April 20, 2012               Enomaly SpotCloud:Report Title – size and position text box to center   Trading Cloud Capacit...
Introduction1Is computing capacity a commodity that can be traded on an exchange like soybeans or pork bellies?If so, the ...
And yet, the basic tenets of cloud computing appear to map well to the commodity market. Theearliest cloud services, begin...
to sell “blind,” if, for example, they feel the fire sale pricing will hurt the brand or impact        direct sales channe...
Who is Using the SpotCloud Exchange?Enomaly launched SpotCloud just over a year ago, as a proof-of-concept of a cloud exch...
Unlike the bare-bones computing units offered through the SpotCloud, the enterprise cloudexchange will be highly secure, S...
centers. However, the data center market is gradually shifting away from private, enterprise-               run data cente...
Stratecast                                          The Last WordIn these early days of cloud computing, service providers...
About StratecastStratecast collaborates with our clients to reach smart business decisions in the rapidly evolving and hyp...
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Enomaly spot cloud trading cloud capacity like pork bellies

  1. 1. April 20, 2012 Enomaly SpotCloud:Report Title – size and position text box to center Trading Cloud Capacity like Pork Bellies Report Title in the blue bar Stratecast Analysis byLynda Stadtmueller Stratecast Perspectives & Insight for Executives Volume 12, Number 15
  2. 2. Introduction1Is computing capacity a commodity that can be traded on an exchange like soybeans or pork bellies?If so, the cloud is the place to make it happen.At a time when most cloud providers go to great lengths to differentiate their services up and downthe stack, Enomaly is harvesting the potential of the cloud as commodity: a raw resource that can bebought and sold by multiple providers in standardized units, driven by market pricing. Enomaly,which was acquired by cloud service providerVirtustream earlier this year, introduced SpotCloud in At a time when most cloud providers2011 as an exchange to bring buyers and sellers of cloud go to great lengths to differentiatecapacity together. their services, Enomaly is harvestingIn the nascent cloud market, in which less than 10 the potential of the cloud as apercent of U.S. businesses are currently using cloud commodity.Infrastructure as a Service, the idea of a cloud exchangeseems premature. Yet, Enomaly has seen early success for its exchange, which is still in beta. Thecompany reports that thousands of buyers and sellers worldwide have signed up for SpotCloud,indicating the concept and execution are igniting interest in some market segments. Enomaly’spurchaser, Virtustream, also believes in the potential of the exchange concept, and has plans toexpand the exchange to include enterprise-owned capacity.The Enomaly model offers a workable way to pool and exchange computing capacity from disparatesources worldwide. Even more interesting, this model provides a glimpse into the “Intercloud” ofthe future, offering a blueprint for the next generation of cloud infrastructure services.In this SPIE, we look at the concept of the cloud as a tradable commodity. We examine theEnomaly SpotCloud offer, as well as Virtustream’s plans to expand the offer to private enterprises.We also consider how a cloud exchange can help shape the future of cloud services.The Commodity CloudCan the cloud be considered a commodity? The cloud is not a product or technology, but a businessmodel—a way of creating and allocating IT resources. Discussion of “the cloud” is fruitless, becausein fact there are many clouds—on-site and remote, enterprise-managed and third party hosted,public, private, and hybrid—each shaped by its provider, with widely differing characteristics.In that freewheeling environment, in which there are few agreed-on definitions or technicalstandards, it seems impossible to establish the common ground necessary to create a third-partycommodity exchange. A soybean is a soybean, but there’s no common understanding of a basic unitof cloud capacity.21 In preparing this report, Stratecast interviewed: Virtustream – Simon Aspinall, CMOPlease note that the insights and opinions expressed in this assessment are those of Stratecast and have been developedthrough the Stratecast research and analysis process. These expressed insights and opinions do not necessarily reflect theviews of the company executives interviewed.2 See SPIE 2011-05, Defining and Pricing Cloud Infrastructure Services (Feb. 2011). For information on how to obtain this orany Stratecast or Frost & Sullivan report, contact your account executive or email inquiries@stratecast.com.SPIE #15, April 2012 © Stratecast | Frost & Sullivan, 2012 Page 2
  3. 3. And yet, the basic tenets of cloud computing appear to map well to the commodity market. Theearliest cloud services, beginning with Amazon Web Service (AWS) EC2, were positioned as a wayto quickly access low-cost, basic computing capacity on an as-needed basis. Although the trend istoward increasingly high-end enterprise grade cloud services, which are embellished with value-added features and functionality, the lower-end services—often referred to as mass market orcommodity clouds—still dominate the Infrastructure as a Service (IaaS) market.3 With over 65percent of the U.S. market, AWS continues to apply pricing pressure to the IaaS market, droppingits EC2 prices over 15 times in the past six years.Basic service, on-demand access, price-driven buyers—these are ideal conditions for a spot market.Presumably that is what led Enomaly to launch SpotCloud.Enomaly SpotCloudEnomaly SpotCloud is a cloud clearinghouse that brings together buyers and sellers of cloudinfrastructure