Where is my traded market for cycles?

There's quite a lot activity in the cloud space these days, what with Amazon, Google, and a pile of others entering the market. And it is probably quite true to say a  few institutions are considering how they might use these services in substantive way down the track.

Let me make my own thoughts on this clear. In 10 years, 2 decades at the most, I believe banks will own neither data centres or networks. Networks are expensive things, and you always run out of money before you can provide enough bandwidth to everyone who wants to use them. At least, that's what happens when you build your own ones. Public networks are quite a different story, though.

And today's data centres, fixed to specific location, are almost never efficient to run. But new ones are springing up with access to environments useful for cooling, and lovely green hydroelectric power.

Let us now imagine the imposition of a national carbon emission tax on IT, which some countries are already considering. The impact is that inefficient data centres would get expensive very, very quickly. Why on earth would you own one with all that kind of uncertainty about it's future?

And a bank of any scale owns several data centres, not just one.

In any event, it will be economics of running infrastructures in a climate of energy price instability and regulatory uncertainty about carbon that force institutions to use cloud resources for core processing. I'd not be surprised to see banks putting their processing in locations that optimise the cash return per cycle, and switching locations around rather often.

You will be able to do a virtual data centre soon, one with all the security and enterprise operations features that banks presently demand from their private infrastructures.

But the point is that once you have a virtual data centre, able to move its physical location around as needed, you then need some certainty about its future costs of operation. Data centre operators are subject to significant variability in their cost of operation: their key input is energy, which is price-volatile (and becoming increasingly so).

So, where is the emerging traded exchange for cycles? Where are the futures contracts we'll want to get a price optimised across the decades we have to run systems? Are data centre operators even thinking about the financial instruments we'll need to have in order to use their shiny new facilities for anything at all mission critical?

I don't think so. At least, I haven't seen much evidence of it. But one thing I can say: bankers I've spoken to in lots places around the world are wondering at their absence. Perhaps it is an opportunity we -as in financial institutions collectively – pursue independently of the data centre providers?

5 Responses to“Where is my traded market for cycles?”

  1. t.o.
    August 21, 2008 at 3:34 pm #

    While the view taken on banks not owning data centers is at first impressions a stretch, I do agree with your observation that the pendulum is in motion toward cloud services.
    With managed services, SAAS maturing and providers getting lessons from a couple of generations (roughly 10 years)of experience. Examples: first there was ASP and now SAAS, as well as outsourcing and now managed services. The collective experience is bound to shift the general mindset and as competition heats up the $$ are bound to change the conversation to stay competitive.
    In the meantime, what are the barriers to acceptance on SAAS solution in the banking arena?
    I contend security but I am curios to know what you think.

  2. Stephen Butcher
    August 22, 2008 at 2:44 pm #

    Interesting article but a bit vague – 10 years two decades at the most, this is an eternity for information technology and the pace at which that space changes but something worth looking at.

  3. M.G.
    August 22, 2008 at 3:47 pm #

    Actually in Bank terms, 10 years is pretty aggressive. Most to Stephen’s point above, the effort to maintain upgrades, expansion, and compliance would extend a Bank’s plans to just consolidate Legacy systems or acquired infrastructure.
    Ultimately, we could see Banks producing their own cloud then outsourcing the support and eventual assumption of assets with the requirement that the third party is a certified provider and has financial stability to withstand a major compromise. I.e. HPEDS, IBM, Honeywell, etc..

  4. August 23, 2008 at 9:25 am #

    Are there really any barriers to moving to the cloud other than those of our own making?
    People always raise the spectre of security, but let’s face it, these are problems one can solve today. The problem is that we build our systems with a fortress mentality at the edge, and imagine that this secures what goes on at the core. To move a critical system to the cloud, it has to be able to secure itself.
    It requires a change of thinking about how we build systems, certainly, but is nothing that couldn’t be done with time.
    As to the comment by Stephen, I realise that things move quickly for information technology in general, but that’s not necessarily true of what happens inside a bank. We have systems that we’ve beeing runing for two decades or more. Changing them will take years, and they will need to change in order for us to move to a cloud model.
    Do I see banks owning their own clouds? no, not really. How would it be different from running data centres today? We might demand more control over the inputs than other kinds of customers, but the economics of private data centres are broken in a carbon tax regime.

  5. August 23, 2008 at 10:23 am #

    Datacentres are more like real estate than anything you could trade rapidly. Past a certain scale it cheaper to finance than to rent.
    One man band: mail-boxes, etc. / $10 VPS @ Slicehost.com
    5 person company: 1yr office sub-let / £600/m managed server
    30 person company: 4yr lease / private server rack or VPS node
    Citigroup: Tower built to order, re-let to other tenants / huge server farm spare space resold to telcos.
    But I doubt Citi actually manages much of its own building’s sewage, power, cleaning or telecoms needs
    And similarly to CIti having 1000s of retail branches on short leases position according to foot fall, you can off-load a lot of customer facing systems onto people like Akamai now…

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