Fortunately, that may all be about to change, thanks to the emergence of a new approach to computer services dubbed utility computing or "e-sourcing." This new strategy offers businesses access to IT services-bandwidth, server time, data storage, software applications, even business processes-through an independently owned and operated network. Customers get the services they want, when they want them. Best of all, they pay only for what they use. There is no investment in IT infrastructure.

"The emerging excitement over utility computing stands in stark contrast to the dismal current picture for co-location and managed services providers," notes Bill Martorelli, Vice President, Enterprise Services Strategies, at the Hurwitz Group, an IT industry research and consulting firm. "By offering a variable-cost alternative, the advent of utility computing opens up exciting new possibilities for enterprise customers increasingly concerned with the high costs of current computing models."

Along with significant cost savings over traditional approaches to business computing, this new concept offers additional benefits. It can help companies simplify the adoption of new technologies, minimize IT hiring and training obligations and shorten the time it takes to get a new business idea up and running. Speed-to-market is at the top of the agenda for most entrepreneurs, who want to make sure they come out with new ideas before their competitors do.

The high cost of building a computer system has been a roadblock to some businesses.

Utility computing will probably focus on delivering traditional IT services in the beginning. Eventually, however, it is expected to provide all sorts of business applications that companies will pay for only when they need them. For example, your new company may only need to use a powerful accounting software program half a dozen times a year. Wouldn't it be nice to have the option of "renting" that software rather than paying big bucks to buy it outright?

Most of the best-known names in the IT industry (IBM, HewlettPackard, Compaq, etc.), along with a host of smaller companies, are positioning themselves to jump on the utility computing bandwagon or have already launched initiatives. Some are focusing on providing the underlying hardware and software infrastructure, some on content and processes. One of the most comprehensive and wide reaching efforts to date is IBM's "ebusiness on demand" project, and senior executives at the company believe that this is the future of business computing.

BIG BLUE SPEAKS

Lou Gerstner, IBM's chairman, president and chief executive officer, set the tone in December 2000 when he declared that the future of business computing would be the sale and delivery of information technology as a utility-like service over the Internet.

"We are rapidly approaching a day when customers aren't going to have to own, manage or even house any of the traditional assets of our industry," he said. "The processing, the storage, the applications, the systems management, security, load-balancing-all of it-can be provided over the `Net as a service."

To be sure, some observers have been skeptical about the claims being made for utility computing. They point to the hype surrounding e-commerce in the past and previous outsourcing trends that did not live up to initial expectations. `They want to know if utility computing is for real or merely the latest hope for vendors anxious for a way out of the current industry slowdown," Martorelli says.

A growing chorus of independent voices and a gradually building base of satisfied customers suggest that e-sourcing really is something new, different and potentially valuable.

One such voice is 12 Entrepreneuring, a San Francisco based operating company that builds technology-enabled businesses (Grand Central, Oxygen Software). John Hagel III, the company's chief strategy officer, and John Seely Brown, its chief innovation officer, recently voiced their confidence in this new IT strategy in an article in the Harvard Business Review (October 2001).

"No doubt, many executives are skeptical (of the concept)," they write. "They've heard outsized promises and indecipherable buzz- words before, and they've wasted a lot of time and money on Internet initiatives that went nowhere. This time, though, there's an important difference. The technology providers are not making empty promises: They're backing up their words with massive investments to help create the infrastructure needed to make the new IT approach work. As these efforts continue, over the next year or two, a steady stream of new, Internet-based services will come on-line, providing significant cost savings over traditional, internal systems and offering new opportunities for collaboration among companies. Slowly but surely, all your old assumptions about IT management will be overturned."

Eventually, utility computing will provide all kinds of services cost-effectively.

At the heart of the e-sourcing revolution is Grid computing, a technology that got started in the scientific and academic community and is just now migrating to commercial application. Grids are clusters of computer servers joined together over the Internet, using "open" computer languages that let them communicate with each other. Computing grids allow lots of different people and businesses located in lots of different places the ability to share applications, data and computing resources.

ANALYST CITES ADVANTAGES

Grid protocols are designed to allow companies to work more closely and more efficiently with colleagues, partners and suppliers, Tapper says. They do that through:

* Resource aggregation, which lets corporate users treat a company's entire IT infrastructure as one computer through more efficient management.

* Database sharing, through access to remote databases-particularly useful to life sciences, engineering and financial firms.

* Collaboration, allowing widely dispersed organizations to work together on a project with the ability to share everything from engineering blueprints to software applications.

