Get Purchased or Perish: The Harsh Reality of Cloud Platforms

It’s getting hard out there for startups in the Platform-as-a-Service (PaaS) space that have to compete increasingly with large vendors, and today’s news that VMware is launching its Cloud Foundry PaaS offering just made life more difficult. It’s an uphill battle, because large software vendors realize they must embrace the future of application development in the cloud or risk becoming relics of the past, and many are choosing the former.

Names like Heroku, Makara and Cloud Foundry still exist in the PaaS world, but they’re now attached to Salesforce.com, Red Hat and VMware, respectively. Elsewhere, Microsoft (Windows Azure), Amazon Web Services (Elastic Beanstalk) and HP (it claims) are all pushing their own PaaS efforts, and IBM and Oracle can’t be far behind. Depending on how you look at it, it’s either a really good time or a really bad time to be a PaaS startup.

Earlier this week, I had a conversation with Issac Roth, former Makara co-founder and CEO, and current director of cloud product marketing at Red Hat, who suggested that PaaS is pretty much an acquisition-or-perish market at this point. Roth didn’t always see the world this way, but his experience since Red Hat bought Makara in November has changed his worldview. Some people thought Makara would die inside of Red Hat, he explained, but his reality has been quite the opposite.

Roth is still driving Makara development within Red Hat, and the company is planning to release the details of its forthcoming PaaS offering at its user conference in May. Further, he noted, Red Hat “is putting a ton of resources behind this, and Red Hat isn’t nearly as big as Microsoft.” The suggestion, of course, is that Microsoft is putting even more money into its Windows Azure platform, a very real possibility given its Microsoft’s recent pledge to invest $8.6 billion on cloud computing R&D this year. Red Hat is operating at a billion-dollar run rate for 2011, and CEO Jim Whitehurst has explained to me on multiple occasions how seriously it takes its cloud computing business as a driver of future revenue. A serious monetary investment is crucial, he explained, because developing enterprise-grade PaaS offerings is hard work that requires serious resources of the amount that only large vendors can afford.

For example, although auto-scaling gets a lot of attention — and rightly so — that feature alone doesn’t make a PaaS offering. PaaS providers need to work on a variety of capabilities and features, Roth explained, including isolation, capacity management and scheduling, and if they don’t have a large vendor’s existing tools to leverage or the research funds to create their own, the only option is to integrate open source projects and hope they’re production-ready. It’s not cheap to run a public PaaS service, either, he added, when developers want low-cost product but PaaS providers still need to pay their IaaS providers at the month’s end. Red Hat can leverage its certified cloud partners; Microsoft, IBM, VMware and others can leverage their own data centers. “How can a little company differentiate and keep up?” he asked.

From what I can tell, Roth’s experience with Red Hat isn’t unique. Heroku CEO Byron Sebastian has told me that life has been great since his company became part of Salesforce.com, and the latter’s reputation already has opened up new doors for Heroku in terms of big-time customers and partners. I think the Cloud Foundry team — which was acquired by SpringSource right before VMware bought SpringSource — would tell of a similar experience as part of VMware. The product certainly has received a much-needed facelift.

Homegrown PaaS appears to be doing just fine, too. Microsoft is wooing some very big customers to its Windows Azure platform — including, recently, Toyota — and although AWS doesn’t disclose any numbers, it’s safe to assume its free Elastic Beanstalk service is doing just fine among Amazon EC2 users. It will be even better when AWS incorporates support for additional languages beyond Java, including Ruby support via a partnership with Engine Yard.

What this all means for PaaS startups like DotCloud, PHP Fog, CloudBees and others (although not RightScale, which actually might have a broad-enough business model and customer base to remain independent if it so pleases) is that if they’re not already fielding acquisition offers, they should expect to be doing so soon as the remaining software giants gets their PaaS acts together. If the phone never rings, it might be time for some self-reflection on whether the platform is viable in the face of all those deep-pocketed competitors.