Pay-as-you-go computing could suit some firms.
New business models within the IT sector have been relatively hard
to find since the end of the dotcom boom a few years ago. However,
in the past 12 months or so, a buzzword has emerged that has gained
a huge amount of interest: utility computing.
Utility computing aims to make the provision of IT services as easy
as obtaining electricity or water, where the flick of a switch or
the turn of a tap can provide as much of that resource as is
required. The customer simply pays by the hour, day or month,
depending on the resources used.
Increasing numbers of companies have signed up to large outsourcing
deals involving the provision of utility computing services, but
the jury is still out as to whether suppliers will be able to
provide services in a flexible, straightforward manner.
There are also legal considerations customers need to address
before signing a utility computing deal.
Lack of clarity
It is important to be clear about what is being provided. "Grid
computing", "organic IT" and "on-demand computing" are just a few
of the terms used to describe the concept of utility computing, and
suppliers such as Sun Microsystems, IBM and Hewlett-Packard all
give a slightly different slant on how they will provide their
services.
Although this lack of clarity is a sign of the immaturity of the
market, it also suggests the need for customers to be specific in
contractual terms about what they are procuring and to make sure
they have sufficient detail about the service levels in the
contract.
Supplier lock-in
Supplier lock-in could become a problem. Utility computing models
suggest a long-term commitment to a supplier. The customer may be
prevented from selecting another supplier with superior products or
services, or from making changes without incurring liability for
capital costs or for exiting the relationship.
Contract mis-management
Any customer of a utility computing supplier will need to manage
its internal operations to be able to take full advantage of the
opportunities.
Like any outsourcing deal, if the customer fails to manage the
contract properly, the service may not achieve its stated business
goals. This could lead to legal disputes about compliance with the
contract.
Security problems
Security, as with any outsourcing deal, cannot be ignored. One of
the key promises of utility computing is the fast, automated re-use
of computing resources, but will suppliers be able to guarantee
that data is "cleaned up" before disc space is allocated to someone
else?
Although the supplier will need to be under obligation to ensure
that each customer's data and applications are segregated from that
of other customers, there may well be additional risks to those
already faced by a business running data and applications on its
own servers.
Customers will need to be quite clear about the security levels
required and sufficient warranties and indemnities will need to be
provided in the agreement.
Licensing issues
Most software suppliers operate on models whereby they sell
licences for each product. The type of licence may vary but most
often operate on either a per server, per CPU, or per user basis.
To function cost-effectively, utility computing requires that
software licences be made available quickly and that licence fees
are only charged while the software is in use.
This is different from the standard approach to licensing and will
have implications that could affect the decision to opt for utility
computing.
Peter Brudenall is a senior lawyer at law firm
Simmons & Simmons