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… and the web application hosting business cowers in fear. Now, my friends, people are discovering what Google’s REAL differentiated IP is..

Application scaling is a real problem for the managed hosting business unless some software company comes up with a platform/solution that lets them leverage their existing computing infrastructure. This is allegorical to, and is probably as big an opportunity as, SAN and NAS a few years ago … big incumbents like EMC and Network Appliance with totally vertical solutions (Google and Amazon in this case) competing with guys using software and off-the-shelf hardware (the hosting companies licensing the wares of some as-yet-non-existent software company).

As I’ve been saying for a couple of years, the shortcut to building an application scaling environment is to build the framework and make it reasonably custom to the scaling environment (Google’s path) which is an obstacle but also makes it very hard to leave once your app is in. There are a number of companies, such as EngineYard, who are making progress on doing this using Ruby on Rails as a platform starting-point, which is very sensible.

I’m not sure what Fred is blathering on about … this has much less to do with how to finance companies than it does with how to host apps. App hosting costs are usually about 1/15th of the operational burn of any company, so this announcement in itself doesn’t change anything in terms of incubators vs. traditional VCs.
It seems to me like he’s using this announcement to beat the “let’s exploit naive, inexperienced fresh-outta-sk00l coders via an incubator” dead horse. Incubators are a worthy financing strategy, but less likely to have the same success ratio as working with people who actually know what they’re doing.
Most entrepreneurs in my peer group would never in a million years shepherd their idea through an incubator. Of course, many of us remember IdeaLab, and its Canadian imitator, IdeaPark.
Regardless, Google’s announcement has nothing to do with business incubators. The effect this really has on incubators is in making it much easier for them to flip their spin-outs earlier to Google. 🙂