Click here to close now.

Welcome!

Search Authors: XebiaLabs Blog, Plutora Blog, Carmen Gonzalez, AppDynamics Blog, Vormetric Blog

Related Topics: Cloud Expo, Microservices Journal, 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
SYS-CON Events announced today that On the Avenue Marketing Group, a sales and marketing firm that utilizes events to market and sell products to consumers, will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. On the Avenue Marketing Group (OTA) is a sales and marketing firm that utilizes events to market and sell products to consumers. On behalf of our clients, we attend thousands of fairs, festivals, expos, concerts, conferences, and sporting events annually, helping them reach millions of individuals ...
Containers and microservices have become topics of intense interest throughout the cloud developer and enterprise IT communities. Accordingly, attendees at the upcoming 16th Cloud Expo at the Javits Center in New York June 9-11 will find fresh new content in a new track called PaaS | Containers & Microservices Containers are not being considered for the first time by the cloud community, but a current era of re-consideration has pushed them to the top of the cloud agenda. With the launch of Docker's initial release in March of 2013, interest was revved up several notches. Then late last...
“In the past year we've seen a lot of stabilization of WebRTC. You can now use it in production with a far greater degree of certainty. A lot of the real developments in the past year have been in things like the data channel, which will enable a whole new type of application," explained Peter Dunkley, Technical Director at Acision, in this SYS-CON.tv interview at @ThingsExpo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
SYS-CON Events announced today that Ciqada will exhibit at SYS-CON's @ThingsExpo, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Ciqada™ makes it easy to connect your products to the Internet. By integrating key components - hardware, servers, dashboards, and mobile apps - into an easy-to-use, configurable system, your products can quickly and securely join the internet of things. With remote monitoring, control, and alert messaging capability, you will meet your customers' needs of tomorrow - today! Ciqada. Let your products take flight. For more inform...
Health care systems across the globe are under enormous strain, as facilities reach capacity and costs continue to rise. M2M and the Internet of Things have the potential to transform the industry through connected health solutions that can make care more efficient while reducing costs. In fact, Vodafone's annual M2M Barometer Report forecasts M2M applications rising to 57 percent in health care and life sciences by 2016. Lively is one of Vodafone's health care partners, whose solutions enable older adults to live independent lives while staying connected to loved ones. M2M will continue to gr...
SYS-CON Media announced today that @WebRTCSummit Blog, the largest WebRTC resource in the world, has been launched. @WebRTCSummit Blog offers top articles, news stories, and blog posts from the world's well-known experts and guarantees better exposure for its authors than any other publication. @WebRTCSummit Blog can be bookmarked ▸ Here @WebRTCSummit conference site can be bookmarked ▸ Here
SYS-CON Events announced today that GENBAND, a leading developer of real time communications software solutions, has been named “Silver Sponsor” of SYS-CON's WebRTC Summit, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. The GENBAND team will be on hand to demonstrate their newest product, Kandy. Kandy is a communications Platform-as-a-Service (PaaS) that enables companies to seamlessly integrate more human communications into their Web and mobile applications - creating more engaging experiences for their customers and boosting collaboration and productiv...
Dave will share his insights on how Internet of Things for Enterprises are transforming and making more productive and efficient operations and maintenance (O&M) procedures in the cleantech industry and beyond. Speaker Bio: Dave Landa is chief operating officer of Cybozu Corp (kintone US). Based in the San Francisco Bay Area, Dave has been on the forefront of the Cloud revolution driving strategic business development on the executive teams of multiple leading Software as a Services (SaaS) application providers dating back to 2004. Cybozu's kintone.com is a leading global BYOA (Build Your O...
The best mobile applications are augmented by dedicated servers, the Internet and Cloud services. Mobile developers should focus on one thing: writing the next socially disruptive viral app. Thanks to the cloud, they can focus on the overall solution, not the underlying plumbing. From iOS to Android and Windows, developers can leverage cloud services to create a common cross-platform backend to persist user settings, app data, broadcast notifications, run jobs, etc. This session provides a high level technical overview of many cloud services available to mobile app developers, includi...
