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Will cloud services be traded just like stocks and bonds one day?

Brandon Butler | Oct. 10, 2013
Several companies are exploring the idea of trading cloud services on a commodities future exchange market, and the idea is gaining credence

Today, cloud computing resources are bought and sold in a fairly straightforward process: A company needs extra compute capacity, for example, so they contract with a provider who spins up virtual machines for a certain amount of time.

But what will that process look like in, say, 2020? If efforts by a handful of companies come to fruition, there could be a lot more wheeling and dealing that goes on behind the scenes.

An idea is being floated by several companies to package cloud computing resources into blocks that can be bought and sold on a commodity futures trading market. It would be similar to how financial instruments like stocks, bonds and agricultural products like corn and wheat are traded on exchanges by investors.

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Could this actually happen? "It's got some challenges," says Jeffery Harris, the former chief economist at the U.S. Commodity Futures Trading Commission, which oversees futures trading. Regulators would have to go through a long-check list to ensure there is no room for manipulation in such a market before allowing it, predicts Harris, who now is a professor of finance at Syracuse University's School of Management. There could be technical challenges too, both in terms of how such an exchange would be operated and how the resources sold on the exchange would actually be consumed by end users. Overall though, Harris says the idea is viable, yet still in the early days.

Recently, the idea has gained some credibility because one of the companies that proposed the exchange named 6Fusion has signed a letter of intent to explore the idea with the largest futures exchange market in the country, the CME Group.

There are a handful of other companies pursuing this idea too though. Generally, the process would work the same: Blocks of cloud computing resources - for example a month's worth of virtual machines, or a year's worth of cloud storage - would be packaged by service providers and sold on a market. In the exchange, investors and traders could buy up these blocks and resell them to end users, or other investors, potentially turning a profit if the value of the resource increases.

The market for these resources would ebb and flow, just like with any other commodity, based on supply and demand. Perhaps around the holiday shopping season, or directly after a natural disaster, these blocks of cloud resources would be more valuable, for example. As concerns about government peering increase, highly-secure resources could be in higher demand than more vanilla offerings.    

The benefit, backers say, are multi-fold. For cloud computing providers, it would create a whole new marketplace where their services are sold. Introducing these new trading mechanisms in a future's exchange would allow providers to sell out a year's worth of use for their data center before ever even laying a brick.

 

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