Can you think of the common thread that runs between things as diverse as
water, gas, telephones, and electricity? A clue. Are you thirsty? Get the water
tap running. It’s dark snap on the light switch. Today we take these
facilities for granted. But they brought about a paradigm shift when they became
essentials of civilized life from being mere luxuries. They had a profound
effect on human civilization and soon became safe, reliable, and easily
accessible. Of course the research behind inventing these is long forgotten, as
they have become the basic ingredients of daily life.

The stages of development in methods of power generation are ancient history
now. During the days of electric turbines, if any business unit needed
electricity, it had to build a power generation plant to meet that need. It did
not have too many options. Today, the dynamics has changed to ‘pay according
to use’ or the utility model. IBM is banking on the same utility model to take
IT to the next stage, namely e-business on demand. And the market size is
estimated to be huge. Today, esourcing is a $6 billion business, most of which
lies in simple Web hosting. But by 2003, it’s projected to grow into a $55
billion market. And as it takes off almost all the growth will be in the
high-end value-added segments.

The U-model
The use of an outsourcing model has almost become a cliché these days.
Today companies across the globe are embracing the outsourcing option with open
arms and converting fixed cost like systems, manpower and electricity into
variable costs and focusing on their core business as someone else tends to
their IT complexities.

IBM is now taking outsourcing to its logical extension – esourcing. It is
only a matter of time before ‘the delivery of standardized processes,
applications and infrastructure over the network, as a service with both
business and IT functionality’ becomes a reality. In e-esourcing you have
on-demand delivery of infrastructure, applications, and business processes in a
security-rich, shared, scalable and standards based computer environment over
the Internet for a fee. Seems a lot like the ASP model. So is IBM getting back
on the ASP bandwagon? Counters IBM Global Service’s general manager for
e-Business hosting, Albert Lee Han Kiat “The original ASP models ran into
difficulty as they did not offer customized enterprise wide solutions and
integration with their existing legacy system. We have tied up with a number of
strategic partners and their application to become web enabled and follow the
remotely hosted model.”

Why e-biz on demand
While the first wave of the ASPs failed, IBM has launched a major ebusiness
on demand initiative. IBM believes that the demand for such services will be
driven by the ever-falling bandwidth prices. This trend will allow an enterprise’s
virtual private network to economically support more load sharing and
distributed architecture across data centers. The result: Network delivery of
enterprise applications and computing power becomes ever more feasible. However
in the Asia Pacific region and especially in countries like India, problems of
internal bandwidth will hamper the growth of esourcing. The second driver here
is the rise of distributed architectures. As more and more content presentation
and delivery migrates from centralized servers to distributed networks of
servers, companies will request for video streaming and other media rich
applications. And finally there is the advent of server and storage
virtualization. Increasingly companies are realizing that rather than investing
in dedicated physical computing and storage resources, they can have limitless
‘virtual’ capacity on a pay as per usage model. Companies are fast realizing
that these trends will convert IT to the utility model. No need to own the
generating plant if you get as much as you want and when you want.

The strategy
The IBM e-business on demand model depends on three key elements viz.
Infrastructure on demand, business process on demand and know-how.
Infrastructure on demand is at the bottom layer of the strategy and aims at
providing capacity on demand for issues like processing, storage and bandwidth
as well as the management services to operate, optimize and administer a shared,
scalable, underlying technical platform.

Comments Kiat, “Infrastructure on demand helps to keep you from gambling
on unfamiliar technology. Our objective is that our customers should concentrate
on their core competency and leave the technology management to us.”

The second layers – business process on demand – strengthen the basic flaws
of the ASP model. Web based integrated software from IBM and its business
partners help them to design and deploy e-business applications as well as
entire business processes (for example, e-procurement). All this is enveloped by
IBM’s repository of know how and expertise acquired from decades of
outsourcing and service experience.

The question is whether companies will fall for this bait. In early March
this year, American Express signed a seven-year £2.8 bn deal with IBM to use
its computing resources on a utility basis. As per the deal IBM will provide
data centers and computer services from Amex facilities, support the company’s
systems and web sites, and provide technical support services globally. It seems
like a win-win situation for both the companies. For instance, during the
Christmas shopping period, Amex handles many transactions and can simply scale
resources up or down according to peak pressures rather than adding new
capacities, which might be redundant after the peak loads.

IBM is serious about its e-business on demand initiative. While it is already
one of the world’s largest hosting businesses, IBM is further investing about
$4 billion to build out this capability. The potential — a $55 billion market
by 2003. And that is just the tip of the iceberg as hosting is a very primitive
version of the sophisticated computing services that customers will be able to
rent in the future. And if IBM is right on this trend, it could be laughing all
the way to the bank.

Yograj Varma in Phuket, Thailand