Enomaly spot cloud trading cloud capacity like pork bellies

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April 20, 2012

Stratecast Analysis by

Lynda Stadtmueller

Stratecast Perspectives & Insight for Executives

Volume 12, Number 15

Enomaly SpotCloud: Trading Cloud Capacity like Pork Bellies

SPIE #15, April 2012 © Stratecast | Frost & Sullivan, 2012 Page 2

Introduction1

Is computing capacity a commodity that can be traded on an exchange like soybeans or pork bellies? If so, the cloud is the place to make it happen.

At a time when most cloud providers go to great lengths to differentiate their services up and down the stack, Enomaly is harvesting the potential of the cloud as commodity: a raw resource that can be bought and sold by multiple providers in standardized units, driven by market pricing. Enomaly, which was acquired by cloud service provider Virtustream earlier this year, introduced SpotCloud in 2011 as an exchange to bring buyers and sellers of cloud capacity together.

In the nascent cloud market, in which less than 10 percent of U.S. businesses are currently using cloud Infrastructure as a Service, the idea of a cloud exchange seems premature. Yet, Enomaly has seen early success for its exchange, which is still in beta. The company reports that thousands of buyers and sellers worldwide have signed up for SpotCloud, indicating the concept and execution are igniting interest in some market segments. Enomaly’s purchaser, Virtustream, also believes in the potential of the exchange concept, and has plans to expand the exchange to include enterprise-owned capacity.

The Enomaly model offers a workable way to pool and exchange computing capacity from disparate sources worldwide. Even more interesting, this model provides a glimpse into the “Intercloud” of the future, offering a blueprint for the next generation of cloud infrastructure services.

In this SPIE, we look at the concept of the cloud as a tradable commodity. We examine the Enomaly SpotCloud offer, as well as Virtustream’s plans to expand the offer to private enterprises. We also consider how a cloud exchange can help shape the future of cloud services.

The Commodity Cloud

Can the cloud be considered a commodity? The cloud is not a product or technology, but a business model—a way of creating and allocating IT resources. Discussion of “the cloud” is fruitless, because in fact there are many clouds—on-site and remote, enterprise-managed and third party hosted, public, private, and hybrid—each shaped by its provider, with widely differing characteristics.

In that freewheeling environment, in which there are few agreed-on definitions or technical standards, it seems impossible to establish the common ground necessary to create a third-party commodity exchange. A soybean is a soybean, but there’s no common understanding of a basic unit of cloud capacity.2

1 In preparing this report, Stratecast interviewed:

Virtustream – Simon Aspinall, CMO

Please note that the insights and opinions expressed in this assessment are those of Stratecast and have been developed through the Stratecast research and analysis process. These expressed insights and opinions do not necessarily reflect the views of the company executives interviewed.

2 See SPIE 2011-05, Defining and Pricing Cloud Infrastructure Services (Feb. 2011). For information on how to obtain this or any Stratecast or Frost & Sullivan report, contact your account executive or email [email protected].

At a time when most cloud providers go to great lengths to differentiate their services, Enomaly is harvesting the potential of the cloud as a commodity.

mailto:[email protected]


And yet, the basic tenets of cloud computing appear to map well to the commodity market. The earliest cloud services, beginning with Amazon Web Service (AWS) EC2, were positioned as a way to quickly access low-cost, basic computing capacity on an as-needed basis. Although the trend is toward increasingly high-end enterprise grade cloud services, which are embellished with value-added features and functionality, the lower-end services—often referred to as mass market or commodity clouds—still dominate the Infrastructure as a Service (IaaS) market.3 With over 65 percent of the U.S. market, AWS continues to apply pricing pressure to the IaaS market, dropping its EC2 prices over 15 times in the past six years.

Basic service, on-demand access, price-driven buyers—these are ideal conditions for a spot market. Presumably that is what led Enomaly to launch SpotCloud.

Enomaly SpotCloud

Enomaly SpotCloud is a cloud clearinghouse that brings together buyers and sellers of cloud infrastructure capacity, as shown in Figure 1. Positioned as a way for cloud and hosting providers to offload excess capacity, and for enterprises to find cloud bargains, SpotCloud is a cross between the Chicago Mercantile Exchange and Hotwire.com.

