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Canonical doubles down on multicloud in defense of its strategic position against Red Hat and VMware

TBR perspective

At Canonical’s 2019 Analyst Day, the company displayed a compelling business model and a clear road map toward achieving its desired business outcomes. However, TBR believes the long strategic strides Canonical has taken over the past year have only propelled the company so far due to the increasingly competitive field that Red Hat and VMware (NYSE: VMware) are creating. It has been just over two months since IBM (NYSE: IBM) completed its purchase of Red Hat, so it was not a surprise that Canonical emphasized the competitive landscape IBM has shifted with its $34 billion purchase. Even less surprising was Canonical’s dive into specific areas, including public cloud and data center, where it expects to sidestep its two biggest competitors, Red Hat and VMware, both of which Canonical is also most often compared to within the market.  

Navigating a competitive landscape

While Canonical boasts that its multicloud strategy is unique, the vendor’s approach to multicloud aligns with that of major public cloud providers as Canonical aims to run Kubernetes on its Linux-based operating system (OS), Ubuntu, to solidify its place at the interoperability layer. In his opening remarks, Shuttleworth alluded to the fact that open infrastructure is just beginning and that the pending explosion of open source will occur at the applications layer; on top of that, Canonical claims PaaS will not account for more than 10% of applications. TBR believes Shuttleworth’s comments take direct aim at VMware Cloud Foundry and the fact that VMware does not own any applications. However, while Canonical boasts that its approach goes beyond infrastructure with its Linux app store, VMware is close behind given its recent acquisition of Bitnami, which specializes in application packaging, supporting VMware’s application ecosystem strategy.

As one of the few remaining OpenStack providers, Canonical has positioned its proprietary OpenStack offering, BootStack, to still be very much part of the company’s value proposition while other vendors like IBM, Rackspace and Mirantis are de-emphasizing the technology. As part of its private cloud strategy, Canonical maintains support for OpenStack private clouds on Ubuntu, whereas in public cloud Canonical places Ubuntu on the platforms of partners, such as Amazon Web Services (AWS; Nasdaq: AMZN), Microsoft (Nasdaq: MSFT), Google (Nasdaq: GOOGL), Oracle (NYSE: ORCL), Rackspace and IBM. TBR expects IBM will shift its current Ubuntu-based workloads to Red Hat Enterprise Linux (RHEL) now that its purchase of Red Hat is finalized, resulting in the loss of business for Canonical. Presentation materials also highlighted opportunity around fully managed infrastructure services. TBR notes the managed services opportunity around OpenStack was far more prominent 10 years ago, whereas now the opportunity is around creating a managed services portfolio that emphasizes higher-complexity workloads as well as IoT. Canonical noted it is not attempting to build a managed services empire, yet further development in this area presents an uphill battle for the company, especially as IaaS leaders AWS, Microsoft and Google make it easier for enterprises to navigate the challenges of a hybrid environment, which in many cases OpenStack cannot serve.

At Canonical’s 2019 Analyst Day, CEO Mark Shuttleworth and other company executives got together with industry analysts to highlight the company’s revamped business strategy, one that emphasizes four competitive battlegrounds including public cloud, data center, edge cluster and IoT. The event featured presentations from Shuttleworth, Finance Director Seb Butter and VP of Public Cloud Christian Reis, among others. The event also incorporated presentations from key partners, including from Atos VP of Cloud Engineering Bob Seddigh and BT Group Chief Architect Neil McRae.

Canonical’s growth play: Make customers’ and partners’ lives easier (and more economical)

TBR perspective

At Canonical’s 2018 Analyst Day, CEO Mark Shuttleworth laid out a very compelling construct for Canonical’s vision of being the link between the operating system (OS) layer and the cloud control planes. Canonical has Ubuntu OS versions to run from the largest high-performance computers with NVIDIA graphics processing units to the smallest device OSes at the heart of offers from niche vendors such as Rigado. Throughout the event, Canonical stressed multicloud interoperability through Kubernetes. The big unknown on the horizon is how to provision infrastructure for edge analytics, which sits at the heart of the strategic relationship Canonical has with Google Cloud as Google donates Borg to ensure Kubernetes does not challenge Borg the way Hadoop forked from MapReduce.

Existing virtualization economics has stalled, with premium pricing models emerging from the major and better-established competitors Red Hat (NYSE: RHT) and VMware (NYSE: VMW). The Canonical play further compresses the economics of the infrastructure abstraction and OS components, where parts will be provided for free and the services and update provisions will become the basis for the monetization model. Akin to how free Android disaggregated the device OS space and gained share against Microsoft, Canonical bets on market projections showing devices used/owned per person growing from two to three devices today to as many as 20 devices within the next five years.

It is from this vantage point that one open-source Linux distro, Canonical’s Ubuntu, was taking direct competitive aim at another (Red Hat), while likewise suggesting VMware’s time as the market maker would quickly start to fade as more and more app modernization efforts move code from virtual machines (VMs) into lightweight Kubernetes containers (clusters).

