Imagine this scene at the turn of the century between two giants who revolutionised industry:
Tom: Hey Hank, I’ve got this terrific concept that’ll save you money on this production line thing you’re doing.
Henry: Yeah? What’s that?
Tom: Electricity-as-a-service. I call it EaaS.
Henry: How’s that work?
Tom: All this power you’re generating from your own power plant: I can provide it to you from our own state-of-the-art off-site facility. We’ll sell it to you as a service. We can save you up to 40% over your own in-house solution! No need to employ people to maintain all that equipment. No capital expenditure requirement every three to five years. I’ll worry about that. You just pay-as-you-go.
Henry: That may be fine for your residential consumers but not for business. Surely you’re not suggesting our precious electricity will be generated from a shared system.
Tom: Yes, your electricity will indeed come from a shared and centralised infrastructure. This is precisely how we’re going to reduce costs. Plus, I know your business. After all, you did once work for me and I did help you set-up this venture. This means we can tailor our service to your specific business needs. It will be secure. It will have back-up systems across multiple facilities. Service will never go down and we’ll even set aside dedicated generators just for you. And the icing on the cake: if you move factories or open new ones we’ll just pipe in the service to your new locations. No equipment to move or install. Leave electricity to us while you focus on building cars. What do you say?
Henry: You’re out of your mind! There’s no way any business let alone mine will risk its’ entire livelihood on an off-site electrical power plant that provides elec-tricity as a service. Forget it!
We don’t know the precise dialogue. What we do know is manufacturers like the Ford Motor Company moved their processes from manpowered ropes and pulleys and steam presses to new technologies like electricity. As they did that they grappled with the same issues that we in IT are grappling with today. At first they generated electrical power in-house. Eventually, however, technology matured, attitudes shifted and the likes of the Edison Illuminating Company changed the world forever.
While large enterprises could afford in-house facilities it’s not difficult to imagine smaller SME’s at the turn of the 20th century pondering this issue. Should they upgrade their watermills and animal powered treadwheels to electric motors and electric power generators? Should they consider steam engines instead? What were the business drivers? Were they cost reduction; competitive edge? And what if they didn’t upgrade? Would they be left in the dust?
What do you suppose happened next? Once they upgraded how did they support and maintain those generators? Did they hire in-house Electrical Power or EP Managers? And what happened when the machinery became old and slow and constantly shut-down?
You can see where this is going: capital outlay after just three to five years; stocking spare parts; hiring technical staff having nothing to do with the core business; system break downs; rust! And to maintain business continuity for those occasions when the generator went down for repairs – planned or otherwise – secondary generators for back-up!
We know what happened next. They outsourced. They hired an EP support company and leased new equipment. They had SLA’s and monthly review meetings and everything was great.
Then business boomed. They required more capacity. The vendor didn’t fully understand the nature of the business so they ditched the original equipment. They leased new better equipment. They wrapped the original lease into the new lease. This increased outgoings but to keep things manageable they extended the lease, which lowered the monthly outgoings. Excellent.
But wait! One year into the new lease there’s an economic downturn. That big power generator is no longer required. Now, reduce exposure, lower capacity, cut costs and downsize to a new smaller facility. How?
Got it! We’ll wrap the moving costs and the two previous leases into a new lease. We’ll even reduce outgoings by extending the lease even further.
So, let’s see. Our initial short term lease has now stretched into a long term lease and we’re stuck on aging equipment with a vendor that doesn’t really understand our business. That’s not great.
Ah, one more thing. The equipment will become outdated before the end of the lease and the original SLA’s won’t apply. The vendor will continue to support us but only under best endeavours. Or we could buy new equipment. Or lease it.
What a mess! EP isn’t even our core business. We just need it to work. Can’t we just pay for what we use in a way that’s affordable and reliable yet flexible enough to adapt to our changing business?
Fast forward to the present and electricity is purchased precisely this way. It makes you wonder why we can’t buy all technology this way?
