|By John Cowan||
|September 9, 2012 12:00 PM EDT||
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!”
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.
SYS-CON Events announced today that IceWarp will exhibit at the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. IceWarp, the leader of cloud and on-premise messaging, delivers secured email, chat, documents, conferencing and collaboration to today's mobile workforce, all in one unified interface
Sep. 1, 2015 03:00 PM EDT Reads: 442
In his session at @ThingsExpo, Lee Williams, a producer of the first smartphones and tablets, will talk about how he is now applying his experience in mobile technology to the design and development of the next generation of Environmental and Sustainability Services at ETwater. He will explain how M2M controllers work through wirelessly connected remote controls; and specifically delve into a retrofit option that reverse-engineers control codes of existing conventional controller systems so they don't have to be replaced and are instantly converted to become smart, connected devices.
Sep. 1, 2015 02:45 PM EDT Reads: 139
The Internet of Things is in the early stages of mainstream deployment but it promises to unlock value and rapidly transform how organizations manage, operationalize, and monetize their assets. IoT is a complex structure of hardware, sensors, applications, analytics and devices that need to be able to communicate geographically and across all functions. Once the data is collected from numerous endpoints, the challenge then becomes converting it into actionable insight.
Sep. 1, 2015 01:00 PM EDT
With the proliferation of connected devices underpinning new Internet of Things systems, Brandon Schulz, Director of Luxoft IoT – Retail, will be looking at the transformation of the retail customer experience in brick and mortar stores in his session at @ThingsExpo. Questions he will address include: Will beacons drop to the wayside like QR codes, or be a proximity-based profit driver? How will the customer experience change in stores of all types when everything can be instrumented and analyzed? As an area of investment, how might a retail company move towards an innovation methodolo...
Sep. 1, 2015 12:45 PM EDT Reads: 479
SYS-CON Events announced today that HPM Networks will exhibit at the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. For 20 years, HPM Networks has been integrating technology solutions that solve complex business challenges. HPM Networks has designed solutions for both SMB and enterprise customers throughout the San Francisco Bay Area.
Sep. 1, 2015 12:30 PM EDT Reads: 911
Consumer IoT applications provide data about the user that just doesn’t exist in traditional PC or mobile web applications. This rich data, or “context,” enables the highly personalized consumer experiences that characterize many consumer IoT apps. This same data is also providing brands with unprecedented insight into how their connected products are being used, while, at the same time, powering highly targeted engagement and marketing opportunities. In his session at @ThingsExpo, Nathan Treloar, President and COO of Bebaio, will explore examples of brands transforming their businesses by t...
Sep. 1, 2015 12:15 PM EDT Reads: 252
SYS-CON Events announced today that Pythian, a global IT services company specializing in helping companies leverage disruptive technologies to optimize revenue-generating systems, has been named “Bronze Sponsor” of SYS-CON's 17th Cloud Expo, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. Founded in 1997, Pythian is a global IT services company that helps companies compete by adopting disruptive technologies such as cloud, Big Data, advanced analytics, and DevOps to advance innovation and increase agility. Specializing in designing, imple...
Sep. 1, 2015 11:45 AM EDT Reads: 325
Through WebRTC, audio and video communications are being embedded more easily than ever into applications, helping carriers, enterprises and independent software vendors deliver greater functionality to their end users. With today’s business world increasingly focused on outcomes, users’ growing calls for ease of use, and businesses craving smarter, tighter integration, what’s the next step in delivering a richer, more immersive experience? That richer, more fully integrated experience comes about through a Communications Platform as a Service which allows for messaging, screen sharing, video...
Sep. 1, 2015 11:45 AM EDT Reads: 677
As more and more data is generated from a variety of connected devices, the need to get insights from this data and predict future behavior and trends is increasingly essential for businesses. Real-time stream processing is needed in a variety of different industries such as Manufacturing, Oil and Gas, Automobile, Finance, Online Retail, Smart Grids, and Healthcare. Azure Stream Analytics is a fully managed distributed stream computation service that provides low latency, scalable processing of streaming data in the cloud with an enterprise grade SLA. It features built-in integration with Azur...
Sep. 1, 2015 11:15 AM EDT Reads: 293
SYS-CON Events announced today that Micron Technology, Inc., a global leader in advanced semiconductor systems, will exhibit at the 17th International Cloud Expo®, which will take place on November 3–5, 2015, at the Santa Clara Convention Center in Santa Clara, CA. Micron’s broad portfolio of high-performance memory technologies – including DRAM, NAND and NOR Flash – is the basis for solid state drives, modules, multichip packages and other system solutions. Backed by more than 35 years of technology leadership, Micron's memory solutions enable the world's most innovative computing, consumer,...
