Who will be your utility company?

By Jeffrey Kaplan, THINKstrategies |  On-demand Software

Even as the debate continues about whether utility computing will become a reality, market researcher IDC is already challenging the conventional thinking about who will deliver on the utility computing promise. In a recent report, IDC suggests that the major Internet companies, such as Amazon, eBay, Yahoo, and Google, are poised to wrest utility computing business away from the established players and seriously disrupt the IT industry.

IDC's theory is based on the same trend that I reported in this column after attending a utility computing conference in March. At that conference, I listened as CIOs of major corporations indiscriminately referred to their various application, desktop and Web hosting service agreements as utility computing initiatives.

Yahoo is already reselling Web-hosting services. eBay is already a major clearinghouse for IT equipment and services. Google is developing knowledge management systems that could be sold as services to corporations. And Amazon could do almost anything it wants given its brand equity and supply chain infrastructure.

Taken in this light, IDC's suggestion that the Internet companies could become key utility computing service providers certainly seems plausible. Yet, I would argue, it is not probable.

The major IT vendors and outsourcers (IBM, HP, EDS, CSC, and others) have invested heavily in their utility computing products, services, and marketing campaigns, and most industry observers believe those companies are in prime position to capture the lion's share of the utility computing market -- when, that is, it emerges from its current embryoninc state.

But the Internet companies have an even bigger hurdle ahead of them than marketshare and mindshare: they will have to become true utility computing service providers. IDC draws a comparison between Toyota's successful transformation from a low-end manufacturer to a producer of high-end, luxury vehicles -- and the third largest automaker in the U.S. -- and the potential for a similar transformation of the mass-market Internet companies from commodity suppliers to utility computing providers. The difference is that Toyota didn't have to change its industry focus. Instead, it improved the way it operated. Not so for the Internet companies.

In order for the mass-market Internet companies to truly compete with the major IT vendors and outsourcers, they will have to fundamentally change their corporate missions.

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