While the Théâtrophone was an impressive invention in its day, the subscription model itself has a prolific and fascinating history of enabling innovation throughout the world. Subscriptions have helped companies pioneer new distribution models across a diverse set of business applications; all in the name of seeking efficient annuity revenue streams that outweigh the cost of production and distribution. From an end-customer “subscriber” perspective, the convenience of easy access or repeat consumption can greatly outweigh the incremental cost of subscribing.

Subscriptions have historically also found ways to take on greater social meaning through the signaling of a certain status by way of access to a secret society, social club or charitable organization. In the 1700s, by “subscribing” to become a benefactor to a charitable organization or society, individuals were able to achieve certain significance among their peers. Subscriptions to charity balls and full-seasons of theatre access were as much of a status symbol as they were convenient. Country clubs, yacht clubs, athletic clubs, fraternities and other private clubs have almost always been entirely member funded by way of the subscription membership model. Memberships, dues, donations and even tithing from the Catholic Church were achieved via scheduled “subscription” payments.

During the 18th century, the notion of subscription that we know today arrived when subscriptions to periodicals, magazines, books and theatre events became common. These subscriptions typically included delivery of the printed material and were sold for a specified number of issues or a period of time.

During the 1800s, the idea of pay-as-you-go subscriptions emerged to support the need for staple items such as heating oil, coal, milk, ice and even diapers to be delivered to your home. In Paris, a five-franc annual tariff was levied on all residents for their “subscription” to a hectoliter of drinking water per day.

Throughout history, we observe some interesting commonality across each of these examples. Whether we’re talking about subscriptions for the purpose of convenience, pay-as-you-go consumption, engagement or status, the underlying business driver has always been that subscriptions provide the ability to generate capital in the form of an attractive annuity revenue stream. From a financial perspective, companies that are able to generate a growing audience of subscribers producing predictable revenue streams are far more capital-efficient than companies that need to acquire, and then re-acquire, each customer interaction. (If you’re ever curious about this assertion, just ask yourself why so many insurance companies occupy the largest buildings across all major cities in the United States.² By definition, insurance is an annuity-based, subscription business.)

Fast forward to today. We are in the midst of yet another explosive expansion of subscription business models. From traditional media moving to digital media, to the rapid adoption of SaaS and cloud-based businesses, mobile and social products, applications and services are all careening toward some form of subscription-based offering. This is largely because the cost of developing and launching new businesses has declined to such an extent that it requires a very different level of up-front capital investment to chase these opportunities.

Why are subscription models everywhere today? The following intersection of trends is powering the recent appeal for subscriptions:

From the business perspective, there has always been a strong appeal in creating a predictable stream of revenue. Beyond that, the notion of maximizing lifetime value from existing customers is something that has always existed, but is now enabled through better visibility into activity. Traditional e-commerce companies like eBay have long focused on optimizing the “Triple A’s” — Acquisition, Activation and Activity. With today’s technology in place, we now have the ability to solve for all of these variables in a way that is not only more palatable to the end customer, but in many respects the optimization is couched in a way that is actually a benefit to the customer. (Think about the recent reminders you’ve likely received from your oil changer, dentist or even hair stylist that it is time for you to come back for your next appointment.)

Consumers have evolved a long way from the cable and magazine subscriber of yesterday as well. Today, consumers expect to have a range of choice in their offerings. They’ll commit to subscribe particularly if they have the ability to select from a range of feature/pricing options that best suit their own preferences.

There exists a psychological minimum. If a service is offered at a price level that feels low enough in relation to the marginal benefit that they receive, a consumer will subscribe. Conversely, they will elect to cancel if the marginal benefit wanes and is no longer worth the cost to continue subscribing. Managing the perceived value of any subscription product or service over time creates a relationship between the consumer and the service provider, each of whom seeks to maximize the value they are receiving from the other.

At the same time, the upfront capital investment required to launch a new enterprise service has declined to such an extent that it affords businesses a greater opportunity to test and learn as they go. As recently as 10 or 12 years ago, during the first dot-com boom, companies raised massive amounts of money not only to signal a coveted first-mover market position, but also to fund the huge amount of investment required to scale out a company. Today, we have cloud services and SaaS/PaaS offerings like Amazon Web Services and RackSpace.

The Web has become too fragmented to sustain ad-only revenue models.
Ten years ago, venture capitalists were inundated with companies seeking funding for ad-supported business models. Today, the Web is far too fragmented to support businesses seeking to aggregate massive ad dollars.

There has been a 100X reduction in the cost of software infrastructure within 10 years.
Here is an example: In just over 10 years, the “rented” application infrastructure model once offered by Kontiki (before it was called SaaS/PaaS) would have cost a customer approximately $100,000 per month to launch a business. Today, the same offering is delivered by Amazon Web Services for approximately $1,000 per month.

The cost of storage has plummeted 16X in the last 10 years.
Today, it costs you $0.085 per GB to store data. Ten years ago, it cost $1.39/GB. This decline in storage costs has created the opportunity for subscription-based file-sharing and backup companies like Box.net and Dropbox.³

The cost of Internet bandwidth “transit” has declined 75X in the past 10 years.
Entirely new business models have emerged due to the proliferation of inexpensive and ubiquitous broadband connectivity. This has allowed companies like Hulu and Netflix to have distribution to large markets at economically sustainable rates.⁴

Open-source software has eliminated the need for expensive licenses.
Ten years ago, companies aiming to deliver a service at scale were likely to sign up for expensive Oracle and Microsoft licenses. Today, startups have an impressive roster of free open-source software to choose from to run their operations.

On the Web today, the confluence of these trends is creating new markets and opportunities. The functional role of marketing has evolved to become increasingly data-driven.

Financial CRM allows the consumer to get what they want, and the business to provide a well-crafted migration path of high-probability options for cross-sell and up-sell options in the future. The management of this path for monetizing users post-sale has become an even more critical discipline for maximizing enterprise profitability than the sexy and creative brand-building efforts on which companies have traditionally focused.

All of these factors combined increasingly lead entrepreneurs to a similar conclusion. It is now far more efficient to offer products and services via subscriptions. Subscription pricing easily attracts customers, eliminates their purchase anxiety and, if designed well, keeps them happily paying over a longer period of time. Subscription models not only allow for attractive and efficient pricing, but also alleviate the need for a heavy-handed sales pitch. Ultimately, customers appreciate that they are in more control — always having the ability to upgrade their service, or to cancel and move on to something better.

Based in San Francisco, Dan Burkhart is the CEO and co-founder of subscription billing service Recurly, Inc. He was also an executive at eBay and NBC Internet.

Big Blue announced today that all of its cloud services and software will be based on an open cloud architecture. It’s good news for potential IBM customers because it means they can mix and match service and equipment vendors — Dell, Hewlett-Packard and Rackspace are also big OpenStack fans — without worrying about getting stuck with one.

Its first move will be to spin up a private cloud service based on OpenStack. There’s also some new software, specifically something called IBM SmartCloud Monitoring Application Insight, that’s aimed at monitoring the progress and availability of cloud applications. There are also two other applications coming out, but they’re in beta.

While IBM isn’t the biggest player in the area of cloud services — right now, it’s Amazon’s Web Services — it has been gearing up for a big push into the business, sensing an opportunity. And there is an opportunity: Gartner says the market for cloud services this year will total $131 billion. And while there will certainly be some purists who sniff that “private clouds” aren’t real clouds, the fact is that IBM has about 5,000 customers running their own clouds, or in a mixed public-private environment. These hybrid cloud arrangements are something IBM has been talking about for a few years now.

Looking back in history, it appears that this sort of backing by IBM can have a significant effect. In 2000, Big Blue backed Linux, the open source operating system, as a critical piece of its systems business. A year later, it invested $1 billion in the Linux movement. IBM’s seal of approval over time helped Linux gain acceptance and credibility in big businesses.

For the cloud, it will help nudge the industry toward an accepted standard. A Booz & Company study found that efforts to set standards and craft a working set of best practices for cloud computing has been, at best, fragmented. In its current state, the study argues, with numerous inconsistent and incompatible standards, cloud services won’t evolve, and companies won’t get the benefits they need.

“Everyone is talking about the cloud, but in order for it to have real scale and impact, it’s pretty clear that standards and open source are going to be pretty important,” says Angel Diaz, IBM’s vice president for software standards, open source and high-performance computing. “Without standards, the cloud is going to be complex, not simple, and clients will be stuck with one vendor.”

