Welcome!

Search Authors: Pat Romanski, Plutora Blog, Elizabeth White, Liz McMillan, Tim Hinds

Related Topics: Cloud Expo, SOA & WOA, Virtualization, Web 2.0

Cloud Expo: Blog Feed Post

Cloud Brokerage: The Immovable Asset Becomes Movable

Cloud brokering has little to do with technology

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!”

Exactly.

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.

The post The Immovable Asset Becomes Movable appeared first on 6fusion.

More Stories By John Cowan

John Cowan is co-founder and CEO of 6fusion. John is credited as 6fusion's business model visionary, bridging concepts and services behind cloud computing to the IT Service channel. In 2008, he along with his 6fusion collaborators successfully launched the industry's first single unit of meausurement for x86 computing, known as the Workload Allocation Cube (WAC). John is a 12 year veteran of business and product development within the IT and Telecommunications sectors and a graduate of Queen's University at Kingston.

Comments (0)

Share your thoughts on this story.

Add your comment
You must be signed in to add a comment. Sign-in | Register

In accordance with our Comment Policy, we encourage comments that are on topic, relevant and to-the-point. We will remove comments that include profanity, personal attacks, racial slurs, threats of violence, or other inappropriate material that violates our Terms and Conditions, and will block users who make repeated violations. We ask all readers to expect diversity of opinion and to treat one another with dignity and respect.


