National Security Speeds Cloud Consolidation

TheStreet.com

NEW YORK (TheStreet) -- The nature of cloud computing is that you can parcel out a huge job among many machines, address them as one virtual machine, then perform computing tasks that were impossible before.

A cloud can take a huge haystack of data and find individual needles in it, or analyze that same haystack for patterns that create immense value. Once a job is in the cloud it can scale on-demand, and be ready to run at a moment's notice.

Google uses this capability to get you the data you want, and uses the traffic patterns or "meta-data" generated by this to target ads to you that might actually be relevant. For years there were activists who found this feature scary.

But when it was revealed the National Security Agency can "google" too, using phone records and Internet cache to help it focus investigations on incipient plots that might take hundreds of lives, all this became a scandal with a life of its own.

The scandal has put all cloud players on the defensive, as I noted yesterday in writing about Hewlett-Packard . What the NSA did was not a bug. It was a feature of the Patriot Act (described here by Wikipedia), passed in 2001, as the cloud era was dawning.

It was the hope of Congress when it passed that act that computers would, in time, become capable of just the kind of "pre-surveillance" whistle-blower Edward Snowden revealed. That's why the CIA has signed a $600 million contract, reported by Wired, for Amazon.com to build copies of its Amazon Web Services cloud inside CIA offices.

And that's the real story here, a business story.

The NSA isn't listening into your phone calls. They're not reading your email. It's taking a first cut of this meta-data and then, if it finds something, going through a legal process to start listening to your phone calls and reading your email. Your kids now do the same thing when they research a term paper. They run a job to find what they need to read.

It's in the nature of clouds that we all become Edward Snowden. We don't have to be working on national security to perform the kinds of calculations for which he was responsible. We could be hosting blogs, creating games or trying to figure out what customers want to buy from us. The capability is there, and it's only going to get cheaper.

Rather than being some Orwellian danger signal, the NSA "scandal" should awaken businesses to just how powerful the cloud is, especially public clouds like Amazon's. The big news is that Amazon beat IBM to the CIA contract.

The General Accounting Office said recently the CIA didn't make this choice because of price, but because Amazon offered a "better technical solution" than IBM, which is committed to OpenStack and a network of private clouds for secure jobs, public clouds for public ones. But it turns out that a "hybrid cloud" may not deliver the power big customers want, and that the cloud need not be re-invented to work in a secure environment, just placed inside one.

Clouds are so much cheaper than the client-server systems they replace that an entire industry has been raised in the belief those savings alone would be compelling, and that within the industry cloud providers wouldn't have to compete on price because every solution would look cheap as chips.

But even among clouds, costs matter. Even among cloud solutions, the low-cost provider is going to win because it'll provide more bang for the buck. This insight will accelerate the rate at which cloud takes over the computing landscape. It will also accelerate the rate at which cloud consolidates among a smaller number of scaled players.

That's what investors should take away from this week.

At the time of publication, the author was long IBM and GOOG.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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