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Steve Evans, senior vice president of information systems at PGA Tour, knew there was gold to be had in a new scoring application his developers had built. But he also knew the capacity demands to support the application would be too great for his team to handle. Before tossing his revenue-generating idea aside, Evans found the CPU strength he needed in an on-demand computing service.

"We had built this state-of-the-art scoring system where we capture every shot that's hit on the PGA Tour, and we thought it would be cool to share that with people over the Internet. We were excited about the application, but the group I lead doesn't manage many public-facing servers," says Evans, senior vice president of information systems at the company.

The company would have needed a significant personnel and capacity boost for its datacentre, including servers, storage, power and heating and cooling, to handle the eventual spikes in usage during each tournament - a cost that would have negated any potential revenue.

"Our biggest spike since launching the application has been over 100,000 people accessing it simultaneously. Normally, we only have tens of thousands of users. There is no way we could have done the project if we couldn't outsource it," Evans says.

To gain the added computing cycles he required Evans took advantage of a new trend in datacentre outsourcing - capacity on demand. Aimed at small to midsize companies, providers such as IBM Global Services, Sun Microsystems and Amazon.com are offering users CPUs on an as-needed basis.

A good fit for start-ups

Andreas Antonopoulos, senior partner at Nemertes Research in New York, says on-demand CPU services are a boon to start-ups. "This approach makes a lot of sense. Companies usually die in their first period because they can't handle scaling. Now, with this option, they can prove the viability of an idea without a lot of risk," he says.

Start-ups often get bogged down in the costs of setting up a datacentre infrastructure large enough to handle the needs of their applications. "Start-ups aren't good at managing infrastructure. This allows them to focus on their core competencies," he says.

Rakesh Kumar, a Gartner analyst, says that start-ups are not the only potential beneficiaries. Instead, established companies that have outgrown their own datacentres could be candidates for on-demand services. "They might be on the brink of expanding but not have the budget to procure new equipment or new space," he says.

Companies in transition to new datacentre sites could also benefit from the short-term pricing. "They can switch their operations to the service provider for a certain period of time and not take a loss during their move," he says.

"Basically, anyone who has a substantial need for technology but doesn't want to or can't invest in the personnel, equipment and facilities could use these new services," he says.

Adam Selipsky, vice president of product management at Amazon.com, says his company hopes to alleviate the pressures on companies trying to vet and launch new services. "How they architect storage is not what start-ups talk about to their customers," he says. "This will free up a whole slice of their lives to figure out what business they want to build and how they're going to find and retain customers."

Amazon.com is in the beta stages of deploying a pay-as-you-go service it calls the Elastic Compute Cloud, or EC2, but the company had not set a date for wide-scale release.The goal is to offer customers a portion of Amazon's infrastructure. "We've spent 11 years to create one of the largest Web-scale applications. Think about all the infrastructure-level things we've had to do to get where we are. Now anyone can look and feel like they have the scale of Amazon with a very reliable, highly scalable and flexible architecture," he says.

Avoiding lock-in

A big benefit to both Amazon.com and IBM's approach is that users don't have to enter into multi-year contracts like they do with traditional datacentre outsourcing. "You don't have to lock yourself in with any of these plans," Kumar says. "It is that flexible model that we're seeing evolving in the industry today."

Evans, who uses IBM's service, says he has been very happy with the decision to outsource the application and renews his contract every few months. "Since this is a new service, we didn't want the fear of the five-year contract," he says.

As rosy as his experience has been, Evans warns his peers to do their homework upfront.

"You've got to get your business model right before venturing down this path. If you're not prepared to be great at that, then maybe you should do rethink the decision," he says.

In fact, Evans hired an outside firm to perform load tests on the PGA's TourCast application. He focused on how the system handled the data being generated in his datacentre along with the application being hosted by IBM. "We wanted to make sure the application could handle the load we were generating almost every 30 seconds," he says.

Evans wrote the test into the project plan with IBM. "It was one of the agreed-upon benchmarks we established," he says.

He also recommends keeping a close eye on the service provider relationship and spending time developing a service-level agreement. "You always have to worry about control," he says.

Guarding the enterprise

Gartner's Kumar says companies offering these services are using virtualisation software to better assess pricing at a very granular level, even down to the actual CPUs used on a particular server. So rather than paying for the possible use of hundreds of servers, users know exactly how many CPUs they are being charged for.

Still, customers should be cautious.

"The disadvantage to this model is that you're suddenly tying your company's fortunes to that of another company," Nemertes' Antonopoulos says. He encourages users to research the provider's ability to respond to support needs as well as its overall financial health.

Antonopoulos says he can see a fit for this model in the world of franchisees. "In a franchise environment, franchisees take cues for what operations should look like from the franchise leader. It would be smart of them to do the same cookie-cutter approach with their technology infrastructure and allow franchisees to share their resources. They could use technology to help them standardise across the board," he says.

Some experts have concerns about companies in heavily regulated markets like the financial sector engaging in this type of infrastructure-sharing.
But Mike Grandinetti, chief marketing officer at Virtual Iron Software, says users can cover their compliance bases by writing a solid service-level agreement. "Providers have to be able to meet whatever requirements you place on them. If you require weekly, hourly or monthly reports, that's just part of the packaging," he says.