In the new era of where overnight the wrong strategy decision can sink a company (even established legendary ones), cloud platform and developer decisions are most important.  VMware and others are moving fast in announcing and delivering real cloud platforms, products, and services.

Since its’ founding OpenStack has gotten lots of attention from industry companies looking to establish a cloud strategy. Nearly every large hardware company (and OEMs) looking to establish a cloud strategy are considering trying to throw its weight behind the “OpenStack movement”.  The important driver in a cloud partnerships is added value not just marketing.

Can Openstack continue their momentum?  Up to this point their PR, marketing, and open source messaging has been well received, but can Openstack deliver products fast enough?

Who is the most successful storage company today? EMC. Who is the most successful cloud services company? Amazon. This week at VMworld I’m expecting to see VMware rollout some new commercial capabilities with a vibrant ecosystem to support it. As we say “the sizzle and the steak”.

On the surface OpenStack looks great – partners lined up, tech announcements coming together, and most recently Citrix and HP jumped in to pledge support. These companies hope that OpenStack can be their bridge to the future. Industry contacts that I spoke with say that companies are starting to use OpenStack as a smokescreen to deflect attention from the fact that they are in cloud turmoil internally and haven’t yet figured out their game plan.

Here’s a likely conversation taking place at the big hardware vendors these days:

CEO: The cloud is important. Everyone says it’s the future. We should be doing something about it.

CFO: What can we do? We don’t know much about this.

CMO: We already added the word “cloud” to all of our server and storage boxes. We’re kind of selling cloud right now, aren’t we?

VP: Well, I heard of this thing called OpenStack. It doesn’t actually cost us anything and we don’t really need to do anything except publicly say that we support it. This way the media will write about us and we can say we have a cloud play until we figure things out internally.

CEO: Genius! Let’s make it happen. Now what exactly is this cloud thing again?

Since Rackspace was new the cloud and had no real developer program, OpenStack was conceived to get developers on board in order to compete against Amazon. OpenStack approach is sound, but can it gain momentum when VMware and others are moving fast in getting clients real clouds.

OpenStack’s key challenge is that the big enterprises tend to buy established and commercial grade products and service. Specifically, they want production-grade framework, objects synchronized and data consistency.

I talked with an executive at a big cloud company who didn’t want to come forward and he said the following “what these big OEMs like HP and Oracle looking for cloud plans should be spending their time on instead of Opensource is to figuring out how exactly they plan to compete with the likes of Amazon, Google and Microsoft Azure.”

Dollars that used to be going to the big hardware vendors are now going straight to the cloud. As Google and Amazon intensify their focus on the cloud space the answer from the hardware vendors can’t continue to be “we’re going to be the infrastructure outfitters—the arms dealers—to the cloud service providers.”

Market leaders Amazon and Google and upstarts like Nirvanix aren’t using multi-million dollar boxes from companies like Oracle to run their clouds. They’re all running on commodity, high-density servers and storage systems to get the costs down as low as possible. Some of them are building their own gear! They’re not accustomed to the fat cat margins that the hardware vendors have thrived on for decades. Instead they learned to build lean, lithe, agile businesses on cloud services models using inexpensive hardware and their own value-add software. That’s where the innovation is going—the software layer with very efficient converged infrastructure oriented hardware (networks, SSD storage, servers).

Amazon, Google, Nirvanix, and even startups are intensifying their market traction and winning accounts that the big guys used to win. Those thousands of companies using Gmail and Google Apps used to buy storage and servers from one of the big boys to run Microsoft Exchange. For example companies are running stuff on Amazon, considering Google, and even putting petabytes of digital content in the Nirvanix cloud.  In the past those customers used to buy physical machines and pay exorbitant maintenance fees on them.

The big established hardware and software players need real products in the market that are cloud based. For example storage as a service with a pay by usage pricing before the Amazons and Googles of the world get into the billion dollar revenue range.  I’ve been specifically optimistic about HP’s potential there.  HP’s has a big cloud opportunity maybe more than the others they compete with.

The net effect is companies need to have real cloud products and services ones that tie to the future user expectations – a personal computer that is a phone or other thin device all tied together with software.

The mantra for the big companies is “cloud or die”.

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Watch more on SiliconANGLE.tv for extensive commentary and blanket coverage of VMworld 2011. I’ll be hosting with my cohost Dave Vellante on our flagship telecast #theCUBE.

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