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Is IT as a Service the Next Big Shake-up?

What is Happening? A lightly-reported announcement from Amazon Web Services (AWS) last week signaled one of the most significant changes in the IT market and business model yet seen.

It wasn’t something entirely new, nor was it unexpected. But its ramifications to IT buying and selling, and therefore IT-related business models, are and will be substantial, and are likely to provide another series of significant IT buying and budgeting disruptions.

What AWS announced was its Reserved Instance Marketplace. In simplest terms, this marketplace is a secondary market for trading/selling/buying reserved instances of AWS’ Cloud-based IT services.

It is not the first such marketplace. Two years ago, Saugatuck began including firms like Enomaly’s SpotCloud.com in our regular research on changing IT markets, business models, services, and more. SpotCloud is not the same as AWS’ Reserved Instance Marketplace, in that SpotCloud acts more as a market for enterprise IT data centers and MSP/IaaS providers looking to sell/resell their own excess capacities.

By contrast, AWS has established a market for its customers to resell services that AWS has already sold to those customers – in effect, getting a second bite of the same apple. A good comparison for AWS’ approach would be a sports team that sells tickets, and then provides a fee-based/commission-based marketplace for ticket holders to resell those tickets. The team profits twice, by selling the tickets in the first place, and again by providing a fee-based service for customers to resell tickets. In fact, team – or Amazon – can profit multiple times from a single initial sale, as customers often decide they can’t use what they bought when they thought they would, and re-post it for resale.

At the bottom line, exchanges in general reduce IT-as-a-service to a simple commodity to be traded as would any other, subject to not only demand but also to speculation and therefore varying pricing over time. This introduces an initially small but potentially high-volume element of uncertainty in IT buying and usage, one that could quickly and easily grow to be more disruptive to IT organizations (and providers) than Cloud itself has been to date.

Why is it Happening? If you can buy and reserve network-delivered services, you usually can resell them. Telcos have done this for more than a century. Even before the Ma Bell breakup in the 1980s, AT&T was selling reserved network capacities and services to local and specialized carriers, which then bundled or simply re-sold them to customers or other carriers.

IT-as-a-service trading and reselling on commodity exchanges is a natural, evolutionary result of basic IT buying and use practices that began in the earliest days of mainframe time-sharing, fell into disfavor with enterprises in the days of desktop and client-server computing, then regained practicality and popularity with the rise of Cloud IT. And the concept fits exactly into what we began calling “utility computing” as far back as 2006 (read "Utility Computing: Key Considerations").

Obviously, enterprise users are ready for such services. There’s no market without demand. AWS is stepping up to forestall potentially competitive marketplaces, protect its own flanks, and derive more revenue from what it has already sold.

Finally, anyone connected with IT as a concept has been foretelling the eventual evolution of most forms of IT into commodities for decades. Today’s greater scales of production and delivery lead to lower individual cycle costs, which lead to commoditization in all its forms. They also lead to larger and more energy-hungry data centers, a topic to be explored in upcoming Saugatuck research.

For an extended version of this Research Alert, visit Saugatuck Technology.

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