Question: There has been lots of press about the cloud can deliver IT services using a utility pay as you go cost model. Is the utility model a reasonable approach and what will it look like in the future?
Andy Oram recently proposed in, Reaching the pinnacle: truly open web services and clouds, that Cloud services can be and should be free based on Open Source software. My question in response, can the cloud be really “free”, or is free just going to be as elusive as the free GMail, Google and Facebook services that we all enjoy. As we well know, none of these services are really free; we are just paying for them by giving away valuable information about our habits to people who want to sell us yet more stuff — Farmville is the perfect example of this phenomenon. As long as people accept the broadcast TV model with ads in exchange for “free” access, then the balance is maintained. However, the broadcast TV industry found to its chagrin that a good percentage of consumers are perfectly willing to pay for similar services without the advertisements, much to the delight of Comcast and HBO. Certainly at the enterprise level, companies have always been willing to pay a premium for IT services, without the ads so to speak.
The final form that cloud services will take and how they will be paid for is rapidly evolving. Until now computing and IT systems were too complex and fragile to lend themselves to the cloud model. However as costs have come down and efficiency has gone up, the model is starting to make much economic sense. Now we are left to figure out a good payment model. Utilities are never going to be free, but the methods of payment do vary. There are a number of utility payment models that can be used, the municipal services model, like water, fire and police, the telecommunications model, and the broadcast TV model.
The broadcast TV model is already well established in the consumer space. People seem to be more than willing to share their deepest private web-surfing habits in exchange for free mail and social media sharing. I do not see this as a viable model for the enterprise.
Another option is the water model — some municipalities were playing with this approach with the municipal WiFi mesh networks that were all the rage a few years ago. The reality was that for the most part except in small communities, they never got off the ground due to cost. This might or might not ever be a viable model for IT services.
The approach which seems to be the one that is currently favored is the Telecommunications approach. In my opinion for all the cloud hype, what is really going on are utility companies (telecommunications companies in particular) turning computing into a utility. This model works out to be advantages to everyone, the telecommunications giants and the major cloud vendors make their profits on a service that has reliable “rent roll” as it is called in the business, while the consumers pay for what they need without the brutal upfront capital expenditures required of building their own cloud.
Why is this advantageous to the companies? Because, as with any other utility, the behind the scenes infrastructure that is needed to run the services is quite complex and expensive, but at the same time the new cloud architectures lend themselves to be sold in elastic quantities so that customers can buy what they need to consume. Building the infrastructure to run a web server for a tiny personal site is expensive and does not make much economic sense at the individual level. All this sounds great, but you are giving over your IT infrastructure to, as Ernestine says, TPC (The Phone Company). More companies are willing to do it simply because it is vastly cheaper than the alternative and the bean counters like moving IT to the expense side of the balance sheet. Consumers like it because they can access services they never could before for relatively short money. The risk is that the services that Telecoms provide are generally good, but they are expensive and they are mostly deployed in areas where the companies will make the most profit, so rural and sparsely populated areas get poor coverage. This is the classic “last mile” problem. Government subsidized coverage for unprofitable areas might be the way to solve this dilemma. This was an approach that has been successful in the past for enabling access to telephone and electrical services to under-served populations.
In the end, IMHO, as long as we live in a society that values profit and big business over the good of society, I see the telecommunications model as being the most likely to survive. The question then becomes, how to we ensure that there is equal access to the cloud goodies for all of society and who pays for that access?
About the Author
Beth Cohen, Cloud Technology Partners, Inc. Moving companies’ IT services into the cloud the right way, the first time!