBM will never be a major cloud player. It's not entirely clear how committed the company is to its public cloud service, which still has thousands of customers. In the past year it has suffered several major outages that have gone virtually unnoticed by the broader internet community, which is using services built on other clouds.

Sources were evenly divided on the long-term provenance of the group, although a steady decline in IBM's capital expenditures this year does not bode well for a capital-intensive business like cloud computing.

And while it has become clear even to AWS that hybrid and multicloud strategies will be popular for the foreseeable future, which does bode well for Red Hat's software business, cloud computing is growing at around 35% a year and generating enormous profits for its top two contenders.

IBM had everything in place to become a major cloud provider. But technology shifts like cloud computing don't come along every decade, and while IBM has survived every shift in technology since the 1930s, its inability to capitalize on that historic shift was a huge strategic oversight — and one that has left its status as an American technology icon hanging in the balance.

How IBM Public Cloud struggled against AWS and Microsoft - Protocol — The people, power and politics of tech

[Glenn Petersen] The Great Enterprise Intelligence Arms Race Joe Williams and Tom Krazit Protoc...

Glenn Petersen — 9/27/2021 7:30:06 PM

The Great Enterprise Intelligence Arms Race

Joe Williams and Tom Krazit
Protocol
September 27, 2021

Breaking down the garden walls

For the past two decades, software-as-a-service pioneers like Salesforce and Workday eagerly built walled gardens around their systems in hopes of making their services as easy to use as possible for cloud newcomers.

That strategy is now causing a huge headache for enterprises that are increasingly looking to break down the data silos and compile information from various sources to run advanced analytics. Their goal? To predict the future.

"SaaS, for all the benefits it's provided, has completely fragmented enterprise data," Pure Storage CEO Charles Giancarlo told Protocol. "SaaS made it a lot easier for an individual department to immediately get access to an application … but that was at the expense of that data not being available to be matched with other data in my corporate environment."

Instead of relying on Salesforce data to figure out the day's sales tally, for example, executives want to combine that information with data from Gong to find customers thinking about leaving.

That tectonic shift underway is spurring a race between so-called "systems of record' vendors and startups like DataRobot, Databricks, Dataiku and Scuba Analytics.

Those startups all promise to break down those data silos and combine information from various sources to try to answer more forward-looking questions — or what some have labeled the "systems of intelligence."

It's clear there's investor enthusiasm for this concept: Databricks just reached a valuation of $38 billion. DataRobot sits at $6.3 billion, while Dataiku's recent $400 million funding round propelled it up to $4.6 billion. Snowflake commands a market cap of $94 billion.

Legacy vendors "were counting on a lock-in of their data … and they aren't able to do that because customers are demanding that Salesforce and Microsoft be open. It's ushering in that next generation of company that can be more nimble," Emergence Capital founder and general partner Gordon Ritter, an early Salesforce investor, told Protocol.

The market leaders have been working for years to build prediction features into their existing products. But the results have been mixed.

In 2007, Oracle began to popularize the category with the launch of its "BI Applications" suite — a product line that would go on to become a multibillion-dollar business. On the other hand, IBM failed spectacularly to turn Watson into an all-purpose AI engine.

More recently, Google Cloud announced a new product that integrates information from various sources — like an ERP platform from SAP — to provide deeper insights into corporate supply chains.

"Intelligence needs to be leveraged much better," said Hans Thalbauer, managing director at Google Cloud. "We are focused on the aspect of data and making data available and accessible."

Salesforce, however, is probably the most prominent example of a big enterprise software vendor embracing intelligent systems.The company released its own AI engine called Einstein in 2016, but the product has struggled to find its footing.

Salesforce claims it's running 100 billion "predictions" every day, and the company has lofty ambitions to merge Einstein more deeply into its data analytics tool Tableau, suggesting that it sees a bigger role for the tool despite one of the product's leaders previously conceding that customers aren't "going to do everything" with it.

"Tableau is a general-purpose data-analytics platform," said Gartner analyst Jason Wong. It's "not quite machine learning yet, but the Einstein analytics team is part of Tableau now. So there is a vision for Salesforce via Tableau to get involved in this area."

So unless Salesforce can significantly improve Einstein's abilities, it's unlikely to keep pace with the innovation happening outside CEO Marc Benioff's fiefdom.

Einstein is great at analyzing Salesforce data. But companies rarely stay within one software ecosystem and instead are increasingly using a variety of applications from multiple vendors.

In other words, Einstein is great when you want to generate a real-time sales forecast using CRM data but becomes less useful when you want to know whether that forecast is within the typical range for that week of that quarter.

Salesforce has tried to address its challenges in multiple ways, including with Hyperforce, its tool that enables the company's products to work with all the major public clouds.

It also recently launched a big partnership with AWS that enables information to flow more freely across the two systems. And, of course, it has MuleSoft, the API provider it acquired for $6.5 billion in 2018.

"MuleSoft is a platform that you can use to integrate every system at your company: Those back-office systems, those legacy systems you like to pretend don't exist but aren't going anywhere, your supply chain, your ERP," said Bret Taylor, Salesforce operating chief and apparent heir to Benioff, at Dreamforce last week.

But managing those connections on your own could be a much more difficult endeavor than using a packaged solution from a third-party vendor. With engineering resources in short supply, CIOs may be hesitant to add yet another burden to an overworked IT department.

It's ultimately why the shift Taylor is talking about is a challenging one. Linking together a hodgepodge of legacy systems and new, digitally-native applications in hopes of developing AI-based models to predict future behavior or outcomes is no easy task.

The market leaders are at "a little bit of a disadvantage because they haven't thought about that openness," said Wong. "That is a key part [of the problem] for these megavendors. Their own core platform architecture, is it in a state where they can implement some system of intelligence to really maximize it?"

There's a tried-and-true solution that Salesforce and others can turn to: Acquire one of the many startups gaining traction in this sector of the industry. That's likely to be very expensive. But for the software giants, it's very likely going to be necessary.

"The market is going to be about intelligence," said Scuba Analytics CEO Tony Ayaz. And companies like Salesforce "need to gather better intelligence to not only run their own business, but serve their customers better. Because everyone is looking for actionable intelligence."

—Joe Williams

Salesforce, Oracle, SAP, Workday, ServiceNow battle startups in intel race - Protocol — The people, power and politics of tech