VideoUtility computing can be applied in any number of ways. In its most extreme form, a service provider runs a customer's entire IT system through its own data centers, delivering services, applications, computing cycles, and storage on a metered basis. But customers can also implement utility models internally, using their own equipment and either managing it themselves or allowing the vendor to do so, paying based on usage versus outright ownership. Or they can apply a hybrid model in which they maintain some infrastructure and contract for externally managed add-on capacity and ancillary functions as needed.
This raises the logical question of how utility computing differs from outsourcing and leasing. As Leif Eriksen, founder and principal of Industry Insights, has noted, the key difference is in focus: utility computing begins by asking what companies need, whereas outsourcing and leasing begin by asking how current approaches to existing infrastructure can be done better. It's a subtle distinction, at least as companies take early steps, but over time the emphasis on functionality should allow utility-service providers to build new architectures and infrastructures from the ground up that deliver savings well beyond what outsourcing currently provides.
In this model, IT really is a service, with companies paying only for what all the gear actually does. The oft-cited example of salesforce.com comes to mind: the company sells CRM functionality via the Web and sweats all the infrastructure details itself. Customers either like what the service enables them to do or they don't, and subscribe or unsubscribe accordingly.
But all the IT infrastructure that companies have acquired can't be made to vanish overnight, and this is where the utility concept may gain traction. In fact, since the biggest players in utility computing have built their empires on infrastructure, one may see far more action on this front than with software applications. Whether managed internally or acquired through a service provider, utility computing depends heavily on the ability to leverage shared resources. Individual servers and storage devices, for example, should be allocated to a variety of applications and clients, with capacity that is adjustable as needed. Known as virtualization, this is a capability long found on mainframe computers, which have been too expensive not to maximize. The more-recent extension of this capability to Unix and Linux servers has helped propel the utility concept.
For companies that have huge pockets of underused computing capacity, this approach promises greater efficiency. If, for example, a fast-growing business unit needs more hardware capacity, it does not need to go out and buy a new server: it can simply access underutilized assets elsewhere in the enterprise. Or a central IT function can load up on processing power, knowing that it will pay only for what's used — and be able to track business-unit usage accurately and bill back to those units accordingly.
If utility computing is ultimately about functionality, it would seem that the vendor you pick means far less than what they deliver. But so far customers don't see it that way. A study last year by Summit Strategies Inc. found that customers are "much more willing to work with IBM on every stage of a utility computing project than they are with any other leading systems vendor, systems integrator or outsourcer in the industry. . . . Hewlett-Packard is the only other vendor that even comes close."
Why is IBM the early odds-on favorite? In a word, consulting. IBM claims it has 60,000 consultants available for on-demand engagements. The ability (and need) to leverage this massive and well-paid force helps explain why IBM is throwing its weight behind utility computing.
The CFO Connection
Much of that weight encompasses specific industry expertise, versus broad IT expertise, that IBM gained when it acquired the consulting arm of PricewaterhouseCoopers in 2002 for $3.5 billion. It is perhaps the central irony of the IBM-HP showdown over utility computing that HP was the first to bid for PwC, only to see IBM walk away with the prize at a discount price.
Utility computing emerged as a way to placate an increasingly restive customer base and keep that army of consultants busy. As Jim Corgel, general manager of IBM Global Services's E-business hosting services, tells the story, it was at a meeting in Manhattan in May 2001 that he first got the "inspiration" for on-demand computing. Along with IBM CFO John Joyce, Corgel was hosting the CFOs of 8 or 9 Fortune 40 customers. During the session, several CFOs groused about all the money they'd wasted on IT in the 1990s and detailed the difficulties of making needed changes to IT infrastructure as their business needs rapidly evolve. Corgel recalls asking the CFOs: What if we eliminated your up-front investment? How about if we reset the metrics on how you get billed? "And boy," he remembers, "did we get body-language changes."
IBM's still-evolving response to that mix of customer clamor and its own needs has been to develop many versions of on-demand computing. The company can manage server, storage, and networking equipment on a metered basis. Or it will manage traditional applications, typically in 1 of its 32 giant data centers, running the software on servers that are shared among a variety of customers. IBM is also developing new, specialized applications for vertical industries, created, like salesforce.com's CRM application, from the ground up, to be shared across a wide customer base.
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