Sunday, March 14, 2010

Cloud rant

For the last two posts, I've had a pop at the term "cloud", I'd like to now explain my reasoning in more detail.

First, as always, some background information.

What we know
The transition from a product to a services world in I.T. is very real. It's happening now because of the confluence of concept, suitability, technology and a change it business attitude. Overall it's driven by the process of commoditisation and it is the very ubiquity of specific I.T. activities that makes them potentially suitable for volume operations. I say potentially because volume operations is only viable for activities which are both well defined and ubiquitous.

Fortunately ubiquity has a relationship to certainty (or in other words how well understood, defined and therefore certain an activity is) which is why these activities are suitable for provision on the basis of volume operations through large computer utilities.

Lifecycle
For many years I've talked about lifecycle and the evolution of business activities. Any activity goes through various stages from its first innovation (as per the use of computer resources in the Z3 in 1941) to custom built examples to products which describe the activity. Usually, the activity ends up becoming a ubiquitous and well defined commodity (assuming there are no natural limits or constraints).

During this lifecycle, as the activity becomes more defined in the product stage, service models can often arise (for example the rental model of the managed hosting industry for computing infrastructure or the early subscription like models of electricity provision). As the activity becomes more of a commodity the existence of these service models tends to lead to the rise of utility services (as with electricity provision).

An essential requirement for the growth of the utility model (and the type of volume operations necessary to support it) is that consumers view that what's provided is a commodity. It's little more than a cost of doing business and a standardised version is good enough.

The latter is why a change of attitude is critical in development of the utility service model. If, for example, consumers still view the activity as creating some form of competitive advantage (whether true or not), they are unlikely to adopt a utility model of standard services.

The change in attitude
Over the last decade the attitude of business towards certain I.T. activities has changed dramatically. Recently, a group of 60 odd CIOs & Architects highlighted that many of the I.T. related activities they undertook were commonplace and well defined, particularly across their industry & geography.

Now that doesn't mean they did things the same way, quite the reverse.

Taking just one activity, ERP, then all of these companies agreed that whilst they gain no competitive advantage in ERP, it was an essential cost of doing business. They also agreed that they all had their own customised processes for ERP which they invested heavily in. The shock was their agreement that these different processes provided no differential benefit. It was estimated that for this one activity alone, across this small group of companies, then $600 million p.a. was spent maintaining differences which provided no value.

By reducing customisation through the provision of ERP as standardised services, then each company would significantly benefit in terms of cost savings. Standardisation of processes and removing costs associated with customisation is seen as one of the major benefits of the transition from an "as a Product" to an "as a Service" world.

Let's be clear here, "as a Service" was considered shorthand for "provision of a commodity activity through standardised services via a competitive marketplace of computer utilities". These companies were not looking for an outsourcing arrangement for a highly customised service for their needs, they were looking for a commodity to be treated as a commodity.

The concepts of computer utilities offering elastic and infinite supply on demand, provision of activities through services and commoditisation are all tightly coupled.

The benefits & risks of "cloud"
The benefits of this shift towards service provision via large computer utilities has been discussed extensively for the last 40 years :-

  • economies of scale (volume operations)
  • focus on core activities (outsourcing to a service provider)
  • pay per use (utility charging)
  • increased consumer innovation ( componentisation)

However, one critical benefit that gets missed is standardisation itself.

The risks associated with this change (ignoring the disruptive effect on the product industry) can be classified into transitional risks (related to the change in business relationship) and generic outsourcing risks. I've categorised these below for completeness.

Transitional Risks

  • Confusion over the new models.
  • Trust in the new providers.
  • Transparency of relationships.
  • Governance of these new models (including auditing, security & management).
  • Security of supply

Outsourcing Risks
  • Suitability of the activity for service provision.
  • Vendor lock-in (& exit costs).
  • The availability of second sourcing options.
  • Pricing competition.
  • Loss of strategic control.
Transitional risks can be mitigated through standard supply chain management techniques. For example with electricity we often combine both public and private sources of provision (a hybrid option). However outsourcing risks require the formation of competitive marketplaces in order to mitigate. Whilst the latter is a genuine concern for companies, even without these marketplaces the benefits of this change are still attractive.

The problem with the term "Cloud"
This change in I.T. is all about standardised service provision of commodity activities through a competitive marketplace of computer utilities. The notion of utility conjures up easily understood and familiar models.

Few would have a problem in understanding how access to a standardised form of electricity through a marketplace has allowed for a huge range of new innovations built upon consuming electricity. Few would have a problem in understanding how the providers themselves have sought new innovative ways of generating electricity. Few would ever consider electricity itself as a form of innovation, to most it comes from a plug and it is critical that it is standardised.

This is a really important point because our companies comprise of value chains that are full of components which are evolving to become commodity and utility like services. This commoditisation enables new higher order systems to be created and new businesses to form e.g. electricity enabled radio, television but also destroys old business. The key here is that whilst commoditisation enables innovation it also destroys the past. The two are different,

The problem with the term "cloud" beyond being fuzzy, is it often used to describe this change in I.T. as something new and innovative. The term helps disguise a fundamental shift towards a world where the bits don't matter and it's all about services. The term allows for all manner of things to be called cloud, many of which have little to do with the standardisation of an activity and its provision through utility services.

You could easily argue the term is misleading as it encourages customisation and distracts the consumer from what should be their focus - standardised services through a competitive marketplace of computer utilities.

Alas, as I said we ALL have to use the term today because of its momentum.

At Ubuntu we focus on commodity provision of activities (common workloads), providing our users with the technology to build a private computer utility (nee "Cloud", as part of a hybrid strategy), the adoption of the defacto standard of EC2 & S3 and we also provide all the technology as open source to encourage the formation of competitive markets.

We use the term "cloud" because it's what customers, analysts and others expect to hear. This of course doesn't stop us from explaining what is really happening and busting the "cloud" myths that exist.
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