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6fusion Collaborates on Fourth Annual Future of Cloud Computing Survey

6fusion is pleased to once again be one of the cloud industry leaders collaborating on the 4th annual Future of Cloud Computing Survey and we encourage everyone involved in cloud to participate in the survey. Whether you are a cloud user, cloud provider, cloud broker, or play another role in the cloud you should take the survey. It will only take about 5 minutes to complete and you can access the survey here: https://www.surveymonkey.com/s/6FusionNB

North Bridge will announce the results at GigaOM Structure, one of the leading cloud industry events that annually convenes influential technology experts to both examine and debate the future of cloud computing. North Bridge partner Michael Skok will present the results of the survey at the show on June 18 in San Francisco. If you are interested in attending, we can offer a 25% discount on tickets to the event. Ping us at info@6fusion.com to get the discount code.

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IT Financial Management Week

6fusion is sponsoring IT Financial Management Week in Chicago April 28-30, 2014. If you will be at the show or in Chicago that week, please reach out to us at info@6fusion.com. We’d love to chat live about 6fusion’s impact on IT financial management for you and your team.

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ZDNet – Soon, cloud capacity will be available in a spot market

Soon, cloud capacity will be available in a spot market

By  for Service Oriented |

In a few months, it may be possible to buy cloud infrastructure capacity on an open market, just as energy or physical commodities are now traded. The net result, hopefully, will be competitive pricing and lower risk for the burgeoning cloud-computing sector.

Data Center at CERN-photo courtesy of CERN Press Office
Photo: CERN Office of Media Relations

6fusion, a cloud ROI tools vendor, and CME Group, a global derivatives marketplace, just announced they have signed a definitive agreement to develop and market an Infrastructure as a Service (IaaS) spot exchange that will list financial products based upon 6fusion’s Workload Allocation Cube (WAC) .

The WAC provides a consistent, across-the-board unit of measurement by which companies can buy and sell IaaS cycles. The Infrastructure-as-a-Service (IaaS) Exchange will offer access to the underlying components of cloud computing: processing power, storage, networks, and systems messaging. The IaaS exchange is expected to be available in beta by the second half of 2014, according to 6fusion.

This type of market could keep the pressure on cloud providers to keep prices in line. (Fierce competition has already created a price war between the big cloud players.) In addition, there may be opportunities for enterprises with large-scale IT assets. Many organizations have excess computing capacity within their own data centers, and this could open the door to assigning real economic value to their systems. Huge investments in under-utilized systems that is only used a few times a year may be recouped if excess capacity could be sold off to such a spot market.

The spot exchange will feature contracts using the WAC as the standard unit of measurement and be available for trading on an electronic platform using technology licensed from CME Group. 6fusion’s UC6 software platform will be used to track fulfillment of physically delivered contracts traded on the spot exchange. The spot exchange beta is expected to launch later this year featuring a host of infrastructure buyers, sellers and partners.

Such an exchange is in line with the way energy is now valued and priced, Reuven Cohen, chief cloud advocate at Citrix, observed in a Forbes commentary. “Data centers are the new power plants,” he says. And, just as is the case with energy resources, such exchanges help reduce the risk in investing in new capacity.  He also adds that Amazon Web Services already has a spot-pricing capability that fluctuates with supply and demand.

Network World’s Brandon Butler provides a look at how such an exchange will work:

“Blocks of cloud computing resources – for example a month’s worth of virtual machines, or a year’s worth of cloud storage – would be packaged by service providers and sold on a market. In the exchange, investors and traders could buy up these blocks and resell them to end users, or other investors, potentially turning a profit if the value of the resource increases. The market for these resources would ebb and flow, just like with any other commodity, based on supply and demand. Perhaps around the holiday shopping season, or directly after a natural disaster, these blocks of cloud resources would be more valuable, for example.”

Forbes – The Next Chapter In The Cloud Brokerage Story

TECH  1,833 views

The Next Chapter In The Cloud Brokerage Story – CME Tech Used To Launch An Exchange

Whenever an item becomes commonplace (some might use the word “commoditized”) we see marketplaces and brokerages rise up to make money from this commoditization. Cloud computing is an area in which brokerages have been long talked about (ever since vendor Enomaly launched its ultimately ill-fated, but arguably prescient marketplace SpotCloud many years ago). The theory behind these cloud brokers is that they allow the relationship between vendor and customer to be optimized such that better outcomes are delivered for both parties.

