Gartner Updates Its Definition of IT Infrastructure Utility

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1 Research Publication Date: 23 April 2004 ID Number: M Gartner Updates Its Definition of IT Infrastructure Utility Claudio Da Rold Our new definition of IT infrastructure utility clears away some of the hype about the future of the IT services market. The model defines what's needed for on-demand, lowcost services that are flexible yet secure. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 WHAT YOU NEED TO KNOW Gartner's IT infrastructure utility definition is designed to dispel some of the marketing myths surrounding the industrialization of IT infrastructure services. It is also the basis for the development of the Gartner IT infrastructure utility maturity model. Clients should check their infrastructure and sourcing strategy against the IU definition and maturity model to anticipate the growing impact that external competition will have on in-house custom-managed infrastructures. Vendors and providers should look at their utility strategy in light of this updated definition. ANALYSIS A strong trend toward standardization and industrialization is transforming the IT services market particularly at the infrastructure layer (see "IT Service Market: Will the Giant Mature?" and "The Reshaping of the IT Service Market"). This trend is clearly represented by concepts and offerings like EDS's Agile Enterprise, HP's Adaptive Enterprise and IBM's On Demand. But it is also a significant source of marketing hype and a reality check is needed, starting with the infrastructure layer. Gartner's definition of an IT infrastructure is: "A collection of client devices, servers, storage, networks, databases and middleware supporting the delivery of business applications and ITenabled business processes." See "Real-Time Infrastructure: Vision and Progress." Technology and its management, and IT sourcing and services are two important areas to be evaluated in the standardization and industrialization of IT services. Technology and Its Management Gartner's concept of real-time infrastructure (RTI) analyzes this evolution from a technology and process management perspective, which covers the hardware and software products markets, and management practices. Gartner defines RTI as: "An IT infrastructure shared across customers, business units or applications, where business policies and service-level agreements drive dynamic and automatic optimization of the IT infrastructure, thus reducing costs while increasing agility and quality of service." See "Hype Cycle for Real-Time Infrastructure, 2003." IT Sourcing and Services, and Related Management In the IT-intensive services market where architectures and products are delivered through or as a service this evolution is represented by the Gartner concept of IT utility (ITU). Gartner defines ITU as "open, virtualized IT infrastructure resources available as on-demand services, with pricing based on service units of usage or capacity." See "Hype Cycle for IT Services, 2003." The definitions of ITU and RTI are inextricably linked, but are not the same. An RTI, when fully available, will be the best foundation from which to supply ITU services Mature ITU services will be provided through an RTI, but they may at this initial stage be partially provided without the full RTI architecture in place (see Note 1). Publication Date: 23 April 2004/ID Number: M Page 2 of 6

3 Often, the utility or on-demand concept is extended to include business applications, business process utilities, and business and process transformation. This is a huge source of confusion and marketing hype. In an effort to clarify these issues, Gartner aims to: Focus on the IT infrastructure side of the utility the first and most important layer of utility development Introduce a new and extended definition Reveal the hidden aspects of ITU that are usually lacking in providers' marketing messages Provide the basis for Gartner's new IT infrastructure utility (IU) maturity model Gartner's Definition of IT Infrastructure Utility A shared IT infrastructure architecture provided through on-demand services, with pricing based on service usage, and proven, ongoing reductions in both fixed baseline (or subscription fees) and unit costs. The IU is open, flexible, pre-designed and standardized, virtualized and highly automated, highly secure and reliable. IU services are accessible through pre-defined methods, standards, and terms and conditions. We examine the specific elements of the updated definition: IT infrastructure utility This represents the growing industrialization of the IT services market at the infrastructure layer. The term utility can be applied to applications and business processes that are provided as services. Gartner's definition applies to IT infrastructures only and does not extend to business applications. Shared IT infrastructure architecture This is the core of the definition. An ITU is the set of services delivered by a proprietary, predesigned RTI architecture. Users cannot buy a utility service without to some extent buying into the provider's utility infrastructure design. Providers will try to keep these proprietary architectures differentiated to reduce the speed in which IU services become commodities. Provided through on-demand services The IU concept is about the service delivered, how it will be provided or sourced, and its economics. The RTI concept is about the design of the architecture, products and management processes that make it technically feasible. With pricing based on service usage From a customer perspective, the value of utility pricing is to gain business flexibility by avoiding ownership of IT assets, and thus reducing IT capital expenditure and related fixed costs. Pricing based on service usage is a key element of a utility, but isn't a unique characteristic the Mask Effect allows the provision of services in a similar fashion. Proven, ongoing reductions Utility marketing messages are often vague about the savings and flexibility that can be achieved. In any IU pricing formula, there will always be a baseline or subscription fee (the fixed part), plus service unit pricing (the variable part). Advances in utility maturity will be measured in efficiency, Publication Date: 23 April 2004/ID Number: M Page 3 of 6

