Utility Computing: Perceptions and Reality

As enterprises try to cut costs and improve efficiency, utility computing is
becoming an attractive data center model for procuring transaction-based IT
services. But one investment bank says hype and reality need to be
reconciled.

While the market for utility computing is still in its initial stages,
several major computer hardware manufacturers are devoting sizeable
resources to develop server automation and allocation products, including
IBM Corp. , Hewlett-Packard and Sun
Microsystems .

“Utility Computing is still at its ‘evangelical stage’ and many vendors are
largely ‘priming the pump.’ We sense the true economic advantages of Utility
Computing today remains more of a marketing rather than an economic
reality,” Deutsche Bank wrote in a research note issued on Friday.

“Utility Computing may allow large-tier vendors to address a new segment
they have traditionally been unable to tap — the small/mid-sized market.
Utility Computing should also create a new demand wave for IT consulting
services as a precursor to help clients move to this new model,” Deutsche
Bank said.

But while some of the leading IT companies may have a perceived advantage in
the nascent utility computing market, Deutsche Bank singles out Electronic
Data Systems and Accenture as two
companies likely to benefit from this sub-sector.

“We foresee significant opportunities for EDS, ACN, and other large-tier
vendors amongst our coverage universe with strong account control. From our
conversations, IBM’s marketing leadership, for now at least, is largely
based on perception and not any meaningful competitive advantage,” Deusche
Bank said.

But the bank said the utility computing market is not without its risks.

“We would not buy any of our covered stocks based on this Utility Computing
trend alone. Despite some vendors’ claims, the timing of this new wave
remains unclear – much less if it will become a market reality at all,”
Deutsche Bank said.

But several of the major computer companies have utility computing
initiatives well underway.

HP calls its strategy Adaptive Enterprise and is billing its Utility Data
Center (UDC) as a way for companies to consolidate and make decisions
regarding the allocation of data center resources through the use of
virtualization technology. UDC aims to automate and optimize data center
management. Earlier this year, HP said it would resell Opsware software that
allows IT managers to manage configuration changes using virtualization
technologies in huge data centers.

Sun has put considerable resources into its N1 strategy, which aims to
create a seamless system that connects servers, networks and storage system
using virtualization technologies. Sun’s acquisition of Terraspring Inc.
improved its virtualization and automation offerings.

IBM on-demand strategy is a key plank of the company’s emphasis on
customized services. IBM recently announced its Infrastructure Management
Assessment Services and its acquisition of Think Dynamics is part of
building its on-demand, automation and utility computing brands. IBM is also
marketing its Tivoli system management and virtualization tools providing IT
managers with customized services levels for clients.

IBM detailed its Infrastructure Management Assessment Services, which will
include what the company calls an “on-demand workshop.” After some meetings,
IBM provides an “autonomic assessment,” which using its Tivoli management
examines the customer’s systems management structure and devises strategies
for improving the company’s management tools. The final piece of the service
is called “Universal Management Infrastructure” enabling the firm to
implement the integrated solution.

IBM says its Infrastructure Management Assessment Services is a means for
managing a data center, through a comprehensive system managing both its
hardware and software.

Deutsche Bank said “at its core, Utility Computing aims to make IT purely
transactional. The concept – pay for the drink rather than the bottle – is
certainly alluring and is not that different from the old mainframe
‘time-sharing’ model. It is starting to ‘ring’ with some customers but is
also creating market confusion.”

Deutsche Bank advises that “investors should realize that Utility Computing
is at an early maket development stage and must separate the hype from the
reality.”

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