Are customers ready for Sun's utility vision?

Naturally, Schwartz believes that Sun is best positioned to take advantage of the coming era of utility computing, in which compute resources are doled out like megawatts. Sun has most of the pieces needed to deliver a price competitive data center or desktop in the same way a power company delivers electricity or phone companies deliver call minutes and other services per month. So does Microsoft -- although its software is more proprietary than Sun's Solaris/Java core stack components. And other competitors, such as IBM, SAP, BEA and Oracle, are attempting to craft software stacks that leverage their respective strengths and run on industry standard (x86) hardware.

Sun wants to be a wholesaler of infrastructure to service providers, such as telecom and financial services providers. For Sun, the 600 million Java phones are part of an ecosystem in which the company hopes to generate demand for infrastructure, rather than significant revenue from Java. "As the devices do more, the service providers need more infrastructure. It's in Sun's best interest [for telecom providers] to give everyone a phone," Schwartz said.

Similarly, Sun -- like IBM, HP, Dell and others -- wants to be the unseen engine powering companies like on demand software companies. Today, Sun provides salesforce.com with the infrastructure for its applications and services.

Of course, there is the question of whether enterprises are ready for utility-based computing beyond specialized applications, such as rendering farms for animated feature films or Monte Carlo simulations and software-as-a-service applications like salesforce.com. A recent survey of nearly 400 software companies and 100 enterprise executives found that more than half of software companies plan to offer subscription-based software licensing within two years, but 64 percent of corporate customers prefer the predictability of paying up-front licensing fees over more flexible subscription contracts.

Schwartz describes the reluctance to move more quickly to subscription-based pricing -- such as CPU-per-hour or per-user-per-year pricing -- as an "allergic reaction" born out of cultural bias. It's the same kind of enterprise inertia that stalled the client/server phenomenon in the early 1990's. CIOs and IT managers are overwhelmed trying to reanimate decades-old IT systems and build highly customized applications or tailor commercial, off-the-shelf applications to vertical business needs. Failure rates are high and costs for projects can be astronomical.

Schwartz admits that 99 percent of Sun's business today is focused on the old way of tailoring technology to specific customer's needs. "Over time we are running out of appetite to customize everything. Web service infrastructure is evidently good enough. No one gets competitive advantage over directories or application servers, but in order to convince people to deploy a stack you have to get people to stop trying to put together their own stack," Schwartz said during a media roundtable last week.

Cultural, rather than technical, issues are a major constraint in reducing the cost and complexity of IT. One of the cultural impacts is job loss. Tapping into a grid from an infrastructure provider, who is highly motivated to automate and reduce the complexity of its own systems to keep its cost structure low, means that many people working in IT will be without jobs.

What will accelerate the move to more utility-like computing? Clearly, aggregating demand, which can drive pricing for IT services down, as well as the adoption of a high level of standardization rather than infinite customization are important. But, Schwartz is betting that "transparent" pricing, which allows customers to compare price for service (apples to apples) among competing vendors is the key element. "Our most effective weapon against IBM is transparent pricing, and we will use it with a greater degree of force in the coming years," Schwartz said.

Sun's pricing advantage over competitors, said Schwartz, comes from its ownership of a complete stack, from hardware and operating system to application server and portal. IBM, for example, doesn't have an operating system like Sun's forthcoming open-sourced Solaris 10 that runs across a variety of hardware platforms, unless Big Blue decided to acquire Red Hat's leading Linux distribution or Novell, which has the SuSE Linux distribution. On the other hand, Sun doesn't have its own database, while IBM has DB2.

In any case, Sun is aggressively pushing to simplify IT with more homogeneous but standards-based software and hardware solutions -- a data center in a box -- with transparent pricing. Sun is currently offering $1-per-CPU-per-hour pricing to tap into a Sun grid of AMD Opteron-based servers and per-user pricing for a desktop and an enterprise software stack, which includes identity management, security, portal, messaging and collaboration, clustering, and Web services components.

(Earlier this week, the company announced that it had signed Canada telecommunication company TELUS as a retail partner for Sun's pay-for-use service.)

IBM is promoting its Universal Management Infrastructure (UMI), which includes pay-for-service offerings that let companies share physical assets while operating in security-enhanced partitions. The company hasn't yet released a transparent pricing scheme, but researchers are working on a "utility metering service" schema.

HP Labs has taken the concept of transparent pricing even further with Tycoon, a distributed, market-based compute resource allocation system. HP has a cluster of 22 x86-based servers running in California and the United Kingdom, and users bid for access to the resources, which are doled out proportionately. "Users have credits [based on per-gigahertz pricing] that they use to bid for resources. When someone bids more money, or credits, they get more resources," said HP research scientist Kevin Lai. The auction-based system applied to delivering IT infrastructure could be used in a corporation or an extended enterprise to increase utilization of distributed compute resources, as well as to reduce the overhead in allocating those resources. A marketplace is more efficient and automated than trying to imaging every possible tradeoff and creating a complex set of rules to allocate resources, Lai said. HP plans to further test the concept with CERN.

The concept of utility computing is compelling but, unfortunately, immature. Security, billing, resource brokering a la Enron and quality of service standards are still emerging. "We are working with Siebel, salesforce.com and others to provide provisioning on demand," said Robert Youngjohns, executive vice President, Strategic Development and Sun Financing. "The biggest issue is the billing system. We have concluded that the billing mechanism will be a single measure of CPU cycles and ship [the data] to Telco biller and issue invoices. We think we can have something in a couple of weeks." Youngjohns also said that the company would deliver provisionable containers (virtual machines that customers could tap into for running multiple software processes on a single instance of Solaris 10) within three to six months.

In addition, establishing a standard metric for pricing comparison of the various vendor utility offerings isn't forthcoming, and the thorny problem of software licensing has yet to be worked out. With the complexity of IT systems and the interconnectedness of different elements, decomposing them into the retail equivalent of SKUs will be a big challenge, as well as the finger pointing that will result from the interaction of various metered systems.

Schwartz maintains that the industry is driving people into the on-demand world, and that the cultural shift is inevitable and accelerating. He cites the fact that Sun has signed up 350,000 users to its Java Enterprise System at $100 per head per year. It's not exactly a trend, but it is an indicator that software at least is moving toward subscription pricing.

At this stage, metered, utility pricing for IT infrastructure is an interesting concept, not a reality. Sun has latched onto it and the notion of transparent pricing as a way to distance itself from competitors and take the lead in this next industry transformation. The question is whether Sun is so far ahead in its thinking that customers won't catch up any time soon.

You can write to me at dan.farber@cnet.com. If you're looking for my commentaries on other IT topics, check out my blog Between the Lines.