relationship with its suppliers may sat-
The Evolution isfy these requirements, but for making
bread, only the technical speciﬁcations
are a concern.
Historically, base goods are introduced
of Web-Caching and then standardized grades are estab-
lished to let markets, exchange trading,
and derivatives develop. Prices also shift
from cost to market based. A market
Markets consists of participants who have access
to price information about the goods
they buy and sell. An exchange is a for-
mal marketplace that often provides
Chris Kenyon, IBM Zürich Research Laboratory extra services connected with the risks of
contract default or noncompliance.
Goods can exist as a commodity regard-
nternet businesses lose billions of
dollars each year because of slow
and failed Web services, and new
Web-caching companies must
companies and coalitions have outsource, aggregate, and
rushed to provide the worldwide
content caching that can help recapture customize to thrive in the face
this lost revenue. Although the media
of online commoditization.
has often characterized these companies
as trailblazers in the e-commerce revo-
lution, they are merely exploiting a tem-
porary niche along the path to Internet clients, the first of which was Yahoo. less of whether or not a formal, orga-
infrastructure commoditization and dis- Recently acquired by Cable & Wireless, nized market or trading exchange exists.
tributed e-markets. The current players Digital Island provides Web site and Forwards and futures derivatives
have a chance to succeed, but the future application hosting via a private network address the speciﬁc needs of consumers
belongs to innovators in the distributed that covers 35 countries with 2,550 or producers. A forward contract is an
storage and compute online commodi- enterprise servers, a 70 percent increase agreement to buy or sell a specific
ties markets. in servers from a year ago. amount of a commodity at a given time
Distance still matters in the Infor- in the future for an agreed price. A
WEB CACHING mation Age. Geographically distributed futures contract is a standardized for-
Web caching—the temporary storage caching servers exist because the Internet ward contract traded on an exchange.
of Web objects for later retrieval—makes alone cannot satisfy the desire to provide Derivatives (options) on futures address
using the Web less expensive and content quickly and economically over uncertainties about actual supply or
improves performance because it reduces large geographic areas. Web-caching demand compared with expectations.
bandwidth consumption, server load, companies have succeeded by providing Goods that have become exchange-
and latency. this service. However, the conditions that traded-commodities include oil (1983),
Akamai and Digital Island, the two ear- led to the formation of these companies electricity (1999), and—most recently—
liest Web-caching companies, represent are rapidly changing, and now they must bandwidth (1998-2001). Technical and
signiﬁcant operations aimed at control- adapt their business methods to compete geographical variations are not a barrier
ling a vital choke point in the Internet successfully in the online storage and to commoditization. Oil is produced at
market. Even after the dot-com correction computing commodities markets. thousands of places around the world,
in 2000, both generated record-breaking each with its own unique composition.
IPOs and billion-dollar valuations. The COMMODITIES EVOLUTION However, oil is graded and priced accord-
companies’ growth and proﬁtability con- A commodity is a widely used good ing to its departure in composition from
tinued during the past year’s general tele- that, once it meets established technical three main benchmarks—West Texas,
com meltdown. specifications, is supplier neutral. For Brent, and Dubai—and their locations.
Today, Akamai operates in 62 coun- example, if ﬂour has certain features, the Electricity is pooled over large areas and
tries and has 11,600 servers—more than bakery does not care where the flour then location is factored into the price.
double its count in late 2000—within comes from—only its price and avail- Similarly, bandwidth is a point-to-point
820 networks and more than 2,000 ability matter. The bakery’s long-term offering with developing city-pair price
indices—for example, New York to Los
The commodity that companies such as
Akamai, Content Bridge, and their com- The following resources provide additional information about online com-
petitors supply is Web-content caching. modities and peer-to-peer networking.
Customers do not care who provides this
commodity as long as it meets their con- Online commodities
tent’s distributed response time.
Content caching requires compute • IETF Content Distribution Internet Working Group, http://www.ietf.org.
power, storage space, and bandwidth. • J. Oltsik, “The Evolution of Enterprise Content Networking,” Lightwave,
Many suppliers offer hard disks and stor- Sept. 2001, pp. 149-152.
age area networks to meet storage needs, • W. Sweldens, “Is Cache Trading the Next Big Thing?” Telecoms Capacity,
and compute power is similarly available. June/July 2001, p. 30.
Web-content caching ﬁrms offer an addi-
tional factor—setup speed that quickly P2P
supports new users. Provisioning a new • D. Clark, “Face-to-Face with Peer-to-Peer Networking,” Computer, Jan.
user electronically takes much less time 2001, pp. 18-21.
than contract negotiations that are lim- • M. Macedonia, “Distributed File Sharing: Barbarians at the Gates?” Com-
ited by the speed of human interaction. puter, Aug. 2000, pp. 99-101.
Storage and processors are not currently • “Peer-to-Peer Pressure,” The Economist, Nov. 2, 2000, http://www.
available on a geographically distributed economist.com/displayStory.cfm?Story_ID=413334.
basis for providing services at electronic • “Proﬁt from Peer-to-Peer,” The Economist, June 21, 2001, http://www.
