It’s the latter effort that fueled Virtustream’s desire to buy Enomaly, Virtustream CEO Rodney Rogers told me. His company, which offers an infrastructure-as-a-service cloud tuned for enterprise applications such as SAP, recently productized its management platform in the form of private-cloud software. He thinks SpotCloud includes some valuable code that will help Virtustream build its own federated cloud ecosystem.

“I think everybody is going to be racing toward some sort of federation solution here in the next few years,” Rogers said. The idea makes sense because it gives buyers an option to buy discounted resources (a la Amazon’s Spot Pricing instances) and gives sellers the ability to recoup sunk costs they don’t need.

That effort, called the xStream Exchange, should be ready in late-2012 or early 2013, after Virtustream is able to integrate the SpotCloud code and make some needed security upgrades. Virtustream CTO Kevin Reid said the xStream Exchange will initially include only Virtustream customers with excess private or public cloud capacity, but it could expand to trusted third-party service providers and possibly individual organizations over time. He thinks his company’s concept of infrastructure units — which it defines as “an extensible container of compute, memory, bandwidth and IOPS, smaller than a virtual machine” — will provide a better cloud currency than the standard server-based allocation model.

Rogers added that Enomaly’s success in establishing a customer base and a general presence in China was also very appealing. A large portion of Virtustream’s customers are Fortune 500 companies, and they have labor forces in China that they would like to support locally rather than regionally, he said. Virtustream already has a data center presence in Southeast Asia.

Rogers spent time in China recently working on some partnership deals, and says it’s “absolutely amazing the scale of what’s being developed over there” in terms of infrastructure and government support.

Reuven Cohen

However, there is a different way of doing business in China, something Enomaly Founder and CTO Reuven Cohen knows well, and which could prove valuable depending on what role he takes at Virtustream. He likens Chinese business to a 1950s Mad Men-style environment, where the guy sitting next to you in the boardroom is smoking a cigarette and drinking scotch, and where personal relationships are king. Enomaly is probably better known in China than it is in North America, Cohen said.

As for Enomaly’s products, Rogers said Virtustream will continue to support their current versions, but their primary value is in the form of intellectual property to bolster Virtustream’s offerings.

I asked Cohen if he’s sad to see his SpotCloud and Elastic Computing Platform products go, for all intents and purposes, but he said he’s happy with the result. “As an entrepreneur, you’re building a company for value and to have a good exit,” he said, adding that it was eight years’ worth of good code that made his company sellable.

Still, timing is everything in IT, and Cohen says he has a “chronic weakness toward being early.” Some later cloud startups such as Cloud.com (now part of Citrix ) and Eucalyptus received much more attention, despite Cohen’s role as one of the early cloud evangelists. Being based in Canada and not raising venture capital didn’t help, either, but Cohen said he learned some things to do different next time.

Feature image courtesy of Flickr user AndyFitz.

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As Cohen explains it, just as Google AdSense lets web site owners and bloggers try to monetize blank space by placing ads in it, SpotCloud lets data center operators monetize excess capacity by releasing it to SpotCloud. AdSense users get paid when someone clicks on the ad, whereas SpotCloud contributors get paid when someone reserves that capacity. (For more on how SpotCloud’s brokerage works, see Stacey Higginbotham’s previous coverage of the SpotCloud launch and fast-growing capacity pool.) From an analogical standpoint, though, the big difference appears to be that the services rely on entirely different user types. AdSense seems to attract huge numbers of independent web sites without advertising teams to sell space, but SpotCloud, thus far, relies on larger data center operators rather than smaller hosting providers.

Prior to SpotCloud launching for private beta in November, Cohen said he actually was operating off the “wrong assumption” that smaller providers would drive SpotCloud capacity. However, in a turn of events that makes perfect sense in retrospect, large providers represent the brunt of SpotCloud contributors. “It ended up being a heck of a lot more [capacity] than I ever imagined,” Cohen explained, only from a whole other group of contributors.  The reason is simple: Smaller providers operate relatively lean, and don’t have hundreds or thousands of excess servers sitting idle and ready to jump into a brokerage like SpotCloud. To illustrate how large providers might get involved with SpotCloud, Cohen cited one situation where a co-location customer went out of business and the provider had 100 servers just sitting around doing nothing; in another situation, a service provider’s customer maintains an 8,000-server farm where only 4,000 are ever in use at any given time.

