Friday, October 23rd, 2015

Time	Event
12:00p	The Billions in Data Center Spending behind Cloud Revenue Growth The downside of having a thriving cloud services business is the enormous amount of money a company needs to spend on data center infrastructure to support it. And the faster it grows, the more money it needs to spend. Every quarter, cloud giants Amazon, Microsoft, IBM, and Google collectively spend billions of dollars on servers and other hardware for their cloud services and data centers around the world to house all that gear, and the quarter that ended September 30 was no different. It’s difficult to distill the exact amounts companies spend on data centers. They are not required to disclose those numbers and usually lump them in with other capital expenditures. Cloud service providers do, however, consistently say that data center spend represents the biggest portion of their capital expenditures. Microsoft, for example, spent $1.5 billion in the last quarter to support demand growth for its cloud services, Amy Hood, the company’s CFO, said on the earnings call with analysts Thursday. Google’s capital expenditures for the quarter were about $2.4 billion, spent primarily on production equipment, data center construction, and facilities. On Amazon’s earnings call, also on Thursday, Phil Hardin, director of investment relations at Amazon, said data center expenses that go into expanding or establishing cloud regions are “really lumpy,” meaning it requires spending big sums in short periods of time to deploy new data center infrastructure to support the rapidly growing and highly profitable Amazon Web Services business. Own or Rent? Both All major cloud providers also use commercial data center services to varying degrees to expand their reach beyond the big “web-scale” facilities they build around the world. IBM does it more than the others. SoftLayer, for example, is a major customer of Digital Realty Trust, a primarily wholesale data center provider. But the others use “third-party” data center capacity too, be it multi-megawatt wholesale facilities or small footprints in network-rich retail colocation data centers. One leased data center site AWS has disclosed publicly is a Corporate Office Properties Trust facility in Ashburn, Virginia. To extend cloud infrastructure to China, both IBM and Microsoft have partnered with Chinese data center provider 21Vianet to take their services to that market. Making the Margins Work In addition to lease and the capital expense of building data centers, there’s also the operational expense of powering and operating them, and all those costs obviously have direct impact on profit margins. “Besides software development costs, we are incurring costs to build and maintain infrastructure to support cloud computing services. These costs will reduce the operating margins we have previously achieved,” Microsoft said in its earnings documents filed with the SEC. Despite the costs, AWS has managed to improve its margin dramatically from one year ago, going from about 8 percent in Q3 2014 to 25 percent in the last quarter. Microsoft’s cloud margin is also a positive story. The company’s gross margins dropped substantially last quarter from deferred Windows 10 revenue and from lower margins from personal computing, productivity, and business processes products, but a higher gross margin from the Intelligent Cloud segment, which includes Azure, server products, and enterprise mobility, somewhat helped offset the overall margin drop. Public Cloud is Only Part of the Picture Even though Microsoft’s public cloud infrastructure services revenue is growing, taken alone it still pales in comparison to Amazon’s (as does IBM’s and Google’s). AWS made $3.2 billion in revenue and $420 million in profit in the last quarter. Microsoft and IBM, however, due to their long legacy selling on-premise solutions to enterprises, have strong hybrid cloud strategies that yield substantially higher revenues than their public cloud services by themselves. Asked by an analyst whether Microsoft Azure was eating into the company’s on-prem business, Hood said it wasn’t. “I do expect both to grow,” she said. Microsoft doesn’t think of Azure “in isolation,” the company’s CEO Satya Nadella said on the call Thursday. It views its on-premise data center software, such as its ubiquitous server products, as extension of the cloud as a whole. It combines with Azure into a distributed hybrid cloud. “Azure revenue and compute usage more than doubled year over year,” Nadella said. The company doesn’t break out revenue from Azure alone, but the Intelligent Cloud segment raked in $5.9 billion in the last quarter, an 8 percent improvement that hardly represents a doubling of revenue and is indicative of the size of Azure’s portion of the whole Intelligent Cloud pie. Again, Intelligent Cloud includes Azure, server products, and enterprise mobility. Microsoft’s other source of cloud revenue, Office 365 (the version for businesses), is part of another revenue bucket called Productivity and Business