Utility Computing - The Majors

Virtualization. Data Center consolidation. IP connectivity. ITIL process standardization. Shared IT Services. Global Labor Pools. More opex, less capex. SLAs. All building blocks for a utility computing model.

Been helping clients look at the delivery model for relatively mature IT areas. Message to vendors - so long as you meet our security, privacy and compliance standards, we want as vanilla, standardized a service as possible. We want to leverage your compute grids. Sell us capacity by unit of consumption. Where we need on-site desk side services in major cities think in half day chunks to service a handful of tickets, not in dedicated weekly or monthly chunks. We want to leverage all your economies - in financing, procurement, operations, everything. In return, we want to fit as much as possible in to your standards.

Lots of vendors interested. Hardware heritage outsourcers. Telecom heritage outsourcers. Systems Integrators turned outsourcers. VARs turned outsourcers. Offshore firms. Specialist firms around messaging, hosting, asset management - many IT categories.

So, as I listen to vendor pitches, my mind starts wandering. Wonder how many times, some bright young analyst went in to Herb Kelleher at Southwest and said "you know what, if we introduced a first class cabin, we would make more money" and Herb patiently responding "well son, you sure about that with fewer seats, more attendants up front, meals?" Or some analyst at Wal-Mart saying let's use our massive efficiencies to go up market and compete against Neiman Marcus and Nordstroms, and Sam Walton just smiling at the proposal.

 And I am jarred back to some hugely impressive data in the vendor marketing pitches:

• We manage 2 petabytes of dynamic on-demand storage (that is 15 zeros  - lots of little zip drives)
• We have 25,000 Microsoft trained specialists
• We have an IP footprint in 150 countries
  
• We support more than 15,000 customer data centers
• We do over 3 million desktop/laptop installs a year
• We  respond to 25 million help desk calls a year -in over 20 languages

Then I read about even more impressive scale in this presentation by Greg Papadopoulos, CTO at Sun.

Wow - this is Wal-Mart type scale, I say. How can any CIO – even in the Fortune 25 - compete with this scale? Throw 25 terabytes or 100,000 IT help desk calls a month at them and many of these providers would not even break a sweat. The marginal cost of providing that incremental service should be very competitive - let's close the deal.

But then the young analyst (well ok, here it is the middle aged sales person) barges in and proposes the first class cabin – all kinds of “value added” services and customizations.  Dilutes the scale and economics and makes the decision to outsource much more complicated.

Customization is the antidote to commoditization, is still the thinking in the outsourcing world. But this is not commoditization. It is riding the curve of Moore's Law. Applied not just to hardware but to labor and connectivity. Southwest has never lost money in its existence while a number of more sophisticated airlines bleed. Wal-Mart dominates a brutally competitive retail sector.   

Realize many large customers want customization. But many are increasingly willing to accept standardized services. But vendors want to continue to sell these customers fancy generators when they are ready to plug into an efficient power source.

To the Sams and Herbs out there - the delivery capacity is in place, customers are appearing, just bring your business model along. For those who want to value-sell, realize that price leadership will be set by the Sams and Herbs - you better be within 15 to 20% of their benchmarks. Trillions of dollars at stake.

PS - see side note on the contrast - utility computing in the start up/SME world.