John Katsaros

Server Cycles Futures Market

And speaking of exchanges, we keep waiting for someone to announce a data center futures markets. Futures markets serve as a place you can go to buy and sell commodities and their future delivery contracts. If data centers are really becoming a commodity and if there is the potential for a scarcity of a commodity (like at the holiday season), a futures market for data center capacity can serve a purpose to contractually guarantee availability as well as to provide a vehicle for hedging and speculation based on anticipated supply and demand. We're sure there is something like this incubating somewhere — if you know of one point us at them.

Where Will All The IT Jobs Go?

If you look through some of the case studies that report on the reduction and consolidation of data centers, one thing stands out — an essential part of the reduction process involves a significant decrease in IT staffing. In HP's famous example of reducing 85 data centers in 40 countries down to four datacenters in two locations resulted in a reduction in IT professionals from 19,000 to fewer than 8,000. A 58% staff reduction is huge. Other data consolidation case studies talk about smaller reductions of around 15%. The good news is that organizations spending less on operations will free up resources that can be put into bringing online new functionality and, with that, partially offsetting the drop in headcount.

Fanboy

We're not trying to be Simon Crosby fanboys but it is sure fun to watch Simon (Citrix's CTO of the Data Center and Cloud Division) in a panel discussion because he clearly explains complex concepts and put misconceptions to rest. This week during an Interop keynote panel discussion Simon took on the notion that enterprise private clouds will only be housed on enterprise locations by pointing to the IRS (which already has much of its data housed in third party data centers and to service providers like Terremark which, by specializing in managed services, houses its customers' data in locations that are much more secure than their customers could ever match and protect these locations with armed guards). Simple, easy to understand and convincing. The Interop Panel Keynote can be found here.

Interop Wrap

This week's Interop conference seemed to go pretty well — the event organizers said attendance was up 2,000 to 18,000. Of course every vendor had their cloud tales to tell but much of the attention was focused on 10G in the data center — everyone wants a piece of this spending frenzy. Now 20 years old (time flies) Interop wasn't so much about "interoperability" as it was about data center connectivity, fiber channel over Ethernet, 10G convergence ... Interop wasn't so much a discussion about interconnecting things and organizations as it was about wiring up modern data centers. But then the single biggest expense for many IT departments in the next 24 months will be building their next generation data centers, so the focus on 10G was probably the right thing to be talking about.

Mars Sighting

The team that brought us Mars (the product line Cisco acquired when it bought SEM vendor Protigo) has reformed as Santa Clara based AccelOps a data center management company "for the rest of us."  Having released its first products earlier this year, AccelOps plans to specialize in "All in One" data center IT Service Management (automating discovery, mapping, analytics, monitoring and reporting functions).

Creating Killer Value Propositions — Time for a "big bang" value proposition

Value propositions are the vehicles by which positioning translates into the potential that your product holds for your customers. Like positioning, value propositions are about the future. Value propositions hold the promise for what your customers can gain by working with you. They are about what your customers want to become. It's up to you to create compelling killer value propositions that can hold up, even in this difficult economy. For this discussion we'll use some data center examples but the "killer value propositions" ideas are relevant to all technology markets.

The past three years has seen a huge transformation in the data center. Using virtualization as a key technology, CIO's have consolidated their distributed data centers from many to just a few. Data center operators have been buying fewer, more costly, physical servers to host their virtual servers. While on the surface it may look like spending is about the same, the reality is that virtualization has brought about a huge change in budgets and allocations. Consolidation has greatly reduced the number of data centers which both reduces costs (less power, fewer racks, fewer network ports) and lowers operating expenses. So last year's value propositions might not be relevant for the modern data center buyer. But newer, potentially revolutionary value propositions open up. For instance:

a) Changing the spending dynamics in an IT organization - traditionally, innovation spending in IT was only 20%-30% of the budget while the rest went for support. By, among other things, automating data center operations, CIO's believe that they can invert this so that 80% of IT spending is targeted at bringing new applications online. That can be a big competitive advantage.

b) Extending data center lifecycle - Once upon a time, data centers which housed mainframes had a 10 to 20 year lifetime. That's not the case with modern virtualized data centers - most CIO's figure that in five years they'll need to do significant upgrades. Strategies that can add even just one or two years to the operational usefulness of a data center will have a huge payback. If you're able to increase the utilization of a $300M investment by 40%, that's a huge benefit for any CIO.

c) Resiliency - With virtualization, data center operators are a significant step closer to either redeploying their high availability and disaster recovery infrastructure or, for many, actually putting in place HA/DR capability where none existed before. In either case, these are important high value strategies that can be addressed from a different perspective.

d) Network Convergence - Moving traffic onto a common physical connection. Right now each server in a data center has three connections (to cloud, to other servers and to storage) - double that when you count redundancy. Converging this onto the same fabric will "flatten" out the interconnect complexity in a similar manner as VoIP flattened out the telephony infrastructure.

We'll leave the rest to you — We're hoping that these examples can stimulate your thinking about developing your own killer value propositions and the ways that you can express them.

That ROI Thing

As many of you know, we're not big fans of using Return On Investment as most important value proposition for infrastructure investments.  We've written a lot on the subject in this newsletter and in our book.  Certainly, ROI has its place.  But it's important to build a strong case around other value props.  We're bringing this up because of two unrelated things that happened last week.  Early in the week we had a tech company come by to tell us how great their stuff was and how it could be used by energy companies to achieve a great ROI.  And later in the week, Exxon announced its $10.36 billion profit, the second largest for a US corporation.  While that tech company is doing some very interesting work, it might occur to them that saving Exxon a few million dollars of datacenter spending may not be Job #1 for a company that's embarrassed by its huge windfall.  Maybe trying a new tack like helping Exxon find more oil reserves faster or getting greater yields out of existing fields would be a better way to get senior management's attention.  Exxon would probably be tickled to have a few hundred million dollars of datacenter expenses to write off if it could substantially improve their oil reserve portfolio later on.