Processes. While the bucket as a whole declined 3 percent, to $6.3 billion, Office 365 revenue was up 70 percent. IBM’s strategy also relies on hybrid cloud to a great extent. The company didn’t break out its cloud services revenue for the quarter, but it did report a 12-month revenue run rate for public cloud, which was $4.5 billion – up from $3.1 billion a year ago. The annual run rate for all of IBM’s cloud services, including public, private, and hybrid, was $9.4 billion. IBM’s cloud services include SoftLayer Infrastructure-as-a-Service, private cloud on-prem and off-prem, as well as Platform-as-a-Service called Bluemix, through which developers can use the company’s data analytics services, including Watson, its cognitive computing technology. In late September, the company furthered its hybrid-cloud play by introducing Bluemix Local, an on-prem version of the PaaS. A Sport for Heavyweights Because the capital and operational expenses required to run cloud services are so high, public cloud has proven to be an extremely tough business to compete in as a provider. The cloud giants enjoy economies of scale smaller players cannot access, which means smaller players cannot compete on price or geographic reach – an increasingly important factor in the market. Unless you are a smaller player that can successfully occupy a specialized niche, cloud, and especially public cloud, has become a sport for heavyweights only. (Comment on this)
2:37p	CoreSite Reports Strong Q3 Results, Ups Guidance Citing supply and demand dynamics in the US data center market, CoreSite has increased its earnings guidance for the year. The company executed about 150 new and expansion data center leases in the third quarter, representing about $9 million in annual rent. It also commenced leases that were previously closed during the quarter, which it expects to bring in another $9 million in revenue annually. CoreSite is building a massive new data center in Silicon Valley and expanding capacity in existing buildings in Northern Virginia, Los Angeles, Chicago, and Boston. The company raised its 2015 guidance from the old range of $2.75 to $2.83 in Funds from Operations to the new range of $2.82 to $2.86. FFO is a financial metric publicly traded real estate investment trusts use in place of Earnings per Share to express how their performance affects the value of their stock. CoreSite reported total revenue of nearly $87 million for the last quarter – up 23 percent year over year. With data centers in eight US markets, including the top-tier Silicon Valley, New York, Norther Virginia, and Chicago markets, CoreSite’s model combines wholesale data center space with retail colocation and interconnection. It is a model close to what its major rival Digital Realty Trust is now pursuing following the completion of its $1.9 billion acquisition of Telx. To make sure the interconnection ecosystem within its data centers remains attractive, CoreSite is doubling down on growing the variety of customers that exchange network traffic in its facilities. “We continued to execute upon our strategic priorities, including increasing transaction count; enhancing the network and cloud density of our portfolio; and diversifying our customer base with a record number of new logos in the quarter,” CoreSite CEO Tom Ray said in a statement. While interconnection is important everywhere, Silicon Valley, New York, and Northern Virginia play especially important roles as network connectivity hubs on the global internet map. Connectivity drives a lot of demand for data center capacity in those markets. During the third quarter, CoreSite kicked off construction of its seventh Silicon Valley data center. The 230,000-square-foot “powered shell” will include 80,000 square feet of turn-key data center capacity. A powered shell in data center lingo means a building with access to power and some basic electrical infrastructure that tenants can fit out to their requirements on their own. Turn-key is just that – fully built-out data center space, ready for customers to roll in racks and IT gear. CoreSite is adding about 100,000 square feet at one of its Northern Virginia data centers, expecting to complete one expansion phase before the end of this year and a second one in the first quarter of 2016. Its expansion activities in Los Angeles, Chicago, and Boston are more modest, ranging from 12,000 square feet in Chicago to 14,000 square feet in Boston. (Comment on this)