 

Canonical hosted its 2018 Analyst Day in New York City on Sept. 20, 2018. The event featured presentations from the top leadership at Canonical, including Shuttleworth, Finance Director Seb Butter, SVP of Global Data Centre Sales Jeff Lattomus, and VP of Global Sales, IoT & Devices Tom Canning. Canonical focused on business and go-to-market updates as well as key presentations by partners, such as Paul Nash from Google Cloud, outlining how Canonical has accelerated or added value to their businesses. At this year’s event, there was a noticeable blurring of the lines between cloud and IoT discussions in comparison to years past where there were more definitive tracks. Regarding both Canonical’s own strategy and its conversations with customers, it is exceedingly difficult to have a discussion about one and not the other, which is reflected in the broader IT landscape as of late.

Postcards from the edge: Complexity is here — wish it were not

“Analog dollars to digital pennies” is a phrase used to discuss the continued compression on technology price points as Moore’s Law economics, coupled with continued IP abstraction, creates economic trigger events aimed squarely at legacy business model best practices. Recently, I attended analyst events in New York City — one sponsored by Lenovo and one by Canonical — that outline these economic trigger events, albeit from different sides of the same coin.

Canonical CEO Mark Shuttleworth used the term “economic trigger events” often in his opening remarks. The idea is that technologies and new price points create trigger events that result in new economic fundamentals where some participants will be disruptors and some will be disrupted.

The rise in the hype cycle around edge computing as it joins forces with cloud, artificial intelligence (AI)/machine learning, and Internet of Things (IoT) creates a veritable Gatling gun of economic trigger events. These events accelerate business model disruption as we pivot to the Business of One era.

The disruption sits atop the continued economic pressure from commoditized hardware. What’s behind it all is that while infrastructure is valuable, it is not valued. In short, the margin moves out of infrastructure and into the business outcome. Technology enablement is less constrained by affordability and more by determining what business value can be derived from the application or use case.

Rather than being the lead decision in business investment decision making, infrastructure acquisition becomes the derived decision. The service attach rate or services drag becomes the fuzzy guide point for new inventions and new business models. Broad, ubiquitous ecosystems become imperative to generating sufficient margin in the digital penny world to justify the ongoing development, monitoring, and maintenance of secure flexible infrastructures that won’t break and will keep data secure and private.

For Canonical, this means focusing on the connection between operating system and cloud control planes to ensure a single code set operates silicon as large as high-performance computers (HPCs) and as small as single-purpose IoT devices. Compute infrastructure is assumed to work, until it breaks, and then users realize just how valuable that hidden infrastructure provisioning is.

As Canonical is hardening the abstraction layer to ensure seamless interoperability, Lenovo (and many other hardware manufacturers) create purpose-built appliances optimized for edge workloads. In some instances, these will be small appliances simply capturing data and routing it back to clouds for ingestion into massive analytics engines. In other situations, it will be very-high-performance compute engines with GPU accelerators in simple, easy-to-operate form factors where AI inference in real time has to be performed at the edge. Here again, the assumption will be that the edge appliance can operate (in a retail convenience store, for example) without the need for any technically savvy personnel to monitor, manage or provision the device on-site.

Look for more detailed special reports from TBR on the Lenovo and Canonical industry events in the next few weeks.

 

Canonical seeks to solve the IoT software puzzle

Despite Internet of Things (IoT) having become a common term in business transformation vernacular over the last three years, its development is still akin to a self-guided home improvement project — you can find all the pieces at the store, but there are numerous brands per item and no guarantee the pieces will fit together; and you can find an endless number of blueprints online, but you won’t be able to tell which one is best for your situation or which will have the most lasting appeal. To most customers, IoT is a puzzle.

Most vendors are trying to simplify IoT to drive customer understanding, and ultimately sales. Some have been more successful than others: Dell Technologies (NYSE: DVMT) in ICT, Amazon Web Services (AWS) in cloud infrastructure and Atos in services. Canonical seeks to solve the software problem, primarily related to increasing solution complexity and abundance, the absence of effective security, lack of interoperability, and inability to update at scale, as well as housekeeping challenges for developers, all of which TBR believes are the largest hurdles to assembling and maintaining an IoT solution.

Canonical bets on the mechanization of IT to spring from the edge to the data center

As the company behind the Ubuntu Linux distro, Canonical has remained in the shadows of Red Hat (NYSE: RHT) and, to an extent, VMware (NYSE: VMW). As it prepares to go public, however, Canonical has outlined a sound strategy that relies heavily on edge adoption sparked by the growing need for a secure ecosystem on which small developers can innovate around connecting legacy devices to the internet for incremental business value. It is this concept that TBR defines as the mechanization of IT, where the secure, flexible platform attracts developers seeking to write specific applets — or “snaps,” in Canonical vernacular — without having to invest time and energy in the security and platform resiliency elements vital to commercial adoption. With its ecosystem, Canonical aims to provide to the mechanization of IT what the Apple (Nasdaq: AAPL) iTunes store spawned through the consumerization of IT: the base layer platform whose velocity or “flywheel effect” accelerates as more developers and applications become available.