@ThingsExpo Stories
The Industrial Internet revolution is now underway, enabled by connected machines and billions of devices that communicate and collaborate. The massive amounts of Big Data requiring real-time analysis is flooding legacy IT systems and giving way to cloud environments that can handle the unpredictable workloads. Yet many barriers remain until we can fully realize the opportunities and benefits from the convergence of machines and devices with Big Data and the cloud, including interoperability, data security and privacy.
SYS-CON Media announced that Cisco, a worldwide leader in IT that helps companies seize the opportunities of tomorrow, has launched a new ad campaign in Cloud Computing Journal. The ad campaign, a webcast titled 'Is Your Data Center Ready for the Application Economy?', focuses on the latest data center networking technologies, including SDN or ACI, and how customers are using SDN and ACI in their organizations to achieve business agility. The Cisco webcast is available on-demand.
IoT is still a vague buzzword for many people. In his session at @ThingsExpo, Mike Kavis, Vice President & Principal Cloud Architect at Cloud Technology Partners, discussed the business value of IoT that goes far beyond the general public's perception that IoT is all about wearables and home consumer services. He also discussed how IoT is perceived by investors and how venture capitalist access this space. Other topics discussed were barriers to success, what is new, what is old, and what the future may hold. Mike Kavis is Vice President & Principal Cloud Architect at Cloud Technology Pa...
Dale Kim is the Director of Industry Solutions at MapR. His background includes a variety of technical and management roles at information technology companies. While his experience includes work with relational databases, much of his career pertains to non-relational data in the areas of search, content management, and NoSQL, and includes senior roles in technical marketing, sales engineering, and support engineering. Dale holds an MBA from Santa Clara University, and a BA in Computer Science from the University of California, Berkeley.
The Internet of Things (IoT) is rapidly in the process of breaking from its heretofore relatively obscure enterprise applications (such as plant floor control and supply chain management) and going mainstream into the consumer space. More and more creative folks are interconnecting everyday products such as household items, mobile devices, appliances and cars, and unleashing new and imaginative scenarios. We are seeing a lot of excitement around applications in home automation, personal fitness, and in-car entertainment and this excitement will bleed into other areas. On the commercial side, m...
The Internet of Things (IoT) promises to evolve the way the world does business; however, understanding how to apply it to your company can be a mystery. Most people struggle with understanding the potential business uses or tend to get caught up in the technology, resulting in solutions that fail to meet even minimum business goals. In his session at @ThingsExpo, Jesse Shiah, CEO / President / Co-Founder of AgilePoint Inc., showed what is needed to leverage the IoT to transform your business. He discussed opportunities and challenges ahead for the IoT from a market and technical point of vie...
Things are being built upon cloud foundations to transform organizations. This CEO Power Panel at 15th Cloud Expo, moderated by Roger Strukhoff, Cloud Expo and @ThingsExpo conference chair, addressed the big issues involving these technologies and, more important, the results they will achieve. Rodney Rogers, chairman and CEO of Virtustream; Brendan O'Brien, co-founder of Aria Systems, Bart Copeland, president and CEO of ActiveState Software; Jim Cowie, chief scientist at Dyn; Dave Wagstaff, VP and chief architect at BSQUARE Corporation; Seth Proctor, CTO of NuoDB, Inc.; and Andris Gailitis, C...
SYS-CON Events announced today that CodeFutures, a leading supplier of database performance tools, has been named a “Sponsor” of SYS-CON's 16th International Cloud Expo®, which will take place on June 9–11, 2015, at the Javits Center in New York, NY. CodeFutures is an independent software vendor focused on providing tools that deliver database performance tools that increase productivity during database development and increase database performance and scalability during production.
Today’s enterprise is being driven by disruptive competitive and human capital requirements to provide enterprise application access through not only desktops, but also mobile devices. To retrofit existing programs across all these devices using traditional programming methods is very costly and time consuming – often prohibitively so. In his session at @ThingsExpo, Jesse Shiah, CEO, President, and Co-Founder of AgilePoint Inc., discussed how you can create applications that run on all mobile devices as well as laptops and desktops using a visual drag-and-drop application – and eForms-buildi...
"People are a lot more knowledgeable about APIs now. There are two types of people who work with APIs - IT people who want to use APIs for something internal and the product managers who want to do something outside APIs for people to connect to them," explained Roberto Medrano, Executive Vice President at SOA Software, in this SYS-CON.tv interview at Cloud Expo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
Performance is the intersection of power, agility, control, and choice. If you value performance, and more specifically consistent performance, you need to look beyond simple virtualized compute. Many factors need to be considered to create a truly performant environment. In his General Session at 15th Cloud Expo, Harold Hannon, Sr. Software Architect at SoftLayer, discussed how to take advantage of a multitude of compute options and platform features to make cloud the cornerstone of your online presence.
SYS-CON Media announced that Splunk, a provider of the leading software platform for real-time Operational Intelligence, has launched an ad campaign on Big Data Journal. Splunk software and cloud services enable organizations to search, monitor, analyze and visualize machine-generated big data coming from websites, applications, servers, networks, sensors and mobile devices. The ads focus on delivering ROI - how improved uptime delivered $6M in annual ROI, improving customer operations by mining large volumes of unstructured data, and how data tracking delivers uptime when it matters most.
Almost everyone sees the potential of Internet of Things but how can businesses truly unlock that potential. The key will be in the ability to discover business insight in the midst of an ocean of Big Data generated from billions of embedded devices via Systems of Discover. Businesses will also need to ensure that they can sustain that insight by leveraging the cloud for global reach, scale and elasticity.
“The age of the Internet of Things is upon us,” stated Thomas Svensson, senior vice-president and general manager EMEA, ThingWorx, “and working with forward-thinking companies, such as Elisa, enables us to deploy our leading technology so that customers can profit from complete, end-to-end solutions.” ThingWorx, a PTC® (Nasdaq: PTC) business and Internet of Things (IoT) platform provider, announced on Monday that Elisa, Finnish provider of mobile and fixed broadband subscriptions, will deploy ThingWorx® platform technology to enable a new Elisa IoT service in Finland and Estonia.
Advanced Persistent Threats (APTs) are increasing at an unprecedented rate. The threat landscape of today is drastically different than just a few years ago. Attacks are much more organized and sophisticated. They are harder to detect and even harder to anticipate. In the foreseeable future it's going to get a whole lot harder. Everything you know today will change. Keeping up with this changing landscape is already a daunting task. Your organization needs to use the latest tools, methods and expertise to guard against those threats. But will that be enough? In the foreseeable future attacks w...
As enterprises move to all-IP networks and cloud-based applications, communications service providers (CSPs) – facing increased competition from over-the-top providers delivering content via the Internet and independently of CSPs – must be able to offer seamless cloud-based communication and collaboration solutions that can scale for small, midsize, and large enterprises, as well as public sector organizations, in order to keep and grow market share. The latest version of Oracle Communications Unified Communications Suite gives CSPs the capability to do just that. In addition, its integration ...
SYS-CON Events announced today that ActiveState, the leading independent Cloud Foundry and Docker-based PaaS provider, has been named “Silver Sponsor” of SYS-CON's DevOps Summit New York, which will take place June 9-11, 2015, at the Javits Center in New York City, NY. ActiveState believes that enterprises gain a competitive advantage when they are able to quickly create, deploy and efficiently manage software solutions that immediately create business value, but they face many challenges that prevent them from doing so. The Company is uniquely positioned to help address these challenges thro...
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 @ThingsExpo, Ivelin Ivanov, CEO and Co-Founder of Telestax, shared 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, a...
We certainly live in interesting technological times. And no more interesting than the current competing IoT standards for connectivity. Various standards bodies, approaches, and ecosystems are vying for mindshare and positioning for a competitive edge. It is clear that when the dust settles, we will have new protocols, evolved protocols, that will change the way we interact with devices and infrastructure. We will also have evolved web protocols, like HTTP/2, that will be changing the very core of our infrastructures. At the same time, we have old approaches made new again like micro-services...
Disruptive macro trends in technology are impacting and dramatically changing the "art of the possible" relative to supply chain management practices through the innovative use of IoT, cloud, machine learning and Big Data to enable connected ecosystems of engagement. Enterprise informatics can now move beyond point solutions that merely monitor the past and implement integrated enterprise fabrics that enable end-to-end supply chain visibility to improve customer service delivery and optimize supplier management. Learn about enterprise architecture strategies for designing connected systems tha...