“Infrastructure as a Service” – A Perfect Commodity.....

...Or Not Yet....

Commodities are usually produced and/or sold by different companies with no perceived difference in quality and product / service offering. This is true for any commodity - wheat, oil or electricity - at least in an ideal world.

Commodities are also full or partially fungible. Fungibility means all instances are considered equal. Okay.

Now let's take IaaS which provides raw compute power. Compute power is a function of multiple factors - data center, processor configuration, CPU speed, compiler, kernel, file system, os, RAM, Disk, etc. On top of that providers create multiple configuration of these. The permutations and combinations are multiple and so we have multiple variations.

As an Example - Amazon uses what it calls "EC2 Compute Units" or ECUs, as a measure of virtual CPU power. Amazon ECU is also referred to as a 2006 Xeon running at 1.7 GHz. Amazon treats the two as equivalent. Microsoft uses a different standard CPU as the measure of its virtual CPUs--designating the Intel Xeon 1.6 GHz CPU as its standard. This is a slightly newer chip with a stepped up clock speed, CPU specs differ.

Purists argue that precisely because of the above reason, IaaS cannot be a commodity as the instances are not equal..... Fair assumption. But now Let's go 1 step further...

Consider a perfect Soft Commodity - Wheat which is graded on multiple parameters - Foreign matter(organic and inorganic), country of origin, damaged grains, grain size, Immature/Shriveled grain, moisture content, Poisonous/ heavy metals, microbial load, sweet, hardness, cleanliness, smell etc. Each attribute has to be measured and graded.

Now Consider Oil - which is graded on benchmark Crude or marker crude index. There are typically three primary benchmarks - WTI, Brent Blend, and Dubai. Other well-known blends include the Opec basket, Tapis Crude (Singapore), Bonny Light (Nigeria) and Isthmus (Mexico). As a matter of fact, there are close to 200 major crude streams or blends.

So, the argument around fungibility and uniformity across instances doesn't hold good.

Takeaway #1 - The whole point around fungibility, uniform quality around IaaS is a fallacy. It is no different than established commodities as far as uniformity and fungibility across instances are considered. Only missing link is a grading system of calculating the compute unit.

  • Fallacy - There is considerable ‘Real' Value-add / product feature differentiation in IaaS market.

Commoditization occurs as goods or services market lose differentiation. IaaS in current market have no real product / service differentiation. What differs is the spread, price points, and product / service packaging.

The product differentiation delusion created by most companies is more of a marketing strategy.

We all know that there are differences in underlying technology and hardware specs these are often hidden....... and this underlying fact is the recipe for commoditization. The race to communization is synonymous with the "Me Too strategy with a different packaging / price point but no transparency." This is done to so that users can not differentiate. What a paradox - Commoditization due to differentiation (albeit false).

Fact is that aall IaaS services perform similar functions, but it's hard to compare the value of one cloud infrastructure service with another? I would have argued otherwise if service providers would actually provide detailed hardware specs / performance of their service on a common base where they can be compared apples -to- apples and lemons -to- lemons. This would create ‘real' differentiation with no marketing gimmick.

A Benchmark IaaS Grade/ Index is what is needed and each service be rated on well-defined hard parameters.... (like benchmark Oil Index, or Wheat / Corn grade).

Takeaway #2 - Marketing and packaging differentiation cannot replace ‘real' product differentaition. This kind of product differentiation is a transient phenomenon until the market gets a proper compute unit grading system. That is when IaaS will be easy to compare. And at that point - commodity players will state that it is a commodity service and niche players can charge a premium for higher compute grade - which is measurable.

  • Fact: Storage, perishable nature and Demand / supply driven attributes of IaaS makes it a commodity candidate.

Electricity under normal operating conditions cannot be stored, has to be rationed or have customers queue for it and its demand and supply can vary continuously. It has to be consumed as soon as it is created.

IaaS is a perfect match on these commodity attributes. It cannot be stored but can be rationed, metered and billed, consumed and very much dependent on demand and supply factors.


Takeaway #3: Attributes and nature of IaaS match that of a true commodity candidate.

