IDC Sees Strong Movement Toward a Computing Utility

FRAMINGHAM, MA – AUGUST 21, 2000 – A major evolution is under way in the information technology (IT) industry. According to IDC, IT is moving toward becoming a utility, and this shift will have significant ramifications on IT vendors and customers alike.

 

"The Internet and the increased availability of high-bandwidth network connections are helping to fuel a move toward a computing utility," said David Tapper, senior analyst for IDC's Networked Infrastructure Management Services research. "Before this utility becomes full-fledged, many obstacles will have to be cleared, but key pieces of the computing utility are being put into place, and this model has real potential to dominate the IT market."

Because the IT utility is still evolving, its definition is a work in progress. However, IDC believes the definition is likely to include the following elements:

· Delivery of IT capacity to the customer from an external location

· Ownership of at least part of the IT infrastructure by the utility provider

· Remote delivery of services

· Pricing and payment plans that resemble traditional leasing agreements

For IT vendors, there are both rewards and risks associated with a utility model. Chief among the benefits is the potential to reap significant economies of scale while reducing costs. "Inherent in providing computing utility services is the ability to offer these services on a pay-as-you-go basis at a price point that is well below that of a traditional managed service coupled with relevant IT products," said Doug Chandler, program manager for IDC's Storage and Data Management Services research program. "For the winners, the savings achieved from the economies of scale should translate into increased profits and shareholder value for the service provider."

Threats to the IT vendor include the possibility of elimination due to consolidation across industries as well as intense price competition.

For customers, benefits include lower switching costs, the ability to leverage IT to achieve increased return on investment, an easier way to keep up with upgrades, and faster time-to-market opportunities.

IDC warns, however, a significant risk to customers is increased vulnerability to costly downtime. "Downtime vulnerability stems from the fact that any major single point of failure within the computing utility infrastructure could trigger a systemwide failure and seriously disrupt services," Chandler said. "Combine this with increased dependency on the service on the part of the customer organization, and the result could be extreme financial losses."

Despite the risks associated with the utility model, the IT industry is moving toward it. IDC believes that the shift will be slow, but leaves open the possibility that it won't be.

"We have no doubts that the shift to a computing utility is happening," Tapper said. "The questions are how long will it take to complete and how widespread the adoption will be."

The above information comes from IDC's new report, The Computing Utility: Is IT Adopting the Telco Model? (IDC #B22463). The report discusses a shift in the delivery of traditional IT services from being managed in-house or as part of a traditional outsourcing engagement to being provisioned as a computing utility service from a common networked infrastructure. Factors enabling the transformation, events signaling the existence of this transformation, and the implications of a computing utility to service providers and customers are all discussed. To purchase the report, contact Jim Nagle at 1-800-343-4952 at extension 4549 or at jnagle@idc.com.

About IDC

IDC delivers dependable, high-impact insights and advice on the future of ebusiness, the Internet, and technology to help organizations make sound business decisions. IDC forecasts worldwide markets and trends and analyzes business strategies, technologies, and vendors, using a combination of rigorous primary research and in-depth competitive analysis. IDC provides global research with local content through more than 600 analysts in 43 countries worldwide. IDC's customers comprise the world's leading IT suppliers, IT organizations, ebusiness companies, and the financial community. Additional information can be found at http://www.idc.com.

IDC is a division of IDG, the world's leading IT media, research and exposition company.