On Sunday, February 13th, Enomaly Founder, CTO & Cloud Dude, Reuven Cohen, posted a link via his twitter account to a Telecomasia.net article in which the author (Camille Mendler) instructed the intended audience to “Stop aping Amazon, start boasting” - a reference to the fact that, if you are one of the big Telcos, you should really be trying to find a differentiator other than price. Fair point. Interesting point. But not the point of this post
To some extent, I’m guessing Reuven’s gleaming benevolence stretched only as far as the mention of the truly excellent SpotCloud product that is his latest revolutionary offering, and rightly so, but more on that later.
What caught my eye was the following opening text of Camille’s short, but to-the-point blog post:
The awful truth: Telcos have just replaced one big problem with another. For the majority, generic,”dumb” cloud services dominate. What’s to differentiate them from each other, or indeed, from their non-telco competitors?
Take a guess. Once the cloud’s digital assets are interchangeable, the only real differentiator becomes price. And pure-play cloud providers like Amazon Web Services and SpotCloud are already trading virtual machine instances, fuelling a cloud commodity market.
Firstly (and it may just be semantics) but I am not sure that “trading virtual machine instances” is actually correct. I would say that “trading the available capacity to run virtual machine instances” is more accurate, but what is frankly quite brilliant in this whole equation is that the SpotCloud may just yet go down in history as the catalyst in a possible future chain of events that helped stabilize a market before it knew it was in trouble. A market which could eventually have suffered from such incredible levels “waste” that the price of the commodity was driven down so much that profitability became unachievable for many and sounded the death knell for many of its providers.
Switching gears for a moment. Let’s focus on that word – commodity – I hear it a lot, as I am sure do you:
“Servers are a commodity. Infrastructure is a commodity. IT is becoming a commodity.”
Hard to argue with in principle and technology direction, but if we look at how Wikipedia defines “commodity” :
A commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market. A commodity has full or partial fungibility; that is, the market treats it as equivalent or nearly so no matter who produces it.
It’s difficult for me to comprehend that “IT is a commodity”, so I have to think about something else. Something I use every day…like butter for instance ? Yes, butter. Not servers, not infrastructure, not IT, just butter.
Stay with me. Let me explain. Here’s a brief history lesson for those who may not remember, or may not have ever known this at all.
During a period of time in the 1970s, when the European Economic Community was the smaller forerunner and even less effective as is today as the European Union, agriculture was one of its main interests and was the sector it placed most interest in, undoubtedly with the most pronounced and controversial results. In fact the Common Agricultural Policy (CAP), initiated in 1962, gobbled up around 70% of the yearly budget.
Perhaps the best known and most epic fail of the adminstration was the agropolitical feature that became affectionately known, but disaffectionately remembered was the butter mountain. Yes, this was bureaucratic brilliance of biblical proportion.
For reference, we are talking about a lot of butter here. Dairy Farming operations in the Netherlands, UK, Germany, and other countries had been encouraged to produce subsidised products in such vast quantities that simply ended up with little or no demand. These huge subisidies had made butter lucrative commodity on paper but impossible to actually sell once produced. At the rate they were going from the early 1970s until the mid-1980s, they were running out of storage space (as in physical location) before the butter ran out. In 1975 there were about half a million tons of unwanted butter waiting to be sold off for next to nothing.
The dairy farmers continued to get paid. They continued to produce. They continued to receive subsidy.
Lesson over. Yet if we apply some of the history of the butter mountain to the present day and the present state of the landscape, the Telcos and cloud providers (if they are not easily labeled one and the same) may well be dealing in a certain level of commodity, but they do so with a high level of risk, both in non-differential services (the very premise of a commodity) and high levels of investment that may potentially never be returned upon.
Would supply (capacity) dwarf demand without the safety net of subsidy ? Would that lead to a buyer’s market so rich with the promise of lower and lower price points that it became a “no brainer” to move workloads ? Possibly, but caveat emptor…I believe that could eventually lead to a volatility that could hurt organizations as their providers are forced into operating losses, opening the doors to a bad crash, in more ways than one.
So, with the invention of SpotCloud (and what I am sure will be a of “me-too’s” as the value of such services is realized) we may just be at the start of a way for excess capacity to be efficiently and effectively dealt with, protecting the industry from a worrying instability, yet offering attractive price points and revenues for buyer and seller alike.
Cloud butter. Wouldn’t that be something to toast ?
(Cross-posted @ The Loose Couple's Blog)