One On One With IBM's Doug Elix

IBM Global Services' push toward utility-based delivery of IT services is picking up steam. InformationWeek recently caught up with IBM Global Services senior VP and group executive Doug Elix to talk about the company's "E-sourcing" strategy.

InformationWeek: We're very interested in this concept of IT as a utility. Where are we in this model?

Doug Elix: It's certainly a very interesting and emerging area, but we're still in the very early stages. Web hosting was an early version of an IT utility because it was a systems utility for hosting Internet applications. You shared real estate, you shared connections to the network, and you shared the resources to manage the environment.

Some of the storage services we do today are also early forms of a utility for storage availability and storage management. Other examples include applications hosting and E-markets, which are a form of utility at the business process level, where the technology that goes underneath is not so visible but nevertheless is very important. To the customer, it's the solution to a problem, like where they can efficiently procure parts and be charged per order.

InformationWeek: Where is this utility-based model going?

Elix: The market is heading in two distinct directions. The first is a technology utility, where you can get IT infrastructure by the click, on demand. That means making processing capacity and storage capacity available on a usage basis.

But there are a lot of technical innovations that have to be brought to market to turn that into an ultimate reality, where you can share a single infrastructure like you do with the telephone or a power utility today. There's no question in my mind that the demand is there.

The second direction is utility-based IT at the business-process level. Electronic procurement, for example, is a business process and it just so happens that under that is an application and technology infrastructure. But what the customer is really buying is a more efficient way of procuring goods and services, regardless of the computing platform and underlying applications.

InformationWeek: How does IT as a utility differ from outsourcing services already available?

Elix: Today's outsourcing model is built around customization for a customer of one. In the utility-based model, it will be mass customization to multiple customers and provisioning of the infrastructure. The economic model for service providers will be to push volume across the utility, as opposed to the custom outsourcing business in which each customer stands alone in terms of offering economic viability. We've got a lot of investment going on both fronts infrastructure and business process utility models through storage, Web hosting, wireless utilities, content management, and on the application side, with a number of ASPs we're working with.

InformationWeek: In this model, we've seen one very clear success--Web hosting--and one that's still unproven--ASPs. Can you explain why the ASP model has faltered?

Elix: I believe the reason the ASP model's success has been limited to date is that most software companies are very wedded to their model of selling licenses to end-user enterprises. So the idea of reorienting their software developers and their sales forces, both of which are used to selling an individual license to an individual customer, has been a very difficult cultural change for most software providers.

Another problem has been finding the value proposition for the customer. If it's not cost, then why buy the application by the click rather than running it in-house? This value proposition has never been well articulated or proven.

My view is that what cracks the code is going up one level from the application to the business process where the value proposition becomes much clearer. To use the example of procurement in an E-market, if the value proposition is use this utility E-market to buy goods and services at 10% less than you currently buy them today, that's a very clear value proposition. This can motivate a company to externally source that part of their business. But remember there's a hosted application and infrastructure buried under this business process utility.

InformationWeek: How is IBM Global Services working with its partners to move them more toward delivering their products beyond the single license to single customer model?

Elix: This is an area we're exploring together. Our heritage is a custom services model, so we have to make the changes necessary to provide for utility-based services. The areas to look at are how to architect the products so they can be utility-based, as opposed to custom, and how to reorient the sales force so that they find it as attractive to sell the application by the seat to the end customer as opposed to by the license. We did this with Great Plains, by the way, before they were bought by Microsoft. We've done it with J.D. Edwards, we've done it with SAP, and we're doing it with Siebel.

And we're looking to service provider partners to gain access to customers that we couldn't otherwise offer access to these services through our existing sales force. In services we have a very strong sales force that covers large customers in a dedicated way. But to get to the middle market or even the small market, we need access through partners that specialize in application hosting and managed services.

InformationWeek: Can you generalize in terms of what types of IT functions are well suited for the utility model and which ones might not be?

Elix: Yes, it's a really good point and one that we've really spent a lot of time on. You wouldn't go into a bank that has its customer databases being hit with transactions every second and say why don't you take that database out and put it out to a storage utility. That database is better managed right next to the server that processes the transactions. By contrast, companies with a lot of Web-based content but an unclear picture of when and how often that content will be accessed are candidates for the utility model. That content doesn't have to be so strictly associated with any one application. It can be put out at the edge of the network and can be accessed by multiple applications.