SYS-CON MEDIA Authors: Xenia von Wedel, Peter Silva, Glenn Rossman, Ava Smith, Elizabeth White

Article

“Infrastructure as a Service” – A Perfect Commodity.....

...Or Not Yet....

Commodities are usually produced and/or sold by different companies with no perceived difference in quality and product / service offering. This is true for any commodity - wheat, oil or electricity - at least in an ideal world.

Commodities are also full or partially fungible. Fungibility means all instances are considered equal. Okay.

Now let's take IaaS which provides raw compute power. Compute power is a function of multiple factors - data center, processor configuration, CPU speed, compiler, kernel, file system, os, RAM, Disk, etc. On top of that providers create multiple configuration of these. The permutations and combinations are multiple and so we have multiple variations.

As an Example - Amazon uses what it calls "EC2 Compute Units" or ECUs, as a measure of virtual CPU power. Amazon ECU is also referred to as a 2006 Xeon running at 1.7 GHz. Amazon treats the two as equivalent. Microsoft uses a different standard CPU as the measure of its virtual CPUs--designating the Intel Xeon 1.6 GHz CPU as its standard. This is a slightly newer chip with a stepped up clock speed, CPU specs differ.

Purists argue that precisely because of the above reason, IaaS cannot be a commodity as the instances are not equal..... Fair assumption. But now Let's go 1 step further...

Consider a perfect Soft Commodity - Wheat which is graded on multiple parameters - Foreign matter(organic and inorganic), country of origin, damaged grains, grain size, Immature/Shriveled grain, moisture content, Poisonous/ heavy metals, microbial load, sweet, hardness, cleanliness, smell etc. Each attribute has to be measured and graded.

Now Consider Oil - which is graded on benchmark Crude or marker crude index. There are typically three primary benchmarks - WTI, Brent Blend, and Dubai. Other well-known blends include the Opec basket, Tapis Crude (Singapore), Bonny Light (Nigeria) and Isthmus (Mexico). As a matter of fact, there are close to 200 major crude streams or blends.

So, the argument around fungibility and uniformity across instances doesn't hold good.

Takeaway #1 - The whole point around fungibility, uniform quality around IaaS is a fallacy. It is no different than established commodities as far as uniformity and fungibility across instances are considered. Only missing link is a grading system of calculating the compute unit.

  • Fallacy - There is considerable ‘Real' Value-add / product feature differentiation in IaaS market.

Commoditization occurs as goods or services market lose differentiation. IaaS in current market have no real product / service differentiation. What differs is the spread, price points, and product / service packaging.

The product differentiation delusion created by most companies is more of a marketing strategy.

We all know that there are differences in underlying technology and hardware specs these are often hidden....... and this underlying fact is the recipe for commoditization. The race to communization is synonymous with the "Me Too strategy with a different packaging / price point but no transparency." This is done to so that users can not differentiate. What a paradox - Commoditization due to differentiation (albeit false).

Fact is that aall IaaS services perform similar functions, but it's hard to compare the value of one cloud infrastructure service with another? I would have argued otherwise if service providers would actually provide detailed hardware specs / performance of their service on a common base where they can be compared apples -to- apples and lemons -to- lemons. This would create ‘real' differentiation with no marketing gimmick.

A Benchmark IaaS Grade/ Index is what is needed and each service be rated on well-defined hard parameters.... (like benchmark Oil Index, or Wheat / Corn grade).

Takeaway #2 - Marketing and packaging differentiation cannot replace ‘real' product differentaition. This kind of product differentiation is a transient phenomenon until the market gets a proper compute unit grading system. That is when IaaS will be easy to compare. And at that point - commodity players will state that it is a commodity service and niche players can charge a premium for higher compute grade - which is measurable.

  • Fact: Storage, perishable nature and Demand / supply driven attributes of IaaS makes it a commodity candidate.

Electricity under normal operating conditions cannot be stored, has to be rationed or have customers queue for it and its demand and supply can vary continuously. It has to be consumed as soon as it is created.

IaaS is a perfect match on these commodity attributes. It cannot be stored but can be rationed, metered and billed, consumed and very much dependent on demand and supply factors.

 

Takeaway #3: Attributes and nature of IaaS match that of a true commodity candidate.

