Bill Coleman believes that the perfect storm in enterprise computing is on the horizon, in the form of the commoditization of computing. Coleman is the CEO of Cassatt, and a founder of BEA and former Sun executive. He has assembled one of the top pools of experienced industry talent to capitalize on commoditization, which rests on scale out, building block hardware and loosely coupled SOA software components. I wrote about Cassatt about a year ago, and its Collage product that automates management of Linux and Window environments.
Last week, Coleman gave a presentation of the Vortex 2005 conference in San Francisco, predicting that the next generation of consolidation will result in the end of “every telco, cable, ISV and portal company. It will morph into something else, with all companies buying capacity on demand.” Utility computing will eliminate operating expense costs and rely on the using the cheapest components to build large scale systems, he added.
In other words, the Internet will be the hub for all content and communications (VoIP, IPTV, etc.), computing components will be standardized and cheap, and new utilities will spring up just as Yahoo, Google, Amazon and eBay have sprouted in the last decade. The existing infrastructure companies either morph into the new era or disappear.
This transformation will be similar to what has gone on in the cellular communications industry, a battleground increasingly fewer border constraints (the Internet), and the economics, and history, dictate that only a handful of suppliers will be left standing over the next decade or two.
It’s not difficult to imagine a time when a bulk of networked “services” are delivered on demand from grids of processors, storage and networking, like a power utility. Coleman believes the model is ripe because of three interconnected Internet elements. “Everybody is now part of the computing model—there will never be another class [of users]. Now we get to change the value proposition by leveraging the strength of the Internet—free reach, transparency and straight-through processing,” Coleman said.
In the next decade, new technologies will emerge that facilitate transparency in economic activity, such as $1 per CPU hour or $1.50 per hour for higher level service guarantees. In addition, business will have more transparency into how to manipulate the dials to improve business metrics. The most successful companies will have business modeling systems that adapt intelligently in real time to changing conditions, based on the data flow and implicit and explicit policies that govern behavior.
Straight-through processing is often associated with Dell’s build-to-order and just-in-time supply chain, taking the friction out of end-to-end transactions. “Wal-Mart leveraged reach with its suppliers to change the economics of the retail industry, and then gave control to general managers so they can self adapt stores to customers coming in,” Coleman said. “Then Dell came along and picked up the model and used its reach with customers to take the economics out of distribution and the supply chain. New companies like Google and eBay are leveraging reach. But, they can’t fundamentally change the economics of business. The idea is to reduce transaction costs. Dell and Wal-Mart demonstrate one aspect, but you have to adapt what is in the middle. SOA finishes that.”
According to Coleman, those who don’t leverage free reach, transparency and straight-through processing will be at a huge disadvantage because customers will ultimately go with whatever delivers the best value. They won't care where the capacity is sourced (as long as its legal, reputable, not using child labor, etc).
Coleman and Cassatt, of course, have a dog in the utility computing hunt, taking dollars and time out of the IT equation. He claims that start-ups, like Cassatt, are at the heart of every new platform transition, in this case taking cost and complexity out of managing IT environments on the way to the commoditization of computing. The incumbents like IBM, HP and Sun can’t compete because their business models, with proprietary hardware and software, are at risk, Coleman said.
At this point, Cassatt is a two-year-old software company with more than $50 million in funding so far and 3.0 product. The incumbents can see the writing on the wall, so I wouldn't count them out. The question is how fast they can change and disrupt their existing business models. The odds are not in their favor. But when Cassatt gets to around $50 million in revenue and is on a growth rate to double every year, one of the incumbents or Internet upstarts will make them an offer they can't refuse, unless Coleman and company want to repeat BEA's initial success, going public and achieving $1 billion in revenue in less than ten years. By then, Coleman will have moved on looking for the next innovative platform to change the economics of business.