|By John Cowan||
|September 9, 2012 12:00 PM EDT||
This is Part IV in a series by 6fusion Co-founder and CEO John Cowan on the emerging trend of Cloud Brokerage and the impact it will have on the technology industry and markets. Be sure to check out Part I of the series here, Part II here, and Part III here.
The IT industry to me looks a lot like the commercial airline industry did many years ago and I think the latter is rife with lessons about the power of a true commodity market.
For those of you keeping score, late last year American Airlines’ parent AMR declared bankruptcy. The Chapter 11 filing of the once largest airline in the world brought to a conclusion the era of disintegration for the legacy commercial airline market. You can argue about the principal cause for the airline industry’s demise, but ultimately it came down to the fact that the market leaders in the industry refused to adapt to the changes going on around it while others embraced it and found creative ways to rise to the top.
Flying around on airplanes became a mass-market product over the last 40 years. And with a mass market product comes mass market demands – particularly around pricing. Incumbent airlines had the benefit of established market share but the trouble of managing a return on investment in infrastructure in a changing financial dynamic. The signs were there in the 1990’s but the dramatic collapse really took place over the last 10 years or so, which I will come back to later.
The cloud computing industry is structured and organized very much like the airline industry in the years leading up to its rapid disintegration. There are a handful of incumbents that some say are untouchable and then there’s everybody else in the market.
Amazon Web Services (AWS) is one such incumbent.
Competitors to AWS are really not unlike the competitors in the airline industry. Competition centers on squeezing more value into the same dollar with hopes of swaying customer loyalty. This is further compounded by the arrival of new entrants aggressively positioned to challenge the market leaders. I see no difference between the airline that boasts three extra inches of legroom in coach and the cloud operator that boasts an extra 9 on an SLA. This is simply the nature of an increasingly competitive market.
Let me get back to the dramatic collapse of the airline industry for a moment.
After careful examination of the commodity market demand, Southwest Airlines determined the answer to challenging its industry peers had little to do with product innovation. Instead, it had much more to do with financial innovation. How did they do this? Among some other things, they began a sophisticated program to hedge their projected jet fuel consumption. Hedging jet fuel was nothing new to the industry, but Southwest made it the centerpiece of an operating strategy. If you want, you can read an extended analysis of the Southwest case study here. In short, their strategy allowed them to accurately forecast their future costs, and hence offer aggressive pricing to undercut the market, whilst remaining profitable in a market forcibly applying downward pricing pressure. It was a commodity market that allowed Southwest to give the market what it wanted – a low cost, no frills flying experience.
For an airline, Southwest’s strategy is about as radical as it gets.
It is telling at this point to illustrate the reaction of the incumbent vendors in the industry when Southwest made its move. “I don’t think any sensible airline believes that by hedging it saves on its fuel bills,” they said.
As history proved, they totally missed the point.
Southwest had worked out that it could employ hedging strategies to make the derivatives market for jet fuel work in its favor. They dramatically reorganized their financial operation in order to turn the process of commoditization into a dangerous market weapon.
Which brings me back to the subject of compute, network and storage resources. If a derivatives market for jet fuel could underpin the upheaval of the airline business, could the same thing be possible in the market for cloud computing? Not only do I think it possible, I believe it is going to happen.
Not too long ago I was chatting with Joe Weinman, author of Cloudonomics, in his Manhattan office. As I explained my perspective on the industry we both spend a lot of our time thinking about he interrupted me to ask if I had ever heard of Dr. James Mitchell. I hadn’t. James, as it turns out, is a former Morgan Stanley commodities trader who now runs what would appear to be the world’s first “cloud broker-dealer”.
Something James is not is a “technology guy”. Doctorate in physics, yes – IT background, not so much. As far as he is concerned, cloud computing infrastructure as a service is just another commodity like electricity, coal, oil or potatoes, and should be treated as such.
Sound familiar? In Part II: The Cloud Vendor and the Agnostic Intermediary I characterized the evolution of the cloud brokerage model as one that would see two distinct groups playing a role: Those that dealt with the business of compute and those that dealt with the technical organization of compute.
When I met him he expressed his frustration at having to trade compute, network and storage resources in an inefficient manner because each providers’ cloud offering was separated by qualitative differentiation. You trade a “barrel of oil”, a “kWh of electricity” or a “kilogram of coal”. “So what is the unit of cloud computing?” he asked. He made the reverse of the usual analogy between electricity and cloud computing. He said, “can you imagine letting your electricity supplier bill you for your electricity using a measurement that they have made, using a meter that they invented, and then quoting it to you in a unit that they have pulled out of thin air, that cannot be compared to their competitors? Ridiculous!”