  • Fact - Pricing Trends

When there is little or no real difference in products / services, consumers shop on price. Producers of commodities are driven to compete on low price and high volume. This is the trend in IaaS space and price wares on. Wait for hard data in my next article.
The product life cycle is at a point where significant customer education is now not required and cloud is generally accepted and adopted. The market has matured enough to have attracted multiple competitors, and the market is expanding. Prices are declining to gain market share as there is no value play.

Takeaway #4 - IaaS Price trends are perfect indicators for IaaS becoming a commodity.

  • Fact: Commodities are used in production of other goods and services.... Value play is up in chain

Commodities are most often used as inputs in the production of other goods or services. The shades and grades of a given commodity may differ slightly, but it is essentially uniform across producers - in terms of basic purpose and use. Point is value play is up in the value chain.
‘IaaS' is the ‘crude oil' that is used to create ‘Software / Platforms' like ‘Gasoline and Kerosene'.

This is what Larry Ellison - who built the kingdom of oracle on high-margin products, said - "We intend to compete aggressively in ... the commodity infrastructure as a service marketplace. We are going to be cost competitive and price competitive at the infrastructure level while being highly differentiated at both the platform level and the application level".

Takeaway #5 - IaaS is a mere enabler to create other services and from that perspective - a perfect commodity candidate. The real value play is in Applications and Platforms - up in value chain - where there is unlimited ‘real' differentiation / customization based on user needs and requirements.

  • Fact - Evolution of IaaS Trading Exchanges

Commodities are usually sold on exchanges that standardize the quantity and minimum quality of the commodity being traded. We have already seen multiple attempts being made on IaaS on an exchange trading path.

Chicago Mercantile Exchange (CME), a global derivatives marketplace, recently to develop and market an IaaS spot exchange that will list financial products based upon propriety workload definition.

And not to mention Amazon's EC2 spot pricing.

Comments Welcome

Takeaway #6 - IaaS Commoditization has already begin and accepted. Commoditization in the form of exchange trading platforms are starting to sprout. The IaaS market spectrum is going to shrink. Future of IaaS will be all about low cost, low margin, high volume and a high efficiency game unless some player can clearly differentiate (not ‘Market') and set itself apart to be able to charge a premium.


More Stories By Sunil Pathak

Sunil has close to 16 years experience in Information Technology providing leadership, management, planning, system development and engineering, training, people development, methodologies, and process support. He has worked in the area of internet based technology solutions, ecommerce applications, product development, product maintenance, e-business platforms, portals, collaboration, content management, and business intelligence.

He currently works for Colt Technologies Services, Bangalore, India as Head of Systems Development and Support. Sunil holds an Executive MBA (IIM Calcutta), Masters in Technology (IIT Kanpur) and a Bachelor of Engineering in Electrical Engineering. He also holds diploma in entrepreneurship from EDI Ahmedabad. He can be reached at :
Linkedin - http://in.linkedin.com/pub/sunil-pathak/4/501/a9b
Twitter - @sunil__pathak

Disclaimer:The opinion expressed here are my own and not necessarily those of my employer.