3:54p	QTS to Serve CSC’s Data Center Outsourcing Clients QTS Realty Trust, one of the largest data center providers in the US, will be one of two companies providing data center outsourcing services to customers of the IT outsourcing giant Computer Sciences Corporation, QTS announced this week. Around since the late 50s, CSC is a multinational IT services giant with $12 billion in annual revenue that primarily serves government agencies and large enterprises. As part of its strategy, it pursues outsourcing deals over $100 million, according to its annual report for 2015. QTS will provide custom data center suites and colocation space to CSC customers under the new agreement. QTS did not disclose who CSC’s second data center outsourcing partner was. The deal is part of CSCS’s wider plan to optimize its global footprint. It has been pursuing a “get fit” agenda since about three years ago, divesting non-core assets and restructuring to get out of a slump that had caused a dramatic drop in stock price and market capitalization. As part of turnaround efforts, in progress since 2012, CSC’s board of directors recently voted to split it into two independent entities, one focused on private and public-sector customers internationally and the other serving strictly US government agencies. The partnership has the potential to deepen QTS’s already substantial play in the public sector. The company has been pursuing government customers for several years, starting with its Federal Cloud business, launched in 2014 and hosted at it Richmond, Virginia, data center. QTS became a certified FedRAMP cloud provider late last year and this year acquired Carpathia Hosting, which, in addition to a massive managed hosting business, also brought its substantial federal government business under QTS’s wing. (Comment on this)
4:30p	Weekly DCIM Software News Update: October 23 Latest on the DCIM software market and new release from Cormant. IDC MarketScape evaluates DCIM Vendors. Market intelligence advisor International Data Corporation (IDC) has released a new report, IDC MarketScape: Worldwide Data center Infrastructure Management 2015 Vendor Assessment, that evaluates 15 DCIM vendors, including ABB, CA Technologies, CommScope iTRACS, Cormant, Device42, Emerson NetworkPower, FieldView Solutions, FNT, Modius, Nlyte, Panduit, RF Code, Schneider Electric, Siemens, and Sunbird Software. With data from this report Data Center Knowledge explores who is winning in the DCIM software market. Cormant launches Cormant-CS 8. DCIM provider Cormant announced the release of Cormant-CS8 during an all-day launch conference on October 22nd. Cormant notes that the new release features configurable dashboards, alert subscriptions, and a brand new infrastructure console with the ability to bookmark sites for aggregated data feeds, so managers can view information quickly with the ability to make proactive decisions. (Comment on this)
5:00p	Microsoft Runs the Largest Botnets to Protect Azure Customers This article originally appeared at The WHIR TORONTO — It might be surprising to hear that Microsoft owns the 10 largest botnets in the world, but just as it takes a thief to catch a thief, it may require running a botnet to save organizations from botnets. At the security conference Sector this week in Toronto, Tim Rains, chief security advisor for Microsoft’s Worldwide Cybersecurity and Data Protection team, said Microsoft has taken control of botnets as part of its security strategy, which it is using to secure organizations using its Azure cloud services. Taking Control of the World’s Most Dangerous Botnets “We’ve taken down many botnets around the world, and what happens when you take down a botnet is a pretty interesting story,” he said. “We have to innovate around the law in order to get this done.” The botnets were attacking customers. Among other things, they were trying to get targets to buy counterfeit Microsoft software. “We had to go to court and say, ‘Hey, this is a trademark infringement. They’re actually selling counterfeit software, and they’re infringing on our trademark,’” Rains said. What happens is that Microsoft asks for a temporary restraining and control over the command and control server domains in order to prevent them from sending billions of pieces of spam. The judge will provide this, but gives the accused the option of going into an open court and asking for their botnet back. “It turns out that they never came into court to ask for their botnet back,” Rains added. Microsoft has done this several times over the years, Rains said. “Now we own the 10 largest botnets in the world.” This means that Microsoft owns the control servers for infected systems totaling 60 to 70 million, and including high-profile botnets such as Zeus and Rustock. What is Microsoft Doing with These Botnets? Rather than use the botnets to host malware, flood websites with DDoS attacks, or send millions of spam messages, Microsoft tracks these botnets to find out what systems are infected. “They’re reporting back to us as their command and control – they’re reporting back to us and asking for us to send us commands, and that’s why we know what their IP addresses are.” Their list of IPs leads to infected systems, which is extremely interesting to governments and enterprises that want to know if their organizations are exposed to those botnets. But it’s not as simple as handing over that list of IPs because it’s a privacy issue, so Microsoft is putting those IP addresses on the cloud so that organizations can, for instance, check if their Azure services are connecting to infected IPs. “If you’re an Azure customer, now you can go into your Azure