The Industry Warms Up To On-Demand Computing

Was that speech really made just one year ago? It's hard to believe after being pummeled for what seems like eons by unrelenting on-demand marketing hype. Yet at this crucial juncture, Palmisano's wager is looking wiser every day--for both IBM and the industry as a whole--as business partners and customers warm up to the IT-as-a-service message. Also helping propel matters is the fact that IBM and a cast of rivals including Hewlett-Packard are finally anteing up with some tangible products to fit into their on-demand road maps. This fall alone will see the advent of a new family of automation products from IBM's Tivoli group, code-named Project Symphony; new storage virtualization technology from HP; and a new database from Oracle that sports grid technology, among other technologies.

Perhaps more important, however, is the growing acceptance of on-demand by your peers in the field. Slowly but surely, solution providers large and small are beginning to tinker with on-demand offerings and, in some cases, cash in with real projects.

Take SkyITGroup, a New York-based solution provider and consultant that specializes in the midmarket. It is deep in the on-demand trenches with customers ranging from gun maker Smith & Wesson to New York's top clothing manufacturers. To give one example, SkyITGroup recently worked with apparel manufacturer Elie Tahari to solve a business problem that SkyITGroup president and CEO Jay Hakami calls "a classic example of getting information on-demand whenever and wherever you need it."

Specifically, Elie Tahari was struggling with information bottlenecks. Its highly inefficient mechanism for getting reports into the hands of key senior and middle managers involved rekeying information from AS/400 systems into Excel spreadsheets, then e-mailing those to the managers. By the time executives got the information, it was stale. SkyITGroup crafted a data-mining and business-intelligence solution that eliminated the data-entry redundancy by funneling AS/400 information directly to a Web browser front-end. The information flow is two-way and up-to-the-minute, allowing managers to drill down on the data and respond to changing business needs in real time. The system also triggers e-mails to managers in advance of problems with key business processes, such as inventory levels dipping too low. The key application is WebFocus from Information Builders, built on top of IBM's WebSphere Application Server using Java tools.

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"It's not about new products, but how you use products to unlock data and systems," Hakami says. "The common denominator for on-demand is that we have the Web today, and we are able to get information out and present it faster, quicker and integrated with legacy software."

And who says you can't make money while you're at it? The Elie Tahari deal yielded $40,000 for the software and $100,000 for the implementation work, Hakami says. The project is ongoing, with SkyITGroup retained to help manipulate the data-mining application as needed. The company has also been tapped to launch an external on-demand solution for Elie Tahari--very much like traditional EDI but based on open standards--that will allow the manufacturer's customers to place and check orders online automatically.

That's just one example of where on-demand can play a role in your business. And it is highly typical of the very focused, discrete projects that will mark the first iteration of this kind of work, says Nora Denzel, senior vice president and general manager of HP's software global business unit, who is in charge of HP's version of on-demand, Adaptive Enterprise. Denzel, whose refrain echoes Hakami's, is resolute in describing the transformation as a journey to be taken in baby steps. "It's lots of 30- to 60-day projects to get to this state of linkage of processes and IT. And that's where our partners come in," Denzel says.

Indeed, a truer picture of on-demand is emerging that is ripe with partner opportunity--one that arms VARs, ISVs and integrators with an attractive sales message around IT efficiency, reuse, standardization and services-based delivery, and payment models. On-demand also requires a big investment in new infrastructure by customers, as well as more consulting gigs to sort out the implications and deployment.

"For partners, we are really saying this is a consultative sale," says Irving Wladawsky-Berger, general manager for e-Business On Demand at IBM, the top dog on this most important of IBM initiatives. "But instead of them showing up with a hammer, we want partners to go in and understand that their customer's problem might require nails or pliers instead. It's not a commodity product sold over the Net, but a case of establishing a longer relationship over time that involves trust."

