Evolution of Utility Computing

IDC: Small, midsize business space next major market opportunity

IDC: Small, midsize business space next major market opportunity

Framingham, MA — January 6, 2004 — In analyzing the projected evolution of utility computing (or "e-business on demand"), market intelligence and advisory firm IDC concluded that winners in this space must look beyond the current market with its focus on large enterprises to what IDC believes will be an even greater market opportunity: the small- and medium-sized businesses (SMB).

According to a new study titled "The Mid-Market is the 'Killer App' But Who Does the Delivery?," it is the SMB space that will likely determine the ecosystem of partnerships needed to ultimately deliver utility computing to just about anyone, anywhere at anytime.

In the article " Cutting Through the On Demand Hype," which appeared in the December/January 2004 issue of Supply & Demand Chain Executive, author Andrew K. Reese said utility computing is predicated on the idea that computing power and resources should be available to companies in the same way that electricity is available.

"The idea," Reese wrote, "is for a computer, or a company, to acquire computing power or storage space on an 'as-needed' and 'pay-as-you-go' basis, just as a consumer would 'acquire' water on those same bases by turning on the tap."

Reese went on to write that the advantages for a company adopting this model are fairly straightforward: utility computing shifts the requirement to invest in capital equipment from the user company to the service provider, and the user company pays only for the computing resources it actually uses. Fixed costs become variable costs, and the user company avoids the expense of maintaining and upgrading the equipment.

David Tapper, program manager for IT Outsourcing and Utility Services research at IDC, stated that companies seeking long-term success in the utility computing market must look past the current market adoption model to what his firm believes will comprise the heart of the market: the SMB.

"Winning in the SMB space will require coordinating a set of widely disparate players, such as telecommunications companies, [original equipment manufacturers] and giant retailers, all of which have access to the SMB space," Trapper said. "At the same time, existing IT services companies looking to compete in this space may be pushed from the spotlight they currently hold and into an unfamiliar role 'under the hood' and 'out of sight.'"

IDC said any player looking to leverage the utility computing market opportunity must take into consideration several key factors to ensure that they can successfully compete in this market. This is particularly important as the bets these companies place in this market will be considerable and for some, a matter of life and death.

According to IDC, the key factors prospective competitors need to consider include mitigating risk by playing in more than one camp, focusing on core competency, setting proper sales and marketing strategies, building the proper brand and position, and developing an appropriate investment model.