What's Keeping Utility IT From Lighting Up?

By CIOinsight  |  Posted 08-01-2004 Print Email
In a recently published report ("The IT Utility: The Future of the Data Center") by Westport, Connecticut-based research firm Saugatuck Technology, utility computing is highlighted as the predominant force that will drive change in the data center over th

In a recently published report ("The IT Utility: The Future of the Data Center") by Westport, Connecticut-based research firm Saugatuck Technology, utility computing is highlighted as the predominant force that will drive change in the data center over the next five years. What follows are edited remarks from a CIO Insight interview with three of the report's authors: Saugatuck CEO Bill McNee, Senior Strategy Consultant Jim Cassell and Senior Program Director Michael Isaac.

CIO INSIGHT: What is the "IT Utility, and how do you see it evolving?

Cassell: The basic concepts of the IT Utility—increasing the utilization of resources, being better able to deal with variability of demand for these resources, and better alignment of costs with the value attained from these resources—all deal with fundamental issues the IT industry has built up over the last two decades. As such, in many ways the IT Utility is about the availability, billing and payment for internal and external IT resources on an as-needed, where-needed basis.

For user firms, the drive toward the IT Utility will center on increasing data center virtualization. It will evolve through sequential phases that we call "early virtualization," "policy-based computing," and finally, the "IT Utility." For most user firms, the first phase will roll out from 2004 through 2007; the second phase will last from about 2007 through 2010; and true IT Utility implementation is expected to start around 2010.

Isaac: This evolution will require a combination of internal and external services, as third-party hosting and outsourcing move toward utility services as well. How fast the IT Utility will evolve will depend on a combination of business and technology factors. However, we believe that business inhibitors will outweigh any technology challenges.

Is resistance to the IT Utility expected to be greater with users or vendors?

McNee: On the user side, there will be political and/or cultural resistance emerging due to the nature of IT as a utility. An example will be resource sharing and the resulting perceived loss of control by business units or departments. But Saugatuck believes that the greater resistance will be on the vendor side. The shift to pay-per-use [PPU] and pay-as-you-go [PAYG] pricing and delivery models, including software being offered as a service, has software executives concerned.

Why is that?

McNee: Software-as-service is a drastic change in business model for ISVs that also impacts how users—and investors—view their financial health. Whereas ISV valuations have historically been based on the assumption of up-front customer payments, supplemented by annual payments for maintenance and other services, new valuation methods must look at revenue more as annuity streams. Deferred revenue becomes a more critical measure of financial health, directly impacted by measures such as renewal rates and customer satisfaction.

Is there a business model that seems to drive adoption more than others?

Isaac: Vendors will need business models that reflect actual usage of resources [that is, processor, storage and memory], with monthly reporting and billing. A big challenge for system vendors will be to capture and measure software usage, and report this to the software vendors so they can invoice the client.

How long until we have some real evidence that the IT Utility saves firms money, or helps them gain an edge?

Cassell: Prior to 2007, users will see significant savings, but primarily for highly variable infrastructure and application scenarios and in highly homogeneous environments. Over time, demand for an IT-Utility environment will increase rapidly, such that by 2008 the IT Utility will be the dominant new IT deployment model.



 

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