James and I agree on two fundamental principles on which the future of the cloud industry will be based.
The first is that cloud brokering has little to do with technology. Let’s consider an illustration of my point (techie readers, you might want to tune out for a moment). Provided that there is an independent third party who is able to measure what gets consumed on various different cloud providers, then it is possible to calculate a reference price for a reference quantity. Even if what a customer actually uses is different from the standard measurement, this does not matter as the variation in the different pricing between a “special” cloud infrastructure and a “standard” cloud infrastructure will vary slowly compared to the price for the “standard” cloud infrastructure. This is akin to proxy hedging a particular type of coal with a financial settlement on an API-2 index price for standard coal delivered in, say, Amsterdam (to give a very specific analogy).
The second is that the capability to trade cloud like a real commodity will create a world where the immovable IT asset can become movable for the first time in history. IT is arguably among the single biggest sunk cost in any modern enterprise and the albatross that hobbles disrupters from challenging market incumbents in the emerging cloud computing industry. As I illustrated in Part III: The Market Unified, more than $1 Trillion is spent every year on compute, network and storage resources. Nearly all of this spend is done in a fixed capitalization structure that sits on the balance sheet for years.
Every business that consumes a significant commodity resource speculates and hedges its overall position. It is clear to me that if the opportunity to establish liquidity in IT becomes real for the modern enterprise and market brokers, compute, network and storage resources will become to the emerging service provider what jet fuel is to an airline operator. And when that happens, you will want to be Southwest, not AMR. This is a reality that few cloud incumbents see coming and, like the once powerful commercial airliners, a dynamic few will choose to embrace.
A commodity exchange cannot exist without transaction velocity and price volatility, and brokers do just that in any other example. This is precisely why the role of “cloud broker” will become so important in the years ahead. This is why, as I’ve stated so often in the past, “the future of the cloud brokerage belongs to a new cadre of agnostic intermediaries that will enable a true utility computing marketplace to flourish.” And when the modern enterprise or resource supplier can apply the principles of financial trading to the IT industry we are going to see a force capable of completely redefining everything we currently think we know about the business of technology delivery.
Considering that new thinkers like Dr. James Mitchell are already on the scene I wouldn’t go making any bets that what we see is merely a distant future.
Software AG helps organizations transform into Digital Enterprises, so they can differentiate from competitors and better engage customers, partners and employees. Using the Software AG Suite, companies can close the gap between business and IT to create digital systems of differentiation that drive front-line agility. We offer four on-ramps to the Digital Enterprise: alignment through collaborative process analysis; transformation through portfolio management; agility through process automation and integration; and visibility through intelligent business operations and big data.
Sep. 29, 2014 09:30 PM EDT Reads: 1,120
There will be 50 billion Internet connected devices by 2020. Today, every manufacturer has a propriety protocol and an app. How do we securely integrate these "things" into our lives and businesses in a way that we can easily control and manage? Even better, how do we integrate these "things" so that they control and manage each other so our lives become more convenient or our businesses become more profitable and/or safe? We have heard that the best interface is no interface. In his session at Internet of @ThingsExpo, Chris Matthieu, Co-Founder & CTO at Octoblu, Inc., will discuss how these devices generate enough data to learn our behaviors and simplify/improve our lives. What if we could connect everything to everything? I'm not only talking about connecting things to things but also systems, cloud services, and people. Add in a little machine learning and artificial intelligence and now we have something interesting...
Sep. 29, 2014 06:45 AM EDT Reads: 1,783
Last week, while in San Francisco, I used the Uber app and service four times. All four experiences were great, although one of the drivers stopped for 30 seconds and then left as I was walking up to the car. He must have realized I was a blogger. None the less, the next car was just a minute away and I suffered no pain. In this article, my colleague, Ved Sen, Global Head, Advisory Services Social, Mobile and Sensors at Cognizant shares his experiences and insights.
Sep. 28, 2014 09:45 AM EDT Reads: 1,467
We are reaching the end of the beginning with WebRTC and real systems using this technology have begun to appear. One challenge that faces every WebRTC deployment (in some form or another) is identity management. For example, if you have an existing service – possibly built on a variety of different PaaS/SaaS offerings – and you want to add real-time communications you are faced with a challenge relating to user management, authentication, authorization, and validation. Service providers will want to use their existing identities, but these will have credentials already that are (hopefully) irreversibly encoded. In his session at Internet of @ThingsExpo, Peter Dunkley, Technical Director at Acision, will look at how this identity problem can be solved and discuss ways to use existing web identities for real-time communication.