Or that’s the theory at least – it’s fair to say that brokerages haven’t really taken off. True, the Deutsche Boerse did launch a cloud exchange platform, the so called Cloud Exchange AG but for whatever reason, the concept has never really taken off. Many suggest that this is because there is no common unit of measure for cloud infrastructure. Unlike electricity for example, which comes in nicely bounded kilowatt hour chunks, a unit of compute from AWS isn’t really comparable to a unit of compute from Google GOOG -3.66%Microsoft MSFT -0.97%, Rackspace or whomever. As I stated previously:

… A marketplace for electricity, for example, can resolve all the different methods of generation (hydro, solar, nuclear etc) into a simple measure, the kilowatt-hour. IaaS on the other hand, has no such simple unit of measure. There is no “compute-hour” or “storage-block” that we all accept as standard. This is becoming ever more the case as vendors (most notably AWS) move further up the stack and deliver differentiated services on top of simple compute and storage.

For more on the debate about the validity or otherwise of cloud marketplaces, see my wrap up of a panel I moderated last year in San Francisco. Given all this angst about cloud broking, it’s always interesting to get an update from 6Fusion, a company directly tackling the problem of finding a standard economic measure of IT infrastructure. 6Fusion has the unenviable task in this early and rapidly developing space of ensuring a consistent unit of measure upon which they can enable marketplaces to be built. No mean feat.

It is therefore interesting to see that CME Group, a broad derivatives marketplace, have agreed to collaborate to create an IaaS commodity exchange which leverages 6Fusion’s Workload Allocation Cube (WAC), the standard unit of measure for IaaS that 6Fusion has developed. The exchange, due to be rolled out in beta later this year, will feature contracts using the WAC as the standard unit of measurement and is planned to be available for trading on an electronic platform using technology licensed from CME Group CME +0.8%. In terms of actually fulfilling contracts, 6fusion’s UC6 software platform will be used to track fulfillment of physically delivered contracts traded on the spot exchange.

Every time someone announces a new initiative about cloud brokerage, the same criticisms are raised – that IaaS isn’t fungible, that it’s moving too fast, that buyers and sellers can have a direct relationship and hence an intermediary isn’t needed. All those arguments still hold. I made a comment when looking at marketplaces a year or so ago:

…the bottom line is whether or not there is both the ability for what they offer to occur and sufficient call for what these vendors are providing for them to build viable businesses. Is IaaS sufficiently fungible for marketplaces to flourish? Are there enough willing buyers and sellers, and enough margin to be made, for these financial intermediaries to survive.

While this 6Fusion announcement is interesting, my viewpoint hasn’t really changed. I’d be interested to see an IaaS marketplace really gain traction but I’m not overly confident it’ll happen any time soon.

 

The Register – Bored with trading oil and gold? Why not flog some CLOUD servers?

Chicago Mercantile Exchange plans cloud spot exchange

By Jack Clark, 14 Apr 2014

If you thought cloud computing was complicated now, just wait until next year, when pin-striped traders will buy and sell contracts in the stuff.

At least, that’s the plan of the Chicago Mercantile Exchange, which announced on Monday that it had signed a “definitive agreement” to build a commodity exchange dedicated to the buying and selling of infrastructure-as-a-service contracts whose value will be determined via a technology from cloud measurement firm 6fusion.

This means that one of the world’s largest options and futures exchanges reckons that the cloud market has matured to a point where it can make money out of giving people the option to trade resources from different providers against one another according to market conditions.

In other words, the differences between the types of compute and storage on offer from the top companies are now so minor that they can be traded in a single market – no wonder most companies are getting out of selling the low-margin commoditized servers and arrays that form these clouds.

The exchange will use technology from 6fusion to rank the resources from different providers to take into account varying performance characteristics like network bandwidth, RAM allocations, CPU speeds, and so on.

The CME will use 6fusion’s abhorrent travesty of language, the “Workload Allocation Cube”, to help it convert cloud resources from different providers into a tradeable commodity.

“What we’ve been doing for the last couple of years is working with the CME to construct the underlying plumbing to build the software foundation,” explained 6fusion chief John Cowan in a chat with El Reg. “The big picture is the creation of the open market for both buyers and sellers of cloud infrastructure.”

