Where cloud service exchanges will work, and where they won’t.

It seems that exchanges will trade anything, and now they are looking at cloud-based services as something that can be purchased low, and sold high.    While this may seem strange to many in the cloud computing world, it’s no different than trading other commodities such as power, water, and oil.      At least that is their story.

So, the traditional exchanges are in the game. According to the Wall Street Journal: “In their quest for new revenue sources, exchange operators have consistently looked for new things to trade. Now Deutsche Börse, the operator of the Frankfurt stock exchange and Eurex derivatives exchange, is to start trading in spare cloud computing capacity.”

So, starting in the first quarter of 2014, buyers and sellers of at least one terabyte in cloud-computing “dataspace” will be able to match supply and demand via a new platform run by the exchange.    Thus, if a cloud provider has spare capacity, they will be able to sell it on this exchange.  Or, at least that’s the idea.

While this idea seems crazy, it’s really not that crazy considering other strange things that have been traded on exchanges in the past.   However, cloud computing resources, such as storage and compute services, are more complex in nature and require that those consuming the services understand exactly what they are getting.   Oil is oil, water is water, but compute and storages services are very different from provider to provider.    Thus, I would argue that they are not that much of a commodity.

However, these exchanges are not focused on the short-term procurement of cloud services, but the ability to purchase services in bulk, ahead of demand.   By doing this some businesses could purchase storage and compute services at a much better price than if they were acquired directly form the cloud service provider at the time of need.     Thus, much like airlines that purchase fuel ahead of demand, could smooth spikes in the cost of cloud computing resources into the future.

Returning to the core issue.   Cloud computing services are really not a commodity, and thus can’t be traded as a commodity.    The reality is that while it’s easy to consider cloud storage from one provider the same as from another provider, those who understand the technology know different.     This is more of an issue when considering compute.

Storage services all leverage different approaches with logical and physical storage, as well as the APIs that are leveraged to place information into the storage clouds, and pull information off.      Thus, the notion that you can mix and match them based on their market price is somewhat naive.    Thus, for this to work you would have to provide a market for a single cloud storage provider, even a single sub-service.

The only way I see these sorts of cloud exchanges working is for the services to be generic at time of purchase, but map to specific cloud computing service when the services are required.    For example, I purchase storage service credits at a specific price that may be redeemed later for storage services on providers such as AWS, Google, and Microsoft.    Considering that my applications are only mapped to Google storage services, than I would use my credits to purchase those services, hopefully at a discount.

Assuming that this would work, the trouble comes in when you have to find cloud providers who are willing to sell capacity ahead of demand via an exchange.    While there are plans in place from providers such as AWS that allow you to purchase services ahead of need, or even lock in a price, most cloud providers desire to directly control that process.    Else, they could find themselves out of capacity as storage and compute services are oversold for specific periods of time.

I suspect will see exchanges for cloud services, but I also susp]ect that they won’t exist on Frankfurt stock exchange or Eurex derivatives exchange.    They will be brokerage and exchange services that sit between the cloud service consumers and the cloud service providers.    A few of these are emerging today, but both the concept and the use of these services are in their infancy.

Thus, if you’re locked into leveraging a single provider you might as well negotiate with that provider directly.     Thus, no need for an exchange or a broker.     While many point to standards such as OpenStack and CloudStack as providing common APIs to the same types of cloud services as a solution to this problem, this won’t be the reality anytime soon.

While some notion of exchanges and brokers will certainly emerge, this could be the wrong product to sell within an open marketplace.     Just too much complexity in the mix right now, and into the near future.

Relevant Analyst

David S. Linthicum

SVP Cloud Technology Partners

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