Sep. 1, 2015 09:45 AM EDT Reads: 245
Contrary to mainstream media attention, the multiple possibilities of how consumer IoT will transform our everyday lives aren’t the only angle of this headline-gaining trend. There’s a huge opportunity for “industrial IoT” and “Smart Cities” to impact the world in the same capacity – especially during critical situations. For example, a community water dam that needs to release water can leverage embedded critical communications logic to alert the appropriate individuals, on the right device, as soon as they are needed to take action.
Sep. 1, 2015 09:00 AM EDT
As more intelligent IoT applications shift into gear, they’re merging into the ever-increasing traffic flow of the Internet. It won’t be long before we experience bottlenecks, as IoT traffic peaks during rush hours. Organizations that are unprepared will find themselves by the side of the road unable to cross back into the fast lane. As billions of new devices begin to communicate and exchange data – will your infrastructure be scalable enough to handle this new interconnected world?
Sep. 1, 2015 08:00 AM EDT Reads: 171
While many app developers are comfortable building apps for the smartphone, there is a whole new world out there. In his session at @ThingsExpo, Narayan Sainaney, Co-founder and CTO of Mojio, will discuss how the business case for connected car apps is growing and, with open platform companies having already done the heavy lifting, there really is no barrier to entry.
Sep. 1, 2015 08:00 AM EDT Reads: 183
With the Apple Watch making its way onto wrists all over the world, it’s only a matter of time before it becomes a staple in the workplace. In fact, Forrester reported that 68 percent of technology and business decision-makers characterize wearables as a top priority for 2015. Recognizing their business value early on, FinancialForce.com was the first to bring ERP to wearables, helping streamline communication across front and back office functions. In his session at @ThingsExpo, Kevin Roberts, GM of Platform at FinancialForce.com, will discuss the value of business applications on wearable ...
Sep. 1, 2015 08:00 AM EDT
WebRTC has had a real tough three or four years, and so have those working with it. Only a few short years ago, the development world were excited about WebRTC and proclaiming how awesome it was. You might have played with the technology a couple of years ago, only to find the extra infrastructure requirements were painful to implement and poorly documented. This probably left a bitter taste in your mouth, especially when things went wrong.
Sep. 1, 2015 03:00 AM EDT Reads: 470
Too often with compelling new technologies market participants become overly enamored with that attractiveness of the technology and neglect underlying business drivers. This tendency, what some call the “newest shiny object syndrome,” is understandable given that virtually all of us are heavily engaged in technology. But it is also mistaken. Without concrete business cases driving its deployment, IoT, like many other technologies before it, will fade into obscurity.
Aug. 31, 2015 09:00 PM EDT Reads: 384
The Internet of Things (IoT) is about the digitization of physical assets including sensors, devices, machines, gateways, and the network. It creates possibilities for significant value creation and new revenue generating business models via data democratization and ubiquitous analytics across IoT networks. The explosion of data in all forms in IoT requires a more robust and broader lens in order to enable smarter timely actions and better outcomes. Business operations become the key driver of IoT applications and projects. Business operations, IT, and data scientists need advanced analytics t...
Aug. 31, 2015 02:30 PM EDT Reads: 430
Akana has announced the availability of the new Akana Healthcare Solution. The API-driven solution helps healthcare organizations accelerate their transition to being secure, digitally interoperable businesses. It leverages the Health Level Seven International Fast Healthcare Interoperability Resources (HL7 FHIR) standard to enable broader business use of medical data. Akana developed the Healthcare Solution in response to healthcare businesses that want to increase electronic, multi-device access to health records while reducing operating costs and complying with government regulations.
Aug. 26, 2015 07:00 AM EDT Reads: 203
For IoT to grow as quickly as analyst firms’ project, a lot is going to fall on developers to quickly bring applications to market. But the lack of a standard development platform threatens to slow growth and make application development more time consuming and costly, much like we’ve seen in the mobile space. In his session at @ThingsExpo, Mike Weiner, Product Manager of the Omega DevCloud with KORE Telematics Inc., discussed the evolving requirements for developers as IoT matures and conducted a live demonstration of how quickly application development can happen when the need to comply wit...
Aug. 2, 2015 11:15 AM EDT Reads: 563
The Internet of Everything (IoE) brings together people, process, data and things to make networked connections more relevant and valuable than ever before – transforming information into knowledge and knowledge into wisdom. IoE creates new capabilities, richer experiences, and unprecedented opportunities to improve business and government operations, decision making and mission support capabilities.
Aug. 1, 2015 10:00 AM EDT Reads: 495