The Evolution of Internet Infrastructure

Cloud computing infrastructure concept Over the past several months, I've had recurring conversations about cloud acquisitions and market dynamics. These discussions consistently reveal a pattern that becomes clear when we examine how the Internet, web hosting, and IT infrastructure have evolved. As a technology business owner, I must simultaneously track where business and technology are heading, then position our company to capitalize on these trends early enough to generate sustainable profit. Here are five predictions about where the cloud industry is moving.

Prediction #1: The End of Traditional Web Hosting Servers

To understand where we're going, let's examine the historical layers of Internet commercialization: The earliest web hosting companies were local ISPs that owned every layer. Over time, each layer became specialized and separated. ISPs stopped owning servers. Hosting companies stopped owning datacenters. Pure-play hosting providers like HostGator built multi-million dollar businesses without owning pipes, datacenters, or physical servers — relying instead on infrastructure from providers like SoftLayer. Following this evolution, the next logical step eliminates ownership of the OS instance itself. Future hosting companies will own the customer relationship and workloads, running them on cloud infrastructure like Microsoft Azure, while potentially managing OS instances as a service layer.

Prediction #2: Only 4-5 Global Clouds Will Dominate

The market will consolidate into a small number of worldwide cloud providers. Microsoft Azure represents a critical strategic initiative for Microsoft's future. Google will maintain a significant cloud presence. Amazon's innovation trajectory positions them as a major player. Rackspace could potentially join this tier. However, international laws and regulatory requirements will necessitate regional cloud providers. Telecommunications companies are positioning themselves to own these regional infrastructures — evidenced by recent acquisitions: This creates opportunity for specialized providers like Applied Innovations. While global and regional clouds will serve approximately 80% of market needs, the remaining 20% will require vertical-specific solutions and premium services that niche providers can deliver on top of commodity infrastructure.

Prediction #3: Rackspace and SoftLayer Face Critical Decisions

Rackspace's position as an independent global cloud provider remains uncertain. They could be an ideal acquisition target for AT&T, particularly given that other major telcos have made strategic hosting acquisitions while AT&T has not. However, Rackspace's positioning suggests they may resist acquisition. Meanwhile, evidence points to AT&T leveraging SoftLayer for SMB offerings, similar to how other telcos use their acquired hosting companies. This pattern suggests SoftLayer may become AT&T's acquisition target instead. If Rackspace avoids acquisition, they must successfully establish themselves as one of the global cloud platforms — or risk following Kodak's fate in a rapidly changing industry.

Prediction #4: OpenStack as the Standard-Setting Battle

My experience at Motorola taught me the strategic value of owning industry standards. We developed the FLEX digital paging protocol, and owning that standard provided competitive advantages for years. The same dynamic applies to cloud infrastructure standards. Rackspace's OpenStack initiative represents their bid to control the cloud stack standard. Success here would provide the same first-mover advantage Motorola gained with FLEX. The critical question is Rackspace's commitment to OpenStack versus their Microsoft relationship. If Rackspace begins promoting Azure or Hyper-V over OpenStack, it signals OpenStack's likely failure.

Prediction #5: The Cloud Stack Standards War

Several platforms compete for cloud infrastructure dominance:

CloudStack

Citrix's solution, acquired from cloud.com, offers strong Amazon EC2 API compatibility and excellent hypervisor agnosticism. However, Amazon's recent support for Eucalyptus instead of CloudStack creates uncertainty.

Hyper-V

Microsoft will dominate on-premise cloud infrastructure. Whoever controls on-premise typically wins public cloud market share, positioning Microsoft advantageously. Azure, Hyper-V, and System Center represent Microsoft's strategic path forward — assuming they can overcome internal organizational challenges.

VMware

VMware faces significant challenges as hypervisors become commoditized. Their aggressive pricing suggests they're maximizing current revenue while investing heavily in R&D for their next evolution. Under Paul Maritz's leadership, they shouldn't be underestimated.

Parallels

Parallels must evolve beyond their proprietary hypervisor focus. OnApp is gaining ground in their traditional market. Their strategic advantage lies in controlling hosting automation. By becoming hypervisor-agnostic and adopting standards like OpenStack, they could maintain their hosting market position while expanding into enterprise segments.

Strategic Implications

These predictions reflect my perspective on market evolution and inform Applied Innovations' strategic direction. The cloud industry will consolidate significantly, but opportunities remain for specialized providers who can deliver vertical-specific value on top of commodity infrastructure. The companies that successfully navigate this transition will be those that understand their unique value proposition and position themselves strategically within the evolving ecosystem rather than trying to compete directly with global infrastructure providers.