Weblogic Authors: Yeshim Deniz, Elizabeth White, Michael Meiner, Michael Bushong, Avi Rosenthal


“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.

IoT & Smart Cities Stories
Digital Transformation and Disruption, Amazon Style - What You Can Learn. Chris Kocher is a co-founder of Grey Heron, a management and strategic marketing consulting firm. He has 25+ years in both strategic and hands-on operating experience helping executives and investors build revenues and shareholder value. He has consulted with over 130 companies on innovating with new business models, product strategies and monetization. Chris has held management positions at HP and Symantec in addition to ...
DXWorldEXPO LLC announced today that Big Data Federation to Exhibit at the 22nd International CloudEXPO, colocated with DevOpsSUMMIT and DXWorldEXPO, November 12-13, 2018 in New York City. Big Data Federation, Inc. develops and applies artificial intelligence to predict financial and economic events that matter. The company uncovers patterns and precise drivers of performance and outcomes with the aid of machine-learning algorithms, big data, and fundamental analysis. Their products are deployed...
Dynatrace is an application performance management software company with products for the information technology departments and digital business owners of medium and large businesses. Building the Future of Monitoring with Artificial Intelligence. Today we can collect lots and lots of performance data. We build beautiful dashboards and even have fancy query languages to access and transform the data. Still performance data is a secret language only a couple of people understand. The more busine...
The challenges of aggregating data from consumer-oriented devices, such as wearable technologies and smart thermostats, are fairly well-understood. However, there are a new set of challenges for IoT devices that generate megabytes or gigabytes of data per second. Certainly, the infrastructure will have to change, as those volumes of data will likely overwhelm the available bandwidth for aggregating the data into a central repository. Ochandarena discusses a whole new way to think about your next...
CloudEXPO | DevOpsSUMMIT | DXWorldEXPO are the world's most influential, independent events where Cloud Computing was coined and where technology buyers and vendors meet to experience and discuss the big picture of Digital Transformation and all of the strategies, tactics, and tools they need to realize their goals. Sponsors of DXWorldEXPO | CloudEXPO benefit from unmatched branding, profile building and lead generation opportunities.
All in Mobile is a place where we continually maximize their impact by fostering understanding, empathy, insights, creativity and joy. They believe that a truly useful and desirable mobile app doesn't need the brightest idea or the most advanced technology. A great product begins with understanding people. It's easy to think that customers will love your app, but can you justify it? They make sure your final app is something that users truly want and need. The only way to do this is by ...
Cell networks have the advantage of long-range communications, reaching an estimated 90% of the world. But cell networks such as 2G, 3G and LTE consume lots of power and were designed for connecting people. They are not optimized for low- or battery-powered devices or for IoT applications with infrequently transmitted data. Cell IoT modules that support narrow-band IoT and 4G cell networks will enable cell connectivity, device management, and app enablement for low-power wide-area network IoT. B...
The hierarchical architecture that distributes "compute" within the network specially at the edge can enable new services by harnessing emerging technologies. But Edge-Compute comes at increased cost that needs to be managed and potentially augmented by creative architecture solutions as there will always a catching-up with the capacity demands. Processing power in smartphones has enhanced YoY and there is increasingly spare compute capacity that can be potentially pooled. Uber has successfully ...
SYS-CON Events announced today that CrowdReviews.com has been named “Media Sponsor” of SYS-CON's 22nd International Cloud Expo, which will take place on June 5–7, 2018, at the Javits Center in New York City, NY. CrowdReviews.com is a transparent online platform for determining which products and services are the best based on the opinion of the crowd. The crowd consists of Internet users that have experienced products and services first-hand and have an interest in letting other potential buye...
When talking IoT we often focus on the devices, the sensors, the hardware itself. The new smart appliances, the new smart or self-driving cars (which are amalgamations of many ‘things'). When we are looking at the world of IoT, we should take a step back, look at the big picture. What value are these devices providing. IoT is not about the devices, its about the data consumed and generated. The devices are tools, mechanisms, conduits. This paper discusses the considerations when dealing with the...