The SpotCloud exchange consists of a software platform that establishes standard computing units across participants, enables simplified user management capabilities, and allows participants to connect to the exchange. The ‘commodity’ being exchanged is the basic computing unit—the exchange does not offer service level agreements or value-added elements such as security or backup. This keeps prices low and services consistent.

Figure 1: Enomaly SpotCloud

Source: Virtustream

How it Works

For sellers: Cloud service providers register to join the exchange through the Enomaly Web site. They install a cloud platform in their data center (Enomaly SpotCloud supports Enomaly’s own Elastic Computing Platform (ECP), available as a free download, as well as OpenStack and other cloud platforms via an API). When they have available capacity to sell, providers list the capacity along with geography and price requirements on the SpotCloud Web portal, where the information will be presented to potential buyers looking for those parameters. Sellers have the option to reveal their company name to prospective buyers, or

3 See CC 1-5, 2011 U.S. Infrastructure as a Service Market: On the Road to Commodity Status (November 2011).


to sell “blind,” if, for example, they feel the fire sale pricing will hurt the brand or impact direct sales channels.

The process is very simple for sellers, and requires little overhead. Enomaly takes care of monitoring transactions, billing at the agreed upon rate, collecting money from buyers, and issuing a check to the sellers.

For buyers: SpotCloud offers a broad choice of providers in a single Web-based view, enabling them to select prices, geography, and capacity that match most directly to their needs. They can rate their experiences with a provider using a 5-star rating system, which is then posted as a “quality” measure. Figure 2 shows a sample screenshot from the portal that buyers use to purchase capacity through the exchange.

Figure 2: SpotCloud Buyer’s Portal

Source: Virtustream

Pricing is established by the sellers, who are able to dynamically adjust their prices via an API, enabling them to respond to market conditions in real-time. Enomaly takes a cut of the transaction price before forwarding the proceeds to the seller. Enomaly does not charge buyers a premium for using the services; buyers pay only the posted rate for capacity.

In the SpotCloud model, much of the value that Enomaly brings to the complex cloud marketplace is convenience and simplification. Sellers have little administrative overhead, and their costs are aligned with revenue, since Enomaly’s fee (a percentage of sales) covers marketing, sales, billing, collection, and other costs of doing business. Buyers are relieved of the burden of researching individual providers, and because the rates are posted, they can be assured that they are paying market-defined rates for the services they buy.


Who is Using the SpotCloud Exchange?

Enomaly launched SpotCloud just over a year ago, as a proof-of-concept of a cloud exchange. In that time, SpotCloud has attracted interest from several thousand providers and potential buyers. Providers today include regional telecom companies, Internet Service Providers, and hosting businesses; interested buyers range from small to midsize businesses. Co-location and hosting providers and smaller Communication Service Providers may be both buyers and sellers. Because the SpotCloud exchange trades only basic computing units, buyers tend to be those who are looking for simple resources that they will either manage themselves or resell with their own embellishments to their own customers.

Enomaly reports that both buyers and sellers are taking advantage of the exchange for granular fluctuations in capacity. For example: providers may see infrastructure demand decline at night, so they place capacity into the exchange just for nighttime hours. Because of the dynamic pricing capability, providers can establish lower rates for off-peak times and higher rates for on-peak.

Because the market is international (Enomaly has registered buyers in 80 countries), participants can consider geography when making transactions. Users without geographic restrictions for their data can leverage off-peak rates in a continual “follow-the-sun” approach. Conversely, providers with available capacity in underserved geographies can establish higher rates in those areas.

Next Up: Virtustream Enterprise Cloud Exchange

With the Enomaly acquisition, Virtustream acquired a set of services and customers complementary to its own. While Enomaly targets small to midsized businesses and smaller service providers with both its public cloud offer (ECP) and the SpotCloud exchange, Virtustream has built its business by providing highly secure enterprise class clouds and cloud management software, enabling enterprises to move complex heterogeneous IT environments to the cloud.

