Cloud computing is converting from a market defined by different technologies into one defined by quality of service.
Existing utility markets include ones for water, electricity, gas and, to a degree, basic internet connectivity.
A utility market occurs when an item has been commoditised to the point that it becomes very hard to differentiate on a technology basis, and instead companies distinguish themselves through different levels of service, availability and support.
We already have indicators from the IT industry that the fundamental tools for offering cloud computing are commoditising
In the same way that in the early days of electricity there were arguments over whether AC or DC delivered the 'best type of electricity', the technology industry continues to debate the merits of certain technologies over others for delivering cloud computing. However, these arguments are growing less fervent as datacentre infrastructure is commoditised and homogenised by large cloud providers.
The consequences of remote storage and compute becoming a utility are very wide-ranging. This market has the potential to build up some companies and crush others, cement incumbents and offer new business opportunities for savvy startups. It will also have a huge effect on how businesses and consumers access and use technology.
We already have indicators from the IT industry that the fundamental tools for offering cloud computing are commoditising. So, what defines a utility market and is the cloud computing getting close?
James Constant, the chair of Energy Forecaster and former Head of Power at Russian utility Gazprom, says the requirements of a utility market are:
- a source of energy generation
- a transportation network
- a transmission and distribution capability
- a metering competency
- a price-setting mechanic
- a regulator to ensure protocol adherence
- a customer
Along with this, for this market to be competitive, you need:
- a set of willing participants
- a market mechanism
- a trading methodology
How does cloud compare?
When we set these requirements against the current state of the cloud market, it looks as though cloud is close to becoming a utility.
- Any computer with a capability to transmit information has the ability to be a source of 'energy' - in the cloud, compute and storage - generation
- The internet and its transit providers form the transportation network.
- Datacentres can handle transmission and distribution as they house the compute and storage capacity.
- Public cloud services can precisely meter how much storage or compute is being used at any one time, though different providers can have different pricing methodologies.
- As for price-setting mechanics, the fundamental price of public cloud computing is what it costs to receive a request, process it, and then transmit information back. This is determined by a wide-range of factors, with cloud providers able to directly control the hardware and software cost by engineering their own systems and secondary costs (facilities, staffing, electricity) according to their klout with local suppliers.
- Score: 5.5 / 7
All that’s lacking for this section is a regulator. Whether the cloud computing industry should be regulated is a complex issue that will undoubtedly become a major debate before long.
As for the competitive criteria:
- Google, Microsoft and Amazon all compete for the infrastructure-as-a-service market, while competition is hotting up in the platform-as-a-service area as well. SaaS has a reasonably mature competitive model, though this is less like a utility market due to the variance of the software being delivered. Many industry watchers believe the battle between Google and Amazon will drive the formation of a true utility market due to vicious pricing strategies.
- There is not yet a clear market mechanism for homogenising compute and storage from different providers making them truly interchangeable. There have been some attempts to create a true market for this - like Spotcloud - though there is little evidence these services have caught on.
- A trading methodology: We are beginning to see the first signs of this via some companies, such as Strategic Blue, which is a UK-based cloud brokerage that buys cloud computing resource from a variety of providers like Amazon Web Services, Joyent and Firehost, then resells it to IT buyers. The company uses open source tools like Chef and Puppet to abstract the IT environment away from the peculiarities of each cloud to be able to sell a single resource. However, work needs to be done here: “At the moment, [cloud] pricing is not rational,” James Mitchell, the chief executive of Strategic Blue, says. Nonetheless, the existence of a company that can work as an intermediary between clouds and customers implies access to a utility market because otherwise Strategic Blue’s business model would not work.
- Score: 1.5 / 3
Cloud scores 7 out of 10 overall for qualifying as a true utility.
How long until utility?
Cloud computing has taken on most of the traits of a utility market, but has not transformed into one yet.
How long might it take for the cloud computing industry to evolve into having a utility service capability?
Based on the current indicators, the two barriers are the lack of a regulator and the inability for cloud companies to trade capacity among themselves.
There is no real technical barrier to Microsoft being able to sell or buy compute and storage from Amazon as needed, or vice versa. However, as all the major cloud providers are fixated on building out their own competing infrastructures to let them maintain price parity with their competition, it is unlikely they will trade capacity amongst themselves directly.
Nonetheless, the existence of forward traders like Strategic Blue shows that there is some kind of mechanism here, though it is an immature one.
What could force its transition into a true utility could be a datacentre capacity crunch, which would cause cloud providers to trade capacity amongst themselves. However there are few signs that this could happen.
From a developer's point of view, the cloud already has taken on enough characteristics of a utility that, barring massive problems at any one provider, it behaves like one and looks like one to the IT consumer.
As cloud computing continues on its path to become a utility, the benefits to IT consumers will grow as prices are successively cut, but companies that cannot operate at the necessary scale of a utility are likely to run into problems.
Read on to find out how the cloud revolution could make a few large cloud providers tech giants and make life difficult for start-ups. Then discover which companies are likely to win out in the new cloudy world and which may have problems.