Ann Winblad, a venture capitalist and a managing director of Hummer Winblad Venture Partners, a firm that has had a long-term investment interest in open source software and open standards, and has backed companies like Plumgrid and Sonatype, says that OpenStack has essentially become the operating system for the cloud. “I think the trend here is that OpenStack has won the race to become the standard, and it has done it rapidly,” Winblad said. “We’ve made some investments around the software-defined data center, and OpenStack is a key component. It is the OS for the cloud.”

A few other things IBM is doing: It has created a 400-member customer council devoted to cloud standards. The council initially started with only 40 members. It’s also backing the OpenStack Foundation as a platinum member, and contributing a lot of code to OpenStack projects. And it is backing other OpenStack-related standards, like one called Open Service for Lifecycle Collaboration which aims to make it easier to manage software over time, and to use multiple tools for the job together.

Image copyright Suzanne Tucker

I make this assertion because if we look closely, we can already see what will cause the decline of Silicon Valley. In fact, the valley’s residents are consciously planting the seeds of the valley’s own demise. What’s more, I believe many of them will celebrate when the valley is no longer on top.

My cheery assessment depends on this sleight of words: Decline is relative, and the decline that Silicon Valley faces will be less like watching Hewlett-Packard slip into irrelevance and more like proudly standing to one side as the rest of the world — eventually even the less-developed world — catches up to it. Thus, the “decline” I claim the valley seeks and will eventually succumb to is a most desirable decline, indeed.

Digital disruption — a force that Silicon Valley gestated and nursed from its earliest days — is now global. Digital devices, the networks that connect them, and the software tools that prod human beings to hanker for more of all these things will soon be everywhere. The long-term effect of rising digital disruption will be to redistribute the benefits of the future across the planet even as it continues to improve the already futuristic valley that started it all. What does Silicon Valley have today that other places will eventually enjoy as well? Access to three things the valley currently has in spades:

• Knowledge. With ubiquitous sensors in every device we own or location we frequent, we will soon collect in a single day far more information than we could have stored in all the hard disks manufactured prior to 2000. But that information is meaningless if we can’t render it into knowledge, which granted the smart people of Silicon Valley an early edge that they are now giving away for free. Analytics available to even the lowest YouTube channel producer now rival the most sophisticated reports CBS, NBC and ABC had available in the 1980s. Apply even better analytical engines to the data from Fitbit pedometers, Google Glass and the myriad of sensors that will listen to the stress in our voices or identify behaviors that undermine our health, and you’ve got an unprecedented depth and breadth of knowledge available soon to anyone, anywhere.
• Tools. Knowing something is nice, but being able to act on that knowledge is even better. Digital disruption depends on the distribution of tools — most of them free or nearly free — that equip anyone who wants to use knowledge to initiate and test a new concept. Kickstarter and its peers provide this opportunity for thousands of people who want to test their ideas; Amazon can make anyone a merchant partner, an affiliate, or an author, all for no cost; and the Square card reader just helped local merchants sell $800,000 worth of goods and services around the Super Bowl on game day in New Orleans.
• Capital. It’s not that there’s money going around. But thanks to the knowledge and digital tools available to you, you need a whole lot less of it to bring your idea to fruition. I recently spoke to Charles Teague, CEO of FitNow, the company behind the wildly successful LoseIt! calorie- and weight-tracking app. A veteran of the startup business from the earliest days at Allaire, Charles described for me with a slight tone of disbelief in his own words how cheaply he can launch and manage a company today compared to even ten years ago. This is partly because the tools are cheaper — you can open your Amazon Web Services account with a credit card — but also because much of the value digital disruptors deliver today comes through software. And as a successful entrepreneur who had sold his company to Qualcomm told me last year, “It’s just software; I can do anything in software for $40,000.”

People fond of wine and cheese will argue that there’s more to valley life than just these three things. That’s certainly true, but when you have more knowledge, tools and capital, some of the other things the valley prizes become common elsewhere as well. A culture of achievement, for example. As only people who have lived in a subculture that keeps them down know, the valley is a unique place where even surfers think they can be the next startup billionaires, leading to the creation of a company like GoPro.

It’s presumptuous of me to suggest that all valley residents will be so happy to be dethroned, even if the decline is only relative to the rise of the rest of the world. Venture capitalists, lawyers and politicians will feel the relative decline the most because their services have long been offered under the presumption that the value they provide is scarce, an assumption that’s now patently false. Other valley residents will be pleased, at least if Jeff Hammerbacher, Chief Scientist at Cloudera, is any indication. As he told me in an interview for my new book, “Digital Disruption,” “I don’t subscribe to the ‘great man’ theory of the world. I’d much rather create fertile soil for other innovators to plant their seeds in than just water my own tree. “

He actually talks like that. And that’s what makes him and many others like him the planters of the same seeds that will sow the relative decline of Silicon Valley by lifting everybody else up to join it. Even — perhaps especially — Detroit, home of over 250 Kickstarter projects.

James McQuivey is the author of “Digital Disruption: Unleashing the Next Wave of Innovation.” He is a vice president and principal analyst at Forrester Research and the leading analyst tracking the development of digital disruption.

Image copyright Pakhnyushcha

These days, it seems as soon as some new technology begins to gain traction, VCs and journalists herald the arrival of a new technological order. While these predictions often end up being true eventually, many of us are left aggravated that the status quo sticks around for so long. Perhaps no such case is as true as with the cloud. The cloud has, without question, resulted in truly revolutionary benefits to enterprises and consumers, but it always seems to be presented in a very autocratic way: Stop what you are doing, and do things a new way.

Enterprises are obviously the first to accept such requirements. As long as this new solution offers a material benefit to their business, the smart companies will rapidly adopt it and put it to work. Conveniently, they are also quite willing to pay for such benefit, should it be real. This is critical, because consumers hate paying for things, so someone has to underwrite the commoditization of new technology. This is essential to understand because, contrary to what is marketed to consumers, the cloud is expensive.

People are buying and creating unbelievable amounts of content daily, driven by photos, personal videos, music and movie purchases. Movies and personal video have gone from standard definition to high definition — potentially going to ultra-high definition, if CES is any indication — and the trend is clearly moving more toward online purchasing. Music downloads surpassed CD sales two years ago and, even in light of successful streaming services; online music sales continue to grow year over year. Digital photography and videography have also surpassed their physical counterparts. Indeed, photos and videos are no longer things you take only on vacation or on special occasions. Smartphones have enabled us all to shoot photos and video all day long, for even the most mundane reasons. All these devices are continuously increasing resolution, and thus file size.

Gartner estimates that the average household had roughly one terabyte of files by the end of 2012, with that forecast to grow to approximately 3.3TB by 2016. At the same time, it is estimated that people will have, on average, 5.8 Internet-connected devices per person by 2015. There’s no doubt that people will continue to spread more and more data across more and more devices, based on these trends. If these predications are even somewhat accurate, the assumption that the cloud will be able to affordably accommodate all consumer data is difficult to accept.

Cloud storage is not built from hard drives bought off Amazon.com on the cheap. Indeed, whether it is the consumer cloud or the enterprise cloud, cloud storage services are enterprise-grade through and through. “Enterprise-grade” might as well be synonymous with “expensive.” That pricey storage is made up of enterprise-grade hardware, and kept in an enterprise-grade data center. Every step of the way, it is managed by an army of smart people, who are generally well paid. Let’s not forget local and geographic redundancy. The result is that while cloud storage is able to reduce its price slowly over time, consumers are increasing their storage demands on a near-geometric scale. Thus, while consumer cloud services may have a free tier to give consumers a taste of the benefits, virtually none of them offer enough storage to accommodate all the average person’s data. If some company were to cobble together all the necessary Web services to offer this, perhaps built off of Amazon Web Services or Microsoft Azure or something similar, it would cost nearly $1,000 per year in storage alone, and, of course, there is much more to all this than just storage.

The result is “cloud fragmentation” — users are putting subsets of their files into a litany of separate cloud services. Sometimes this is driven by the amount of free storage, and other times this is driven by an optimization of media type (e.g., documents versus videos). This fragmentation, however, increases complexity and becomes a burden to manage. I often have to think about whether a given document is in Dropbox, Google Drive or SkyDrive. My photos are spread across Flickr, Facebook and Instagram. Some videos are on Vimeo and others on YouTube. Of course, these are only a very tiny fraction of my more than 900 gigabytes of files. This complexity is something I refer to as “cloud overload,” where the number of cloud solutions I have has me scratching my head to remember which one I use for what, or to share with whom.

Why would consumers choose to do this? Price. The free tiers of most cloud services are indeed quite alluring. The marketing is great. The benefits are clear. It is the price that’s unacceptable. To mitigate that, consumers do all they can to extract benefit from the free tiers.

