The World’s Next Great New Asset Class

Written April 7, 2016 by
Jack Bouroudjian
Chief Economist

One of the highlights of my career was sitting on the board of directors of the CME Group and meeting some of the greatest minds in the world. There were senators, congressmen, Leo Melamed the father of financial futures, and Nobel laureates. Among them was the late Dr. Merton Miller, winner of the Nobel Memorial Prize in Economic Sciences (1990), who took a liking to me for my free market attitude. One particular discussion will live with me forever…Upon the proliferation of the internet he said, “Jack my boy, I don’t get it. Aside from information what good is this internet?” Then he added, “But then again what do I know…Remember, when the steam engine was created it was for pumping water out of coal mines…No one thought it would be useful for anything else!” If Dr. Miller were around today, he would see the internet evolution from information to communication to value. The growth of how compute processing power is consumed, from main frames to private infrastructure to the cloud has opened our eyes to the power of combining systems, devices (IOT) and applications all across the globe forming new and more powerful entities. A refrigerator can show you it’s time to buy milk, you can order dishwashing detergent from a button on your washing machine, you can give your dog a treat while you’re sitting anywhere else in the world.

Consumers, without question, are benefiting greatly from the cloud and access to anything anywhere. Clearly it’s an exciting time to be in the business of creating “mash-ups” of devices and software to accomplish new cultural norms. We are no longer concerned about the traditional computer/server. It’s now assumed that compute power exists and can be accessed anywhere at any time. Failure of components and downtime are becoming things of the past. Simply put, compute power has become commoditized. Compute, in its most basic form, is comprised of CPU, memory, disk space and network. The combinations of these different components can produce a variety of different outcomes.

Traditionally we thought of a computer as a box filled with components that it needs to run software. CPU, memory, disk and network were all connected by physical circuitry. Today we have effectively replaced this physical circuitry (BUS) with message queuing. Effectively, protocols and ports have replaced copper and soldier. RabbitMQ, Amazon’s SQS, ActiveMQ are just some examples of software that has matured to allow BUS-like communication across software components. It now matters less that computers are co-located and more that they can reach each other to transfer information at incredible speed. Processing and storage can be spread out throughout the globe rather than confined to a box, closet or basement. Hadoop, and others like it, make it possible to assume the data and compute exists (somewhere) to execute a given workflow.
Compute and digital assets are the World’s next great commodity sector. Imagine trading compute futures alongside corn and pork belly futures. Derivatives and packages of asset classes are nothing new in the world of finance. However, stripping the computer of its physical encasement and packaging its componentry as a valued commodity is new. Like a recipe in any restaurant, we can now build our infrastructure with little attention paid to the vendor supplying it. The components and their attributes (reliability, scalability, etc) now stand on their own for consumption. Imagine customizing an application platform by simply understanding its requirements (CPU, Memory, Disk, Network) and not necessarily caring about who will supply that? Think about it, do we care where our electric comes from? Isn’t it enough to know we can power our devices? It matters more that our electrical service is clean, consistent and available at all times; sounds like an application service level agreement.

If this sounds like trivializing the need for security, high availability and the plethora of other important features of an application, it is. Just about everything we need to add to compute to make it a viable platform today is available as a service, or will be soon. Need better reliability and/or scalability, strap on Docker and the compute environment can come and go as it pleases. Technologies like HA Proxy and Docker (as well as other container suppliers and managers) ensure that the compute can fluctuate and not cause interruption. If your insulated against the potential for failures, and your applications can move around the internet ubiquitously, then why lock yourself into a vendor? There has been a quest to find the latest in cyber-currency. Now we can match that with cyber-assets. I am suggesting that just about any technology or method that can be used to architect, build and release an application to the market can be abstracted to form a marketable service and therefore it can be traded as an asset.

How does this benefit us? Just like everything else in the free market, price discovery and fluctuations can introduce arbitrage and give us a more stable understanding of what our compute and any other feature actually cost to run and maintain. The days of RFPs and cost estimation, followed by budgeting for CAPEX and OPEX, are reduced to self-service. The pricing is guaranteed to be fair because the market is fair. Therefore, we can move past the differentiators that come with infrastructure and focus more on upfront application value.

Look at companies like Cognizant who are clearly thinking this way. Taking what they assume exists (infrastructure) and build platforms quickly. They don’t seem concerned with how the application will run anymore; value to the customer is more important. The companies competing in this new space are those willing to build catalogs of services and rely on them heavily.

They are pushing the large scale enterprises, that offer consumer services, to think about how their clients behave and how to integrate with their lives instead of disrupting it. Leaning on technology from Apache (Mesos) and Google (Kubernetes) we see the World’s compute assets becoming unified and federated. Applications are turning into molecules (like water or air). Consuming the applications will become as natural as breathing. You won’t interface with a computer, website, phone; instead you will live within the environment created atop the services that you once knowledgably interacted with. Trading electricity and water (Michael Burry as depicted in The Big Short) are commonplace today. As synthesized as it is, compute is on the same trajectory.

So as we witness the maturation of compute power, from information to communication to value, one of the end results will be value transfer. Value transfer is exactly what is sounds like, ‘real time’ transfer of value. Even more important; once value can be transferred efficiently, securely and standardized (Much like blockchain technology) the world will change forever. The cloud, and all the compute resources that make it possible, will be the epicenter of everything. No doubt, this is the next great commodity. But then again what do I know? To paraphrase Dr. Merton Miller, “After all, the internet was created for information, who would have known it would turn into_________ “If the good Doctor were around today he would tell me to leave the sentence unfinished…The possibilities are endless!

Jack Bouroudjian is CEO of Index Financial Partners, a three-term director of the Chicago Mercantile Exchange Group and founder and advisor of UCX (Universal Compute Exchange). He is also a CNBC Contributor. Follow him on Twitter @JackBouroudjian.

Andy Anderson is an accomplished senior dev-ops architect with expertise in infrastructure and platform technologies deployed over public and private cloud services. His company, mydev-ops.com, offers consulting on designing and implementing continuous integration solutions via automated processes to support dynamic configuration management