These Clouds Have Silver Linings

We recently had the opportunity to discuss cloud computing with several prominent hosting companies such as GoDaddy!, Hostway, and Verio. In addition, we also spoke with two companies that help build large scale datacenters: Green Platform Corporation (GPC), a company that provides a leading edge vibration-less equipment rack, and ZT Systems, a leader in manufacturing standards-based servers designed directly to the customer’s requirements. Our goal was to find out and share with our readers the factors that these companies feel are critical to building and maintaining a rapidly scaling hosting platform. In addition, for our readers interested in cloud solutions, we investigated how to make the cloud accessible to businesses of all sizes—but especially SMBs—and the benefits that such businesses can expect from moving IT resources into the cloud.

While few can agree on a firm definition of “the cloud,” it may not actually matter very much. Common to cloud offerings is that they are services that can be turned on and off as needed without the end user exhibiting full mastery of the underlying technologies. For example, customers don’t need to know how to provision server hardware, add a network drop, or install an operating system. According to Ivan Hurtt, Sr. Product Manager of Managed Computing Solutions for Verio, “Customers don’t necessarily care what software and hardware they are using. They just want the complexity gone and the solution provided.”

Customers turn to the cloud to provide flexibility. A business might run a pilot project in which they need 50 servers for two weeks. Traditionally, they’d have to buy the servers, which would require a substantive capital investment as well as the knowledge and resources to install and configure them. Now, they can simply turn to a cloud provider to spin up 50 server instances within minutes—and when they’re done spin them down just as easily. The cloud provider takes care of the underlying technologies and the customers reap the benefits. According to Flavio Andrade, Product Manager, Hosting, at GoDaddy!, “We are in the business of enabling everyone’s dreams of being successful. We need to stand behind them when they take off. With our 4G hosting environment we can transparently scale customer sites across servers and clusters.”

To accomplish this abstraction, GoDaddy!, Hostway, and Verio have dedicated a great deal of time, effort, and resources designing and building their cloud solutions to be as modular and automated as possible. The underlying hardware and software is standards based so it can be swapped in and out as needed. “We provide some of the largest service providers and content delivery networks with standards-based hardware designed to meet their requirements,” says Brent Miller, VP of Sales for ZT Systems. Brian Krouse, GoDaddy’s Senior Director of Product Development for Hosting, explained the importance of standards-based computing to cloud service providers by stating that “elasticity and scalability are critical. At our scale we absolutely need standards because in a heterogeneous environment you end up trying to manage a mess. Our hardware (servers, storage, networking devices) is all standardized and we generally use commodity hardware with our in-house developed management software.”

While standards-based computing is important, each of the hosting providers interviewed feels that the real value the providers add is in the proprietary tools they’ve written to help provision and manage their cloud. Hurtt of Verio says, “We provision servers very quickly. We can turn on a new server in less than three seconds, move and consolidate data on the fly…. Most of the really cool stuff that enables us to offer cloud services directly to consumers is in the proprietary back-end we’ve built.” Likewise, Krouse of GoDaddy! urges, “you really have to be efficient, and the rate of growth in the datacenter needs to be automated.”

Why do cloud service providers write their own tools instead of using open-source or commercially available management software? Krouse offers an explanation: “We wrote a lot of our platform ourselves. We rely heavily on open source and have hundreds of developers on staff. You can’t just take hardware and software off the shelves and build an ISP.” In addition, service providers must be on the cutting edge of technology as they face challenges that most other businesses don’t, such as the deleterious effect on performance and availability of massive amounts of vibration from hard drives, power supplies and more. For this reason GPC provides an anti-vibration solution built around a tunable carbon fiber rack which, according to CEO/CTO Gus Malek-Madani, “has been shown to increase storage system performance by more than 50%.”

In many ways, the cloud is about bringing enterprise class equipment and services to the masses. As providers take advantage of economies of scale so can consumers. “In many ways, we are the next channel for our technology partners as companies are changing the ways in which they consume technology, “ says Aaron Hollobaugh, VP of Marketing at Hostway. Through a recently announced partnership with StillSecure, Hostway has expanded the number of security services they provide and dropped protection prices to very aggressive levels. Security is equally important at GoDaddy!, where a 24/7 security operations team maintains vigilance against distributed denial-of-service (DDoS) attacks.