Another interesting, and unexpected, use case for SpotCloud is regulated industries wanting to create their own private exchanges within SpotCloud. For example, Cohen said Enomaly is working with a group of HIPAA-compliant companies that want to trade and sell excess capacity among themselves. This has the potential to prove very profitable, as we’ve long heard the suggestion of industry-specific computing clouds, and SpotCloud might allow them to take shape without placing on said companies the onus of building entirely new clouds.

Still, the nascent SpotCloud has a long way to go before achieving any level of success, much less anything comparable to AdSense. In order to do so, it will have to convince buyers, not sellers, that there are legitimate uses for this type of capacity. AdSense doesn’t pay off for anyone unless site visitors click on ads, and SpotCloud won’t pay off unless someone is buying capacity. Cohen thinks SpotCloud has immediate potential for applications such as web-application load testing, where companies might need lots of capacity from specific geographies in order to simulate real-world user load (see the recent Comic-Con ticket-sales snafu for evidence of how important this can be). If Enomaly and/or users can unearth a few other killer apps, we’ll see how far the AdSense analogy can carry.

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Cohen said the marketplace can now offer access to servers in more than 40 countries and 100-plus cities, with the total capacity fluctuating between 10,000 and 25,000 servers with about four to six cores each. Cohen says the focus has been on establishing a solid base of sellers before opening the market to a wider audience next month.

So far, the market concept has led to several new realizations for Cohen, with the first being that by having access to so much compute capacity in one place and available on-demand, he thinks such an aggregate market can accelerate Moore’s Law. Instead of thinking of Moore’s Law narrowly (it says that the number of transistors on a chip doubles every 18 months), Cohen is applying it broadly, saying that if one thinks of the law as a mean of measuring compute performance, SpotCloud can double the performance in a few months by adding more sellers. One could argue that Amazon or Rackspace could also double in performance in a few months, but it would cost a lot in terms of buying servers and building out data centers. One could also argue that SpotCloud can also shrink in a few months depending on the whims of sellers and their workloads.

Taking on unused capacity comes with risks and caveats. The first caveat is that all of those cores on offer from sellers aren’t a monolithic group. They’re aggregated across different data centers from different providers, which means the available slices are limited as a practical matter, because one can’t run a giant job across multiple clouds. A corollary to this is that the compute capacity is also located in different data centers with different geographies and quality.

It’s possible that if you need access to 200 servers with a set performance in Europe, SpotCloud may not be able to help if the sellers aren’t there. And if it is able to provide what you need at a price that works, it can’t guarantee those servers will be around to finish the job. Cohen is up front about this, but it’s clearly a market that isn’t designed for all jobs. However, it does present an opportunity for data center operators and for certain companies or researchers in need of computing for a lower rate, or that’s in a certain geographic region.

Cohen explains that one seller is a data center operator that has several oil and gas and entertainment customers. One customer’s contract requires 4,000 servers (of 16-cores each) to be up and running at all times for the customer application, with an additional 4,000 on standby. The seller has to keep those 4,000 machines available for his customer, but now he can also offer those machines on the SpotCloud market and pull them whenever the original customer needs them. Cohen says that most of the sellers on SpotCloud have no interest in running a private or public cloud, they just see an opportunity to make money using the market.

For Cohen, the second realization gleaned from the last two and half months is that there’s a market for pricing information that SpotCloud can provide. He’s working on an API that can show the current SpotCloud prices for cloud computing in various areas of the world on a fairly real-time basis. “It turns out that competition and where you are dictates the price you will pay for service, with downward pricing pressure in the Valley and higher prices in places like Sao Paulo, Brazil, where there’s a growing demand and no competition,” Cohen said. Sure that’s a general function of economics, but having the ability to see those economics at play for a unit of computing is pretty powerful.

That brings us to the third realization. There is no defined unit of computing yet for the market. Customers choose their region and lay out their system needs and price and hope for a match. But it’s possible that one day they can bid on a more universal compute unit (Cohen suggests compute cores per hour as a good metric). As cloud computing evolves, it’s clear that customers and providers are adapting to it in different ways and for their own reasons. So far, SpotCloud seems to be finding a market for those trying to sell compute capacity. Next month, we’ll see how many buyers are interested.

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