SYS-CON Events announced today that BroadSoft, the leading global provider of Unified Communications and Collaboration (UCC) services to operators worldwide, has been named “Gold Sponsor” of SYS-CON's WebRTC Summit, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. BroadSoft is the leading provider of software and services that enable mobile, fixed-line and cable service providers to offer Unified Communications over their Internet Protocol networks. The Company’s core communications platform enables the delivery of a range of enterprise and consumer calling...
While not quite mainstream yet, WebRTC is starting to gain ground with Carriers, Enterprises and Independent Software Vendors (ISV’s) alike. WebRTC makes it easy for developers to add audio and video communications into their applications by using Web browsers as their platform. But like any market, every customer engagement has unique requirements, as well as constraints. And of course, one size does not fit all. In her session at WebRTC Summit, Dr. Natasha Tamaskar, Vice President, Head of Cloud and Mobile Strategy at GENBAND, will explore what is needed to take a real time communications ...
What exactly is a cognitive application? In her session at 16th Cloud Expo, Ashley Hathaway, Product Manager at IBM Watson, will look at the services being offered by the IBM Watson Developer Cloud and what that means for developers and Big Data. She'll explore how IBM Watson and its partnerships will continue to grow and help define what it means to be a cognitive service, as well as take a look at the offerings on Bluemix. She will also check out how Watson and the Alchemy API team up to offer disruptive APIs to developers.
The IoT Bootcamp is coming to Cloud Expo | @ThingsExpo on June 9-10 at the Javits Center in New York. Instructor. Registration is now available at http://iotbootcamp.sys-con.com/ Instructor Janakiram MSV previously taught the famously successful Multi-Cloud Bootcamp at Cloud Expo | @ThingsExpo in November in Santa Clara. Now he is expanding the focus to Janakiram is the founder and CTO of Get Cloud Ready Consulting, a niche Cloud Migration and Cloud Operations firm that recently got acquired by Aditi Technologies. He is a Microsoft Regional Director for Hyderabad, India, and one of the f...
The 17th International Cloud Expo has announced that its Call for Papers is open. 17th International Cloud Expo, to be held November 3-5, 2015, at the Santa Clara Convention Center in Santa Clara, CA, brings together Cloud Computing, APM, APIs, Microservices, Security, Big Data, Internet of Things, DevOps and WebRTC to one location. With cloud computing driving a higher percentage of enterprise IT budgets every year, it becomes increasingly important to plant your flag in this fast-expanding business opportunity. Submit your speaking proposal today!
WebRTC is an up-and-coming standard that enables real-time voice and video to be directly embedded into browsers making the browser a primary user interface for communications and collaboration. WebRTC runs in a number of browsers today and is currently supported in over a billion installed browsers globally, across a range of platform OS and devices. Today, organizations that choose to deploy WebRTC applications and use a host machine that supports audio through USB or Bluetooth can use Plantronics products to connect and transit or receive the audio associated with the WebRTC session.
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 Media announced today that @ThingsExpo Blog launched with 7,788 original stories. @ThingsExpo Blog offers top articles, news stories, and blog posts from the world's well-known experts and guarantees better exposure for its authors than any other publication. @ThingsExpo Blog can be bookmarked. The Internet of Things (IoT) is the most profound change in personal and enterprise IT since the creation of the Worldwide Web more than 20 years ago.
The world's leading Cloud event, Cloud Expo has launched Microservices Journal on the SYS-CON.com portal, featuring over 19,000 original articles, news stories, features, and blog entries. DevOps Journal is focused on this critical enterprise IT topic in the world of cloud computing. Microservices Journal offers top articles, news stories, and blog posts from the world's well-known experts and guarantees better exposure for its authors than any other publication. Follow new article posts on Twitter at @MicroservicesE
SYS-CON Events announced today that robomq.io will exhibit at SYS-CON's @ThingsExpo, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. robomq.io is an interoperable and composable platform that connects any device to any application. It helps systems integrators and the solution providers build new and innovative products and service for industries requiring monitoring or intelligence from devices and sensors.
Wearable technology was dominant at this year’s International Consumer Electronics Show (CES) , and MWC was no exception to this trend. New versions of favorites, such as the Samsung Gear (three new products were released: the Gear 2, the Gear 2 Neo and the Gear Fit), shared the limelight with new wearables like Pebble Time Steel (the new premium version of the company’s previously released smartwatch) and the LG Watch Urbane. The most dramatic difference at MWC was an emphasis on presenting wearables as fashion accessories and moving away from the original clunky technology associated with t...