European utility computing market worth €1.8bn by 2008

19 Nov 2004

MONTPELLIER – Utility computing – the concept that computing services will be available to individuals and business on tap in the same way as electricity or water utilities – will grow 35pc year on year in the European market to be worth €1.8bn by 2008, say IDC. However, perceptions around control, security, standards and aversion to risk may dog progress in the years to come.

Utility computing – otherwise known as grid or on-demand computing – is being positioned by IT giants like IBM and HP as the next major trend in business computing whereby an entire firms’ IT needs would be managed remotely and paid for as required.

Lionel Lamy, research manager for IDC’s European infrastructure business told an IBM conference on deep computing and grid computing in Montpellier, France, yesterday that the present market is worth some US€350m but has the potential to grow 35pc year on year to become a €1.8bn market by 2008 so long as “vendors are educating the market and concepts like utility and deep computing really are for the future.”

However, even if this growth rate is achieved, utility computing will account for a small share of an overall global IT market valued at US$70bn by that time. Lamy ventured that even by 2010 utility computing would still be in its infancy.

Lamy defined utility computing as: “the provisioning of computing power to the client on a flexible, metered usage pay-as-you-go basis from a remote site. This includes the provisioning of servers, software applications as well as storage and security.”

He said: “On-demand computing will take a large share of the computer market, but I don’t believe that it will be everything.”

Highlighting the uphill battle utility computing faces, Lamy said: “Today the market is seeing a lot of interest but very few sales. At present the market is being dominated by early adopters. We believe the next growth curve will be dominated by small and medium-sized businesses before large companies role it out as a strategy. However, at present it is mostly about piloting and proof-of-concept.”

He said the major inhibitors for utility computing include: a perceived lack of control feared by IT managers; security risks associated with entrusting IT to an outside provider; competitive risks; an unclear exit strategy from the on-demand computing arrangement; a culture of risk aversion amongst European businesses and a need to further develop software licensing to suit on-demand computing.

However, Lamy argued that the benefits of utility computing far outweighed the inhibitors. “The drivers for utility computing amongst businesses are it facilitates cost cutting with a lower total cost of ownership, flexibility, scalability, competitive advantage and access to skills. Because the service is being managed remotely, businesses no longer need to worry about employing expensive IT people or fear them leaving, that’s the job of the service provider. Access to skills is vital to businesses today.

“If utility computing is going to be a success, the providers will need to create standards that would encourage business adoption. Also vendors like IBM will need to educate the market about what can be achieved through utility computing.

“Today, managed services is a big market in Europe, but over the next three to four years utility computing will potentially surpass managed services. I have a gut feeling that timing is the most important thing and the major players will include telcos like BT, outsourcing providers and solution providers like IBM and HP.”

Lamy reiterated the need for education in the market as well as a good flow of case studies that demonstrate a good return on investment and solid service level agreements being honoured. “There is a lot of interest among European businesses in utility computing but that does not translate into firm technology sales because there are perceptions and fears that need to be banished. IBM needs to develop its offering and educate its sales people as well as the market. It’s not like selling a piece of software or hardware.

“Potential users also need to decide if utility computing is right for them and discuss and agree service level agreements and exit strategies very early as well as planning for the eventual transition by piloting the technologies involved. Also, the relationship between the technology and the provider will have to change from a supplier and customer role to a complete partnership.”

Lamy concluded: “Utility computing is certainly grabbing the headlines but so far there have only been a few sales and the service offerings come in vastly different flavours. The technologies are there but there are no clear standards. Also there is a culture of reticence among businesses about it and security fears are widespread. However, utility computing is definitely the model for future computing and the advantages outweigh the risks. It is up to the IT solutions providers like IBM to decide if it the concept of utility or on-demand computing will occupy 15pc of the European IT market or 70pc of the market. It will be 2010 before utility computing really happens in Europe.”

By John Kennedy