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Time to Sign Up for Utility Computing?

You may also know it as on-demand computing, adaptive computing, pay-as-you-go computing, or software-as-a-service. Finance executives are intrigued, but wary.

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.

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.

Some executives are intrigued, but wary. “I love the concept, but it’s going to take some time to evolve,” says Joe Gottron, CIO at Huntington National Bank, a Columbus, Ohio-based regional bank with more than $30 billion in assets. Gottron likes the idea of slashing capital expenditures and operating costs, and he enthuses over the prospect of handing over the time-consuming task of negotiating individual software-licensing agreements.

But he is concerned about the risk of signing a utility agreement that does not define charges for every service the bank may need in the future. “The biggest challenge is being all-knowing with the original agreement. When you hand control of your infrastructure to another company, you can really get burned,” he says.

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