This is a clear divergence between consumer demand and technological reality. Cloud storage is too expensive for consumers to purchase for all their data, so they don’t. The result is user data getting spread across an array of primarily free solutions that fragment features by media type or value proposition (e.g., sharing, backup, etc.).

Occasionally, we see enterprises underwriting technological development that does not lead to the technological maturity and commoditization consumers require, at least not very quickly. This is, without exception, the case with the “consumer cloud.” Consumers require simplicity, convenience and affordability. The consumer cloud is built from services, including storage, sharing and device/platform interconnectivity. We’ve seen many companies emerge as tremendous successes; however, the products that define this space are themselves defined by their compromise in regard to consumer demand and expectations. Changes in user behavior (e.g., stop doing what you normally do, and do it a new way) are the friction that slows ubiquitous adoption. Furthermore, high cost ultimately makes such products, even when widely adopted, niche solutions.

Still, cloud services offer such unbelievable benefit that no one would argue that there is not demand. The question is less about what benefit can be derived from the consumer cloud; rather, it is how it should be delivered.

So, what solution have savvy startups begun to offer? It’s what is increasingly known as the “personal cloud”: A way for users to access all their files, on all their devices, all the time. And best of all, it’s affordable.

Personal cloud services for consumers give users the ability to have all their data on all their devices. While not a consumer platform, Amazon Web Services (AWS) provides a good model, since it delivers truly groundbreaking cloud services within a fairly simple service approach. Personal clouds are somewhat analogous to AWS on a consumer level. New personal cloud services have started to build inter-device connectivity into the operating system of your devices, which is conceptually similar to AWS-like services being built into your own computing devices. The result is that instead of users conforming to some new product’s requirements for you to get value, it conforms to the user’s own behavior.

Products like this are technically challenging to build, because they must integrate deeply into some other platform/device; in fact, they often augment it so that the device or operating system itself works in a new way (e.g., as a part of a personal device ecosystem). The result, however, is that consumers are offered a solution that accommodates their demands — one that is simple, convenient and affordable. These services can be cheap or free for any amount of data, whether you have 2GB, 2TB or 2PB, because they are leveraging your own devices to create your cloud and not hardware located in and across multiple data centers.

We all can be overzealous about predicting the future at times, so it is important to take stock of the present. The cloud is producing some of the biggest benefits to enterprises and consumers since the inception of the Internet itself. It is shepherding a variety of services and products that enable content sharing, distribution and access. While enterprises may reap the most advanced benefits of this now, it is obvious that the consumer versions of these technologies are compelling and exciting. The opportunity for companies to innovate is often not measured in features, as much as user experience. This is the unrealized opportunity within the consumer cloud, and the direction so many companies are taking to build the next set of products to affect our lives.

Image copyright Johannes Kornelius

Eventually it will be inevitable, says Tim Horan, an analyst with Oppenheimer, who shared the idea in a research note with clients today, because the business will interfere with other higher-priority businesses as it grows. He reckons that AWS — commonly known as Amazon’s cloud services business — is bringing in somewhere in the ballpark of $2 billion a year in revenue, which would amount to about 3 percent of sales, and he projects that it will grow to $10 billion within about three years. As yet, Amazon has not disclosed the real figure.

The problem, as Horan see it, is that when retailers turn to cloud computing, they’ll have little choice but to call Amazon, which they see as a competitor. There are other options, ranging from Hewlett-Packard’s burgeoning cloud services unit to another one at IBM, to Rackspace, Joyent, and Verizon’s Terremark, to name a few. Using Rackspace for comparison, he estimates that Amazon’s AWS could be worth as much as $101 billion by 2018.

The spinout notion seems to ignore one fundamental truth about Amazon on AWS. Amazon itself runs its retail and media operations on AWS, so the revenue it generates from selling computing-for-hire services of every stripe subsidizes and indeed minimizes the computing overhead costs associated with everything else that Amazon does, including retail and media streaming. That’s where the logic of a spinout, at least to me, breaks down. If it were to happen, wouldn’t the cost benefits that Amazon gets from running on the internal AWS infrastructure be lost?

Image copyright J.D.S.

When you phrase the question that way, the answer becomes pretty obvious. You worry about your driver’s license and credit cards and, in particular, the information contained on those pieces of plastic. Wallets and credit cards are really just vehicles for valuable data.

At the same time, those vehicles come in handy when you’re in the checkout line at Target.

This two-part relationship is an essential element in the evolution of what you could call the storage fabric. The storage fabric consists of the ability to access data nearly anywhere at any time, as well as a superstructure of hardware, software and services to deliver and manage it. It’s much like your relationship with electricity — you probably didn’t buy a diesel generator to get electricity into your home: You plugged into the grid.

In the ideal storage fabric, consumers and businesses will store oft-needed information on their smart phones and notebooks for rapid access and better performance. Services like Amazon Cloud Services, Dropbox, or our own eVault, meanwhile, will archive your personal history, filter out redundancies and unnecessary information and gather new material that you might find interesting.

Applying for mortgages, sharing medical information and confirming educational and employment history will be far easier because your history — and the history of those you’re dealing with — will be at your fingertips through secure connections and permissions. Information brokerage services like those being created by Reputation.com will allow you to selectively give your information to marketers.

Your personal devices and the cloud, along with being plugged into the fabric, would also continually study your habits and act in the background to keep you up to date. If your phone falls into a storm drain, you can just switch to a new one: It will have everything you need. If the cloud stalls or there is a security breach, you’re not locked out.

Apple, and companies like those listed above, has started to take initial steps with services like automatic syncing, but we’re still a long way away. Some of these services are for hardware customers only. Sharing can require several steps. In the future, companies will install local storage islands around cities for smoother, faster streaming. Software will be required to help you navigate, prioritize and edit the growing stack of information.

It is easy to forget, but superstructure — hardware — is a crucial part of the equation to make everything easy. Google renamed its document service GDrive for a reason.

A movement toward a storage fabric like this represents the next logical step in the history of information. For the first five thousand years of civilization, information was largely tied to physical media: scribes carved directives from the king in tablets and third grade teachers resorted to the copy machine for homework assignments. The advent of digital and magnetic technologies in the second half of the 20th Century marked a watershed moment, because they dramatically eliminated a substantial portion of the physical bulk and legwork required to store information. Documents and datasheets could be edited on the fly. Just as important, archiving and managing data became fundamentally easier: file clerks, once a substantial portion of the workforce, suddenly were as common as blacksmiths. Still, only finite copies of most documents existed: things could easily be lost.

The Internet took things a step further by breaking the relationship between information and its physical media. Hotmail, the one-time king of email services which Microsoft recently transformed into Outlook.com, probably deserves some of the credit for convincing customers about the benefits of remote access. When Hotmail was founded in 1996, email was still a thing: you downloaded software onto your computer to receive email and all of your messages were stored on your laptop or desktop. With Hotmail, users could suddenly easily access messages anywhere, not just from a particular PC. Consumers no longer owned the drives and computers where their messages lived. The information was theirs, but the superstructure wasn’t.

Flickr, YouTube, and Facebook soon followed. From a user’s perspective, you could make infinite copies and get unlimited access to anything. This split, however, introduces a new set of challenges. Users are no longer responsible for the health and maintenance of the systems that store their data: they expect companies like Amazon, Facebook and Google to do it for them. And while these companies have created state-of-the-art data centers and backup systems that function at incredibly high levels of reliability, reality sometimes intrudes. Crashes occur, and instead of one person in a cubicle complaining about a lost file, it’s a whole swarm of angry, impatient consumers. Security demands will grow as sensitive information shifts finally from paper to active files.

Remote access also potentially means a gargantuan increase in data packets. To keep networks humming, service providers will have to develop caching, recovery and de-duplication strategies to minimize the volume of traffic and the distances individual bits have to travel.

Finally, managing the massive and never ending increase in structured and unstructured data has its own inherent challenges. Which data goes where? When does the consumer want to access that data and how? Companies like Seagate and many others will look to tackle that challenge and deliver on this concept called the storage fabric. Consumers won’t have to worry about the back-end technical gymnastics and complicated algorithms that are managing their data. They only need to focus on a single view of their digital world, regardless of their device.

The hard work, however, will pay off. It will lead to what people think of when they think of the “cloud.” Not the reality of millions of machines anonymously churning away. Instead, it will just be the data, which is more valuable than any individual device.

You won’t have to think about a storage fabric. It will just be there.

It’s a new phrase that I think is comparable to all those “X-as-a-service” phrases that have emerged in the last few years, where X can be software, platform, infrastructure and so on.

Today, with the launch of a new company called Lyatiss, we have a new iteration: “Application-defined networks.” The basic idea: Different applications have different needs on the network. Their demands on the network will rise and fall throughout the day, or year, or under all sorts of other elastic conditions. Now that networks are as virtual as the cloud systems they’re connected to, there’s no reason that their demands for bandwidth and capacity have to remain static.