capacity, as shown in Figure 1. Positioned as a way for cloud and hosting providers tooffload excess capacity, and for enterprises to find cloud bargains, SpotCloud is a cross between theChicago Mercantile Exchange and Hotwire.com.The SpotCloud exchange consists of a software platform that establishes standard computing unitsacross participants, enables simplified user management capabilities, and allows participants toconnect to the exchange. The ‘commodity’ being exchanged is the basic computing unit—theexchange does not offer service level agreements or value-added elements such as security orbackup. This keeps prices low and services consistent.Figure 1: Enomaly SpotCloud Source: VirtustreamHow it Works For sellers: Cloud service providers register to join the exchange through the Enomaly Web site. They install a cloud platform in their data center (Enomaly SpotCloud supports Enomaly’s own Elastic Computing Platform (ECP), available as a free download, as well as OpenStack and other cloud platforms via an API). When they have available capacity to sell, providers list the capacity along with geography and price requirements on the SpotCloud Web portal, where the information will be presented to potential buyers looking for those parameters. Sellers have the option to reveal their company name to prospective buyers, or3 See CC 1-5, 2011 U.S. Infrastructure as a Service Market: On the Road to Commodity Status (November 2011).SPIE #15, April 2012 © Stratecast | Frost & Sullivan, 2012 Page 3
  4. 4. to sell “blind,” if, for example, they feel the fire sale pricing will hurt the brand or impact direct sales channels. The process is very simple for sellers, and requires little overhead. Enomaly takes care of monitoring transactions, billing at the agreed upon rate, collecting money from buyers, and issuing a check to the sellers. For buyers: SpotCloud offers a broad choice of providers in a single Web-based view, enabling them to select prices, geography, and capacity that match most directly to their needs. They can rate their experiences with a provider using a 5-star rating system, which is then posted as a “quality” measure. Figure 2 shows a sample screenshot from the portal that buyers use to purchase capacity through the exchange.Figure 2: SpotCloud Buyer’s Portal Source: VirtustreamPricing is established by the sellers, who are able to dynamically adjust their prices via an API,enabling them to respond to market conditions in real-time. Enomaly takes a cut of the transactionprice before forwarding the proceeds to the seller. Enomaly does not charge buyers a premium forusing the services; buyers pay only the posted rate for capacity.In the SpotCloud model, much of the value that Enomaly brings to the complex cloud marketplaceis convenience and simplification. Sellers have little administrative overhead, and their costs arealigned with revenue, since Enomaly’s fee (a percentage of sales) covers marketing, sales, billing,collection, and other costs of doing business. Buyers are relieved of the burden of researchingindividual providers, and because the rates are posted, they can be assured that they are payingmarket-defined rates for the services they buy.SPIE #15, April 2012 © Stratecast | Frost & Sullivan, 2012 Page 4
  5. 5. Who is Using the SpotCloud Exchange?Enomaly launched SpotCloud just over a year ago, as a proof-of-concept of a cloud exchange. Inthat time, SpotCloud has attracted interest from several thousand providers and potential buyers.Providers today include regional telecom companies, Internet Service Providers, and hostingbusinesses; interested buyers range from small to midsize businesses. Co-location and hostingproviders and smaller Communication Service Providers may be both buyers and sellers. Becausethe SpotCloud exchange trades only basic computing units, buyers tend to be those who are lookingfor simple resources that they will either manage themselves or resell with their own embellishmentsto their own customers.Enomaly reports that both buyers and sellers are taking advantage of the exchange for granularfluctuations in capacity. For example: providers may see infrastructure demand decline at night, sothey place capacity into the exchange just for nighttime hours. Because of the dynamic pricingcapability, providers can establish lower rates for off-peak times and higher rates for on-peak.Because the market is international (Enomaly has registered buyers in 80 countries), participants canconsider geography when making transactions. Users without geographic restrictions for their datacan leverage off-peak rates in a continual “follow-the-sun” approach. Conversely, providers withavailable capacity in underserved geographies can establish higher rates in those areas.Next Up: Virtustream Enterprise Cloud ExchangeWith the Enomaly acquisition, Virtustream acquired a set of services and customers complementaryto its own. While Enomaly targets small to midsized businesses and smaller service providers withboth its public cloud offer (ECP) and the SpotCloud exchange, Virtustream has built its business byproviding highly secure enterprise class clouds and cloud management software, enabling enterprisesto move complex heterogeneous IT environments to the cloud.For Virtustream, the addition of Enomaly represents an opportunity to complete a continuum ofintegrated cloud and data center services that can meet the needs of any market segment. Consistentwith that strategy, Virtustream plans to introduce an enterprise-class cloud exchange, tailored formajor enterprises, service providers and governments,with rigorous security and features critical to the Virtustream’s enterprise cloud exchangeenterprises, such as application performance SLAs, will enable businesses with excessconsumption