Cloud Exchanges Will Drive Commoditization. Why This Is a Good Thing

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Imagine you’re thinking about getting a backup data center sometime in the future. Imagine you’re able to buy an option for one. This is just one of the many capabilities that a neutral cloud exchange will open up, according to Rudi Baumann.

Baumann is the CEO of Zimory, which teamed up with financial giant Deutsche Börse this month to announce a cloud exchange - a trading venue for outsourced storage and computing capacity. Zimory raised a $20 million funding round led by the financial giant Deutsche Börse as well, as part of the  joint effort to make buying and selling cloud on a neutral marketplace as easy as clicking a button.

The partners aim to create a neutral marketplace that is secure, not tied to a service provider, and run by someone with a lot of experience. “Deutsche Börse is the second largest stock exchange," said Baumann. " They are expanding in their diversification policy, using their know how of creating and managing marketplaces. They definitely have the cash and the power to grow financial market demands. They have experience running trading systems in a highly secure way. “

The cloud exchange is anticipated to start early next year in Germany, and start a few weeks later in New York, according to Baumann. After that, hopefully Singapore.

New Ways to Manage Cloud Costs

How might a cloud exchange change the world of cloud computing? A market with genuine liquidity might lead to entirely new ways of using exchanges to hedge capacity needs and control costs, Baumann predicts. Participants will be able to hedge risk, buy futures on prices, and aggregate compute volumes for sale on the exchange.

“Contract negotiations will go from months to minutes,” said Baumann. “This takes a lot of time out of the procedure. It will end up in the standardization of products, compute, storage, IO speed. There will be certifications, so buyers can easily migrate into one standardized product category.”

While other cloud marketplaces have been attempted, Bumann said the partnership between Zimory and Deutsche Börse is a different beast. “Deutsche Börse has all kinds of marketing experience and market-making experience," said Baumann. "This is unbeatable. This is a huge advantage. Deutche Börse is definitely not selling you hardware or software, and we’ll never try to lock you in to a marketplace.”

“If you want to put your IT workloads and IT futures around a cloud exchange, you want to make sure they are around and independent in five years," said Baumann.

Standardization Will Drive Quality

Baumann thinks commoditization is not only inevitable, it’s a good thing. “IT is differentiation on the software and service level. The hardware is commodity,” said Baumann. In terms of pricing, anyone fearing that it will be soft only has to look at their cell phone bills. “We see it in the mobile market. Driving down the prices doesn’t necessarily happen.”

Standardization will drive quality. “In order to become a certified service provider, you need to run through an admission process,” said Baumann. “You need to cover certain parameters around bandwidth, security – it’s a quality market. It’s a well balanced-contract term between buyer and seller.”

With no ties to one single service provider, like many other potential exchanges, this is neutral ground for providers of all ilk to sell their capacity. In terms of Service Level Agreements, there will initially be three groups in the beginning, but Baumann says this will most likely expand. Buyers can easily migrate into one standardized product category.

Potential for Speculation

Like any futures market, there potential for speculation. However, Baumann doesn’t see this as a danger. "A contract ends and you’re on the hook to consume it," he said. "This will limit speculation. It’s the same concept of the electricity market, and like the electricity market, there will be market-makers.”

Zimory is powering the exchange. "There needs to be a physical delivery of the service," said Baumann. "This is where Zimory comes in.”

The company was founded in 2007. “Our target is to be the independent management layer,” said Baumann. “To enable one view and one management console.”  Providers are able to administer their own private cloud, managing it across multiple data centers.

“From the very beginning, we focused on being heterogeneously open – just like data centers, you find all of these devices from a wealth of suppliers and they need to work together," said Baumann.

This led to a completely different architecture as the company realized there are two roles involved in cloud: one is providing and offering, while the other role is consuming. The suite consists of Zimory Connect which is installed in each data center as a local controller, and Zimory Manage, which sits on the servers.

“By using this architecture, the end user always connects to Zimory Manage, not Connect,” said Baumann. “This secures the data center because the user can never directly talk to the data center.”