  • Fact - Pricing Trends

When there is little or no real difference in products / services, consumers shop on price. Producers of commodities are driven to compete on low price and high volume. This is the trend in IaaS space and price wares on. Wait for hard data in my next article.
The product life cycle is at a point where significant customer education is now not required and cloud is generally accepted and adopted. The market has matured enough to have attracted multiple competitors, and the market is expanding. Prices are declining to gain market share as there is no value play.

Takeaway #4 - IaaS Price trends are perfect indicators for IaaS becoming a commodity.

  • Fact: Commodities are used in production of other goods and services.... Value play is up in chain

Commodities are most often used as inputs in the production of other goods or services. The shades and grades of a given commodity may differ slightly, but it is essentially uniform across producers - in terms of basic purpose and use. Point is value play is up in the value chain.
‘IaaS' is the ‘crude oil' that is used to create ‘Software / Platforms' like ‘Gasoline and Kerosene'.

This is what Larry Ellison - who built the kingdom of oracle on high-margin products, said - "We intend to compete aggressively in ... the commodity infrastructure as a service marketplace. We are going to be cost competitive and price competitive at the infrastructure level while being highly differentiated at both the platform level and the application level".

Takeaway #5 - IaaS is a mere enabler to create other services and from that perspective - a perfect commodity candidate. The real value play is in Applications and Platforms - up in value chain - where there is unlimited ‘real' differentiation / customization based on user needs and requirements.

  • Fact - Evolution of IaaS Trading Exchanges

Commodities are usually sold on exchanges that standardize the quantity and minimum quality of the commodity being traded. We have already seen multiple attempts being made on IaaS on an exchange trading path.

Chicago Mercantile Exchange (CME), a global derivatives marketplace, recently to develop and market an IaaS spot exchange that will list financial products based upon propriety workload definition.

And not to mention Amazon's EC2 spot pricing.

Comments Welcome

Takeaway #6 - IaaS Commoditization has already begin and accepted. Commoditization in the form of exchange trading platforms are starting to sprout. The IaaS market spectrum is going to shrink. Future of IaaS will be all about low cost, low margin, high volume and a high efficiency game unless some player can clearly differentiate (not ‘Market') and set itself apart to be able to charge a premium.

 

More Stories By Sunil Pathak

Sunil has close to 16 years experience in Information Technology providing leadership, management, planning, system development and engineering, training, people development, methodologies, and process support. He has worked in the area of internet based technology solutions, ecommerce applications, product development, product maintenance, e-business platforms, portals, collaboration, content management, and business intelligence.

He currently works for Colt Technologies Services, Bangalore, India as Head of Systems Development and Support. Sunil holds an Executive MBA (IIM Calcutta), Masters in Technology (IIT Kanpur) and a Bachelor of Engineering in Electrical Engineering. He also holds diploma in entrepreneurship from EDI Ahmedabad. He can be reached at :
Linkedin - http://in.linkedin.com/pub/sunil-pathak/4/501/a9b
Twitter - @sunil__pathak


Disclaimer:The opinion expressed here are my own and not necessarily those of my employer.

