Cloudonomics: The Business Value of Cloud Computing, + Website

Commoditization or Innovation?

There are divergent views concerning the extent to which there is and will be commoditization in the cloud.

Leading Edge Forum’s Simon Wardley is perhaps the best-known proponent of the view that the cloud is the result of the inevitable commoditization of discrete IT activities. According to Wardley, this process is inexorably driven by customer demand which drives ubiquity in conjunction with provider competition which causes convergence. In a counterpoint to the Pine and Gilmore view that the world begins with commodities and successively evolves to products, services, and experiences, in Wardley’s view, the life cycle begins with a one-off innovation, followed by custom-built and then increasingly standardized products. After this, products become commoditized and ultimately may be provided as a utility service. Wardley drew an analogy with electricity, where the original innovation has evolved to a ubiquitous, undifferentiated, commodity service. Similarly, he argued, since the early innovations in computing, we have now moved into the era of commodity computing services.47 A cadence of price cuts among leading providers, some of which are operating with thin margins, lends credence to Wardley’s view.48

Wardley may be correct, although such an outcome would be disappointing for cloud service providers hoping to maintain margins. However, there are alternate lenses with which to see through the haze of the cloud. Paul Strebel, of the International ...