1. April 20, 2012
Enomaly SpotCloud:
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Trading Cloud Capacity like Pork Bellies
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Stratecast Analysis by
Lynda Stadtmueller
Stratecast Perspectives & Insight
for Executives
Volume 12, Number 15

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 At a time when most cloud providers
2011 as an exchange to bring buyers and sellers of cloud go to great lengths to differentiate
capacity together. their services, Enomaly is harvesting
In the nascent cloud market, in which less than 10 the potential of the cloud as a
percent of U.S. businesses are currently using cloud commodity.
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 inquiries@stratecast.com.
SPIE #15, April 2012 © Stratecast | Frost & Sullivan, 2012 Page 2

3. 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).
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4. 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.
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5. 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 Virtustream’s enterprise cloud exchange
enterprises, such as application performance SLAs, will enable businesses with excess
consumption based pricing and multi-tiered security capacity in their private data centers to
and policy across clouds. Virtustream has built its participate in an enterprise-grade
software using a unique technology that breaks exchange.
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.
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6. 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).
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7. 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
The Intercloud will pool together environment. In theory, the Intercloud will pool together all
all the cloud-based computing the cloud-based computing resources in the world, making
resources in the world, making them accessible, as needed, to any user or application.
them accessible, as needed, to The cloud market is still years away from the standards that
any user or application. 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).
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8. 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
lstadtmueller@stratecast.com
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SPIE #15, April 2012
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