The Future of Cloud Computing

The cloud computing discussion at this week's High Performance on Wall Street conference stimulated some questions in my mind about the future of cloud computing.

Cloud Computing is currently at a very early stage in that clouds are just starting to appear, each with its own approach and with people now starting to explore how to use cloud infrastructures like Amazon's EC2, AT&T's Synaptic Hosting and others to advantage--both academic experimentation as well as a leveraging of these rented resources by startups, etc., as a fundamental part of their business infrastructure.

Most important, however, is the fact that cloud supply currently far exceeds cloud demand as one would expect in the early adoption stage of a highly-hyped concept. Because of the over-capacity of available resources, one does not currently need to worry about whether cloud resources will be available when you need them. But what happens when that changes?

Speakers at the High Performance on Wall Street conference were sure that as clouds became much more like commodities and resources became more constrained due to increased demand, then free market mechanisms like futures markets would evolve to mediate access to these resources.

If that is true, and it does sound reasonable, how will that change who uses the cloud and how they use it? Will startups be able to build their businesses with cloudy back ends if they must bid for access and utilization on an open market? It isn't clear. Right now, utilization costs for a startup using cloud resources will fluctuate as their business needs fluctuate--more customers, more business, generally more processing and higher rental costs on the cloud. The increased complexity and unpredictability of fluctuating cloud infrastructure costs in addition to fluctuations due to changing business demands may reduce the attractiveness of the cloud approach for these businesses.

Another question. As these shared resources become scarcer, might there be an increased risk that firms could use denial of cloud resources as a strategic weapon against competitors by pre-purchasing significant cloud resources in advance of a competitor's planned use of that resource? Perhaps somewhat farfetched...or perhaps not.

It will be interesting to see how cloud computing evolves as it matures and to see whether these kinds of problems will arise in practice or not. It does seem apparent, however, that the current nascent movement towards cloud computing is bound to get much more complicated in the relatively near future.


Comments:

One of the greatest advantage of cloud computing, is to overcome capex cost and make it variable to the processing need (or utility) of the cloud. As a startup, we can depend on having access to 100's of servers to manage our peak load or do some complex processes... then we shut them down during non-peak usage times. We 1) spend money only when cycles are needed and 2) avoid the capex cost of buying 100's of servers for that particular moment. Hedging, or buying futures of computing resources seems counterintuitive and negates the elasticity of that particular benefit. Thoughts?

Posted by Joseph on September 25, 2008 at 02:22 PM EDT #

Joseph,

You have stated the issue much more eloquently than I could. The conversion from capex to opex is a key part of the value proposition. Spending money only when cycles are needed keeps expenses in sync with your level of business activity. But having the cost of access to those resources vary depending on external factors unrelated to your business will introduce an additional level of expense and of risk. A business's tolerance for that additional expense and risk will determine whether clouds are appropriate substrates for their business processes.

Josh Simons

Posted by Josh Simons on September 26, 2008 at 03:17 AM EDT #

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