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Cloud as an Exchange-Traded Commodity

Cloud as an Exchange-Traded Commodity

Introduction

The verdict is in: The cloud is a commodity. So says the venerable CME Group (formerly known as the Chicago Mercantile Exchange) and Universal Compute Xchange (UCX), which are defining cloud infrastructure capacity as a new asset class, able to be traded in an exchange marketplace.

Last year, CME Group reached an agreement with UCX to license the CME trading platform to facilitate transactions between buyers and sellers of cloud capacity. UCX is currently lining up cloud service providers and potential buyers to join the exchange, with a beta test planned for first quarter 2015. As part of the agreement, CME has also licensed the rights to create, list, trade, settle, and clear derivative products, such as futures and options, for the cloud asset category.

UCX’s founders, who hail from the financial world, believe the time is right for a marketplace that offers market-wide visibility into rates, expressed in standardized cloud units, thus allowing organizations to measure and forecast cloud-based IT infrastructure costs, and hedge against price swings. They expect demand for the exchange to be fueled by businesses that utilize massive amounts of cloud capacity and that are looking for capital and market efficiencies. Supply will come from leading cloud service providers seeking to hedge and maximize utilization of their cloud infrastructure.

Turning the cloud into a commodity starts with developing a common “unit” for compute capacity. UCX has licensed 6fusion’s patented Workload Allocation CubeTM (WAC) algorithm, which provides a standard measure for IT infrastructure utilization. Cloud capacity will be offered on the cloud exchange as WAC Financial Products, expressed in standardized WAC units.

However, challenges to the model remain. Even if a common capacity unit is established, service providers create and deliver cloud capacity differently, based on infrastructure configurations, the hardware and platforms they deploy, and the processes they implement. Thus, even for basic Infrastructure as a Service, providers differentiate their services based on characteristics such as security, compliance assurances, data center certifications, performance and availability assurances, and customer service. UCX looks to address these configuration issues by offering different WAC Financial Products; that is, categories of “like” cloud units based on market demand.

Despite the challenges, the marketplace may well serve a need for low-priced basic cloud capacity, especially for large-volume users, as the cloud market evolves. Through the subsequent creation of a secondary market in cloud derivative products, it can also provide an investment vehicle for traders who choose to speculate on the pace and direction of market rate changes.


  • Introduction1
  • How the Cloud Exchange Works
  • Creating a Standard Unit of Cloud Capacity: 6fusion's WAC
  • Offering Different Products for Different Configurations
  • Following the Money: How do Participants Benefit from the Cloud Exchange?
  • The Future: Cloud-Based Financial Products
    • Cloud Derivatives Markets
  • Is the Time Right for a Cloud Exchange?
    • A Look at the Future of Cloud as a Commodity
  • The Last Word

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