I talked with founder and CEO Pascale Vicat-Blanc, and she explained that a lot of network resources get wasted because the way they’re provisioned is really inflexible. Lyatiss’s product, CloudWeaver, takes a lot of network management functions and automates them. I also saw a demo of CloudWeaver, and it’s about what you’d expect: A very graphic dashboard that makes it easy to build, manage and administer a virtual network.

A key point that helped it make sense to me: Part of what CloudWeaver does is track the patterns of an application’s demands on the network. In the same way that a traffic service might use historical patterns to know how many cars there are likely to be on a given road at certain times of the day, applications have similar patterns. Take those patterns into consideration, and you can automatically adjust how much of a network’s resources need to be redirected to that application at key times of the day.

Right now, it works primarily with applications running on Amazon Web Services, and will in time support apps running on other public clouds, and later in mixed public and private cloud environments.

Update: I fixed Lyatiss’ name in the headline, which I had misspelled. Yeah, typos in headlines are the worst.

Netflix said Monday that its DVD Web site has been suffering outages, and users have been reporting sporadic availability.

“We are experiencing some technical difficulty with the Netflix DVD Web site, which as a result may not be available for all members. Our engineers are working to address this issue,” Netflix said in a statement, adding that streaming has not been affected.

While details of this latest disruption are slim, responsibility for it does seem to rest squarely with Netflix. That wasn’t the case with the Dec. 24 outage, which was caused by a failure with Amazon’s Web Services.

Millions of Netflix customers from Canada to Brazil were unable to stream video on Christmas Eve after technical issues in Amazon’s servers in Northern Virginia felled service from Dec. 24 through the following morning. Netflix said the outage lasted nearly half a day for some of its users, and stemmed from problems with Amazon’s Web Services unit, or AWS, which manages online operations for many companies.

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There aren’t many ways to alleviate that concern, but cloud companies, whether service providers like Amazon Web Services or application providers like Salesforce.com, have a pretty strong motivation to do everything they can to lock down their systems and prevent intrusions. And yet the concerns linger.

CipherCloud is a start-up that has come up with an interesting solution to the problem, which comes down to this: Its customers place a secure gateway — it’s a virtual appliance that runs on the customer’s own on-premise hardware — that encrypts data that gets placed in the cloud. It works with several widely used cloud services as well, including Amazon, Salesforce.com’s Chatter and Force.com, Google’s Gmail and Microsoft’s Office 365. It has 40 enterprise customers and 1.2 million end users.

The company said today that it has secured $30 million in VC funding in a round led by Andreessen Horowitz. Also investing in the round are Index Ventures and T-Systems, the venture capital arm of the German telecommunications concern Deutsche Telekom. AH had previously been among CipherCloud’s seed investors.

John M. Jack, a newly named board partner at AH, will join CipherCloud’s board. Jack is the former CEO of Fortify Software, which he sold to Hewlett-Packard in 2010. Before that, he was CEO at Covalent, which in 2008 was acquired by SpringSource, which was itself ultimately acquired by VMware in 2009. And before that, he was COO at Vantive, which was acquired by PeopleSoft in 1999, and is now part of Oracle.

Jack said one of the things that impressed him and the team at AH was the fact that users never really know their data is being encrypted as it comes and goes from the cloud applications. “They use their applications as they normally would with no impact to them,” he said. “Rarely do you see a company like CipherCloud that’s taking advantage of such a huge market opportunity.”

CipherCloud was started by Pravin Kothari, a founder of ArcSight, a security company acquired by HP in 2010 for $1.5 billion. He said one key trick that CipherCloud has up its sleeve is that in the act of carrying out the encryption, that application up in the cloud doesn’t break. Sometimes encryption will break the application, because it messes up the formatting of the data that the application is expecting, and also interferes with the ability to carry out basic things that users want to do on their cloud data, like searching. “We have some patents pending on ways to encrypt the data while preserving the formatting, and without interfering with searching and other tasks that users typically do,” Kothari told me.

The end result is that companies can get the benefit of shifting to cloud applications — which brings with it a lot of cost savings — without having to worry as much about data security. Cloud providers themselves can’t see the data, because the customer remains in control of their encryption keys.

The company can’t name any customers — security companies never do — but its customers include two of the five biggest banks. It has customers in eight countries and 10 different vertical industries.

CipherCloud is, by my count, AH’s third security investment. Founder Marc Andreessen hinted at the firm’s pivot toward security investments in an appearance at D: All Things Digital in 2011. Days later, it made an investment in Silver Tail Systems, which has since been acquired by EMC . Its other security investment is Bromium.

BitYota — a data “warehouse-as-a-service” start-up led by a former top Yahoo engineering exec — has emerged from stealth mode with $12 million in funding from some top Silicon Valley investors, including Jerry Yang.

The company describes it as a “SaaS-model Data Warehousing platform” — which essentially means it is in the explosive business of helping businesses better manage and understand ever larger troves of digital data in the cloud.

BitYota said its service will first be available on Amazon Web Services.

“Companies across every spectrum have an undeniable need to use data to unlock new sources of economic value but relatively few companies have invested sufficient time, money or people to do this right,” Dev Patel, CEO of BitYota, said in a statement. “We believe that data and analytics should be broadly accessible to everyone inside the company and it shouldn’t take a fortune to analyze data.”

Patel should know big data — he was, until last summer, a top engineering exec at Yahoo, working on advertising products and data platforms. Previously, he was CEO of Whereonearth, a geo-targeting company that Yahoo bought in 2005.

The start-up got its $12 million funding from a range of investors, including Globespan Capital, the Social+Capital Partnership, Dawn Capital, Andreessen Horowitz, Crosslink Capital and Morado Ventures, as well as individual investors such as Yang and others.

Here’s BitYota’s official press release, for those who want more deets:

BITYOTA Press Release_FINAL

Amazon’s EC2 operations at its data center in Northern Virginia appears to be the culprit, according to its status board. The last time something like this happened was in July, when a significant electrical storm took out backup power at the same location, and knocked AWS offline for a weekend. In that outage, sites including Instagram, Pinterest and Netflix all crashed.

Here’s the message from the status board for the Elastic Cloud Compute service, a.k.a. EC2:

11:26 AM PDT We are currently experiencing degraded performance for EBS volumes in a single Availability Zone in the US-EAST-1 Region. New launches for EBS backed instances are failing and instances using affected EBS volumes will experience degraded performance.

11:11 AM PDT We can confirm degraded performance for a small number of EBS volumes in a single Availability Zone in the US-EAST-1 Region. Instances using affected EBS volumes will also experience degraded performance.

10:38 AM PDT We are currently investigating degraded performance for a small number of EBS volumes in a single Availability Zone in the US-EAST-1 Region.

Also this, regarding Amazon’s relational database service:

11:03 AM PDT We are currently experiencing connectivity issues and degraded performance for a small number of RDS DB Instances in a single Availability Zone in the US-EAST-1 Region.

And finally this, from Amazon’s Elastic Beanstalk service:

11:45 AM PDT We are continuing to see delays launching, updating and deleting Elastic Beanstalk environments in the US-East-1 Region.

11:06 AM PDT We are currently experiencing elevated API failures and delays launching, updating and deleting Elastic Beanstalk environments in the US-East-1 Region.

More as it becomes available.

Update: True to the history of prior Amazon Web Services outages, scores of other services that depend on AWS crashed along with it. Among them Reddit, AirBNB, Pinterest, Foursquare, but also smaller sites like ifttt.com, Foopets.com. The launch also interfered with the launch plans of a site called AssetsintheSeats.com. See the Tweet below:

We picked today to publicly launch and our hosting promptly died. Coincidence, or a sign? #AWS

October 22, 2012 1:59 pm via webReplyRetweetFavorite

@AssetsInSeats

Assets in the Seats

Here’s the latest from Amazon’s status board as of 2:20 PM Pacific Time:

2:20 PM PDT We’ve now restored performance for about half of the volumes that experienced issues. Instances that were attached to these recovered volumes are recovering. We’re continuing to work on restoring availability and performance for the volumes that are still degraded.

We also want to add some detail around what customers using ELB may have experienced. Customers with ELBs running in only the affected Availability Zone may be experiencing elevated error rates and customers may not be able to create new ELBs in the affected Availability Zone. For customers with multi-AZ ELBs, traffic was shifted away from the affected Availability Zone early in this event and they should not be seeing impact at this time.

Update: GitHub was the subject of some early initial reports as having been affected. Apparently itwasn’t GitHub itself that went down, but some aspect of its status report page was affected, as you can see here:

02:17 PM PST

The status website is misreporting availability of services again. Git and Downloads are both available.