For Virtustream, the addition of Enomaly represents an opportunity to complete a continuum of integrated cloud and data center services that can meet the needs of any market segment. Consistent with that strategy, Virtustream plans to introduce an enterprise-class cloud exchange, tailored for major enterprises, service providers and governments, with rigorous security and features critical to the enterprises, such as application performance SLAs, consumption based pricing and multi-tiered security and policy across clouds. Virtustream has built its software using a unique technology that breaks workloads into a pool of small elemental units, called “micro VMs” or µVMs, and uses that pool to deliver optimal virtualization and to assure application performance. Virtustream’s µVM unit is a useful tool to act as a common currency between clouds, and makes a powerful combination with the SpotCloud exchange capabilities.

As planned, the Virtustream enterprise cloud exchange will enable businesses with excess capacity in their private data centers to participate in an enterprise-grade exchange. Targeted sellers may include businesses whose data center usage fluctuates daily or seasonally, leaving idle server capacity. Enterprises that have recently built or expanded their data centers may also choose to enter the cloud exchange, to monetize unused capacity until internal demand catches up.

Virtustream’s enterprise cloud exchange will enable businesses with excess capacity in their private data centers to participate in an enterprise-grade exchange.


Unlike the bare-bones computing units offered through the SpotCloud, the enterprise cloud exchange will be highly secure, SLA-based, and policy-assured. As such, Virtustream expects to find a market among enterprises and service providers that are looking for secure, high performance cloud capacity, and are willing to pay more for it. Another potential target is community clouds: highly secure combinations of multiple private clouds that serve a particular industry or organization. Because such organizations usually have stringent security or compliance requirements that make it difficult to use public cloud services, they are good candidates for a secure, private cloud exchange in which some or all capacity can be provided and shared by the community members.

The enterprise cloud exchange will run off Virtustream’s powerful xStream cloud management platform. Because xStream also powers the company’s cloud offers, the result will be a flexible, integrated solution that can extend an enterprise hybrid cloud into a vast pool of new resources.

Market Challenges

A marketplace can only be successful if it attracts buyers and sellers in sufficient numbers. Enomaly has already attracted thousands of buyers and sellers for SpotCloud. More to the point, Virtustream says it has interest from a number of enterprises for its planned enterprise exchange. While Enomaly is the originator and leader of the cloud exchange concept, there are a handful of other providers worldwide that are starting to offer similar exchanges.

But vendor enthusiasm does not necessarily translate to long term success. While Stratecast believes there is potential for a cloud exchange like SpotCloud, there are tremendous challenges to overcome before such a model becomes accepted by more than niche markets. Among the market challenges:

Enterprises are steering away from commodity cloud services – With only 10 percent of U.S. businesses using IaaS, enterprises are cautious about entering the cloud.4 It’s not price that’s holding them back (on the contrary, cloud service prices are continuing to drop). Instead, they are concerned about loss of control, security, performance of applications—factors that are not addressed in a commodity cloud. Stratecast has predicted that the IaaS market will split, with the majority of companies opting for richer, pricier cloud services, and leaving commodity cloud services to a handful of use cases (e.g., test and development). This may relegate the SpotCloud exchange to a niche market of wholesalers, limiting its participants and its appeal.

Commodity exchanges are all about pricing and availability – neither of which represents a major driver for enterprise cloud adoption. However, it is possible that constraints on data center capacity may create regional hotspots for commodity exchanges.

High end services are not commodities – Virtustream plans to incorporate higher value elements into its Enterprise Cloud Exchange, including security and performance assurances. But those capabilities resist standardization, which make them difficult to trade in a “commodity” exchange. Perhaps the model will shift to a standard rating system, as exists for hotels, so that buyers have a consistent expectation of the service they will receive with their computing capacity.