Not There Yet
But even IBM will tell you that it's early in the game. Estimates by analysts firms like Summit Strategies and Gartner range from five to 10 years for true on-demand evolution. We still don't have a grasp on the total cost of implementation, what all the technology pieces are, and just how the business model is going to work. But how this will all play out is getting clearer. Along with an initial upsurge in consulting and services demand, you are likely to see new life breathed into applications outsourcers and managed service providers that offer software as pay-as-you-go services. IBM is even hoping on-demand will bring a renaissance to the mainframe. HP has committed $4 billion to R&D around its Adaptive Enterprise, including a plan to enable every hardware device from handhelds to servers with grid capabilities. Sun and Oracle are just beginning to chew around the edges of on-demand with grid technology, utility-based payment models and software reference architectures.

Ironically, the on-demand vision is essentially the same for all vendors: enabling IT as a service--a dynamic, flexible system that morphs and responds automatically to business needs and make the most efficient use of resources. Their differences come in style and approach. IBM, no surprise here, is all about consulting services and outsourcing. It encourages partners to first assess a customer's business problem or goal, then figure out a way to apply technology. That puts a heavy onus on partners to bone up on vertical-industry expertise and work hand in hand with ISVs and, in some cases, IBM Consulting Services or IBM Global Services. Companies like HP and Sun are more product-oriented, focusing heavily on the hardware infrastructure sale and management software overlay.

"Nobody is there yet" in the race to deliver IT as a business service, says Mary Johnston Turner, vice president at Summit Strategies, Boston. Of all the vendors, HP has done the best job articulating the one-step-at-a-time reality that encourages partners to set out on targeted projects with short ROI.

But just how serious IBM is about on-demand was evident last month when Palmisano hosted a forum for a select group of 75 venture capitalists and ISVs that offered the chief's top-down scoop on how investing in IBM's vision will be a big boon.

"Its strategy is collaborative and cooperative," says Brooke Coburn, an investment analyst with The Carlyle Group, who attended the forum. "They are actively seeking out external innovation to combine with internal IBM innovation, and wrapping them into integrated customer solutions. The subliminal message was, 'Let's make money together--we won't compete with you.' That point should resonate [with] ISVs."

Coburn's comments are right out of the IBM playbook, one that seeks to draft partners into building a plethora of solutions on top of IBM infrastructure. IBM's channel team has put together the e-Business On Demand Sales Pack, filled with training and sales material to ready business partners for on-demand engagements. Other resources provide a road map and some guidance on specific products, but primarily they emphasize selling solutions, services and maintenance, and also working directly with ISVs to create software that focuses on automating business processes and applications around vertical industries, such as retail.

It keeps coming back to services. Many industry pundits predict that the on-demand world means solution integrators will have to evolve into consultants who work with customers in helping to determine the best set of services for their businesses. "[Solution providers] will need to find a new value proposition," says Dan Lewis, chief commercial officer for Cary, N.C.-based storage-management services firm Arsenal Digital Solutions. "They have to move from transactional relationships to service-oriented relationships. Selling services is going to be a major component of their business model."

The mantra is fuzzy, though. The business opportunity in services is multifaceted. First off, VARs should shore up their expertise around business-process assessment for specific verticals. Armed with that knowledge, you go into a customer and, before any IT products are discussed, conduct a process review that identifies places where a company is inefficient. Then you work backward, exploiting existing IT systems and newer on-demand technologies to act on the new process plan.

Avnet Hall-Mark, the distribution arm of Avnet, is trying to simplify things for VARs. It recently introduced a program specifically for IBM's e-Business On Demand strategy that includes a set of tools and services to help VARs understand and deliver on-demand solutions. Roger Arndt, vice president of product and consumer marketing for Avnet's IBM business unit, says the program is designed to teach solution providers how to identify on-demand opportunities through more of a consulting approach rather than through product sales.

Learning the Basics
Understanding on-demand from a technology perspective means getting your hands dirty with hardware. Most of what you can do in this area can be started today and will bring instant returns for your customers. Consider the system problem that afflicted Hewitt Associates, a human-resources outsourcing and consultant firm based in Lincolnshire, Ill. Hewitt hosts some 400 Web sites for more than 300 clients. As part of Hewitt's business, it has a Total Benefit Administration (TBA) system that handles pension calculations for 60 employers, which comprise more than 5 million workers. The TBA includes a Calc engine, which does the number-crunching on all pension queries. The problem was that as a compute-intensive app, the Calc engine hogged a lot of the mainframe CPU cycles, with 20 percent of the transactions taking up 79 percent of the central processing power. "We were screwed," says Perry Harlan Cliburn, an IT manager at Hewitt. "We wanted to do this a better way."