In the virtual world, just like in the real world, no two clouds are exactly alike, yet to the untrained eye the similarities are overwhelming. Moreover, cloud service providers are building to such varying scale that even a small cost savings or a performance tweak can make wide-spread and long-term improvements. In a recent article in Wired,Mystery Men Forge Servers for Giants of Internet,” my former PC Mag colleague (and current Wired editor) Cade Metz writes about the interest on the part of the world’s largest internet companies to “buy servers designed specifically for their sweeping online operations. Because their internet services are backed by such an enormous number of servers, these companies are looking to keep the cost and the power consumption of each system to a minimum. They want something a little different from the off-the-shelf machines purchased by the average business.”

According to Metz, “the net’s biggest names have caused a tectonic shift in the worldwide server market. These are the companies that need more servers than anyone else on the planet, and they’re moving away from traditional server makers such as Dell and HP.” John Mills of ZT Systems backs up Metz’s assertion by stating “ZT Systems has been designing and building computers in the USA for over 17 years and for the last 5 we’ve seen tremendous growth in demand for our solutions.” And why stop at custom-designed servers? Efficiencies of scale can further be tapped using specialized equipment such as GPC’s anti-vibration carbon fiber–based rack. Again, not something that the average business would buy, but something that the average business can benefit from as it uses the cloud service built on top of this cutting edge hardware.

Andrade of GoDaddy! explains the significance of working closely with vendors, stating: “For us and our customers to benefit, a service provider needs to innovate and move forward. Many times this is accomplished by working closely with vendors.” Verio’s Hurtt puts it this way: “Even with standards based hardware, there is always a slightly different way to do something. Any generic hardware design needs some tweaking for our environment, and while it is great to have an independent standards body that can make sure products adhere, we also need to go beyond standards in order to provide the best solution for our customers.”

Cloud Market Wrap-Up

Cloud adoption continues to expand.  In a report published by Forrester (April 2011), the total size of the public cloud market is estimated at $25B and is projected to grow to $160B by 2020. In addition, a recent Morgan Stanley survey (May 2011) conducted by Morgan Stanley establishes that public cloud usage is expected to show a 23% CAGR through 2014.

SMBs are leveraging the cloud to significantly reduce their hardware costs, while larger enterprises are using public clouds more for rapidly extending the functionality of internally developed applications, with extensions to facilitate mobility as one of the most common applications.

Furthermore, larger organizations are accessing the cloud for executing compute-intensive workloads like analytics. As 37% of companies surveyed indicated they would solely use public cloud deployments, the remainder are gravitating toward the three types of cloud deployment: public, private and hybrid.

Research shows that companies view cloud computing as a way to:

  • Lower IT costs,
  • Increase corporate agility, and
  • Provide the foundation for leading edge, flexible architectures that will result in higher quality systems.

However, the top barriers to cloud adoption continue to be:

  • Security
  • Regulatory and compliance issues,
  • Data privacy
  • Reliability
  • Interoperability,
  • Vendor lock-in and
  • Complexity.

Interestingly customers don’t always feel that public clouds are less secure than their own data centers.

GigaOm ranks Amazon as the largest public cloud provider with 2010 revenue of $500MM and they continue to expand their AWS through investment. Rackspace, Salesforce, Microsoft, Google, IBM, and other global entities also are targeting to be providers of public cloud infrastructure and services, making multi-million dollar investments to remain competitive in offerings and price.

Global Games Investment to Double vs. 2010

In its 2011 Global Games Investment Review, Digi-Capital stated, “Even though Q3 2011 has just finished, global games investment so far this year is pushing towards double that of 2010, and global games M&A more than double the level of 2010.”  There have been blockbuster transactions like the $750MM EA acquisition of PopCap, but there have been many other investments, mergers and acquisitions across sectors with increasing deal sizes. With most of the Q3 investment activity focused on the two fastest growing segments, social and mobile, overall, investments were directed into:

-       Social,

-       Mobile,

-       Social-mobile,

-       Browser based MMO and

-       Cloud gaming.

Geographically, there has been significant activity from APAC, especially China, Japan and South Korea, as well as from the US. In general, companies have been generally less forthcoming on the prices of their M&A targets this year, which may indicate that not just the headline game deals continue to have strong valuations.