Here’s a funny example of a residual outage. A bartending app called GetOnTheBar crashed for awhile, but is as of this writing starting to come back online. It’s hosted on Heroku, which was of course affected by the AWS outage. See the Tweet below.

ladies and germs, excuse us while our wonderful host @heroku craps the bed

October 22, 2012 11:10 am via webReplyRetweetFavorite

@getonthebar

onthebar

folks. onthebar is up but still seeing intermittent timeouts, spilled drinks, and broken hearts from this AWS mess. our deepest apologies.

October 22, 2012 3:18 pm via webReplyRetweetFavorite

@getonthebar

onthebar

People familiar with the company’s plans tell AllThingsD that the product is known internally as “Project Sparta,” and that it is the latest result of a four-year, $2 billion research and development effort that has so far yielded two offerings in what Big Blue calls its PureSystems line. Details about the new product have been difficult to confirm, but IBM has scheduled an announcement for Oct. 9 at a company event in Boston.

First announced in April, the PureSystems line is intended to bring together all the necessary pieces needed to handle complex computing problems that typically require a combination of products from multiple vendors.

The first two products in that line were PureFlex and PureApplications. The PureFlex product combines computing, data storage, systems management and networking components in a single integrated product that’s pre-configured for the customer and intended to be easy to deploy in a data center. PureApplications is a machine designed for database and Web transactions. The company claims that the PureSystems line can cut the time required to set up a data center from as long as four months to as little as 10 days.

The PureSystems line is comparable in some ways to a new line of products from software giant and IBM rival Oracle. Since Oracle acquired Sun Microsystems in 2010, it has started selling what it calls “engineered systems” sold under the brand prefix “Exa-” with names like Exadata, Exalogic and Exalytics. The Exa line brings together a combination of hardware that is aimed at specific applications. Oracle is expected to make several announcements related to the Exa line at its annual Oracle Open World conference in San Francisco, starting Sunday.

IBM declined to comment, though it’s a pretty sure bet the product will have the word “pure” in its name. The move comes as the company has been stepping up the visibility of its efforts in the cloud-computing space, where it sells on-demand computing capacity in much the same way that Amazon does with its Amazon Web Services unit, and Salesforce.com does with its cloud-based customer relations management software.

IBM has acquired more than 30 companies in recent years to enhance its capabilities around analyzing data for useful business intelligence. Just this week, it announced plans to acquire U.K.-based Butterfly Software, and in April it acquired Vivismo and Varicent. Additionally, IBM has pledged to spend $100 million of its research and development budget over the next five years to tackle big-data problems.

Asa Mathat / AllThingsD.com

How does it keep prices low, while still offering some of the latest hardware? Not to mention, how does it give away an ever-expanding catalog of movies and books for $79 a year in addition to free two-day shipping?

In an interview with AllThingsD, Amazon’s founder and CEO Jeff Bezos provided some insight into the company’s economics.

During the conversation, the jovial leader laughed often (even when I suggested he lacked focus for selling everything from jeans to hardware). He was also quick to point out that while Amazon’s approach to making money may be different from others, he doesn’t necessarily believe others are doing it wrong — rather, they’ve just discovered what works best for them.

Here’s most of the 20-minute interview:

What stood out to me from the presentation today was your comments on Amazon’s ability to make money despite offering low prices.

Jeff Bezos: We do not like the razor and razor blade model, where you lose money up front and then somehow make it up on the backend. We also do not like the other model, where you make a lot of money on the device, because it doesn’t follow our approach.

By the way, one thing I should tell you is that our approach is our approach, and we don’t even claim it’s the right approach. It’s not something that’s new, but it’s something we’ve done since the founding of the company. In my view, you set up the business in a way that is aligned with the customer, or you can set it up in odds with the customer. When you have the option, you should figure out a way to be in alignment. Sometimes that requires you to be more patient, so it’s part and parcel with long-term thinking.

But if you were a short-term-oriented share owner, you might say let’s get the money up front. That’s where I decline to say that approach is wrong. I won’t say that. But it’s not ours. I work with the teams to set up the business models.

How long-term are you thinking for the Kindle?

Bezos: This one is pretty straightforward. We don’t want to lose a lot of money on the device.

Are you losing any money?

Bezos: We don’t disclose the exact bill and materials, so I can’t answer that. But we don’t want to lose a lot of money on the device because then we’d really hate it if you put it in the desk drawer. On the other hand, if you make a lot of money on the device, I believe you haven’t earned your money on it yet, and then you’ve incentivized them (the customers) to stay on the upgrade treadmill that I mentioned today.

In a previous interview, you said it takes five to seven years for a new business to either break even or become profitable. And you are now in year five of the Kindle.

Bezos: True story. Typically, of course, they vary a bit. We are in year five, but actually you could say we are in year eight because we worked on the device — the Kindle one — three years before we launched it.

Then, that must mean you are making money?

Bezos: Again, we don’t disclose that, but you’re good — you’re really good [at asking questions]!!

You also have a non-traditional content model. It’s hard to break down Amazon Prime to see how that works when content is included along with two-day shipping.

Bezos: If you talk about the original genesis of prime seven years ago, it’s a shipping program and you get free two-day shipping on a million items. Today, it’s 15 million items. But Prime was designed to be about wanting faster delivery and not wanting to pay for it. … So, if you change something to an all-you-can-eat buffet, then you don’t feel guilty. That’s the genesis.

But that’s expensive just offering that.

Bezos: Yes, many things we do are expensive! Refer back to before when I said “take a deep breath and be patient.” Deep yoga breaths, people! Yes, it’s expensive. It’s not like we didn’t do some arithmetic ahead of time. Despite what some have said from time to time, Amazon is a for-profit business. So, we looked at some numbers, and we believed that this would be a good program for customers and for Amazon — that’s the alignment I’m talking about. But it’s also good for third-party sellers. Once we added fulfillment by Amazon, it’s good for sellers, it’s good for Amazon and it’s good for the customer because they get an all-you-can-eat two-day shipping buffet.

How do you jump to adding content to that?

Bezos: So, then, you fast-forward to a transitioning digital world. What we try to do is find things that customers would want. You can always be differentiated, but it’s hard to find differentiation that customers care about. So, we are always looking for things that customers would love, and in the digital world, the two things that we’ve come up with so far for Amazon Prime is Prime Instant Video. We are investing hundreds of millions of dollars in Prime Instant Video. It’s very expensive, and also the Kindle Owner’s Lending Library. Again, very expensive. Licensing “Harry Potter” to lend out for free, that’s not inexpensive. That’s basically what our membership customer gets and we think about what are the things they would care about and that we can afford to do and is sensible. We do the arithmetic on it, and we think it will create that alignment.

We are also hearing that studios would like you to decouple video from Prime and have you sell it as a standalone service, like Netflix.

Bezos: There are a lot of studios, and they are not all like-minded. We have very good relationships with studios, and we just did a big deal with Epix a couple of days ago, so, yeah, I like our approach.

But could they make you change your approach?

Bezos: Well, it’s their content, so they can license it however they like, but they aren’t all like-minded. We are trying to offer people a service they like, so I’m very confident that we can find content for them.

Let’s switch back and talk about the new devices; clearly, you are trying to have a whole family of devices to offer customers.

Bezos: Yes, at different price points. $199, $299, and $499.

Do you see people owning more than one?

Bezos: I see people for sure owning one of these and one of these (pointing to the Paperwhite and Kindle Fire). And that’s already been happening. But families will own multiple tablets, and they do already, and the $159 Kindle with Kindle FreeTime will be perfect if they want to buy a tablet for kids. And, if your budget allows it, the large display with 4G/LTE, that’s the one you should get. If budget isn’t an issue, get the 4G/LTE Kindle and one of these (the Paperwhite), so if you read for a few hours, this is the perfect device because it’s so light.

You spent a lot of time going over Wi-Fi today. Clearly Internet access and accessibility is important.

Bezos: People don’t pay enough attention to [Wi-Fi]; it’s a mistake not to pay attention to it. These are connected devices. Think about it, you can buy more, but even just downloading photos from Facebook, how long do you want that to take? People have multiple devices these days, but they don’t necessarily want to download all their music to every device. But they do want to stream songs from any device they have with them. They also want to pull up Web pages fast — they go over Wi-Fi, too. It’s not just about buying things. These devices are not very useful unless they are connected to the Internet. The whole point is to connect to the Internet, and that means Wi-Fi. Even for 4G, you want Wi-Fi. You aren’t going to download a 3GB movie.

Is the price of the Kindle Fire HD with LTE ($499) subsidizing the data plan?