Initially, the spot market will be – in trading parlance – “on-demand and forward contracts”, which a 6fusion spokesperson said is: “contracts for delivery of a specific amount of infrastructure consumption over a defined period in the future.”

Though 6fusion is not disclosing which suppliers it has signed up to the exchange yet, when we pointed out that for the exchange to have credibility at launch it would have to cover, at least, the big three suppliers – Amazon, Google, and Microsoft – Cowan said: “I agree with you. … when we take the lid off the spot exchange there will be a host of recognizable names.”

6fusion will charge suppliers to the market a small fee for every contract sold. “If you’re going to take delivery [of payment] you do have to register and be a supplier in the open market,” Cowan said.

The agreement between the CME and 6fusion is an encouraging one, and follows the exchange announcing last September that it had signed a non-binding Letter of Intent with 6fusion to develop the technology. It seems it think it’s worth pursuing, but the critical point of validation will be whether Microsoft, Amazon, and Google think so as well.

We believe they will – after all, what could possibly go wrong? ®

 

Computerworld – CME Group and 6fusion prepare to launch cloud exchange

CME Group and 6fusion prepare to launch cloud exchange

Beta trial announced, but no confirmation of major Iaas suppliers

By  | Computerworld UK | Published 17:39, 15 April 14

CME Group is a step closer to launching a marketplace to enable trading of cloud resources, after entering into a definitive agreement with infrastructure metering firm 6fusion.

Having announced that it was exploring the development of a cloud spot exchange last July, CME, a global derivatives marketplace, is now planning a beta trial of the service with 6fusion later this year.

The market for infrastructure as a service (Iaas) resource will rely on 6fusion’s Workload Allocation Cube to create a standard unit of measurement of compute and storage resources, allowing buyers to compare prices across a number of vendors. It follows similar attempts to create an exchange for cloud resources such as a partnership between Deutsche Borse and Zimory, and Enomaly’s SpotCloud.

According to 6fusion head of product strategy, Rob Bissett, the CME exchange will help enterprise customers deal with the growing number of suppliers in the market, and should lead to further price drops in an increasingly commoditised market.

“You can already go out and find a bunch of vendors and come up with their list pricing, but what is fundamentally different about our marketplace is that it allows for apples to apples comparisons as it is based on a standardised unit of measurement,” said Bissett.

He was unable to say whether the likes of Amazon Web Services and Microsoft Azure will be available from launch, but claims to have engaged with a “number of lead suppliers”.

“Short term I don’t anticipate the market will start with everybody involved. Some of the lessons learnt from firms like Enamoly and SpotCloud show that an excess of supply simply leads to a race to the bottom of pricing, which we don’t want to do,” he said.

“We will work with a small number of visionary suppliers, and we anticipate that, as we create trade volume, the other suppliers will move to participate.”

The exchange will be targeted at use by larger mid-market and enterprise customers, with cloud brokers tying the service into their back-end to supply to smaller firms.  This is because smaller customers are less likely to have the expertise required to deal with the commodity purchasing of cloud resources. “I almost see the perquisite as having IT financial manager,” Bissett explained.

More details on suppliers involved will be announced nearer to launch of the beta, along with the name of the third party which will run the spot exchange.

The Road to Cloud Futures Gets Paved

The commoditization of cloud infrastructure is inevitable and an organized market will dramatically reshape the foundation of the entire IT supply chain. 6fusion exists to accelerate this reality for the betterment of both buyers and sellers in the market for cloud infrastructure services.  On April 14th, 6fusion and the CME Group announced an exclusive multi-year strategic and tactical collaboration to materialize the ultimate vision of 6fusion, nearly one year after 6fusion sparked an industry wide debate at the Cloud 2020 Summit  in Las Vegas.  Over the next three parts of this blog series, 6fusion’s co-founder & CEO John Cowan bridges the pivotal academic argument for the inevitability and possibility of a futures market for IaaS (Part I, Part II) by explaining the details of 6fusion’s deal with the CME Group, the journey to get to this point and what comes next for 6fusion and the cloud infrastructure market.


While Delano Seymour and I were working on 6fusion’s strategic plan under the radar in 2009, I published this statement on our blog:

“If computing is to follow the commodity path of electricity, achieving a similar level of ubiquity and pervasiveness, it must then have a single unit of measurement that transcends politics, production, language and proprietary invention.”

