Monday, December 14, 2009

Mystic Meg Epic Fail

I hate predictions.

Don't get me wrong, I don't mind the "oh, it's already happening but I'll pretend it's new" type of predictions because you're guaranteed to look good.

I can happily quote that "the cloud market will grow", "standards, portability and interoperability will become increasingly important" and "the platform layer will be a major market" will full knowledge that these are safe bets.

Problem is, that these aren't really predictions and I've got a big mouth. Hence, I tend to make predictions which tend to explode rather nastily.

For example, back in 2002 I was predicting a financial meltdown in 2005 due to the massive growth in debt. Did it happen? Nope. I was out by a couple of years but that's the point of prediction, the when is vastly more important than the what.

That said, I can happily get the what wrong as well. Hence back in January 2009 when the FTSE was at 4,608, growing rapidly and many were talking about a rebound - I had to go and predict that it would drop to 3,500 within the year. Did it? Nope, it got close at 3,512 but never quite made it (back to the drawing board with my economic model again).

However, I'd be safe talking about cloud wouldn't I? Turns out that I get that wrong too. Hence back in 2007, I was predicting that "six years from now, you'll be seeing job adverts for computer resource brokers".

Earlier this year, I realised that prediction was going to be spectacularly wrong and happen much sooner. Eventually, I even admitted as much.

Adding salt to a fresh wound, is Amazon's announcement of a fully fledged spot market.

I suspect, it won't take long for someone to offer spread betting on the Amazon spot price or for some form of OTC derivative to mitigate against fluctuation in price and cover the risk of paying the full on demand price (because of failure to buy). Of course, this would work a lot better if users could resell reserved instances on the spot market providing the basis for a commodity exchange.

Opening up the spot market to the resell of instances between consumers will enable market pricing, making reserved instances more attractive. This will provide Amazon itself with future capacity planning information.

An alternative would be for users to resell reserved instances back to Amazon for sale on the spot market. However, this depends upon upon a quartet of objective, offers, availability and pricing.

For example, if revenue is the main objective, then there are scenarios (especially in the early days) where an increased revenue will be generated by selling a smaller number of instances at a higher spot price, leaving unfulfilled demand and capacity. It should be remembered that this is not market pricing but Amazon pricing.

Under a revenue objective, the conditions where it will be viable for Amazon to increase capacity on the spot market by the re-purchase of reserved instances (presuming Amazon isn't playing a double booking game with reserved instances, which are in essence a forward contract) will be limited.

It all depends upon this quartet and the only thing that I'm sure of, is that my prediction is out by a few years.

Ouch ... damn, how I hate predictions.

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