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Over the last few months I’ve been asked, a lot, by some smart folks on how web 2.0 and cloud computing are defined, and what their impact will be on technology as a whole. Since both terms are used very loosely, and often times by marketers who aren’t knowledgeable in either field, web 2.0 and cloud computing have somehow melded into one concept for many people. This, however, is not the right way to look at things. In a recent email to a friend I put forth my thoughts on the matter, and was busy recrafting a post from that email until I read Tim O’Reilly’s post this evening. As expected, his definitions are much better than mine. He also goes on to develop a case for the future impact of both concepts for the technology industry:
I believe strongly that open source and open internet standards are doing the same [migrating the point of profit] to traditional software. And value is migrating to a new kind of layer, which we now call Web 2.0, which consists of applications driven not just by software but by network-effects databases driven by explicit or implicit user contribution.
So when Larry Ellison says that cloud computing and open source won’t produce many hugely profitable companies, he’s right, but only if you look at the pure software layer. This is a lot like saying that the PC wouldn’t produce many hugely profitable companies, and looking only at hardware vendors! First Microsoft, and now Google give the lie to Ellison’s analysis. The big winners are those who best grasp the rules of the new platform.So here’s the real trick: cloud computing is real. Everything is moving into the cloud, in whole or in part. The utility layer of cloud computing will be just that, a utility, without outsized profits.
But the cloud platform, like the software platform before it, has new rules for competitive advantage. And chief among those advantages are those that we’ve identified as “Web 2.0”, the design of systems that harness network effects to get better the more people use them.
Read the whole post, it’s worthwhile.