By 2014, Digi-Capital projects global game sales to hit $87B with mobile and social games accounting for $44B.  Almost half of the revenue for online/mobile games is projected to come from China by that time. Although China has a low ARPU (average revenue per user), the high number of users and relative efficiency of Chinese game companies enable them to achieve operating margins of up to 50% — fuel for their growth and overseas acquisitions.

Select Company Valuations

Company Valuation (as of Oct. 4, 2011 – USD)
Activision $10.2B
Nintendo $7.5B
DeNA (Japan) $5.7B
Gree (Japan) $6.9B
Electronic Arts $4.8B
GameStop $3.3B
Take-Two Interactive $1B

International Online Game Publisher Aeria Games Rapidly Expands Audience

Aeria Games became one of the most successful providers of free to play games on the Internet by creating a truly global community, a rapidly scalable and extensible platform, and, most importantly, by publishing good games.

The 270 person company is headquartered in Santa Clara, CA and has over 25 million registered users (growing at 1 million users per month) for their free to play games.  Forty percent are English speakers, forty percent are non-English speaking Europeans, and 20 percent in Latin America – of special note is Brazil where the number of active gamers is booming.

Aeria is a company built to deliver games internationally.  And they have. Founded in 2006 in the USA with rapid expansion to Germany and Brazil, Aeria now offers high quality online games in nine languages in more than 30 countries.  Games run the gamut of playfulness, including highly engaging fantasy MMORPGs, action shooters, anime-style social games, and multiplayer mobile titles.

“We wanted to build a global online community,” explains JT Nguyen, Chief Operating Officer.  “We provide a single registration and a single virtual currency for all of our games so it is easy for users to play one or all of our games.”  The company started publishing downloadable games, then browser based games and will soon launch its first mobile game.  “There are hardcore gamers who will always want a downloadable game for a deeper experience, while the market that is really growing is the mid-core gamers who just want to have fun online together.”

Aeria Games prides itself on being more agile than the competition.  “We succeed because we can move faster than anyone else into new territories,” says JT.  “We build a team and a culture.  Payment, customer service, and localization take place in every country where our games are played.”  This ensures that localization takes places completely and accurately.

Aeria has focused on getting new players into the community and then making it fun for them to stay.  Hundreds of volunteers, known as “game sages”, help newbies learn the nuances of the game and answer questions on message boards; they do this for access to in-game perks as well as for recognition within the community as leaders.

One of Aeria’s success factors is scalability.  Games can be played in nine languages now.  It might take a week to localize the web portal and then three or four weeks to localize the game. The platform is built to scale.  According to JT, “Scaling the technology is basically transparent.  Our biggest challenge is getting players into the community, playing the games, and sticking with the games.”

If you’re a game developer looking for a big way to launch online, then talk to Aeria Games.  According to JT, “We are always looking for new games to publish.  We take a portfolio approach … and experiment with different types of games: FPS, RPG, mini games, social games.  The minimum requirement is that the game must provide a true multiplayer environment.”

The Zynga Juggernaut

Zynga Inc., the online game developer, filed to list its shares on the Nasdaq Stock Exchange, under the symbol ZNGA.  By listing on the Nasdaq, the gaming startup bucks a recent trend of young Internet companies listing on the NYSE — a group that includes LinkedIn Corp., Pandora Media Inc. and Renren Inc.    Nasdaq, home to Apple Inc., Google Inc. and Microsoft Corp., has traditionally had an edge with technology companies.

Founded in 2007, Zynga offers its games for free and then sells virtual items within applications, such as a townhouse in“CityVille” or a shipyard in “Empires & Allies.” Growing substantively, Zynga currently reaches 6.7 million users who on average spend $110 per unique player for the nine months ending in September vs. 5.1 million players who paid on average $105 in the same period a year ago.  (Overall,the worldwide virtual-goods market will more than double to $20.3 billion in 2014, from $9.28 billion last year, according to ThinkEquity LLC, a San Francisco-based research firm).

Zynga reported an 80% rise in quarterly revenue, while net income fell as the online game company invested in staff and technology.  It posted revenue on Friday of $307MM.   Its net income fell 43% to $13MM according to a regulatory filing on Friday.