Bezos: I’m not going to break out the economics of any particular piece with you, but you’re right, it’s an astonishing price point.

How does special offers, or the advertising, play a role in the price point?

We had it on our E-Ink devices, but haven’t had it on the Kindle Fire. For those, it’s very good, no one really buys the non-special-offers version. Everyone buys the special-offers version. There aren’t two versions of this (pointing to the new 7-inch Kindle Fire HD). That was a decision we made because no one is willing to buy the non-special-offers version.

You’ve been a pioneer in the Android world, so tell me about your approach to using Android.

Bezos: We treat Android like Linux, and so it’s a base operating system layer. We have a large dedicated team that customizes Android and that’s what you see on the Kindle Fire.

Is it accomplishing everything you need to?

Bezos: Yeah.

Any plans to change things on that front?

Bezos: No, we like it.

What about extending the roadmap beyond these devices that we saw today?

Bezos: I can’t talk about our future roadmap, but we have some ideas about what we can do in the future. … You are exhausting me now, come on, Tricia! We just finished this one! You are such a demanding customer! What else do you got?!

But you do have demanding customers!

Bezos: We will certainly — not any time soon — but next year. We have some more things that we hope people will enjoy. It’s premature for me to talk about them.

Who are your competitors? People used to say it was Walmart.

Bezos: Well, you have to look category by category and business by business. In every place we do business, we have very sophisticated and competent competitors. And the other thing I’d say is that everywhere we do business, we operate in huge market arenas where there’s room for multiple winners. In retail, market sizes globally are more than $4 trillion, so you can build a very big company and still be in single-digit percentage of retail sales. So, that’s what I mean by there’s room for lots of winners. The device business, again, has huge opportunies and room for multiple winners. The same way for AWS — Amazon’s Web Services.

Anyone ever tell you that you have a focus problem?

Bezos: Hahahaha! That’s so funny because my Montessori teacher used to have to pick me up and move me from one task to the next.

So, no?

Bezos: So, no, I have never been asked that question. But I know where that’s coming from. I would say we do have a different philosophy from other companies — another common phrase is “stick to your knitting.” Our approach is, if we have a good idea, and if it’s something we think customers would care about, like AWS or Kindle Fire, then we don’t ask why do this, we ask why not do this? We have a high bar for doing those things. We don’t want to do me-too things. The people we’ve attracted over time to Amazon want to be pioneers. They want to be inventors. They want to do new things.

By the way, this is another place where I’d say what I’m outlining now is our approach. There are companies that are close followers and they are incredibly good at it, and they generate lots of returns for their shareholders, that’s also a difficult business. That’s just not us.

But one minute you are talking about inventing new antennas, and the next minute you are selling jeans.

Bezos: That is true. It is diverse. By the way, our apparel store is getting very exciting, too.

So, how do you manage your time?

Bezos: I try to spend my time on things that are at the intersection of what is important to the company and where I can add value. I found myself in a short meeting once about an intra-country tax dispute. The U.S. and the Japanese authorities both thought we should pay a tax, and each thought it should go to the other and vice versa. I was in this meeting and I realized that not even a normal lawyer could understand this issue, and not even a tax lawyer could understand this issue — only an international tax lawyer could understand. I said I don’t know if this is important, but I can’t add value here.

A lot of my time these days is spent on things, like apparel, because I think there’s a tremendous amount of invention going on there, especially in the Web presentation of apparel. I’m also spending a lot of time in our digital business, including content and devices. Again, there’s a lot of room for invention.

Final question: What’s the message that you wanted people to walk away with today?

Bezos: That we have the best tablet at any price. Last year, we wanted to build the best tablet at a certain price. And, this year, we wanted to build the best tablet at any price. Take away the price and it’s still the best tablet. It also happens to be only $499.

Last year, Amazon’s Q4 growth was double that of online retail overall. Competitors point to Amazon stealing share with offerings like Prime and the Kindle that lock up consumer spending in ways that few, if any, other retailers have the scale or resources to match. And “showrooming” is generally just another way of saying “Amazon.”

One often overlooked competitive advantage Amazon has is its non-retail revenue streams, which it can use to offset revenue lost to price-cutting. Amazon Web Services, Amazon Marketplace, and Amazon Product Ads all contribute serious revenues to Amazon’s coffers. Product Ads — where Amazon sells highly-targeted, competitive advertising across its internal search results and product pages — receives the least attention. But it poses the most serious competitive threat to retailers.

Why single out Product Ads? Because by supplementing product sales with ad revenues, Amazon is radically changing the terms of competition. It’s no longer bound to a model where you only keep score based on the percentage of visitors you convert to a sale. Instead, Amazon has the ability to monetize a far greater share of its traffic than the three percent who typically buy something. And with the WSJ citing the program at $400M last year — and Business Insider upping the number to $1B earlier this year — it has reached a scale at which retailers should take notice.

Why? Because Amazon generates more profit per visitor. And retailers who are not similarly monetizing their site visits are disadvantaged.

First, let’s remember that $1 of ad revenue equates to $5 to $10 of product sales. Unlike product revenue, ad revenue isn’t encumbered with a cost of goods, warehousing and fulfillment, or even marketing expenses.

That fundamentally changes Amazon’s math on customer acquisition. With the addition of advertising profit to the ROI equation, Amazon can outspend other retailers on a per-visitor basis, even if all other traditional retail metrics — conversion rate, product margin and cost to serve — are equal. This is a massive edge in performance marketing programs, where retailers spend up to a given percentage of attributed sales. Adding significant incremental profit per visitor means you can correspondingly spend significantly more on traffic acquisition.

Amazon can also plow media profits back into its shopping experience — and as noted, retail pricing. Wells Fargo research has shown, “Amazon prices are the lowest in retail by a significant margin, with or without the sales tax advantage.”

Interestingly, there is nothing stopping Amazon’s competitors from also safely monetizing their traffic with ad revenues. Walmart, for one, announced its intention to become an “experience platform” where brands not only sell to consumers, but also market to them, both online and off. Companies like Intent Media (where I work) are helping retailers to safely monetize their traffic with ad revenues. And the rapid spread of Google’s AdSense across retailers from Staples to Macy’s is a tentative acknowledgement of both the opportunity and the threat.

Amazon’s ad revenues may not be padding its bottom line, but those dollars are funding ongoing investments and innovation, which might be even worse for the competition. Amazon’s competitors need to successfully monetize the value of their site traffic — or continue to play on the non-level playing field Amazon has created.

Prior to co-founding Intent Media in 2009, Richard Harris was Senior Vice President, Strategy and Distribution at Travelocity. Earlier in his career, Mr. Harris worked at the Boston Consulting Group and Orion Consultants. He holds a BA from Harvard University and an MBA from INSEAD.

In a blog post summarizing Microsoft’s root-cause analysis of the incident, Mike Neil, general manager for Windows Azure, writes that someone forgot to adjust a safety-valve setting in the networking gear.

Just before everything happened, the company had just added a bunch of new capacity. The safety-valve mechanisms on the networking equipment, which usually guard against the possibility of a cascading failure brought on by unusual spikes in the number of connections, hadn’t had their limit setting adjusted upward. So when the new capacity was brought online, the safety valves hit their limits, and did what they were set to do: Generate network-management messages to administrators. The resulting surge in traffic brought on by those messages triggered other bugs, and pushed the CPU usage of some of the machines in the cluster to 100 percent.

Service for Microsoft’s Windows Azure Europe region went down for more than two hours on July 26. It was the second notable disruption for the service this year. The first stemmed from difficulty from the “Leap Day” on Feb. 29. It also came close on the heels of the Amazon Web Services outage on June 30 , caused by a lightning strike at a Northern Virginia Data Center. That outage disrupted service for numerous companies including Netflix, Instagram and Pinterest.

At 11:09 am UTC, or about 7:09 am ET, Microsoft confirmed on its Windows Azure status page that its service was “experiencing an availability issue in the West Europe sub-region.” Troubleshooting proceeded for two hours until Microsoft said the issue had been resolved.

No comments yet from Microsoft about what happened; I have reached out, and will update when I hear back. It wasn’t clear how many customers were affected, though GigaOM noticed a Tweet by a service called SoundGecko blaming its availability problems on Azure. The service had a much rougher day when the existence of Leap Day — the extra day in February that gets added to the calendar every four years — caused an outage.

You’d think there would have been a lot of complaints on Twitter and elsewhere, but I didn’t notice any. When Amazon Web Services crashes, as it does from time to time — most recently on June 30 — it takes with it a batch of high-profile Web properties that rely on its data centers for uptime. When a lightning strike in Northern Virginia whacked the backup power at an Amazon data center there, sites like Instagram, Netflix and Pinterest took temporary dives as well.