based pricing and multi-tiered security capacity in their private data centers toand policy across clouds. Virtustream has built its participate in an enterprise-gradesoftware using a unique technology that breaks exchange.workloads into a pool of small elemental units, called“micro VMs” or µVMs, and uses that pool to deliver optimal virtualization and to assure applicationperformance. Virtustream’s µVM unit is a useful tool to act as a common currency between clouds,and makes a powerful combination with the SpotCloud exchange capabilities.As planned, the Virtustream enterprise cloud exchange will enable businesses with excess capacity intheir private data centers to participate in an enterprise-grade exchange. Targeted sellers may includebusinesses whose data center usage fluctuates daily or seasonally, leaving idle server capacity.Enterprises that have recently built or expanded their data centers may also choose to enter thecloud exchange, to monetize unused capacity until internal demand catches up.SPIE #15, April 2012 © Stratecast | Frost & Sullivan, 2012 Page 5
  6. 6. Unlike the bare-bones computing units offered through the SpotCloud, the enterprise cloudexchange will be highly secure, SLA-based, and policy-assured. As such, Virtustream expects to finda market among enterprises and service providers that are looking for secure, high performancecloud capacity, and are willing to pay more for it. Another potential target is community clouds:highly secure combinations of multiple private clouds that serve a particular industry ororganization. Because such organizations usually have stringent security or compliance requirementsthat make it difficult to use public cloud services, they are good candidates for a secure, privatecloud exchange in which some or all capacity can be provided and shared by the communitymembers.The enterprise cloud exchange will run off Virtustream’s powerful xStream cloud managementplatform. Because xStream also powers the company’s cloud offers, the result will be a flexible,integrated solution that can extend an enterprise hybrid cloud into a vast pool of new resources.Market ChallengesA marketplace can only be successful if it attracts buyers and sellers in sufficient numbers. Enomalyhas already attracted thousands of buyers and sellers for SpotCloud. More to the point, Virtustreamsays it has interest from a number of enterprises for its planned enterprise exchange. While Enomalyis the originator and leader of the cloud exchange concept, there are a handful of other providersworldwide that are starting to offer similar exchanges.But vendor enthusiasm does not necessarily translate to long term success. While Stratecast believesthere is potential for a cloud exchange like SpotCloud, there are tremendous challenges to overcomebefore such a model becomes accepted by more than niche markets. Among the market challenges: Enterprises are steering away from commodity cloud services – With only 10 percent of U.S. businesses using IaaS, enterprises are cautious about entering the cloud.4 It’s not price that’s holding them back (on the contrary, cloud service prices are continuing to drop). Instead, they are concerned about loss of control, security, performance of applications— factors that are not addressed in a commodity cloud. Stratecast has predicted that the IaaS market will split, with the majority of companies opting for richer, pricier cloud services, and leaving commodity cloud services to a handful of use cases (e.g., test and development). This may relegate the SpotCloud exchange to a niche market of wholesalers, limiting its participants and its appeal. Commodity exchanges are all about pricing and availability – neither of which represents a major driver for enterprise cloud adoption. However, it is possible that constraints on data center capacity may create regional hotspots for commodity exchanges. High end services are not commodities – Virtustream plans to incorporate higher value elements into its Enterprise Cloud Exchange, including security and performance assurances. But those capabilities resist standardization, which make them difficult to trade in a “commodity” exchange. Perhaps the model will shift to a standard rating system, as exists for hotels, so that buyers have a consistent expectation of the service they will receive with their computing capacity. Supply from private data centers will decline – For the Enterprise Cloud Exchange, Virtustream expects some capacity to come from overbuilt or underused private data4 See CC 1-3, 2011 Cloud User Survey: The Who, What, and Why of Infrastructure as a Service Usage (August 2011).SPIE #15, April 2012 © Stratecast | Frost & Sullivan, 2012 Page 6
  7. 7. centers. However, the data center market is gradually shifting away from private, enterprise- run data centers to commercial suppliers. Between 2011 and 2015, the percentage of U.S. data center space in enterprise hands will decrease by five percent, as more enterprises turn to third-party suppliers to handle their increasing demands for computing resources.5 With the private data center market decreasing, supply will have to come from commercial providers—which means the “exchange” will be indistinguishable from a retail channel. Enterprises are reluctant to open their data centers to strangers – Most enterprises equate shared facilities with security risk. As a result, they place only less-critical Web applications in third-party controlled environments such as the cloud, keeping critical and sensitive data and applications in the private corporate data center. Why then would they agree to open their private centers to strangers, whose applications will share and possibly contaminate servers and network facilities? In practical terms, the exchange provider’s