In October, Zynga also announced a new service, called Project Z, geared toward reducing its dependence on users of Facebook Inc.’s social network. The company also announced new games, including “Zynga Bingo,” “CastleVille” and “Hidden Chronicles.” San Francisco-based Zynga is the biggest developer of games for Facebook.

VA Hospitals Leverage Technology to Provide Greater Access to Healthcare

We recently had the opportunity to speak with Leonard Goldschmidt, M.D., Ph.D, National Director for the Department of Veterans Affairs (VA) Diabetic Teleretinal Screening Program, about the VA’s use of different technologies and how these technologies increase the quality of and access to health care. From smartphone apps that help prevent and diagnose illness to the extensive use of tele-health technologies, VA hospitals are at the forefront of improving patient care through the use of technology.

The VA, which spends more than $500 million a year on research programs, and there are currently has over 50,000 patients nationwide participating in tele-health programs from home. Over 700,000 diabetic patients have had their retinas imaged by retinal cameras since the inception of the program in 2006. Other patients answer questions via web sites, telephone, or smartphone, and use home-based devices such as a stethoscope and blood pressure-equipped peripherals to track their condition on a daily basis. Results are analyzed by nurse practitioners who follow up directly with the patient. This home-based care coordination program has improved patient care at the VA because caregivers have access to more accurate and timely patient status information. Dr. Goldschmidt says, “more timely and better information means that I can treat my patients better,” and right now the VA is gathering the right information.

As long as significant security issues hang over use of “cloud” computing, there’s an overall hesitancy to involve any technology that may compromise the security and privacy of a health record. All patient records, including charts, scanned images, and diagnostic images are stored in an EHR which has been in use since 1999. The VA patient database is “second in size only to that of the IRS and the security of our health records is paramount” according to Dr. Goldschmidt. For this reason all technology solutions must be vetted internally before being deployed as they affect the health care process. The future of VA healthcare seems bright, because there is both internal and public demand for technology solutions that work to improve the health of our nations’ veterans.

The views expressed here are from Dr. Goldschmidt’s and not of the VA’s.

Healthcare IT Investments Grow in Q2 2011

Venture capital investments in healthcare-related IT software and services increased more than investments in other area of the healthcare sector in 2Q 2011, according to Dow Jones VentureSource.

Health IT investments grew 27% from $156MM in Q2 2010 to $198MM during the same period in 2011.

There were a total of 19 deals in Q2 2011 – a 58% increase vs. YA with California and Massachusetts continuing their dominance of healthcare venture investment representing 56% of all deals and 75% of venture funding.

Jessica Canning, Dow Jones VentureSource’s global research director, states that total venture investment for health IT is currently at $245MM to date in 2011. In 2010, the industry saw approximately $486MM in investments.

Q2 2011 also saw the percentage of seed VC deals climb 12% — a five quarter high. This trend was demonstrated in all sectors lead by internet, healthcare and clean tech sectors.

Across all healthcare investments in general, early stage investment continued to increase, bouncing back from a 5-quarter low in Q1’ 11.

Medical devices continue to lead investment within the Healthcare sector, followed by relatively strong quarters from Drug Development and Pharmaceuticals.  (Source:  CBInsights, Venture Capital Activity Report:  Q2 2011)

During the quarter, total Venture investment in the sector was 147 deals totaling $1,894M, with the top five deals being:

  • Cameron Health
  • Tesaro
  • Radius
  • Merrimack Pharmaceuticals
  • Ultragenyx Pharmaceutical

Healthcare, the Cloud, and Security

Healthcare related businesses typically have a highly complex IT environment that’s supporting a diversified professional user population such as physicians, nurses and administrative staff.  Many of these users prioritize tasks such as treating patients in life-critical situations ahead of the development and secure use of information systems. Healthcare information technology, estimated as a $40 billion a year sector, is currently coping with growing economic and regulatory pressures that make its IT infrastructure an excellent candidate for change.  In this case, change means opportunity: a recent study by RCNOS estimates that healthcare IT spending will grow at a 24% CAGR over the next 3 years.

Controlling costs in the healthcare industry ecosystem is a key motivation for cloud service adoption. This is true for the vast majority of healthcare organizations, irrespective of their size and area of specialization. Current and future IT investment decisions revolve around metrics such as ROI and TCO.  For example, new Health Information Exchange (HIE) ventures can take advantage of the cloud infrastructure is already in built by the likes of Google, Amazon, and Microsoft.