6fusion was founded five years ago on the thesis that economic innovation was going to be just as important, if not more so, than technical innovation in the development of IT as a true utility.   We didn’t foresee a business problem to solve.  We foresaw a market problem to solve.

Allow me to illustrate.

Picture a bucket.  Then imagine pouring some water into that bucket.  Now, if I asked you whether you would like to pay for the bucket or how much water you have in the bucket, what would you say?  Everyone would rather pay for how much water you have in the bucket and it’s the right answer.  Why?  Because we understand implicitly the value of consumption economics and risk.

Paying for what we consume is the fundamental economic principle in the procurement of EVERY utility service in the world. We don’t pay for gas by the size of our gas tank; we pay for gas according to how much we pump. We don’t pay for electricity by the appliance; we pay for electricity according to how much electricity the appliances use.  I think you get the picture.

IT has never worked this way in the modern era, which is why cloud computing, while important, is not a true utility.

Since the advent of the Client/Server model, we’ve been to trained to accept the “box” as the logical billing unit of IT infrastructure.  We buy a box and it has a defined amount of processing power, memory and disk storage. Virtualization emerged in the industry about 10 years ago to make more efficient use of the box, but the logical billing unit was still a box.  Only we called it a virtual machine.

Then, cloud computing came along,  and in particular the concept of Infrastructure-as-a-Service (IaaS). IaaS solved for important technical hurdles like resource elasticity and self-service access to giant clusters of infrastructure. But, low and behold, cloud computing has not solved the logical billing unit issue. We are still buying a “box” with a defined set of infrastructure resources – only now the accepted nomenclature is an “instance”.

But why is all of this problematic?  Why can’t we just continue to do what we know.  Why can’t we stick with “boxes?”

The answer is simple.

Boxes are proprietary definitions of resource allocation that are neither pervasive or ubiquitous in nature.  They lack the fundamental qualities that define a utility. They are constrained to vendor specificity and thus represent one of the single biggest barriers to the massive, tectonic shift to the cloud everyone is waiting for in the industry: No economic interchangeability.

There are two ways you can solve the economic interchangeability problem.  You can try to force everyone to pick one type of box – a strategy rife with political obstacles, vendor pissing contests and endless arguing among standards bodies.  Or, you can eliminate the box all together.

6fusion is going to eliminate the boxes. Enter the Workload Allocation Cube.

Affectionately referred by it’s 3 letter acronym of WAC, the Workload Allocation Cube is a mathematical algorithm that Delano Seymour (6fusion CTO and Co-Founder) and I created for an entirely different purpose than what eventually became the objective of 6fusion.

Like most good ideas, the WAC was an accidental side effect of another process.  Exactly 10 years ago Delano and I were busy building a boutique early adopter consulting practice around VMware’s game changing ESX server product.  We were among the early experts in the enterprise use case of x86 virtualization.  Virtualization, we contended, could do to the server what modern networking protocols did for telecom – we could achieve true multi-tenancy and thus true economic advantages.

As we created the first multi-tenant solutions powered by ESX we quickly discovered a major flaw in the concept of a one-to-many equation for compute services. There was no universal measurement and without one, the model fell apart at scale.

I would characterize the research question we pursued this way: How do you ensure the user of the multi-tenant host paid only for what it used while simultaneously ensuring the multi-tenant host achieved a sufficient financial return for the actual load borne by the user’s workload?

The answer to the equation was to compare real-time utilization (workload) against a fixed baseline (allocation) covering six vectors (cube) – CPU, Memory, Storage, Disk I/O, LAN I/O, and WAN I/O.  By establishing a statistical relationship between each of the vectors, weighted by the cost of production as constrained by physical capacity, we could establish a remarkably precise representation of workload consumption as an output reflected as a singular unit value (a WAC Unit).

For better or worse, the algorithm worked.  As early purveyors of x86 multi-tenant solutions, we had an efficient tool to ensure customers paid an appropriate amount of money for the load they represented on a set of virtual infrastructure.  And conversely, that the owner/operator of the virtual infrastructure achieved optimal return on their hardware investment regardless of customer workload behavior.

It didn’t take us very long to realize that what we had invented could be the basis of a commodity market to exist.  And with the announcement on April 14th, we are on the path to that vision becoming reality.  We have set sail toward the first truly open market for IT infrastructure.  This is bigger than cloud computing.  And the ramifications will transcend the supply chain.