One that has gotten a fair amount of attention — in no small part thanks to those who invested in it — is GoodData, founded by CEO Roman Stanek (pictured). A little less than a year ago, it took $15 million in a Series B round led by Andreessen Horowitz. That round was also notable because AH had been an early seed-stage investor in the company.

Today, GoodData announced it has kicked its funding up a notch, landing a $25 million Series C led by Tenaya Capital, with participation from a new investor, Next World Capital. Prior investors, including AH, General Catalyst Partners, Fidelity Growth Partners and Windcrest Partners all participated in the round, which brings GoodData’s total capital raised to $53.5 million. Brian Paul, a managing director at Tenaya, will join GoodData’s board.

GoodData’s approach to the big-data problem is to do — what else? — harness the cloud. But it does it in a slightly different manner. Rather than compete directly with the usual providers of business intelligence software, like SAP, Oracle and IBM, it offers its service indirectly via cloud service providers like Amazon Web Services, Dell’s Boomi cloud-integration service, and Okta, the start-up focused on providing unified access to SaaS services.

It’s working. The company’s customer base has surged to 6,000, and bookings — a key indicator of future revenue that has turned into an important metric for companies in the cloud software space, like Salesforce.com — grew by 600 percent in 2011.

Autodesk, known for its 3-D design and visual effects software, has agreed to buy Socialcam, in a deal worth approximately $60 million, both companies said. They said they expect the deal to close within 30 days.

Socialcam — which had only moved out of shared office space into its own headquarters in San Francisco’s SOMA neighborhood within the past two weeks (it’s in Voxer’s old office) — plans to continue to operate its product mostly independently, now with the backing of Autodesk as a corporate parent.

Socialcam is the No. 1 application on Facebook, with 3.7 million daily active users and 56 million monthly active users, according to AppData. However, those numbers are currently trending downward.

Meanwhile, Socialcam is the No. 36 free iPhone app in the U.S. (No. 1 in St. Vincent and the Grenadines!), with that number trending upward, according to App Annie.

The company has a remarkably small staff — just four employees, backed by the massive scaling capabilities of Amazon Web Services.

We’d been hearing talk about Socialcam being on the block for months, with other potential acquirers including Zynga and Google.

Socialcam CEO Michael Seibel said in an interview that being bought by Autodesk appealed because it came with the promise of staying mostly independent. “We loved the opportunity to grow, as opposed to folding into another product or extracting out the pieces,” he said.

Other recent Autodesk acquisitions that have kept their independence are Instructables and Pixlr.

Socialcam launched in March 2011 as a mobile project within live video start-up Justin.tv. The project was the brainchild of longtime Justin.tv CEO Seibel, who had enough conviction about it to spin it off, despite having very few users, at a time when Justin.tv was turning into more of a gaming video site. Seibel then took Socialcam through the Y Combinator program, which had previously backed Justin.tv.

For a time, Socialcam was yet another Instagram for video. And, in fact, that’s still what it is, though being compared to Instagram and running a popular mobile video start-up both have more cachet than they used to.

Earlier this year, Socialcam usage had exploded, along with other short-form video apps, after Facebook turned on some of its Open Graph features in April. Socialcam had also been particularly aggressive with featuring popular YouTube content, in ways that some considered sketchy.

Asked to reflect on that situation, Seibel defended Socialcam’s actions by saying that it acted within the bounds of Facebook’s and YouTube’s public APIs, and it continues to regularly interact with people with both companies.

Image © Brian Solis Socialcam CEO Michael Seibel

Seibel also said the Instagram comparison makes sense up to a point, but that video is much different from photos. “Where it breaks down is, videography is new. Not very many people yet feel comfortable taking videos in their everyday lives.”

Seibel’s goal for Socialcam, he said, is, “A year from now, I want the majority of your friends taking one video per week.”

“This kind of sea change doesn’t happen overnight,” he added. “Partnering with a bigger company allows us to address the long-term opportunity, and gets us out of the minute-by-minute start-up roller coaster.”

After spinning out from Justin.tv and going through Y Combinator, Socialcam had raised a party seed round from more than 30 investors, including many Silicon Valley entrepreneurs and a few Hollywood names.

The company’s close competitor Viddy set expectations a bit higher for itself by raising $30 million in Series B funding around the same time.

Besides Seibel, Socialcam’s other team members are technical co-founders Ammon Bartram and Guillaume Luccisano, and community manager and power user “The Roxie.”

The list of damages is long, but if you go down far enough, you’ll see that the storm also disrupted service at an Amazon data center in Northern Virginia by hitting the cloud giant in a tender spot.

In a statement issued today, Amazon explained what happened. At a location where it operates more than 10 data centers — it didn’t say exactly how many — power was afffected at several after lightning strikes. But at only one of those data centers did redundant power not kick in the way it was supposed to.

The result, Amazon says, was that a “single digit” percentage of customers had their services disrupted.

But what an unlucky and select few. Among them were Netflix and Pinterest, both of which recovered shortly after the initial disruption.

Here’s Amazon’s full statement:

Severe thunderstorms caused us to lose primary and backup generator power to a portion of a single Availability Zone in our US-East Region Friday night. For perspective, in our US-East Region in Virginia, we have in excess of 10 datacenters. In the thunderstorm on Friday night, several of our datacenters had their utility power impacted, but in only one of them did the redundant power not operate correctly (which ended up impacting a single digit percentage of our Amazon EC2 instances in the US-East Region). We began restoring service to most of the impacted customers Friday night and the remainder were restored on Saturday.

A less lucky member of that select few was Instagram, whose service was more severely disrupted well into Saturday.

Also mysterious is how Instagram, now in the process of being acquired by Facebook for $1 billion, is treating the outage. Tweets on its @instagramhelp and @instagram accounts on Twitter referring to the service disruption have been deleted. Below is a screen grab of one such tweet I saw Saturday. Who can blame Instagram for wanting to forget it ever happened? But really? We’ve asked Instagram to comment and will update this story if we hear back.

Here’s a screen grab of one of the deleted tweets that now returns an error:

(Image via Wikipedia.)

Netflix and Pinterest had recovered most of their service by this morning. The worst affected appeared to be Instagram — the Facebook-owned social photo-sharing service remained offline for many users as of this morning, and as of 11 am PT, it hadn’t updated users on its status since its initial service failure. Some users reported on Twitter that service had been restored for them, while others said it remained offline.

We’re currently experiencing technical difficulties and we’re working to correct the issues. Thanks for your patience

June 29, 2012 8:16 pm via Twitter for MacReplyRetweetFavorite

@InstagramHelp

Instagram Support

Everyone should be back up shortly, if you aren’t already. Thanks again for being patient. And awesome.

June 30, 2012 1:11 am via webReplyRetweetFavorite

@netflix

Netflix

We’re back! Our team is continuing to work on some remaining issues that may impact performance. Thanks for your patience and happy pinning!

June 29, 2012 11:05 pm via Mobile WebReplyRetweetFavorite

@Pinterest

Pinterest

Amazon confirmed that the power outage had affected its services in a statement on its AWS status dashboard at 8:40 pm PT. While power was restored only nine minutes later, technicians worked through the night to bring servers and customer data back to normal. The outage affected its Elastic Cloud Compute, Relational Database and Elastic Beanstalk services.

8:40 PM PDT We can confirm that a large number of instances in a single Availability Zone have lost power due to electrical storms in the area. We are actively working to restore power, Amazon technicians worked through the night to restore services and to recover data from applications running when the storm hit.

8:49 PM PDT Power has been restored to the impacted Availability Zone and we are working to bring impacted instances and volumes back online.

As of 8:38 am PT, about 12 hours after the power failure, Amazon said it was still working on restoring user data. It warned users to expect some inconsistent data, and gave detailed instructions on how to check to see if their data was damaged.

Jun 30, 8:38 AM PDT We are continuing our recovery efforts for the remaining EC2 instances and EBS volumes. We are beginning to successfully provision additional Elastic Load Balancers. As a result of the power outage, some EBS volumes may have inconsistent data. …

It was the second large-scale dropout of its cloud service in as many years. Last year, Amazon suffered a service failure at the same Northern Virginia data center, and it dragged on for the better part of four days. That failure was ultimately blamed on a software error.

The failure comes only days after Google announced its intention to get into the cloud computing services space.

Additional severe storms are predicted for the region tonight.

In a company blog post, Craig McLuckie, its product manager, sketched some of the details that didn’t make it into Urs Hölzle’s remarks during today’s keynote address at Day 2 of Google’s developers conference.

