Thoughts on Cloud Brokerage

I wrote this post the Summer of ’13 in my old blog.  Bringing it here as it is still relevant in the Fall of ’15.

My thinking has matured, evolved and added. But before I can write that, I need to bring this back.

Service Catalog as a Service Broker. Putting Your aaS to Work

Recently I’ve been involved in a number of conversation around the relationship between service brokers, service definitions, the service catalog and the design of service interfaces.  I’ve encountered lot confusion and wrong assumptions, which have the potential of costing a lot of money.

So as a way to clear up my thinking, I’m going to note a few thoughts on this today. It’s not a finished piece by any means. Wear a hard hat while reading it; pieces will fall.

Let me start by saying I’m vexed by the phrase “Service Broker”. I’m often vexed by people spray painting new words on existing concepts.

One notion is that a service broker is the control plane and panel to obtain on-line services from external vendors. Which is fine, but this is also what a good, modern, non-service desk restricted service catalog provides. I have covered this topic in my last 837 blog posts.

The second meaning for a service broker emphasizes the word “broker”. The broker enables the customer to aggregate and arbitrage services to enable the selection of the service that is cheapest, best, compliant,  name-your-favorite-characteristic.

A common example used by proponents of “brokering” is for the contracting of compute resources, where we may want to decide where to place a workload based on price. After all, a Gigahertz is a Gigahertz everywhere, right. Hmm well, no. The network, storage, location, distance, latency, iOPS, liability protection, certifications, applicable laws and many other factors (Will someone pick up the phone? Is there a number to call?) matter.

I don’t believe there’s any commodification of infrastructure services coming any time soon (like the next ten years). There are just too many facets to internet services such as quality, latency, richness of offerings, laws, SLA’s, data sovereignty and others that prevent making effective like-to-like comparisons on the fly. We will need procurement specialists to do these type of comparative evaluations.

Also, if you drink coffee, you’ll know that coffee, which used to be a commodity, is anything but that today.  Coffee is a lot simpler to acquire than datacenter services. I’ll have my server with half-caf, soy-latte with a twist of lemon.

But even if we could flatten service definitions so they were more comparable (they can be flattened — sourcing specialists do it all the time), the acquisition process still doesn’t match the way the enterprise procures today.

Enterprises engage on two classes of spend: contract and spot. The majority of spend is contract. Why? Risk, pricing, security, control, quality, availability and convenience.

By the way, that’s why enterprises use e-procurement and constantly try to reduce the number of vendors under management.  It’s easier to control a smaller number of providers that are a large part of the enterprise spend, than thousands of small vendors to whom the enterprise’s spend is not meaningful.

For example, take the issue of liability: AWS assumes very limited liability for anything.  Most enterprise contracts have extensive sections around what happens when things fall apart and the network operations center cannot hold.

In my experience reviewing these type of contracts, these type of documents spend a fair amount of time defining the “service” – and it’s not an API call, but it’s the request process, approvals, support, training, incident management, remediation, service level that define the “service”.

By the way, I don’t meant to imply these contracts are actually workable or actionable –most are not– just that a lot of effort goes into creating them to try to define the “service.”

I once spent a week with a team of 15 people trying to convert a massive outsourcing contract into a service catalog. Turns out to be surprisingly easy to do it with 2 people, but impossible with 15.

Two recent examples help make the case for contract buying.  One, Amazon, who does offer compute pricing on a hourly basis, now offers one and three year leases. Why? By the hour pricing is like by the hour hotels, very expensive if you plan to live there a year.You are better off with a lease.

Second, the CIA announced a $600M contract with Amazon to build a cloud.

Well, they are the CIA, someone might say. Of course they need something more secure.  To which I’d say, baby, today we are all the CIA.

Also, if you read the drivers for establishing strategic sourcing and procurement processes, you’ll find a  analogous use cases to brokering: to stop maverick buying (we call it rogue in cloud), to reduce costs, implement governance, reduce or eliminate manual processes, apply consistent controls, rationalize the supplier base.

So it does seem like the service broker concept staples a service catalog to a procurement system; but will it cross the cloud?

As for the idea that somehow an intermediary can establish a market place of services and “broker” between enterprise and service provider, I don’t buy it – pun fully intended.

This approach did not work in the dot-bomb era with e-marketplaces. Turns out the buying power of large companies is significant, the internet flattens information brokerage and margins are way too thin for this intermediaries to earn much money.

As for brokerages serving  small and medium size businesses, I’d say yeah, sure. They are called resellers, like PC Connection, or TigerDirect, or yes, Amazon retail.  This is not a new development.

In summary, there are considerable transaction costs that need to be accounted for in the notion of service brokers. In the service catalog world we talk about policy, governance and automation as the way to get those contract terms implemented. In fact, most enterprise buying is contract buying and not spot buying.

I’ve argued that a service catalog already provides the functionality of a service broker and that there’s unlikely to be a marketplace of services that is profitable or that enterprises will change buying behaviors in the next ten years.

So is there anything new about this service broker concept that is worth considering? And the answer is YES.  The advent of service interfaces aka API’s opens a new service channel.

So for the first time we have the opportunity to design services that are born-automated. How do we think about them? What are their characteristics?

That is worth exploring in its own blog post.

As I said at the beginning, these are my preliminary thoughts. Comments? Questions? Observations? Organic, heirloom tomatoes?

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