I would best describe 6fusion’s relationship with the CME Group as strategic collaborators.  A true dichotomy of style and approach – the young brash software start up and the hundred year old exchange that plays only to win and win big – the two companies have forged an agreement rooted in our mutual disrespect for the status quo.

To accomplish this goal a new entity will be created whose job is to foster and develop the Spot Exchange.  This new entity will license 6fusion’s patented technology for the WAC and the CME Group’s industry leading trading platform and begin to facilitate the trading of contracts between buyers and sellers later this year.  We plan to launch this new entity with industry support and backing that will raise eyebrows. When the lid comes off this thing there will be zero doubt about just how ready the market is for this and just how disruptive the new economics of IT will be.

But the job of the CME Group and 6fusion won’t stop there.  Operationally, each company will serve two very important purposes.  We expect the next phase our journey to be an arduous one.  And over the course of the journey we see the CME Group as the ultimate mentor.   You see, as crazy as this sounds, we fully intend to see WAC financial products traded and financially settled like any other derivatives product.  And for that, I couldn’t think of a more capable collaborator than the most diverse, experience exchange operator in the history of markets to help us navigate these early stage waters.

6fusion, on the other hand, will provide the critical service of physical contract settlement (delivery).  Our flagship software platform, UC6, will be wired into the trading platform so that contracts created can be metered and settled between the contracting parties as an extension to the functional Marketplace 6fusion has operated for the past three years.  The development of the spot exchange could not succeed without physical settlement and the ability to accomplish that transparently, and without prejudice across any underlying hardware or software stack, is what our software does.

The disruption to the economics of IT represented by 6fusion and the CME Group is rooted in the unprecedented value we can create for both suppliers and buyers in the market.  But before I dig in to that it is important to appreciate just how much has gone into the ten year odyssey to get us to this point.  In part II of this post I will elaborate on how 6fusion has evolved, the role and influence Chicago has had on our thinking, and the timing and readiness of the cloud market.

6fusion, CME Group Sign Definitive Agreement to Develop IaaS Commodity Exchange

 

Companies agree to develop a spot exchange for Infrastructure as a Service (IaaS); expected to be available in beta by the second half of 2014

6fusion’s Workload Allocation Cube will be the standard unit of measure for contracts in the exchange

Monday April 14, 2014 – CHICAGO and Raleigh, NC – 6fusion, the company standardizing economic measurement of IT infrastructure and enabling a global marketplace for buyers and sellers, and CME Group, the world’s leading and most diverse derivatives marketplace, have signed a definitive agreement to develop and market an Infrastructure as a Service (IaaS) spot exchange that will list financial products based upon 6fusion’s Workload Allocation Cube (WAC).

The spot exchange will feature contracts using the WAC as the standard unit of measurement and be available for trading on an electronic platform using technology licensed from CME Group. 6fusion’s UC6 software platform will be used to track fulfillment of physically delivered contracts traded on the spot exchange. The spot exchange beta is expected to launch later this year featuring a host of infrastructure buyers, sellers and partners.

The WAC is the industry’s first patented benchmark to universally measure consumption and capacity of compute, network and storage resources. The WAC makes it possible for buyers to standardize the quantification of IaaS requirements, making it simpler to determine the infrastructure type, quantities, and pricing that best match requirements across heterogeneous suppliers in the marketplace.

Comments on the news:

  • John Cowan, 6fusion CEO and Co-Founder: “6fusion was founded on philosophy that on-demand IT infrastructure will not reach it’s true potential until it can be consumed like a true utility and traded on an open exchange. An open exchange is good for both buyers and suppliers of cloud infrastructure. For buyers, it unlocks unprecedented visibility and control over the enterprise cloud transformation process.  For suppliers, it dramatically reduces the cost of business acquisition and drives increased transaction velocity.”
  • Bryan Durkin, CME Group Chief Operating Officer: “CME Group wants to provide customers the opportunity to hedge risk in the growing cloud computing industry. CME Group’s experience with new products and technological expertise makes the company an ideal candidate to innovate in this space and we’re happy to work with 6fusion to go to market.”
  • Owen Rogers, Senior Analyst, Digital Economics at 451 Research: “The combination of CME Group’s wide ranging experience in commodity exchanges together with 6fusion’s unique metering capability puts the collaboration in a strong position to deliver the economic benefits of real utility computing.”