Supply from private data centers will decline – For the Enterprise Cloud Exchange, Virtustream expects some capacity to come from overbuilt or underused private data

4 See CC 1-3, 2011 Cloud User Survey: The Who, What, and Why of Infrastructure as a Service Usage (August 2011).


centers. However, the data center market is gradually shifting away from private, enterprise-run data centers to commercial suppliers. Between 2011 and 2015, the percentage of U.S. data center space in enterprise hands will decrease by five percent, as more enterprises turn to third-party suppliers to handle their increasing demands for computing resources.5 With the private data center market decreasing, supply will have to come from commercial providers—which means the “exchange” will be indistinguishable from a retail channel.

Enterprises are reluctant to open their data centers to strangers – Most enterprises equate shared facilities with security risk. As a result, they place only less-critical Web applications in third-party controlled environments such as the cloud, keeping critical and sensitive data and applications in the private corporate data center. Why then would they agree to open their private centers to strangers, whose applications will share and possibly contaminate servers and network facilities? In practical terms, the exchange provider’s platform may enable isolation of virtual machines. But, in terms of perception, you might as well suggest they open the data center doors to unsavory gangs of hooligans off the street.

Intercloud of the Future

Many of the challenges listed are a result of the newness of the cloud market. For the most part, enterprise IT is still thinking of the cloud as a place, an alternative data center where they run the same standalone applications they run today, if (perhaps) more easily and less expensively.

But the cloud exchange invites us to think differently about computing resources and how we use them. The cloud exchange has the potential to turn “many clouds” into “the cloud,” offering access to nearly unlimited computing resources, data, and applications.

That’s the idea behind the Intercloud, a vision of cloud computing in which clouds are seamlessly connected via open standards and interfaces. In the Intercloud of the future, open standards and

interfaces will enable applications to be deployed in any cloud environment. In theory, the Intercloud will pool together all the cloud-based computing resources in the world, making them accessible, as needed, to any user or application.

The cloud market is still years away from the standards that will enable seamless sharing of resources among all clouds. Yet, today’s hybrid and federated clouds begin the journey.

Virtustream’s xStream platform allows businesses to create a hybrid cloud of pooled resources across multiple environments, including physical and virtual servers, Virtustream’s hosted private and public clouds, and even other providers’ public clouds. A cloud exchange extends the pool of potential resources to include thousands of other users on the shared platform—a hybrid cloud (or Intercloud) with almost infinite resources.

5 See CC 2-1, 2012 U.S. Data Center Market Update (January 2012).

The Intercloud will pool together all the cloud-based computing resources in the world, making them accessible, as needed, to any user or application.


Stratecast The Last Word

In these early days of cloud computing, service providers are struggling to define and differentiate their services in a way that will maximize return on investment and enhance customer loyalty. Yet, at the opposite end of the market, Enomaly has seen success with a different model: one that treats cloud computing resources as a commodity, to be traded on an open exchange like agricultural products or precious metals.

Perhaps Enomaly’s customers are right. Availability of computing resources is not assured in every region of the world; and, in fact, data center shortages exist in developing areas where power and network infrastructure is insufficient to handle demand. All users can benefit from a simple marketplace that makes all computing resources, by geography, available to any bidder at market rates.

To consider further: as worldwide demand for computing resources continues to grow, and supply is constrained by power limitations and hefty capital costs, perhaps the spot market (in which resources are purchased for immediate use) will spawn a futures market, in which speculators will make bets on cloud pricing based on predictions for demand growth and supply constraints. But we digress.

Stratecast believes that, for most providers, the path to profitability in the cloud is to enhance their IaaS services with value-added options, including strong service level agreements, security, and migration assistance. And yet, we are intrigued by the promise of the SpotCloud exchange, which addresses an entirely different market—one that requires only raw computing power to augment its own capacity. We anticipate the spot cloud market will grow to serve a largely wholesale market (cloud providers, communication services providers, hosters), who will buy cheap capacity to deliver their own services to enterprises, and sell excess capacity to boost revenues.

We also eagerly await the rollout of Virtustream’s enterprise grade cloud exchange, slated for early 2013. If the service lives up to its promise, it may be the gateway to the Intercloud of the future.

Lynda Stadtmueller

Program Director – Cloud Computing

Stratecast | Frost & Sullivan

[email protected]


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