My Doubts About Idea Behind SpotCloud.com

This is part 5 of my series on pricing in the cloud.

The moment a second provider joined Amazon Web Services in offering IaaS cloud computing service, people in the industry started talking about a cloud computing marketplace where providers would be able to list available resources and customers would be able to buy them - on-demand pay-as-go no-long-term-contracts priced-by-the-hour practically-infinite-capacity scalable infrastructure bliss would ensue.

And while most were still talking and dreaming, someone actually went ahead and started putting wheels in motion. Spotcloud.com was announced on November 1, 2010 on a personal blog of its founder. I was reminded of them when I came across an update its founder recently gave GigaOm, so I thought I’d post something on the topic.

Self-described as “the first cloud computing clearinghouse & marketplace” that follows “opaque” sales model like hotwire.com, SpotCloud aims high. But despite its reported growth on the supply side (see GigaOm link above), I personally have many doubts the time for this idea has come.

In a nutshell, I doubt there will be sufficient demand from legal workloads whose primary focus is on CPU cores and RAM; I doubt a single workload can remain on "opaque" infrastructure for long; I doubt a cloud capacity marketplace today can withstand pricing pressure from real clouds; and I doubt competing with real clouds primarily on price is a viable strategy. Let’s explore these in more detail.

Sufficient Demand

From the post on GigaOm I learned that currently SpotCloud has suppply commitments of 10,000-25,000 servers (please note that I am not aware of any independent sources that could confirm or deny this information). The numbers might look impressive to you, but remember that it’s only supply - providers with unused hardware that just sits in their datacenters are offered to sell it by the hour. It’s a “no lose” proposition so supply looks OK as was expected.

But as most of you are well aware, a marketplace can’t function well with only supply - it also needs matching demand. (Do you know what happens when supply overwhelms demand? Prices race down to zero or providers withdraw. Just FYI.)

Let’s start with all cloud workloads as if all of them could run on top of spotcloud.

First, we will have to eliminate workloads that require persistent storage or fast access to data. With “opaque” sales model, you don’t know where your application will run next time so you can’t expect to always be able to find your data nearby.

Second, we will need to eliminate all workloads that are constrained by compliance and/or audit requirements, as these will demand consistently getting the same operational environment which can’t be guaranteed with opaque model.

Then, we will need to eliminate all workloads that need to be discoverable and addressable from outside (in other words, services that publish their IPs to public DNS) - opaque model means you never know where you will end up and hence you’re stuck with dynamic IP addresses.

And finally, from all workloads that are left, eliminate ones that already run on-premises, in the cloud or in managed hosting environments and that will not want to disturb their status quo and will opt not to move.

What are we left with? CPU/RAM-intensive applications, without big needs to access a lot of data or access data fast enough, that don’t need to be listed in DNS, and that are reckless enough to try something new in terms of their hosting. Does it sound like sufficient demand to you?

Also, in the summary above I said “legal” because there are many workloads that can’t run in the cloud to begin with - malware distribution, spambots, botnets and other cyber creatures because these workloads violate clouds’ terms of service or acceptable use policy (or equivalents). Do you think a seller participating in spotcloud will be interested in running these?

Staying on "Opaque" Infrastructure

Here is what I mean here. In case of Hotwire, “opaque” sales model only works because most people end up going to different places every time they travel. Imagine you went to New York once and booked your hotel room at Hotwire. Now imagine you go there again and once again book through Hotwire and end up in the same hotel. If you are rational, next time you have to go to New York you will look up hotel’s direct phone number and see if you can get better terms. In other words, if you keep going to the same place, “opaque” sales model is irrelevant - you are better off dealing with supplier directly. Logically, a provider is very unlikely to be unable to give you better terms than an intermediary.

If you have a workload for SpotCloud, you run it and end up at provider X. (How can you tell? curl http://checkip.dyndns.org + whois). Say you have a similar workload and you once again end up at X. What prevents you from cutting out the middle man and renting your infrastructure straight from X?

(Answer: exclusivity clause in contract between SpotCloud and X. But can you think of a hotel anywhere in the world that willingly agrees to sell its inventory exclusively through Hotwire? Me neither.)

Pricing pressure

The front page of Spotcloud.com touts “up to 60% off cloud capacity” as one of the key benefits to buyers. Even if you think spotcloud can meet this claim initially, I strongly doubt it will manage to do so over time - IaaS prices are constantly under pressure to go down. Amazon alone has announced several price reductions over the past few years.

Without doing anything, a SpotCloud provider runs a risk that eventually real cloud will drop their prices to its levels, thus negating a key value proposition it might have. Competing on price against clouds, with their direct distribution channels and enormous economies of scale, may not be the best long-term strategy.

Conclusion

The only thing going for SpotCloud.com appears to be the first-mover advantage. Financial exchanges could put a lot of emphasis on it, as it matters a lot in their world. But realities of financial market are very different from those of compute capacity market.

Hats off to SpotCloud for pioneering the implementation, but I have doubts it will work out in the near future. The idea of cloud capacity marketplace could sound interesting and it will eventually materialize but not any time soon, in my opinion. Also, I don’t think a successful cloud capacity marketplace could follow the “opaque” sales model any time soon.

Categories: cloud-computing | economics |