The real benefit of cloud computing

Not too long ago, Amazon introduced its EC2 Spot Instances, a new approach to cloud computing. Here's how Amazon describes this:

Spot Instances are a new way to purchase and consume Amazon EC2 Instances. They allow customers to bid on unused Amazon EC2 capacity and run those instances for as long as their bid exceeds the current Spot Price. The Spot Price changes periodically based on supply and demand, and customers whose bids meet or exceed it gain access to the available Spot Instances. Spot Instances are complementary to On-Demand Instances and Reserved Instances, providing another option for obtaining compute capacity.

Essentially, EC2 Spot Instances lets you bid for unused time on Amazon's systems, and it's the first real step towards making computing a commodity service. I believe that the biggest impact of cloud computing will be from EC2 Spot Instances and similar offerings, but probably not in the way that most people would guess.

I really don't see cloud computing ever becoming a true commodity service. Despite all of the talk about standards for cloud computing, cloud vendors really have no incentive to make their technologies interoperable, so I doubt that we'll ever see it become a reality. The huge number of different national laws will also make it very difficult for cloud computing to ever become a true commodity. You'll always have requirements that certain data essentially can't leave national boundaries either due to regulatory restrictions or other political issues. I don't foresee an easy solution to these problems, so I don't foresee  the market for cloud computing ever becoming quite like markets for other commodities. I doubt that we'll ever see things like derivatives and hedging for cloud computing, for example.

Instead, I see the real change that Amazon's offering will create is that people will start to question the value of computing and do a better job of trying to quantify it. After all, you really shouldn't be bidding for computing services if you don't really know how much the computing is really worth to you. Once businesses get accurate metrics for the cost and benefits of enterprise software, the enterprise software market will change dramatically.

I believe that the opportunity to buy cloud computing as a commodity, even on a relatively small scale, will get businesses to start thinking about exactly how much computing is worth to them. This will then lead them to think about exactly which applications are really worth their cost. Once they have more accurate metrics, I believe that they'll find that some enterprise computing simply isn't worth what they're paying for it. We'll eventually find that while some types of enterprise applications make sense, others don't. 

This will lead to either the collapse of parts of the enterprise software market or some difficult times for some software vendors as they try to make their offerings add value that's substantially more than the cost of the software. The products that remain after this big shake up will be the ones that should have been there in the first place. The products that disappear will be the ones that never should have been deployed. What we'll be left with will be much more efficient that what we have today, and that increased efficiency will be one of the biggest benefits from cloud computing.

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