The heart of the offering is the ability to run scores of Linux virtual machines on Google’s services. Now, if that doesn’t mean anything to you, it’s helpful to be reminded of one key tenet of cloud computing: Virtualization. Basically, one physical computer has so much computing capacity — because processors are now so powerful — that it can act like two or four or 10 computers all at once, all sharing the same hardware.

Google is counting that its experience in harnessing huge swaths of inexpensive computing hardware will give it a competitive leg up against the likes of Amazon Web Services and Microsoft’s Windows Azure, but it’s still available only in a limited preview, so there are going to be a lot more questions.

One piece of the puzzle that Google has going for it is that it is working with several partners that already have a history of helping customers manage their various cloud services. Google named RightScale, a management platform; Puppet Labs; OpsCode, which specialize in automation; Numerate, which uses computing to design drugs; and Cliqr, a cloud applications manager among its partners.

Another partner stood out to me: MapR, whose funding I covered last year, offers a version of Hadoop, an open source, big data technology that’s designed to run in the cloud. It’s already the Hadoop of choice for running on Amazon’s cloud, and now it seems to have an inside track on Google’s.

Then there’s the matter of performance. Amazon has been known to have stability issues: Fifteen months ago it suffered a crash that brought numerous Web services down with it. Google is promising “strong and consistent” performance that customers can rely on and thus tune their applications based on that expectation.

Google is also planning to compete on price. According to its price list, prices are beginning at 14.5 cents per hour for the use of a single virtual processor core with 420 gigabytes of local storage. I’m not familiar enough with all the services to compare it with this price list for Amazon Web Services.

There’s also the question of security. CIOs have often tended to view cloud services with a suspicion based on the perception that the cloud isn’t secure. And while I haven’t read it yet, Google has written a white paper on the subject.

Obviously, more details will be coming out in the days and weeks ahead as Google moves this from a preview to a full-fledged service. It has made a big point today in bragging about its capabilities. Now it remains to be seen if those bragging points can stand up to scrutiny and daily use.

Today’s case in point is a new survey by the Texas-based cloud-computing outfit Rackspace. This is the company that is the subject of constant and recurring speculation that it’s about to be acquired, with similarly constant and recurring insistence by its senior executives that it doesn’t want to be acquired.

Anyway, Rackspace conducted a survey of 500 IT decision makers who happen to work for companies that use cloud-computing services. (Again, I ask, rhetorically, given all the surveys they seem to be responding to from vendors, trade publications and so on, when do “IT decision makers” ever get the time do their jobs?) Among the findings are the usual bits that naturally lead one to reach positive conclusions on the part of the company that commissioned the survey: Nine out of 10 IT decision makers like cloud computing, and they prefer vendors with strong customer service but higher prices by a ratio of 3 to 1. No shockers there.

But here’s the bit that caught my eye. If you’ve paid any attention to the evolution of cloud computing in the enterprise over the last two years, you probably know that employees of various levels — programmers especially — can sometimes be sneaky about how they use it. Services like Rackspace, Amazon Web Services and many others are so easy to start using that it’s common for employees to open an account and start using them without getting proper authorization from the boss.

Rackspace found that nearly half of those in the survey — 43 percent, to be exact — said they were aware of these “rogue IT” situations, where employees take it upon themselves to spin up a cloud service without first getting the boss’s permission or setting up an account through the usual corporate processes.

Often it’s a matter of solving a problem quickly. Corporations have a way of making decisions slowly, and cloud services can be spun up in a matter of minutes with nothing more than a credit card: Indeed, 38 percent of those surveyed said the main reason for “going rogue” is to save time. One in three said what was needed wasn’t available internally or that they wanted to avoid dealing with the IT department altogether. Hard to argue with that.

There’s no question that every venture capitalist within 100 miles of Silicon Valley wanted to squeeze their khaki-clad selves into what had become tech’s hottest deal of late.

That would be to get a piece of the new round of funding for start-up phenom Pinterest.

But while piles of VCs and other investors tried to work every angle possible to noodge into the action, the iconoclastic CEO and co-founder Ben Silbermann decided to go big and go global by hooking up with a Tokyo-based Internet giant.

Japan’s Rakuten will invest upwards of $50 million in a $100 million round that values the social bookmarking site at $1.5 billion.

Rakuten is one of the largest online commerce companies in the world, with a flagship site Rakuten Ichiba, among others. It was founded in 1997 and had revenue of $4.7 billion in 2011.

Most important in Pinterest’s calculation was apparently the link with its CEO Hiroshi Mikitani, whose nickname is Mickey. One the richest men in Japan, Mikitani is one of the best known entrepreneurs there where he’s been described as “Richard Branson meets Jeff Bezos.”

I briefly chatted with Mikitani last night about why he decided on the Pinterest deal, in a conversation where he focused a bit on Rakuten’s famed “omotenashi” or “empowerment” philosophy. Simply put, the concept is that — unlike an Amazon — Rakuten is a facilitator of commerce, much like its shopping mall metaphor beginnings. The approach is to aid merchants rather than compete with them.

It’s a little eBay, a little Alibaba, some Etsy and even a little Amazon Web Services mixed in. It’s also a place that can move retail globally, which is presumably the attraction to it by Pinterest.

ATD: Why did Pinterest pick you?

Mikitani: We are not a venture capitalist. We got together and talked about our story and our history.

We agreed that we shared a vision of the future of Internet e-commerce.

ATD: Why make an investment?

Mikitani: When we started to talk about being involved in the round of investment, we wanted to invest as much as possible.

We were very impressed by their business model and also the management style.

ATD: What made Pinterest so attractive in comparsion to other similar companies?

Everyone is talking about social commerce and best solution to social commerce, but Pinterest really was the first to use graphics that well to connect with people.

Rarely have we seen such a powerful media and we were seeing huge traffic coming from Pinterest [to Rakuten sites]. It was much higher than anyone else.

ATD: What do you bring to the table?

Mikitani: I think there are some things we think we can do with our expertise. Ben and his team have an extremely strong commitment to make their products as attractive as possible.

But we have 40,000 stores in Japan and we can give them access to our customers and do aggregation to engage in everything. And we have sites in many other countries too.

ATD: How are you going to work together?

Mikitani: We are not going to stop them from doing dealings with other e-commerce companies. But we can have more constructive input on how to make their site more effective from e-commerce point of view.

This is a long-term arrangement and we have a strong committment and attachment to this business. We truly understand their business and respect their management.

Other examples that have punctured my attention bubble in recent years are platform-as-a-service, infrastructure-as-a-service and storage-as-a-service, and there are probably many more. Then they get turned into ever-weirder acroynyms: Saas, PaaS, Iaas. You get the idea.

Today, Netsuite, the cloud player whose traditional approach is essentially to run your business from the cloud, today contributed its own new thing offered as a service: Commerce. (Cue the acronym: CaaS.)

One of the big things that businesses have to do is buy and sell goods and services from other businesses. The most basic example is that widget makers have to buy cardboard boxes from a supplier, because the goods don’t show up on the loading dock by magic. The same goes for every bit of physical stuff a business needs and also the services it pays for to keep its operations running smoothly.

Netsuite isn’t just managing the back-end business-to-business commerce, but also the direct-to-customer type of commerce. And the experience works pretty much anywhere a customer may be coming from: On a phone, tablet or PC, in a store or on social media.

As customers have essentially come to expect to be able to buy anything and everything online, the traditional back-end commerce engines like Microsoft Dynamics, Great Plains, Sage and even SAP were imperfectly combined with patchwork solutions for selling on the Web. And the bits of the system that faced customers have rarely if ever been unified with the ones that also face suppliers, which has a way of complicating things like inventory, the supply chain and everything else that stems from basic ebb and flow of supply and demand.

And things are getting even more complicated as machines are programmed to automatically buy things from other machines based on a pre-defined set of circumstances.

NetSuite has built what it calls a commerce engine — dubbed SuiteCommerce — that speaks directly to the core enterprise resource planning (ERP) and customer relationship management (CRM) functions that are already its bread and butter. In English that means that the new engine comes into the process already knowing what everything is, and also who everyone is. That makes it ready to wheel and deal not only with customers but also with suppliers. And when you get down to it, that’s a good way to reduce a lot of friction in any business, which is pretty much what cloud computing is supposed to be about.

The commerce service was probably the biggest news to come out of Netsuite’s SuiteWorld conference in San Francisco today, where CEO Zach Nelson (pictured) gave a keynote address. The company also announced a partnership with Square, the maker of little white credit-card reading thingies that you can insert into an iPhone or iPad for the purpose of accepting payment. Square’s Register application has been integrated with SuiteCommerce, so if you see more businesses using Squares, maybe this has something to do with it.