Latest Stories
Connected devices and the Internet of Things are getting significant momentum in 2014. In his session at Internet of @ThingsExpo, Jim Hunter, Chief Scientist & Technology Evangelist at Greenwave Systems, examined three key elements that together will drive mass adoption of the IoT before the end of 2015. The first element is the recent advent of robust open source protocols (like AllJoyn and WebRTC) that facilitate M2M communication. The second is broad availability of flexible, cost-effective ...
How do APIs and IoT relate? The answer is not as simple as merely adding an API on top of a dumb device, but rather about understanding the architectural patterns for implementing an IoT fabric. There are typically two or three trends: Exposing the device to a management framework Exposing that management framework to a business centric logic Exposing that business layer and data to end users. This last trend is the IoT stack, which involves a new shift in the separation of what stuff happe...
The Internet of Things will put IT to its ultimate test by creating infinite new opportunities to digitize products and services, generate and analyze new data to improve customer satisfaction, and discover new ways to gain a competitive advantage across nearly every industry. In order to help corporate business units to capitalize on the rapidly evolving IoT opportunities, IT must stand up to a new set of challenges. In his session at @ThingsExpo, Jeff Kaplan, Managing Director of THINKstrateg...
We are reaching the end of the beginning with WebRTC, and real systems using this technology have begun to appear. One challenge that faces every WebRTC deployment (in some form or another) is identity management. For example, if you have an existing service – possibly built on a variety of different PaaS/SaaS offerings – and you want to add real-time communications you are faced with a challenge relating to user management, authentication, authorization, and validation. Service providers will w...
Cultural, regulatory, environmental, political and economic (CREPE) conditions over the past decade are creating cross-industry solution spaces that require processes and technologies from both the Internet of Things (IoT), and Data Management and Analytics (DMA). These solution spaces are evolving into Sensor Analytics Ecosystems (SAE) that represent significant new opportunities for organizations of all types. Public Utilities throughout the world, providing electricity, natural gas and water,...
"Matrix is an ambitious open standard and implementation that's set up to break down the fragmentation problems that exist in IP messaging and VoIP communication," explained John Woolf, Technical Evangelist at Matrix, in this SYS-CON.tv interview at @ThingsExpo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
Want to enable self-service provisioning of application environments in minutes that mirror production? Can you automatically provide rich data with code-level detail back to the developers when issues occur in production? In his session at DevOps Summit, David Tesar, Microsoft Technical Evangelist on Microsoft Azure and DevOps, will discuss how to accomplish this and more utilizing technologies such as Microsoft Azure, Visual Studio online, and Application Insights in this demo-heavy session.
When an enterprise builds a hybrid IaaS cloud connecting its data center to one or more public clouds, security is often a major topic along with the other challenges involved. Security is closely intertwined with the networking choices made for the hybrid cloud. Traditional networking approaches for building a hybrid cloud try to kludge together the enterprise infrastructure with the public cloud. Consequently this approach requires risky, deep "surgery" including changes to firewalls, subnets...
DevOps is all about agility. However, you don't want to be on a high-speed bus to nowhere. The right DevOps approach controls velocity with a tight feedback loop that not only consists of operational data but also incorporates business context. With a business context in the decision making, the right business priorities are incorporated, which results in a higher value creation. In his session at DevOps Summit, Todd Rader, Solutions Architect at AppDynamics, discussed key monitoring techniques...
The Internet of Things will greatly expand the opportunities for data collection and new business models driven off of that data. In her session at @ThingsExpo, Esmeralda Swartz, CMO of MetraTech, discussed how for this to be effective you not only need to have infrastructure and operational models capable of utilizing this new phenomenon, but increasingly service providers will need to convince a skeptical public to participate. Get ready to show them the money!
One of the biggest challenges when developing connected devices is identifying user value and delivering it through successful user experiences. In his session at Internet of @ThingsExpo, Mike Kuniavsky, Principal Scientist, Innovation Services at PARC, described an IoT-specific approach to user experience design that combines approaches from interaction design, industrial design and service design to create experiences that go beyond simple connected gadgets to create lasting, multi-device exp...
P2P RTC will impact the landscape of communications, shifting from traditional telephony style communications models to OTT (Over-The-Top) cloud assisted & PaaS (Platform as a Service) communication services. The P2P shift will impact many areas of our lives, from mobile communication, human interactive web services, RTC and telephony infrastructure, user federation, security and privacy implications, business costs, and scalability. In his session at @ThingsExpo, Robin Raymond, Chief Architect...
High-performing enterprise Software Quality Assurance (SQA) teams validate systems that are ready for use - getting most actively involved as components integrate and form complete systems. These teams catch and report on defects, making sure the customer gets the best software possible. SQA teams have leveraged automation and virtualization to execute more thorough testing in less time - bringing Dev and Ops together, ensuring production readiness. Does the emergence of DevOps mean the end of E...
Scott Jenson leads a project called The Physical Web within the Chrome team at Google. Project members are working to take the scalability and openness of the web and use it to talk to the exponentially exploding range of smart devices. Nearly every company today working on the IoT comes up with the same basic solution: use my server and you'll be fine. But if we really believe there will be trillions of these devices, that just can't scale. We need a system that is open a scalable and by using ...
The Internet of Things is tied together with a thin strand that is known as time. Coincidentally, at the core of nearly all data analytics is a timestamp. When working with time series data there are a few core principles that everyone should consider, especially across datasets where time is the common boundary. In his session at Internet of @ThingsExpo, Jim Scott, Director of Enterprise Strategy & Architecture at MapR Technologies, discussed single-value, geo-spatial, and log time series dat...