Enter IBM. Hewitt used IBM's Design Center in Poughkeepsie, N.Y., and, working with IBM, put together an on-demand solution. Today, the Calc engine runs on a group of IBM blade servers and uses far fewer CPU cycles on larger queries. "On the larger calculations, it was appreciably faster," says Dan Kaberon, director of computer resources management at Hewitt.

So what exactly made this an on-demand solution? Simple. Say one of Hewitt's client companies is involved in a merger or companywide layoff. Hewitt's system has a surge of pension-related requests, and the grid environment is able to handle them more gracefully. The response time is shortened. Service is faster. The application costs are reduced by 90 percent.

But on the whole, on-demand technology is not just about streamlining old systems to be more efficient. The hardware should be designed so that it is more nimble. Since the standards behind on-demand or utility computing do not exist yet, companies like HP, IBM and Sun will be working feverously to become the alpha dog in this market.

All In the Software
Hardware is the foundation, but software is what really makes on-demand work. Software that manages servers, storage and other infrastructure is emerging to "auto-create" systems to meet IT needs; for example, freeing up additional server capacity by partitioning an existing machine.

Think of how book buying has changed with the advent of Amazon.com. "You just order something, and it shows up. Think of that applied to how you get IT services," says Tom Reinsel, CEO of Pepperweed, a Pittsburgh-based IT solution provider and consultant that backs HP's solutions. Reinsel envisions enabling his customers to direct IT resources and services from the click of a Web page, much like you can for phone service today. He is laying the groundwork by investing in HP's OpenView portfolio, including products like ServiceDesk, and is setting uniform practices and processes that "professionalize" IT for his customers.

That's why Tivoli, for IBM, and OpenView, for HP, factor prominently in on-demand. HP is also highlighting its Universal Data Center (UDC) software, which allows enterprises to virtualize all of their IT resources, then dole out usage time based on the service-level needs of applications. UDC still requires some manual configuration of thresholds and SLAs, but this offering and new products like IBM's Tivoli Intelligent Orchestrator move closer to that reality.

Tivoli Intelligent Orchestrator combines autonomic capabilities and orchestration technology gained from IBM's Think Dynamics acquisition to automatically shift resources based on changing business needs. While Tivoli Intelligent Orchestrator is able to manage heterogeneous environments, for now it runs only on IBM's eServer line and WebSphere. Down the road, however, products like Tivoli Intelligent Orchestrator will also run on HP, Wintel and Linux boxes, as well as other app servers, according to IBM.

ISVs Take Heed
Perhaps no other partner group has a bigger stake in on-demand than ISVs. They are central to IBM's play, viewed as an integral part of the package that develops open-standard applications that run as services across IBM middleware. Also at play are Web-services standards, which provide the basis for enabling software to traverse the boundaries of the firewall, the supply chain and out to partners. By virtualizing applications and untethering their components from server silos, ISVs will realize new delivery mechanisms for their wares, and they can mass-customize one application for different verticals. They can also use Web services to extend capabilities of an application by pulling in legacy data or other logic.

"On-demand for us is a specific way of taking the friction out of business processes and breaking down barriers so that you get superlative services wherever or whenever you need them," says Philip Brittan, president of Droplets, a New York-based ISV and IBM Business Partner.

There's clearly a long way to go toward on-demand realization, with most analysts and vendors predicting at least five years of work. Much of the technology, software in particular, from all the vendors is still under development. But, clearly, on-demand is here to stay.

"As long as you don't get spooked by it, I think e-Business On Demand will drive a lot of business," Candle's Marshall says. "It's the right message for today with everyone in IT being gun-shy. If you can add value for customers, you have nothing to fear."