About CME Group

As the world’s leading and most diverse derivatives marketplace, CME Group (www.cmegroup.com) is where the world comes to manage risk.  CME Group exchanges offer the widest range of global benchmark products across all major asset classes, including futures and options based on interest rates, equity indexes, foreign exchange, energy, agricultural commodities, metals, weather and real estate.  CME Group brings buyers and sellers together through its CME Globex® electronic trading platform and its trading facilities in New York and Chicago.  CME Group also operates CME Clearing, one of the world’s leading central counterparty clearing providers, which offers clearing and settlement services across asset classes for exchange-traded contracts and over-the-counter derivatives transactions. These products and services ensure that businesses everywhere can substantially mitigate counterparty credit risk.

CME Group is a trademark of CME Group Inc. The Globe Logo, CME, Globex and Chicago Mercantile Exchange are trademarks of Chicago Mercantile Exchange Inc.  CBOT and the Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago, Inc.  NYMEX, New York Mercantile Exchange and ClearPort are registered trademarks of New York Mercantile Exchange, Inc.  COMEX is a trademark of Commodity Exchange, Inc.  KCBOT, KCBT and Kansas City Board of Trade are trademarks of The Board of Trade of Kansas City, Missouri, Inc.  All other trademarks are the property of their respective owners. Further information about CME Group (NASDAQ: CME) and its products can be found at www.cmegroup.com.

About 6fusion

6fusion standardizes the economic measurement of IT infrastructure, enabling a single global marketplace for buyers and sellers. 6fusion is able to quantify supply and demand for compute resources across heterogeneous public and private environments with the world’s only patented metering algorithm, the Workload Allocation Cube (WAC), and an open platform to measure any IT infrastructure environment.

Whether an enterprise optimizing its infrastructure footprint, an infrastructure supplier maximizing a cloud offering, or an IT influencer advising clients on infrastructure transformation, 6fusion enables organizations to deliver topline and bottom-line visibility and value to drive meaningful business outcomes.

 

Twitter: http://twitter.com/6fusion

Facebook: http://www.facebook.com/6fusion

LinkedIn: http://www.linkedin.com/company/6fusion-usa

Blog: http://www.6fusion.com/blog/

RSS feed:http://www.6fusion.com/feed/

 

6fusion media contact:

Ryan Kraudel

rkraudel@6fusion.com

919-706-4783

 

The Tipping Point for IaaS

By Rob Bissett, 6fusion SVP of Product Strategy

There has been plenty written about the flurry of cloud pricing moves started by the Google Compute Engine price drop last week.  Most of this comes down to analysis of the facts themselves, and the impacts on current competitors and the market as a whole.  However, when you sift out the signal from the noise, a much bigger story emerges than just the cascade of a few price changes.

What are we talking about?  We are likely on the verge of something the industry has been talking about for a long time, but that seems to be coming much faster than most people anticipated. I am calling it now – I believe what you saw last week was the tipping point for the commoditization of web scale IaaS.  The rationale for my thinking is outlined below, but the TL;DR version is this: the IaaS market hit an inflection point last week and is forever changed.

Here’s why:

First – why do I think we have started “the next phase” of this market development?

  • Reason #1 – We now actually have a commodity.  With the movement of GCE to general availability and continuing moves by Joyent, HP Cloud, and now Microsoft to beat the drum for web scale IaaS services, we finally have a category that can meet the true definition of a commodity – a good or service with no qualitative differentiation. We now have a critical mass of major, brand-name recognizable, stable (er, well mostly), and global firms that are all touting infrastructure services that look, smell, taste, and feel about the same.

  • Reason #2 – With continuing advancements in APIs, and the use of deployment and management tools like, Chef, Puppet, Rightscale, ServiceMesh (and about a million others), a firm or a developer can use one or more IaaS suppliers, in one or more regions, and actually not notice or care who the supplier is. That’s big.

  • Reason #3 – The flurry of recent announcements of new value added services provided by the big IaaS vendors has really shifted the argument about where the value lies from these large IaaS services. Now that virtually all of these companies are providing DNS, load balancing, database, and other services on top of the IaaS stack, the competitive value add has moved to ever better and more advanced services. The large IaaS providers will continue to innovate on the back end, but in the future will drive their external competitive differentiation on the value added services.  Using the underlying IaaS services to drive consistent margin and to act as a gateway drug for the more profitable and differentiated value added services – exactly as happens in virtually all commodity markets.

