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Start the Meter

'Pay-as-you-go' computing could revolutionize how companies buy and use technology.
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It's a concept based on a brilliantly -- some might say deceptively -- simple question: Why not purchase computing capability the same way you buy electricity, gas, water, or telephone service?

In fact, some evangelists are already calling pay-as-you-go computing "the fifth utility," a term that neatly sums up the basic idea: Customers use just as much computing power or storage capability or bandwidth as they need for a particular project or period of time. Then they pay only for what they've consumed.

The approach, also known by the less-sexy moniker of "utility computing," remains on the horizon. But the potential benefits -- for individual customers and businesses of all sizes -- are already quite clear.

Users could access computing capability as easily as they fill a glass by turning a tap or illuminate a dark room by flipping a switch. They wouldn't need to worry about the machines providing that capability any more than they think about the pumping stations providing their water or the generators producing their electricity.

Companies, meanwhile, would benefit from savings on hardware, software, and labor, since all would be provided by whoever supplies their computing services. Some businesses might create their own computing "power plants," allocating services as needed from a single shared pool of IT resources. The highly integrated networks would automatically distribute jobs to unused computers, and, when individual machines slow down or crash, shift their workloads somewhere else.

Here's another way to think about utility computing: Instead of servers, you buy service.

That's exactly what Mobil Travel Guide of Park Ridge, Ill., is doing in one early utility-computing experiment. The 30-person publishing company (which is part of EMTG LLC, a $17.3 million venture spun off from Exxon Mobil Corp. in 2002) stopped using its own servers in 2002. Instead, it purchases all its processing, storage, and networking capability from IBM. Employees access the services they need "on demand" over the Internet, primarily to develop and support the company's real-time customer-service website, Mobil Travel Companion.

Obviously, the five-year agreement saved Mobil Travel Guide from having to make a big investment in software, hardware, and labor in launching its high-traffic website. The real benefit, though, comes from giving the small publisher access to IBM's powerful systems, a change Senior Vice President Ralph Giannola has called "akin to accelerating from a one-lane country road onto the Autobahn." They can also adjust their computing power as needed. For instance, they can beef up to meet demand during summer-vacation months, and then cut back (and reduce their bills) after school starts.

Other possible ways small businesses might use utility computing include:

  • Quickly changing prices system-wide to reflect demand or respond to a competitor's campaign.
  • Keeping up-to-the-minute inventory control.
  • Scheduling and updating projects, workflow, and training.

Getting all software as a bundled service from a single vendor. For instance, Aztec Systems Inc.'s Office Anywhere System provides access to all Microsoft Office applications, Microsoft Exchange for e-mail, an anti-virus program, Web content filtering, and 100 megabytes of storage per user -- for $115 per month per person. Employees can access those applications at work, from home, or on the road. Companies can add other capabilities, such as database applications and accounting packages, as needed.

Such capability could help businesses wring far more value out of their technology investments, according to Forrester Research Inc., the Cambridge, Mass.-based research group. Right now, says Forrester analyst Frank Gillett, companies use only about 20% of their available computing capability, meaning they're wasting up to 80% of their IT capital expenditures.

By using the pay-as-you-go model, companies could save dramatically -- up to 50 percent over five years, Forrester predicts -- by increasing efficiency, postponing additional purchases, reducing staffing costs, and improving how they monitor and account for computer usage. They might even generate revenues by selling or renting their excess IT resources, such as time on temporarily idle servers.

Of course, utility computing faces some big hurdles on the road to reality. Among them:

Finding metrics. Providers need ways to measure and bill for power being consumed, just as other utilities track kilowatts of electricity or minutes of telephone talk time. They also need to figure out what variable factors might affect costs. For instance, would they charge more during peak-demand times? Might they offer volume discounts?

Setting standards. Right now, many high-tech giants -- HP, IBM, Microsoft and Sun Microsystems, among others -- are working on proprietary pay-as-you-go computing initiatives. Each has its own name (IBM's "e-business on demand," Microsoft's "dynamic systems"), its own approach, and its own technology. They'll need to find common ground to go mainstream.

Switching gears. While the pay-as-you-go idea is straightforward, implementation would be anything but. It's a radical change requiring a highly integrated systems; to get there, most companies will need to gradually overhaul their IT infrastructures and adjust their business processes as well.

So while some utility-style applications are emerging right now, don't expect to see widespread adoption for five to 10 years. But when the shift happens -- and analysts say the concept makes so much sense that it's hard to image that it won't catch on -- small and midsized businesses may well lead the way. In fact, in January 2004, IDC Research of Framingham, Mass., issued a report advising technology vendors that SMBs are likely to be their most attractive market. "Players looking to establish themselves as leading providers of utility computing need to win the SMB one way or another," the report advises.

It's easy to see the attraction: Besides saving money, the pay-as-you-go model offers SMBs access to large, expensive, or sophisticated applications they couldn't otherwise afford. They don't necessarily have to add applications and equipment as they add employees. And by outsourcing, they sidestep a lot of maintenance costs and headaches.

So stay tuned. In a few years, when your employees start their PCs, they may also start the meters running.

Sidebar: Get Ready for the Revolution

What can you do now to get ready for the revolution? Take stock of your computing assets to find out you've got, what's being wasted, and what might be jettisoned. Then start small, perhaps trying one or two utility-style applications as they emerge. "Step into it with self-funding projects," recommends Forrester analyst Frank Gillett. The approach will take some adjustment, but he predicts the effort will be worthwhile: "We think the ROI is immediate, we think it is compelling, and we think it increases over time."

Last updated: Mar 1, 2004




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