Cloud Computing Will Never Work

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Cloud computing has started to pick up some fans. Google (GOOG) markets a lot of the stuff. It allows things like e-mail, documents, and spreadsheets to run on its servers. The PCs at companies don’t have to carry a load and eat up memory. Google’s own computing power handles that.

Other companies are moving into the business, hoping to take software sales away from Microsoft (MSFT) which sells most of its products to be installed on corporate owned and operated machines.

Larry Ellison, the founder and chief executive of Oracle (ORCL), says cloud computing will always lose a lot of money, even if it picks up market share. He points to the margins for the business and says that they are razor thin if they are there at all. He makes a lot of money on his software so he can sustain his model forever. According to the AP, "Ellison has gone so far as to draw derisive comparisons between cloud computing and Webvan, an online grocery delivery service that was supposed to spell the demise of traditional supermarkets, only to go bankrupt in 2001."

What Ellison and Microsoft don’t appreciate is the stupidity of their cloud computing competitors. New businesses are often willing to lose money until they either grow large enough to make a buck or go out bankrupt. Either way, they can hurt strong incumbents.

Ellison fails to appreciate that the path to new technology is often littered with buffoons who are willing to risk everything to prove a new business model works.

Douglas A. McIntyre