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Loudcloud: Early light on cloud computing

Girish Venkat, a former employee of Marc Andreessen's cloud-computing pioneer, identifies things today's vendors should do to attract (and keep) enterprise customers.

Editors' note: This is a guest post.

Every time that I see an article touting how great cloud computing is, I always chuckle and think to myself, "been there, done that."

Those who remember the emergence of the Internet era as a mainstream venue (circa 1995 to 2000) may also recall a company called Loudcloud, founded by Netscape pioneer Marc Andreessen. It is my opinion that you can trace the road that led to the current cloud-computing era back to Loudcloud's founding.

It started in 1999, when four visionaries who met while at Netscape--Marc Andreessen, Ben Horwitz, Tim Howes, and In Sik Rhee--saw a pressing problem facing Web-based start-ups. If these emerging companies wanted to establish a presence on the Internet, they were forced to buy a lot of expensive hardware, diverting precious resources that they otherwise might have been able to invest in their core businesses.

Loudcloud thus started with the vision of various "clouds"--mail, database, network, application server clouds, etc.--so that any enterprise could fractionally rent out what it needed. Customers would pay based on what they rented and for how long.

The formula was an instant success in a valley full of impatient Internet start-ups waiting to show what they could do. And all that changed when the dot-com bubble burst, and the names of many of the companies that had been hosted by Loudcloud started appearing in the pages of F***

Being an employee at Loudcloud at that time gave me a ringside view of the company, as we tried to aggressively reinvent ourselves toward selling the concept of managed infrastructure to the bigger enterprises when the Internet economy collapsed. However, the idea met quite a bit of resistance from companies questioning the effectiveness of security controls in a managed infrastructure environment.

This was not a valid reason then and is not the valid reason now. These enterprises resisted moving to a cloud environment out of fear that they would lose control over the data that was sacrosanct to them. Interestingly, many of these same customers were more interested in learning about the automation platform that ran our multiple data centers across Europe and North America.

In 2002, Loudcloud's founders decided that it was in the best interest of the shareholders and the company's longevity to jettison the managed-services business (fixed equipment costs played a huge part in this) and to move toward producing a data center automation software platform that would help enterprise customers run their own data centers efficiently. So they spun out a separate software company, Opsware, which Hewlett-Packard bought in 2007 for about $1.6 billion.

Other cloud-computing companies can learn a couple of valuable lessons from Loudcloud's example.

Convincing an enterprise customer to let you host its crown jewels (business data) is going to be the last thing you should attempt. Instead, focus on applications that are important to an enterprise but not in their "critical" path--as the first wave of cloud-computing adoption has shown us (such as with and NetSuite).

Be prepared to adapt and adopt. Loudcloud survived--and then thrived--as Opsware because it was able to refine its message to enterprise customers when the bubble burst.

Finally, cloud-computing companies have one thing that is going for them that Loudcloud didn't have nine years ago: enterprises are now more "comfortable" with the concept of the Internet and the maturity of Web-enabled technologies, and that has made them more open and receptive to taking advantage of the flexibility, speed, and agility that cloud computing offers. So much so that the newly anointed federal chief information officer, Vivek Kundra, has embarked on a cloud-computing strategy for the federal government.

Cloud computing is getting its due these days, but let's remember that Loudcloud first proved the viability of the concept.