  • Reason #4 – For a long time Rackspace has doggedly chased Amazon as the #2 vendor.  With the entrance of Google, and the continuing growth of Microsoft and HP in this market, the market power dynamic has started to shift.  Though market share numbers are still strongly in Amazon’s favor, we finally have a viable race for a #2 that can exert market pressure on #1.  The proof?  The recent Google price cut.  With that move, Google was able to do something that no one else had yet accomplished – force a counter move by Amazon.  While Amazon has a long history of driving pricing down, to date they have done it “largely without any competitive pressure” to quote Andy Jassy at a recent AWS Summit. To me, this represents a significant market signal that Google is for real and Amazon is taking them much more seriously than other competitors.  Remember, Google doesn’t have to have as much market share as Amazon to impact the market, they just have to have enough to be a threat. Google, HP, and Microsoft collectively now appear to have that power and we will see market dynamics start to accelerate as a result.

Any of these factors taken on their own are really just a signal of a maturing market.  Taken together, in such short order, signals something much more important – that the emergence of the IaaS commodity is near.

Look – commodity isn’t a bad word. Virtually all of the products and services that make our economy run can be classed a commodity.  Gasoline, electricity, fruit, meat, and many, many others.  These types of commodities make it very simple for buyers to determine how much they need, how much it costs, and lowers (dramatically) the friction involved in purchasing the good or service.

To support this, for each type of commodity a framework (or market) is developed with standard units of measure, standardized contract terms and the like.  Why?  Well its simple – it makes purchasing these services and goods simple and cheap.  Retail markets for these goods still exist, and there are many specialist services that surround and support them to help users consume them, and to enable users with specific requirements or tastes to purchase particular services, and these retail services never go away.

Why is this good?  Pricing.  By creating standardized services with multiple providers all able to deliver these services, the cost and risk of acquiring services for users drops dramatically, resulting in a massive increase in the adoption of these services.

For suppliers, the cost of service delivery and business acquisition will drop dramatically, as scale continues to grow.  Suppliers will create enormous economies of scale, drive internal costs as low as possible, and innovate on value add services to drive increased profit margins (sound familiar?).  All of this is the end result of the maturation process for the market, and only happens with those services that are critical to our economy, and I would suggest that cloud clearly meets these requirements.

So what happens next?  Clearly we aren’t there yet, but I would argue that we are well on our way, and that the progression is both valuable to the market as a whole, as well as inevitable.  That being said, there are some things we (the market) need to do to get there.  I believe that the race to provide abstraction and management will continue, and is critical to reducing the technical risk and friction involved in cloud adoption. The continuing work on fungibility, while helpful, won’t decide the future of this market.  Finally, the biggest thing we will need to develop is the actual market around IaaS services.  To date, we have seen the emergence of many “brokers”, “retail marketplaces”, and the like.  I will refer to all of these as “disorganized markets” in that they are ad-hoc, not standards based, and operate without a regulatory or industry standards. We will see a huge shift in how this works over the short term, with the emergence of organized markets marking the next step in the evolution of the IaaS market.  How will this happen?  Stay tuned for the next episode…

 

ITFMA World of IT Conference

6fusion will be presenting at the upcoming IT Financial Management Association (ITFMA) World of Information Technology conference April 14-18, 2014. CEO and Co-Founder John Cowan will be presenting a session on Exchange Traded Compute: What it Means for Your Organization. Both the Chicago Mercantile Exchange and the Deutsche Borse have recently announced plans to build exchanges for infrastructure-as-a-service (IaaS). This is representative of far more that just a next phase of the cloud; it’s about a new application of financial and economic principles and methodologies to IT. Think about being able to hedge risk on IT infrastructure in the same way airlines hedge jet fuel for competitive advantage. This session will be a thought-provoking, interactive discussion on the current status of the CME’s IaaS exchange, the technical foundations involved, and the business implications that will impact your organization.

The ITFMA conference is one of the premiere gatherings of IT financial management leaders in the world. You can get more information on the conference here: http://www.itfma.com/events/event_details.asp?id=387512

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