• Strategy
  • CFO IT

The Meter System

Utility computing aims to transform IT into a pay-as-you go service. That sounds far simpler than it is.

The computer industry has a certain genius for turning its own excesses and errors into new business opportunities. Computer code written with no regard for a new millennium? What an opportunity for Y2K remedial work. The Internet as a playground for hackers and identity thieves? Let us show you our security solutions.

Now, having sold so much hardware, software, middleware, vaporware, services, and sundry other line items to Corporate America — to the point where customers continue to have trouble digesting (not to mention paying for) it all — the industry has responded with a highly touted concept known variously as utility computing, on-demand computing, adaptive computing, pay-as-you-go computing, and software-as-a-service. While it’s not nearly as simple as it sounds, it certainly sounds good: customers find the idea of paying only for the computing resources they actually use irresistible. Before they can get to that metered model, however, they may have to incur some significant costs, primarily in shaping up their business processes. And the promise of lower overall IT costs seems to hinge on spending more money with key vendors, allowing them to enjoy larger slices of a shrinking pie.

That’s why some wonder if utility computing (to use the most generic-sounding option) amounts to what Forrester Research Inc. principal analyst William Martorelli calls “an account-control mechanism.” He sums up the keen vendor interest this way: “If you can sell customers on using your infrastructure, they won’t buy from your competitors.”

Spending more money with fewer vendors is an IT trend that predates utility computing, of course, and is in fact a tried-and-true cost-cutting strategy in virtually all expense categories. The utility-computing concept is appealing to many financial and IT executives, a number of whom have already taken the plunge. A recent study by Saugatuck Technology (in conjunction with our sister company CFO Research Services) found that nearly 20 percent of the more than 300 executives surveyed have already implemented some form of pay-as-you-go IT services. Reduction of capital and operating costs rank as the top lures, while the chief inhibitors are security, privacy, and vendor (over)dependency. Despite those qualms, Saugatuck concludes that utility computing will be mainstream by 2006.

Meter Leaders

Sensing that they have a winner, a substantial number of IT vendors have come out with utility-computing sales pitches, and many others are ready to respond if market acceptance warrants. IBM and Hewlett-Packard have been the most aggressive champions of the idea — or ideas, since the companies have different visions of what utility computing actually is — but the noise generated by smaller companies clearly indicates that if utility computing is ultimately about giving more business to fewer companies, the smaller firms don’t plan to disappear without a fight. And while it’s been quiet so far, Microsoft has made a number of moves that could help drive the utility trend.

IBM CEO Sam Palmisano has committed $10 billion over 10 years to develop and market “E-business on demand,” or, more casually, “on demand” services. HP claims it already has thousands of pay-as-you-go contracts signed, but emphasizes that the metered pricing model is but a stepping-stone to its grander vision of the “adaptive enterprise.” Sun Microsystems, EDS, and others all promise to bring savings, efficiencies, and greater business flexibility to corporate customers by allowing them to pay only for the computing capacity they actually use.

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