My Take on Utility Computing

one of my friends asked me why i was writing about a concept that is quite old. (as old as the blue boxes – maniframes)

well in the recent past, there have been many cases where the customers have expressed their desire to move to a utility model for various services either explicitly in their outsourcing rfp’s or during the course of discussions. i believe it has everything to do with the bad economic conditions prevailing today and stress on it to rein in capex and opex costs are leading to even mid and large enterprise to explore the concept of utility computing.

in these posts, i try to share my take on the utility computing in the context of services being asked by the enterprises and what it means to provision the same from a services provider point of view. also i believe that to understand the buzz around cloud computing, it is important for me to understand and dwell on the topic of utility computing for my own benefit 🙂

utility computing can be defined as a mechanism of provisioning IT services & resources on the similar model as utility services like electricity or water services.flip a switch, lights come on and the meter starts to count the power cycles used. at the end of the month, you pay for what you consumed. as everyone knows, the concept of time sharing has been there since the early days of mainframes.but since then much has evolved in this space.

these days, i have come across customers who have asked for services like infrastructure services (dhcp, dns etc), file & print, email, storage, application packaging, dev & test environment, server computing, WAN, VoIP etc. some of these have not been covered under a true utility services portfolio by many of the services providers. in fact there is a very large customer with whom we started engaging who was willing to put everything in their IT shop in a “pay as u go” model. their critical business apps, non critical apps, infra apps everything. their IT capex & opex combined is approx a billion dollars if not more.

from a service provider point of view, to provide a true utility based services, it means:-

low switching cost – the services should have low switching cost from a “in-house” model to a “as a service” based model. this will allow faster adoption of such services by organizations looking to either reduce their cost of operations. however, this also means that customers would also be able to move from one utility based provider to another. so, in order to have customer stickeness, month after month, one has to ensure the right RoCE (Return on Customer Experience) along with RoI (Return on Investment) to the customer.

developing a financial model that appeals to customers– the plans can be purely subscription based (like newspaper) with no upfront cost or cell phone plans (pay as u go) or can be a mix of some base cost plus pas as you go. some customers are willing to pay some upfront cost (also called transition cost) and then a monthly subscription cost based on “per service unit consumed”.

building services on a multi tenant model – one ways to recover the cost of the extra capacity is by having a multi tenant model. then the cost of the extra capacity is amortized across multiple customers. however many a times, i have come across customers who want exclusive services but in a utility mode. i think such organizations should be under no illusion that the service provider will have no option but to amortize the cost of provisioning of services across multiple years after adding some finance charges to the base cost.

have forecast of usage of the service – the service providers need to have an estimate of the usage of the services to cater for addition capacity to be provisioned. i recently encountered a situation where the customer wanted to have a utility based model for certain IT services but in an environment totally dedicated to the customer and without any volume or service usage committment or estimates. under such circumstances, it gives the service provide very little room to manover and create a true utility model. rest assured, it would be all but financial engineering on excel sheets with a lot of exclusions and conditions.

providing capacity on demand – very closely linked to having the ability to forecast the usage of the service. as a service provider, the ability to forecast usage can help in designing the capacity management process. so while developing a utility model for a service, it is important to understand who will be the consumers, knowing how business uses IT (retail industry typically has high peaks of usage of IT services around holiday seasons, christmas etc), number of customers who are likely to use these services.

commission a metering solution to measure and transparent billing – one of the most important aspects of a utility based model is to have the ability of charging a customer for services consumed baed on the billing plan. hence it is but obvious to have a metering solution capable of accurate measurement of the usage and be transparent to the customer about it (online dashboard and detailed reports help).

security & compliance – this is a new requirement that was not there during the early time sharing days.largely as a result of regulatory & compliance requirements, this is one of the biggest areas of concern for the customers to move to a multi tenant utility based model for IT services. also as time has gone by, the security requirements have evolved along with awareness on risk to the infromation processed & stored in electronic format. in my opinion not enough attention has been paid to this aspect. however if the requirement of utility services becomes a mainstream requirement, i believe just like offshore players have adoped security standards (like ISO 27001 & use SAS 70 Type I & II as statement on presence & effectiveness of controls) to provide a sense of assurance to customers, the utility service providers will also walk the same path.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: