Oracle Goes Grid

Utility Computing Payoff A Decade Away

If the hype around utility computing seems excessive even by IT standards, consider that Forrester Research Inc. analyst Frank Gillet called it "the third major computing revolution." And, according to a BusinessWeek report, IBM plans on spending $800 million this year on marketing its utility computing technology called "e-business on demand."

Utility computing, or the idea that companies can buy computing power on a monthly basis only paying for the power they use, has many names. It's known as "adaptive enterprise" at Hewlett Packard and "dynamic" or "organic" IT throughout the industry. But a recent report from The Yankee Group gets past the labels and tries to understand the true state of utility computing and what the future holds. The report, "Utility Computing in Next-Gen IT Architectures," concludes that while utility computing is promising, it's still in its infancy and companies won't be able to recognize the full benefits for more than a decade. According to the report, "utility computing does not make sense if it only addresses the challenges of the existing IT market."

"CIOs need to understand this change in cost structure to drive business benefits out of a changing set of sourcing options. Utility computing has the opportunity to address many of the key challenges IT managers face and lower the cost of individual computing transactions. To reach that goal, vendors must make a massive investment in enabling technology over a 10-year period," said Andy Efstathiou, Yankee Group Technology Management Strategies program manager and coauthor of the report.

The study was meant to be an evaluation of the whole market, and to accomplish this, The Yankee Group spoke with users and looked at different vendors, comparing their technologies to see how they stacked up. "On the systems level, IBM came up number one with Hewlett Packard right behind [it]. On a software level we found Veritas Software Corp. ahead with Computer Associates International Inc. coming in second," said Jamie Gruener, Yankee Group senior analyst and coauthor of the report. Gruener also believes that the first segments that will begin to use the technology are Fortune 500 companies, especially financial services companies and technologically advanced manufacturing companies.

In fact, in September 2003, John Hancock Financial Services Inc. selected IBM's e-business on demand technology to adjust to unplanned surges in customer demand. According to an IBM press release, "John Hancock is moving from a fixed cost infrastructure to a model where it pays only for the systems and technology it uses." John Hancock's CIO and executive vice president Bob Walters believes the six-year, $254 million agreement will help the company deal with "huge swings in volume and heavy reliance on technology" that characterize today's financial markets.

However, because the technology is so new, there are still major problems that need to be worked out. Interoperability and pricing are the two biggest hurdles. According to Gruener, in order for the technology to be really successful, things such as policy management need to be consistent across vendors. Also in order for the technology to really take off, companies need to have a greater understanding of how it will be priced.

"Right now pricing is a real problem. Companies need to believe that utility computing is inexpensive enough that it will save them money," Gruener said. "Also, the pricing structure needs to be worked out. Companies will want to be able to buy [computing power] by the glass and not necessarily the whole tanker truck."

Despite its challenges, Gruener believes that utility computing will benefit the industry in the future and advises how best to use the technology with less risk. "Partial implementation can yield handsome benefits and prepare an enterprise for future informed adoption of this model."

— Jeanette Perez

Jeanette Perez, former assistant editor of Intelligent Enterprise, left to complete a master's degree from Columbia University. She is now a freelance writer.

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