Active Directory reports, and if there are systems authenticating to your Azure-based applications that are part of these botnets, they will show up in your Azure Active Directory reports,” Rains said. ISPs can also use the list of infected IP addresses to tell their customers they’re infected with botnets. While ISPs in North America take a more laissez-faire approach to network monitoring, he mentioned that ISPs in Finland quarantine infected customers, forcing them to deal with their vulnerabilities through installing the malicious software removal tools that make the ecosystem cleaner. Rains said Microsoft maintains control of the botnets because chances are that a system compromised by one botnet will be easily infected with other malware if it isn’t disinfected and patched. “If they’re not fixing the underlying issue,” he said, “they’ll get re-infected very quickly. We can disinfect them, and we do, but if they don’t take care of the underlying issue of how they’re getting exploited to begin with, they end up back inside that botnet.” Microsoft Might Know Your Account Password Very often, system exploits are used to steal login credentials, and once these usernames and passwords are stolen, they’re easily sold on the black market. It’s unsurprising, then, that Microsoft is also collecting lists of compromised credentials. “We’ve been buying and collecting these lists of leaked and stolen credentials,” Rains said. Last year, a criminal organization was taken down that had more than 1 billion usernames and passwords in a single file. “We’re taking those lists of credentials and putting them into the cloud. If you go to Azure Active Directory reports, if people in your organization’s credentials are showing up on those lists, you’ll see them in your reports.” For accounts where login information matches stolen credentials, administrators can enforce multi-factor authentication so that only authorized devices can access services. Users whose login information is compromised can also be prompted to change their password. An Imperfect Solution, But Perhaps Necessary To stay ahead of cybercriminals, Microsoft has been playing an active role running botnets itself and getting stolen credentials from cybercriminals – without further exposing infected IP addresses and login credentials. Microsoft’s databases would obviously be an extremely lucrative target for cybercriminals, but, with no breaches of these databases evident, these databases have been helping a lot of organizations and governments protect their systems and users. Also, it’s not enough for administrators to know their systems are infected – they need to use this information to take action by disinfecting and patching their systems, because the ultimate goal is to make sure their systems and credentials never make it into these databases. This first ran at http://www.thewhir.com/web-hosting-news/microsoft-runs-the-largest-botnets-and-gets-stolen-passwords-all-to-keep-customers-safe (Comment on this)
5:30p	Linux Foundation: New Members Highlight Open Source Containers, Cloud This post originally appeared at The Var Guy The Linux Foundation has bolstered its ranks with five new member companies focused on containers and the cloud. The move reflects the growing significance of open source across the IT ecosystem, the organization says. The news, which the Linux Foundation announced Oct. 22, involves Agenda Open Systems, Apprenda, Doky.io, Exablox, and Rausch Netzwerktechnik GmbH. Each of these companies has joined the Linux Foundation, a nonprofit consortium of industry and other partners that promotes Linux and other open source technologies, as a silver member. While the businesses of these new Linux Foundation members center primarily on the cloud and IaaS solutions, the Linux Foundation is pitching their endorsement as a sign of the growing importance of open source containers in the IaaS market as well. As cloud-based software becomes “more prevalent than ever,” the organization said in a statement, “new infrastructure-as-a-service models in IT—such as container technologies”—are also growing in importance. More generally, the Linux Foundation sees this news as a sign of the increasing adoption of open source across all segments of the IT market. “These new members bring cloud computing and container expertise to the community and illustrate the shift to open source throughout IT,” a representative of the organization said. Jim Zemlin, Linux Foundation executive director, added, “The rate of growth across IT—data, connected devices, cloud computing, applications, to name a few areas—has set a pace for innovation that only open source software development can match. These new members illustrate this ever-evolving ecosystem and the increasing role of Linux and open source technologies to support growing business demands.” This first ran at http://thevarguy.com/open-source-application-software-companies/102315/linux-foundation-new-members-highlight-open-source-contai (Comment on this)

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