4 through lower unit costs, and flexibility, through lower fixed costs. This must still be proven, as the economic feasibility will depend on other players, like ISVs, that have many reasons to be worried about this evolution. Fixed baseline or subscription fees The increase of IU financial flexibility will be measured by the ratio of fixed and variable costs. In traditional outsourcing deals the typical rate is 80:20. In mature IU offerings, we expect that ratio to be substantially reversed. Unit costs Increasing IU efficiency will be measured by unit price reduction. Both reductions are masked under the total control of the provider by the overall pricing of outsourcing deals. Gradually, they will become more transparent to users and a distinctive factor in terms of unit cost listings of the real IU. The IU is open Open refers to the use of open standards applied to the technical elements that must be integrated into the design of the architecture. IU offerings will eventually become quite similar, and their main specifications, such as service definitions, service menus, standards access methods, terms and conditions, service-level agreements and pricing, will become public, pushing toward the status of commodity. Flexible The need for flexibility is an important driver, as clients must be able to support more flexible business models. While this need starts with the business and affects processes and applications first, it then requires IT infrastructures to be able to scale up and down, while remaining robust, efficient and flexible. These infrastructures should also be easy to adapt to changing needs, and cost less leaving more room in corporate budgets for value-oriented IT-based transformations. Pre-designed With the shift toward industrialized, one-to-many shared services, providers must invest in, and design and develop, the architectures that deliver these new services. But this pushes far more industrial and financial risk to the provider. The reaction of current providers is to embed IU services into traditional outsourcing deals or "transformational projects." However, IU offerings will reach maturity only through pre-designed and coherent architectures, and not as the output of custom infrastructures acquired through outsourcing deals. This is one of the elements that is often missing from providers' commercial pitches. Standardized The diversity of hardware and software is a major factor against virtualization, automation and the industrialization of the delivery of services. The objectives of an ITU cannot be achieved without intense standardization, though the exact set of standards may differ between competing providers. De facto market or industry standards and fast-growing new platforms like Linux are the most likely platforms for standardization. Virtualized Virtualization is about making users and applications as independent as possible from the physical nature and boundaries of underlying infrastructure resources. Virtualization is commonly implemented into mainframes a growing reality in storage, and still an open issue in servers where applications are often strictly linked to their physical server. Most NT and RISC servers Publication Date: 23 April 2004/ID Number: M Page 4 of 6

5 installed around the world have an average utilization rate of 15 and 40 percent respectively, which is a significant waste of hardware, software and management costs. These huge inefficiencies are the main reasons fueling IU development. Highly automated Continuous growth in processor capability and falling prices have led to major changes in the economies of scale applied to IT infrastructures, which once focused on sharing very expensive processors. Software and the people that manage the infrastructure are expensive. Manual service management processes are also a source of many problems. Automation would allow business policies and service-level agreements to drive dynamic and automatic optimization of the IT infrastructure, while automatic interfaces move part of the work onto the user. Virtualization and automation are key elements of a true IU. Highly secure A shared and virtualized infrastructure requires far more security mechanisms and controls than any private and physically locked infrastructure. Security must be an attribute that is firmly embedded in the utility design. Only clients subscribing to a minimum, demonstrated level of security practices will be allowed to access a shared infrastructure utility service. Reliable High reliability is not optional for open, virtualized and automatically managed infrastructures. It must be firmly embedded in the utility design. IU services are accessible Most clients will not own the IU, as it is based on a shared service, but they will have access to it. Private utilities are broadly discussed and, in some cases, implemented at this early stage of industrialization. Eventually, the differences between a private and a public utility will disappear. Pre-defined methods and standards Accessing utility services will be different from managing internal custom infrastructures. Embedded security, high reliability, automation and virtualization require clients to adopt a "hands off" approach. Standard, pre-defined and mostly automated processes and tools will replace today's partially supported or manual approaches for IT management processes. These processes include: Software life-cycle management, IT change management, problem management, service management, billing, security management, and the transition from development and testing through to production. Terms and conditions These, including service-level agreements, are a fundamental part of every service or sourcing relationship. Today's terms and conditions are often inherited from traditional outsourcing contracts or Web hosting services, but a new set of specific contracts is now needed. Standard, service-level agreements defined by the provider where clients select the level that is appropriate to their business requirements is another distinctive, but often withheld, element of IU. This completes our definition. It may appear complex, but we strongly advise those considering IT utility to refer to it during every strategic and operational phase. A careful check on expectations, reality status, opportunities and risks could unveil any expensive pitfalls, lack of offerings or embedded risks early on. The message around this evolution has been quite clearly established by the marketing messages of major providers. Now it's time for providers to qualify real offerings Publication Date: 23 April 2004/ID Number: M Page 5 of 6

6 and road maps, and for clients to select opportunity and evaluate risk as part of their sourcing strategy. This extended definition of the IT infrastructure utility is the basis for Gartner's IT infrastructure utility maturity model, which is another important tool for clients and vendors during this fundamental shift in the IT services market (see "Gartner Introduces the Infrastructure Utility Maturity Model"). Key Issues How will the changing IT services marketplace affect enterprises' sourcing strategies? What are the key trends, market forces, drivers and inhibitors that are shaping the infrastructure outsourcing market? Note 1 The Mask Effect This allows application and process utilities to be developed independently from the IU. The IU itself is sold before becoming a reality. IU services can be partially delivered through infrastructure outsourcing deals. The shift of the infrastructure assets to the provider, the post-optimization that is typical of these deals, and the contractual terms and conditions make outsourcing a vehicle for utility services that are still not in place in terms of architecture or real-time infrastructure. Outsourcing may be used to mask the missing pieces of a real IU. Applications utilities or business process utilities can be delivered before the IT infrastructure utility is ready. Since the client is buying an application or process sold as a utility, the infrastructure embedded into this service is partially masked from the buyer. The full value of IT services industrialization will be revealed as application and business processes utilities are built over a real IU. Examples of the mask effect in action exist in the market, like on-demand outsourcing deals and successful applications or business service providers (see "Six Examples of Specialized IT Services Providers") as well as new partnership programs at major vendors, to bring third-party software and solutions to their maturing IT infrastructure utility. REGIONAL HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT U.S.A European Headquarters Tamesis The Glanty Egham Surrey, TW20 9AW UNITED KINGDOM Asia/Pacific Headquarters Level 7, 40 Miller Street North Sydney New South Wales 2060 AUSTRALIA Latin America Headquarters Av. das Nações Unidas andar WTC São Paulo SP BRAZIL Publication Date: 23 April 2004/ID Number: M Page 6 of 6

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