In today’s healthcare system, access to appropriate, in terms of expertise and equipment, facilities often depends on the patient’s physical location. Do people shop for hospitals or simply go to the one nearby?  As more health data moves into the cloud and telehealth technologies become commonplace, patients as well as providers will be able to access health information in real-time from anywhere with an internet connection. Better access to healthcare and relevant patient data, especially in the remote areas, is the primary advantage of this market development.  However, risks around data privacy, security and safety, and compliance with state and federal policy are among the top concerns raised for sharing healthcare information in the cloud.

There is an interesting aside: information security can theoretically be provided better in the cloud than by an individual organization.  The theory is that an HIE or EHR service provider could have greater expertise and more people on staff focused on security than an individual provider might.  Centralization and standardization of patient and care information across the healthcare ecosystem increases information availability and utility, while service providers are enacting strong security and authentication measures to protection and ensure the integrity of patient data.

There is more to the future of healthcare information systems than simply moving them into the cloud.  The vast majority of providers will continue to build and utilize local patient information systems.  These organizations are currently developing or customizing EHR systems.  Not only will the EHR system play a role in replacing the paper chart (which can be lost or damaged), but once the data is in electronic format all kinds of other valuable analyses can be conducted.  Clinical decision support, where care givers are provided with instructions automatically based on the symptoms they enter, holds great potential for increasing the level of care in the USA.  In addition, cost savings can be realized by automating routine tasks.

There has also been an explosive increase in mobility applications within healthcare.  Devices such as tablets, laptops, and smart phones can be used to communicate with patients, gather information, and supervise care.  As of the writing of this newsletter, over 6,000 health related apps can be purchased through the Apple App Store.  These range from fitness and workout tracking apps such as Nike Training Club, Runkeeper, and Lose It! to apps built for healthcare professionals such as the research oriented Medscape or the prescription medical reference app Micromedex.

Last, but certainly not least, security is paramount in healthcare environments.  As more information is aggregated and stored, providers and patients become richer targets.  Also, most organizations rely on shared workstations left in common areas.  These must be secured physically as well as with software to protect against malware, data loss/theft, unauthorized usage, and network based attack.  One of the primary trends we see in healthcare is providing greater access to a greater number of electronic resources and data.  Running alongside this benefit is the specter of increased attacks on these systems.  As such, this presents an excellent market opportunity for security companies that make products and services that can be used to protect healthcare information such as encryption, identity based computing, and network, server and workstation security.  Companies with security products for healthcare include the usual cast of characters (Symantec, McAfee, Trend Micro) and several vertical specific players such as HSS and Cerner’s P2Sentinel Security as a Service.

Health Information Technology for Economic and Clinical Health Act (HITECH)

The federal government, through the Health Information Technology for Economic and Clinical Health Act (HITECH), a component of 2009’s American Recovery and Reinvestment Act, is making available 22 billion dollars for the delivery of quality healthcare information systems.

A large portion of HITECH, $19.2 billion, is devoted towards expanding the use of electronic health record (EHRs).  The standard against which a successful EHR project is measured is called “meaningful use”.  Meaningful Use of an Electronic Health Record (EHR) requirement mandates that organizations must, “implement systems to protect the privacy and security of patient data” and “conduct or review a security risk analysis and implement security updates as necessary, and correct identified security deficiencies.”  Other projects provided for by HITECH involve the exchange of information and data between providers, patients, and insurance companies. While many providers are implementing EHR systems today, the vast majority are expected to be fully operational by 2014.

Top Companies Producing EHR Systems
CureMD
Epic Systems
GE Healthcare IT
Greenway Medical Technologies
Medical Communication Systems
Meditech

Consumer Healthcare Applications

It’s not all about healthcare providers – consumer-oriented healthcare applications offer the potential of improving healthcare communications and enabling patients to manage their own medical records. This is a natural fit for a secure and highly available cloud service or web site that ties together medical records from multiple entities.  Many times these projects are referred to as health vaults or health information exchanges. There are a great number of regional HIEs such as the Long Island Patient Information Exchange and the Chesapeake Regional Information System for our Patients (CRISP).