Sep. 27, 2014 11:30 PM EDT Reads: 1,818
Can call centers hang up the phones for good? Intuitive Solutions did. WebRTC enabled this contact center provider to eliminate antiquated telephony and desktop phone infrastructure with a pure web-based solution, allowing them to expand beyond brick-and-mortar confines to a home-based agent model. It also ensured scalability and better service for customers, including MUY! Companies, one of the country's largest franchise restaurant companies with 232 Pizza Hut locations. This is one example of WebRTC adoption today, but the potential is limitless when powered by IoT. Attendees will learn real-world benefits of WebRTC and explore future possibilities, as WebRTC and IoT intersect to improve customer service.
Sep. 27, 2014 10:30 PM EDT Reads: 1,750
From telemedicine to smart cars, digital homes and industrial monitoring, the explosive growth of IoT has created exciting new business opportunities for real time calls and messaging. In his session at Internet of @ThingsExpo, Ivelin Ivanov, CEO and Co-Founder of Telestax, will share some of the new revenue sources that IoT created for Restcomm – the open source telephony platform from Telestax. Ivelin Ivanov is a technology entrepreneur who founded Mobicents, an Open Source VoIP Platform, to help create, deploy, and manage applications integrating voice, video and data. He is the co-founder of TeleStax, an Open Source Cloud Communications company that helps the shift from legacy IN/SS7 telco networks to IP-based cloud comms. An early investor in multiple start-ups, he still finds time to code for his companies and contribute to open source projects.
Sep. 27, 2014 10:30 PM EDT Reads: 2,227
The Internet of Things (IoT) promises to create new business models as significant as those that were inspired by the Internet and the smartphone 20 and 10 years ago. What business, social and practical implications will this phenomenon bring? That's the subject of "Monetizing the Internet of Things: Perspectives from the Front Lines," an e-book released today and available free of charge from Aria Systems, the leading innovator in recurring revenue management.
Sep. 27, 2014 09:45 PM EDT Reads: 2,394
The Internet of Things will put IT to its ultimate test by creating infinite new opportunities to digitize products and services, generate and analyze new data to improve customer satisfaction, and discover new ways to gain a competitive advantage across nearly every industry. In order to help corporate business units to capitalize on the rapidly evolving IoT opportunities, IT must stand up to a new set of challenges.
Sep. 27, 2014 08:45 PM EDT Reads: 2,284
There’s Big Data, then there’s really Big Data from the Internet of Things. IoT is evolving to include many data possibilities like new types of event, log and network data. The volumes are enormous, generating tens of billions of logs per day, which raise data challenges. Early IoT deployments are relying heavily on both the cloud and managed service providers to navigate these challenges. In her session at 6th Big Data Expo®, Hannah Smalltree, Director at Treasure Data, to discuss how IoT, Big Data and deployments are processing massive data volumes from wearables, utilities and other machines.
Sep. 27, 2014 01:00 PM EDT Reads: 1,977
All major researchers estimate there will be tens of billions devices – computers, smartphones, tablets, and sensors – connected to the Internet by 2020. This number will continue to grow at a rapid pace for the next several decades. With major technology companies and startups seriously embracing IoT strategies, now is the perfect time to attend @ThingsExpo in Silicon Valley. Learn what is going on, contribute to the discussions, and ensure that your enterprise is as "IoT-Ready" as it can be!
Sep. 27, 2014 11:00 AM EDT Reads: 2,072
P2P RTC will impact the landscape of communications, shifting from traditional telephony style communications models to OTT (Over-The-Top) cloud assisted & PaaS (Platform as a Service) communication services. The P2P shift will impact many areas of our lives, from mobile communication, human interactive web services, RTC and telephony infrastructure, user federation, security and privacy implications, business costs, and scalability. In his session at Internet of @ThingsExpo, Erik Lagerway, Co-founder of Hookflash, will walk through the shifting landscape of traditional telephone and voice services to the modern P2P RTC era of OTT cloud assisted services.
Sep. 26, 2014 11:45 PM EDT Reads: 1,460
While great strides have been made relative to the video aspects of remote collaboration, audio technology has basically stagnated. Typically all audio is mixed to a single monaural stream and emanates from a single point, such as a speakerphone or a speaker associated with a video monitor. This leads to confusion and lack of understanding among participants especially regarding who is actually speaking. Spatial teleconferencing introduces the concept of acoustic spatial separation between conference participants in three dimensional space. This has been shown to significantly improve comprehension and conference efficiency.