Latest Stories
DevOps theory promotes a culture of continuous improvement built on collaboration, empowerment, systems thinking, and feedback loops. But how do you collaborate effectively across the traditional silos? How can you make decisions without system-wide visibility? How can you see the whole system when it is spread across teams and locations? How do you close feedback loops across teams and activities delivering complex multi-tier, cloud, container, serverless, and/or API-based services?
SYS-CON Media announced today that @WebRTCSummit Blog, the largest WebRTC resource in the world, has been launched. @WebRTCSummit Blog offers top articles, news stories, and blog posts from the world's well-known experts and guarantees better exposure for its authors than any other publication. @WebRTCSummit Blog can be bookmarked ▸ Here @WebRTCSummit conference site can be bookmarked ▸ Here
SYS-CON Events announced today that Streamlyzer will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Streamlyzer is a powerful analytics for video streaming service that enables video streaming providers to monitor and analyze QoE (Quality-of-Experience) from end-user devices in real time.
You have great SaaS business app ideas. You want to turn your idea quickly into a functional and engaging proof of concept. You need to be able to modify it to meet customers' needs, and you need to deliver a complete and secure SaaS application. How could you achieve all the above and yet avoid unforeseen IT requirements that add unnecessary cost and complexity? You also want your app to be responsive in any device at any time. In his session at 19th Cloud Expo, Mark Allen, General Manager of...
One of biggest questions about Big Data is “How do we harness all that information for business use quickly and effectively?” Geographic Information Systems (GIS) or spatial technology is about more than making maps, but adding critical context and meaning to data of all types, coming from all different channels – even sensors. In his session at @ThingsExpo, William (Bill) Meehan, director of utility solutions for Esri, will take a closer look at the current state of spatial technology and ar...
SYS-CON Events announced today that SoftNet Solutions will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. SoftNet Solutions specializes in Enterprise Solutions for Hadoop and Big Data. It offers customers the most open, robust, and value-conscious portfolio of solutions, services, and tools for the shortest route to success with Big Data. The unique differentiator is the ability to architect and ...
The IoT industry is now at a crossroads, between the fast-paced innovation of technologies and the pending mass adoption by global enterprises. The complexity of combining rapidly evolving technologies and the need to establish practices for market acceleration pose a strong challenge to global enterprises as well as IoT vendors. In his session at @ThingsExpo, Clark Smith, senior product manager for Numerex, will discuss how Numerex, as an experienced, established IoT provider, has embraced a ...
Without lifecycle traceability and visibility across the tool chain, stakeholders from Planning-to-Ops have limited insight and answers to who, what, when, why and how across the DevOps lifecycle. This impacts the ability to deliver high quality software at the needed velocity to drive positive business outcomes. In his session at @DevOpsSummit 19th Cloud Expo, Eric Robertson, General Manager at CollabNet, will show how customers are able to achieve a level of transparency that enables everyon...
Today every business relies on software to drive the innovation necessary for a competitive edge in the Application Economy. This is why collaboration between development and operations, or DevOps, has become IT’s number one priority. Whether you are in Dev or Ops, understanding how to implement a DevOps strategy can deliver faster development cycles, improved software quality, reduced deployment times and overall better experiences for your customers.
Cloud based infrastructure deployment is becoming more and more appealing to customers, from Fortune 500 companies to SMEs due to its pay-as-you-go model. Enterprise storage vendors are able to reach out to these customers by integrating in cloud based deployments; this needs adaptability and interoperability of the products confirming to cloud standards such as OpenStack, CloudStack, or Azure. As compared to off the shelf commodity storage, enterprise storages by its reliability, high-availabil...
Donna Yasay, President of HomeGrid Forum, today discussed with a panel of technology peers how certification programs are at the forefront of interoperability, and the answer for vendors looking to keep up with today's growing industry for smart home innovation. "To ensure multi-vendor interoperability, accredited industry certification programs should be used for every product to provide credibility and quality assurance for retail and carrier based customers looking to add ever increasing num...
“Media Sponsor” of SYS-CON's 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. CloudBerry Backup is a leading cross-platform cloud backup and disaster recovery solution integrated with major public cloud services, such as Amazon Web Services, Microsoft Azure and Google Cloud Platform.
In the next forty months – just over three years – businesses will undergo extraordinary changes. The exponential growth of digitization and machine learning will see a step function change in how businesses create value, satisfy customers, and outperform their competition. In the next forty months companies will take the actions that will see them get to the next level of the game called Capitalism. Or they won’t – game over. The winners of today and tomorrow think differently, follow different...
@DevOpsSummit has been named the ‘Top DevOps Influencer' by iTrend. iTrend processes millions of conversations, tweets, interactions, news articles, press releases, blog posts - and extract meaning form them and analyzes mobile and desktop software platforms used to communicate, various metadata (such as geo location), and automation tools. In overall placement, @DevOpsSummit ranked as the number one ‘DevOps Influencer' followed by @CloudExpo at third, and @MicroservicesE at 24th.
SYS-CON Events announced today that Super Micro Computer, Inc., a global leader in Embedded and IoT solutions, will exhibit at SYS-CON's 20th International Cloud Expo®, which will take place on June 7-9, 2017, at the Javits Center in New York City, NY. Supermicro (NASDAQ: SMCI), the leading innovator in high-performance, high-efficiency server technology, is a premier provider of advanced server Building Block Solutions® for Data Center, Cloud Computing, Enterprise IT, Hadoop/Big Data, HPC and ...