platform may enable isolation of virtual machines. But, in terms of perception, you might as well suggest they open the data center doors to unsavory gangs of hooligans off the street. Intercloud of the Future Many of the challenges listed are a result of the newness of the cloud market. For the most part, enterprise IT is still thinking of the cloud as a place, an alternative data center where they run the same standalone applications they run today, if (perhaps) more easily and less expensively. But the cloud exchange invites us to think differently about computing resources and how we use them. The cloud exchange has the potential to turn “many clouds” into “the cloud,” offering access to nearly unlimited computing resources, data, and applications. That’s the idea behind the Intercloud, a vision of cloud computing in which clouds are seamlessly connected via open standards and interfaces. In the Intercloud of the future, open standards and interfaces will enable applications to be deployed in any cloudThe Intercloud will pool together environment. In theory, the Intercloud will pool together allall the cloud-based computing the cloud-based computing resources in the world, makingresources in the world, making them accessible, as needed, to any user or application.them accessible, as needed, to The cloud market is still years away from the standards thatany user or application. will enable seamless sharing of resources among all clouds. Yet, today’s hybrid and federated clouds begin the journey. Virtustream’s xStream platform allows businesses to create a hybrid cloud of pooled resources across multiple environments, including physical and virtual servers, Virtustream’s hosted private and public clouds, and even other providers’ public clouds. A cloud exchange extends the pool of potential resources to include thousands of other users on the shared platform—a hybrid cloud (or Intercloud) with almost infinite resources. 5 See CC 2-1, 2012 U.S. Data Center Market Update (January 2012). SPIE #15, April 2012 © Stratecast | Frost & Sullivan, 2012 Page 7
  8. 8. Stratecast The Last WordIn these early days of cloud computing, service providers are struggling to define and differentiatetheir services in a way that will maximize return on investment and enhance customer loyalty. Yet, atthe opposite end of the market, Enomaly has seen success with a different model: one that treatscloud computing resources as a commodity, to be traded on an open exchange like agriculturalproducts or precious metals.Perhaps Enomaly’s customers are right. Availability of computing resources is not assured in everyregion of the world; and, in fact, data center shortages exist in developing areas where power andnetwork infrastructure is insufficient to handle demand. All users can benefit from a simplemarketplace that makes all computing resources, by geography, available to any bidder at marketrates.To consider further: as worldwide demand for computing resources continues to grow, and supply isconstrained by power limitations and hefty capital costs, perhaps the spot market (in whichresources are purchased for immediate use) will spawn a futures market, in which speculators willmake bets on cloud pricing based on predictions for demand growth and supply constraints. But wedigress.Stratecast believes that, for most providers, the path to profitability in the cloud is to enhance theirIaaS services with value-added options, including strong service level agreements, security, andmigration assistance. And yet, we are intrigued by the promise of the SpotCloud exchange, whichaddresses an entirely different market—one that requires only raw computing power to augment itsown capacity. We anticipate the spot cloud market will grow to serve a largely wholesale market(cloud providers, communication services providers, hosters), who will buy cheap capacity to delivertheir own services to enterprises, and sell excess capacity to boost revenues.We also eagerly await the rollout of Virtustream’s enterprise grade cloud exchange, slated for early2013. If the service lives up to its promise, it may be the gateway to the Intercloud of the future.Lynda StadtmuellerProgram Director – Cloud ComputingStratecast | Frost & Sullivanlstadtmueller@stratecast.comSPIE #15, April 2012 © Stratecast | Frost & Sullivan, 2012 Page 8
  9. 9. About StratecastStratecast collaborates with our clients to reach smart business decisions in the rapidly evolving and hyper-competitive Information and Communications Technology markets. Leveraging a mix of action-orientedsubscription research and customized consulting engagements, Stratecast delivers knowledge and perspectivethat is only attainable through years of real-world experience in an industry where customers arecollaborators; today’s partners are tomorrow’s competitors; and agility and innovation are essential elementsfor success. Contact your Stratecast Account Executive to engage our experience to assist you in attainingyour growth objectives.About Frost & SullivanFrost & Sullivan, the Growth Partnership Company, partners with clients to accelerate their growth. Thecompanys TEAM Research, Growth Consulting, and Growth Team Membership™ empower clients tocreate a growth-focused culture that generates, evaluates, and implements effective growth strategies. Frost &Sullivan employs over 50 years of experience in partnering with Global 1000 companies, emerging businesses,and the investment community from more than 40 offices on six continents. For more information aboutFrost & Sullivan’s Growth Partnership Services, visit http://www.frost.com. SPIE #15, April 2012 CONTACT US © Stratecast | Frost & Sullivan, 2012 Page 9 For more information, visit www.stratecast.com, dial 877-463-7678, or email inquiries@stratecast.com.