Sep. 26, 2014 10:45 PM EDT Reads: 1,400
The Internet of Things is tied together with a thin strand that is known as time. Coincidentally, at the core of nearly all data analytics is a timestamp. When working with time series data there are a few core principles that everyone should consider, especially across datasets where time is the common boundary. In his session at Internet of @ThingsExpo, Jim Scott, Director of Enterprise Strategy & Architecture at MapR Technologies, will discuss single-value, geo-spatial, and log time series data. By focusing on enterprise applications and the data center, he will use OpenTSDB as an example to explain some of these concepts including when to use different storage models.
Sep. 26, 2014 07:45 PM EDT Reads: 2,233
SYS-CON Events announced today that Gridstore™, the leader in software-defined storage (SDS) purpose-built for Windows Servers and Hyper-V, will exhibit at SYS-CON's 15th International Cloud Expo®, which will take place on November 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA. Gridstore™ is the leader in software-defined storage purpose built for virtualization that is designed to accelerate applications in virtualized environments. Using its patented Server-Side Virtual Controller™ Technology (SVCT) to eliminate the I/O blender effect and accelerate applications Gridstore delivers vmOptimized™ Storage that self-optimizes to each application or VM across both virtual and physical environments. Leveraging a grid architecture, Gridstore delivers the first end-to-end storage QoS to ensure the most important App or VM performance is never compromised. The storage grid, that uses Gridstore’s performance optimized nodes or capacity optimized nodes, starts with as few a...
Sep. 26, 2014 06:15 PM EDT Reads: 1,569
The Transparent Cloud-computing Consortium (abbreviation: T-Cloud Consortium) will conduct research activities into changes in the computing model as a result of collaboration between "device" and "cloud" and the creation of new value and markets through organic data processing High speed and high quality networks, and dramatic improvements in computer processing capabilities, have greatly changed the nature of applications and made the storing and processing of data on the network commonplace. These technological reforms have not only changed computers and smartphones, but are also changing the data processing model for all information devices. In particular, in the area known as M2M (Machine-To-Machine), there are great expectations that information with a new type of value can be produced using a variety of devices and sensors saving/sharing data via the network and through large-scale cloud-type data processing. This consortium believes that attaching a huge number of devic...
Sep. 26, 2014 06:00 PM EDT Reads: 1,497
Innodisk is a service-driven provider of industrial embedded flash and DRAM storage products and technologies, with a focus on the enterprise, industrial, aerospace, and defense industries. Innodisk is dedicated to serving their customers and business partners. Quality is vitally important when it comes to industrial embedded flash and DRAM storage products. That’s why Innodisk manufactures all of their products in their own purpose-built memory production facility. In fact, they designed and built their production center to maximize manufacturing efficiency and guarantee the highest quality of our products.
Sep. 26, 2014 05:00 PM EDT Reads: 1,502
Can call centers hang up the phones for good? Intuitive Solutions did. WebRTC enabled this contact center provider to eliminate antiquated telephony and desktop phone infrastructure with a pure web-based solution, allowing them to expand beyond brick-and-mortar confines to a home-based agent model. Download Slide Deck: ▸ Here
Sep. 26, 2014 10:00 AM EDT Reads: 1,460
All major researchers estimate there will be tens of billions devices - computers, smartphones, tablets, and sensors - connected to the Internet by 2020. This number will continue to grow at a rapid pace for the next several decades. Over the summer Gartner released its much anticipated annual Hype Cycle report and the big news is that Internet of Things has now replaced Big Data as the most hyped technology. Indeed, we're hearing more and more about this fascinating new technological paradigm. Every other IT news item seems to be about IoT and its implications on the future of digital business.
Sep. 26, 2014 10:00 AM EDT Reads: 1,991
BSQUARE is a global leader of embedded software solutions. We enable smart connected systems at the device level and beyond that millions use every day and provide actionable data solutions for the growing Internet of Things (IoT) market. We empower our world-class customers with our products, services and solutions to achieve innovation and success. For more information, visit www.bsquare.com.
Sep. 26, 2014 09:45 AM EDT Reads: 1,354
With the iCloud scandal seemingly in its past, Apple announced new iPhones, updates to iPad and MacBook as well as news on OSX Yosemite. Although consumers will have to wait to get their hands on some of that new stuff, what they can get is the latest release of iOS 8 that Apple made available for most in-market iPhones and iPads. Originally announced at WWDC (Apple’s annual developers conference) in June, iOS 8 seems to spearhead Apple’s newfound focus upon greater integration of their products into everyday tasks, cross-platform mobility and self-monitoring. Before you update your device, here is a look at some of the new features and things you may want to consider from a mobile security perspective.
Sep. 26, 2014 09:00 AM EDT Reads: 1,345