Making Grid computing a reality on a commercial basis will require a massive, if disparate, infrastructure, and as Hagel and Brown note in their article, the equally massive investment needed to create that infrastructure has already begun.

IBM Global Services, for example, has announced plans to invest some $4 billion in a worldwide network of computer farms to support Grid computing. The company has already garnered important experience in this area through its work on scientific and academic Grid computing projects, including a $50 million initiative in the United Kingdom.

"IBM believes strongly that Grid computing and the emerging Grid protocols will grow beyond their current home in the academic world and become a foundation for the delivery of computing to business customers as a utility-like service over the Internet," says Dev Mukherjee, IBM Vice President of E-sourcing Strategy.

We are rapidly approaching a day when (all IT) can be provided over the `Net.'

While the development of commercial computing Grids is key to the emergence of utility computing, this new concept is also dependent on the convergence of other technologies, most notably Web services and enhanced, "self-healing" distributed systems management, Martorelli says.

Just about all software companies are adopting Web services as the basis for their middle ware offerings to facilitate e-business integration requirements, notes Jeff Gore, IBM Vice President of Esourcing Technology. "Grid protocols have been designed primarily to support the needs of the scientific community in the past. They need to emulate Web services and be extended to support the requirements of commercial e-business applications," he says.

"Chief among them is the ability to dynamically integrate applications and business processes, and the ability to execute high volumes of transactions against shared databases. We are working closely with the Grid community to help evolve Grid protocols to support commercial as well as scientific applications, encompassing web services when appropriate."

Hagel and Brown point out that construction of the Web services architecture is still in its early stages and will require years of investment and refinement. They warn, however, that this does not mean companies should wait to begin the transition to a new utility computing IT strategy.

Grid computing is the principal technology at the heart of this emerging concept.

"Even today, benefits can be gained by moving to a Web services model for certain activities and processes," they say. Companies should take a pragmatic, measured approach to deploying that strategy, and the Web services architecture is ideally suited to such an approach, they add.

For the Internet to be an open and robust computing platform capable of supporting the e-sourcing model, its management capabilities must be significantly enhanced. The increasing complexities and sophistication of the Internet call for an autonomic computing infrastructure.

Utility computing infrastructure users must be able to specify their requirements as policies to be followed for performance, scalability, availability, security and other key parameters. The various systems in the infrastructure must then execute those policies and adjust their computing capabilities as needed.

To be sure, there are obstacles that go beyond technology that must be overcome before adoption of the utility computing model becomes widespread.

"Utility computing models are tantalizing in their ability to provide for variable-cost computing architectures, but technology itself is probably the least of the problem," Martorelli contends. "Both existing buyer behavior and organizational structures typically built around technology 'silos' will have to evolve to make it a reality. New business models for products and services enabled by Web services will also have to emerge."

SPREADING FAST

Still, there is strong early evidence that adoption of the utility computing model may turn out to be one of the fastest and most far reaching developments in the history of the IT industry. Trends of this sort are generally led by smaller, cutting-edge enterprises, and there has certainly been some of that activity in the e-sourcing arena. However, IBM has already inked a deal that brings utility computing to the top echelon of corporate America.

In what IBM describes as "a historic, first-of-its-kind collaboration between Fortune 100 companies," IBM will provide hosting services to manage Dow's rapidly growing Internet-based business, which has experienced a nearly 4,000 percent increase in customers since 1999. IBM researchers will work directly with Dow Chemical Company tech engineers to build utility-like computing pipelines on the Web that will allow Dow to access IT-software, server time and data storage-from IBM on a pay-as-you-go basis.

"Information delivery is becoming a utility, like electricity, gas and water," says David E. Kepler, Corporate Vice President, Electronic Business, and Chief Information Officer at Dow. "Quality customer care in today's dynamic e-business environment requires the predictability of a utility-based computing model. Our agreement with IBM enables us to maximize the availability, performance and quality of our online information and services for customers. Information delivery should be as simple and reliable as flipping a switch and getting a light."

The most relevant question now about utility computing is simply `when,' not `if.'

As things now stand, the most relevant question about utility computing's future appears to be simply "when," not "if." Martorelli believes it will play a significant role in the future of IBM and other leading IT industry companies, although it will take some time.

"What they are offering is a new form of outsourcing that is more effectively aligned with business impact than previous attempts such as IT outsourcing and business process outsourcing have been," he says. "Conceptually, this is targeted at the chief executive level, with the prospect of variable costs and real payback in CEO-relevant terms. That's the kind of message that really resonates in those precincts."