The term online commodity refers to
goods that can be bought and used with In the past, commodities moved to mar- Thus far, Web-caching business mod-
the transaction speed of an electronic kets as soon as there was a need and some els have evolved from single companies
agent. Hardware and network designs reasonable method for meeting it. Online that own all the pertinent hardware to
have included online commodities for commodities will make a double move to alliances in which different companies
some time. For example, Sun Micro- market as consumers not only buy and sell provide various parts of the hardware.
systems sells servers with processors that them online but also use them online. Letting additional companies join these
it can turn on after consumers purchase Business models are changing and busi- alliances has been proposed, but online
them, and IBM sells mainframes that it ness processes are being outsourced so commodities will submerge any attempts
can completely reconﬁgure and audit in rapidly that this move may keep pace with to control pricing.
real time. the evolution in IT outsourcing. The P2P movement pioneered by
However, regardless of how manufac- The “Resources” sidebar provides Napster, Gnutella, Freenet, and Grove
turers make them available, whether as sources for additional information about already produces software that supports
a single box or as part of a server farm, online commodities and the P2P move- the placement and location of storage,
there currently is no distributed elec- ment. control, and applications. Major com-
tronic marketplace for online commodi- panies such as Sun and Microsoft have
ties. Geographically distributed storage CONSEQUENCES also now entered the P2P fray with JXTA
services and processors cannot currently When this distributed electronic mar- and Hailstorm, respectively. All these
be obtained at electronic speed. Com- ketplace for online storage and compute companies realize that the Internet offers
panies already recognize that they are power becomes a reality, current Web- the advantages of scale in distributing
losing billions of dollars in potential rev- caching business methods—at least with resources, but they have been slow to rec-
enue because of this limitation. regard to hardware—will become a lia- ognize the value of speciﬁc geographical
Online resources are an attractive bility. A proprietary hardware system— distribution.
option for companies that host ASPs, and even one composed of ofﬂine com- P2P software provides basic distrib-
virtual ISPs will add to the push to make modities—could not compete with a dis- uted data access but does not support
content caching available. Although the tributed liquid market of online com- reservation, pricing, or location. Cur-
peer-to-peer (P2P) movement initially modities in terms of price or geographical rently, consumers cannot request file
found distributed coordination and distribution. A distributed online com- space with a speciﬁc response-time limit
access problematic, it is now adding sig- modity market could supply storage and from a set of locations and receive infor-
nificant pressure from the availability compute power less expensively and more mation about price and availability.
side. ﬂexibly than any single organization. Technically, making this possible would
November 2001 3
not be a big step for P2P software NEW BUSINESS ROLES radius of inﬂuence of such a hypermar-
because it already provides access. In In Internet years, Web-caching com- ket. On the Web, we can expect the same
fact, startups such as Mojo Nation panies may have about a decade before effect from concentrations of storage and
already have pricing schemes in place, this division into online commodity com- compute capacity. Aggregation also pro-
but they do not offer distributed control ponents and open-source software and vides opportunities for statistical multi-
nor is this present in various Grid initia- market makers takes place, after the plexing and bulk provisioning of the
tives (http://www.gridcomputing.com). breathing space occasioned by the recent underlying hardware. A geographically
To duplicate the access that Web- reduced interest of venture capital. This is dispersed Web-caching business would
caching companies provide, the next about 18 months of calendar time, prosper by outsourcing rather than own-
development in P2P software should let although the changes have already ing this infrastructure.
a consumer submit multiple response- started. How can current Web-caching Customization involves putting to-
time-to-location requests for given stor- ﬁrms evolve to take advantage of the gether a geographically distributed offer-
age sizes and receive grouped replies. The changing environment rather than suffer ing, composed of online commodities,
next step after that is to provide content from it? This commoditization will cre- that exactly matches a customer’s needs.
management. Duplicating the business ate business roles that support cus- Instead of outsourcing a network to a vir-
relationships of Web-caching companies tomization and aggregation or economies tual private network, succeeding in the
is more difﬁcult, but a network of elec- of scale. future market will require Web-caching
tronic agents tasked with requesting and Wal-Mart is a prime example of the companies to outsource content to virtual-
coordinating distributed resources would advantage of aggregation—few similar content response-time providers.
leave no alternative. competitors can prosper within the
mphasizing geographical dispersion
E is a new concept, compared with the
typical activities of large ﬁnancial
players such as Enron and MSDW, but
structuring commodities into a sophisti-
cated package is not. Linked with com-
panies offering distributed control and
application placement software, these
will be some of the new competitors for
existing Web-caching companies. They
will also have the advantage of a back-
ground in using packaged ﬂexibility—
commodity derivatives—to manage
uncertainties about price and availability.
Some current old-style Web-caching
players have the domain expertise they
need to become major players in the dis-
tributed online storage and computing
commodities markets. Their business
models must change, but these compa-
nies still have a chance to recapture their
role in this evolving market place. ✸
Chris Kenyon is a research staff member
at IBM Zürich Research Laboratory,
Switzerland. Contact him at chk@zurich.
Editor: Richard G. Mathieu, Dept. of
Decision Sciences and MIS, St. Louis
University, St. Louis, MO 63108;