I had a good chat with JP yesterday, and one aspect of that chat related to cloud computing. This got us talking about the disconnect between goods and services. Goods have become very cheap (relative to services), and I have a couple of favourite examples. The first is bicycles. A decent kids bike has been around £100 for my entire life. That was pretty serious money thirty years ago as I tried to pick out my Christmas present from the Grattan catalogue. Thirty years of inflation mean that in real terms bikes are a lot cheaper. My other case study is my lawnmower…

When I moved house about 8 years ago I had a rotten old electric mower that had been left behind by the previous owners of my last house. It was good enough for the little patch of turf we had there, but wasn’t up to the job in the new place. I went out and bought the cheapest petrol mower I could find with a decent (Briggs and Stratton) engine, which cost about the same as a kids bike. Last summer it started to play up, and a bit of googling around suggested that it would need a new diaphragm for the carburettor. I found the part on eBay for about £2, inc delivery. When the part arrived I talked my son through fitting it – he was chuffed to bits when the mower started up again. A few days later I was talking to a neighbour who told me that he’d recently bought a new mower. His old one had started to misbehave (in much the same way as mine had) and he didn’t want to pay somebody to fix it (£60 he reckoned just to have somebody look at it) and didn’t have the engineering knowhow to do the job himself. His mower had gone to the trash [1]. Goods (mowers) are cheap. Services (getting mowers fixed) are expensive.

People based services (in the first world) have to be expensive – we pretty much all have massive property bubble debts to service.

The IT economy has similar examples. Goods (servers) are cheap – a typical 1U, 2 socket entry level box has been around $3000 for as long as I can remember. Inflation doesn’t make servers get more expensive, and Moore’s law keeps making them better. Services aren’t cheap – the people that it takes to do custom development, systems administration, project management and enterprise architecture cost serious money. Of course there is labour market arbitrage (outsourcing and offshoring), but that game’s pretty well played out, and many lessons have been learned about the delicate balance between perceived cost savings and structural inefficiencies that can occur when trying to achieve them. The other trick that we see is ‘cost transparency’. This is presented to users of IT as a fully loaded cost for a given service (e.g. an email inbox, or an application server). Look at the practicalities though and it’s all about hiding the cost of ancillaries services (numerators like project managers and enterprise architects) behind real things (denominators such as servers). It should be no surprise that this leads to some WTF conversations.

Servers it seems have become the artificial currency of the IT economy. An economy that’s being torn apart by the fundamental divergence between goods and services.

So what’s this got to do with cloud?

One answer is that cloud changes how services are delivered – fewer people, more automation, self service. As a service (*aaS) is a goods based economy not a (people based) services economy, though from a business perspective it delivers annuities rather than one off sales.

Another answer is efficiency. Cloud service providers have the scale (and tools) to manage their estate in ways that achieves much greater asset utilisation. This may not seem that important in a goods are cheap world, but it has consequences. One is reduction in consumption of ancillary services (such as energy), but more important is the effect that this would have on the old IT economy. This is the stuff that JP was excited about. The server that was the denominator of many of those cost transparency calculations was typically underutilised. Make the server utilisation efficient and suddenly you’re sharing more people services across fewer things. The conversation with the consumer of that service just went to WTFx10 :-0

I’ve never been (and probably never will be) a CIO like JP, so I don’t think in their terms. One of the key issues for the CIO is benchmarking against peer organisations (for example their cost of XXX service measured on a per server basis). Cloud computing will disrupt this (a lot) as CIOs are forced to abandon old benchmarks (likely a painful process if these have become compensation related KPIs).

This brings me back to last week’s CloudCamp in London, where Simon Wardely made some excellent points. The first is that cloud won’t evaporate IT budgets, but will instead allow organisations to do more with their IT budget. The second is that this could mean more IT (measured in goods). Of course the obvious corollary of this is that there will be less spent on the traditional people based services. Watch out all you SFA Cloud Computing Consultants (or should that be watch out anybody in the IT services economy who isn’t a SFA Cloud Computing Consultant?).

[1] Hopefully it avoided landfill. There’s a bunch of pretty resourceful recyclers at our local authority tip.