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Sun opens processor auction house

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You've got to give credit to Sun Microsystems for its raw ambition. Just one day after it officially started a $1 per hour grid computing plan, Sun revealed phase two of the project - a type of auction system that lets customers say how much they're willing to pay for a compute hour.

Sun has teamed with Archipelago Holdings - best known for its all-electronic stock exchange - to create a moving market for processors and storage. Customers will be able to bid on spare horsepower and capacity from Sun with the price fluctuating above and below the $1 mark. In addition, customers who already have fixed contracts with Sun for a given number of CPUs at the $1 rate will have a chance to sell any extra capacity to other users. The exchange will go live in a couple months.

"The exchange offers some flexibility," said Aisling MacRunnels, senior director of utility computing with Sun. "There may be times when the demand for CPUs is very large, and some companies may try and get a better price."

Now that you have the vision, let's take a collective deep breath and inspect the detail.

After weeks of hyping the grid project, Sun only launched the effort this week and did so in a piecemeal fashion. Sun eventually plans to operate six grid centers divided between the US, Canada and Europe that will house loads of servers and storage systems. At present, however, only a couple of these centers are completed.

The basic offers on tap are the $1 per CPU hour processing package and the $1 per gigabyte month storage deal. Customers who place massive orders can receive a cut rate.

The users send their data to Sun either for crunching purposes or storage. Sun executives believe banks, entertainment players and large businesses that do a lot of modeling will be the first to use this type of service. The idea being that processing information on Sun servers for $1 per CPU hour is cheaper than doing it in-house. So far, Sun has not revealed a single customer that has signed up for the grid package. It assures us that some clients are using the technology. They just don't want to reveal their names at this time.

One pundit, who shall remain nameless, brought up a solid point about this whole grid ordeal. Imagine Sun sold a stunning 1 billion hours worth of compute power this year. Such a high total seems highly unlikely but even that optimistic scenario would leave Sun with just $1bn in new revenue. That's a lot of investment and work to get a $1bn. How Sun must long for the days when the multi-million dollar servers went running out the door.

From that $1bn, you have to subtract the cost of building these compute centers, the networking costs Sun shells out to partners, marketing (lots of that) and any other partner costs - enter Archipelago or ISV. Our friendly pundit is skeptical that much will be left over from the $1b, but Sun begs to differ.

Sun has pegged the capital investment of a 6,000 processor grid center at $20m. If these processors hit 35 percent utilization, Sun expects to break even. At 55 per cent utilization, however, Sun is looking for gross margins of around 40 percent. Should Sun kick utilization up over 55 per cent, then it would be making serious gross margin headway over recent figures.

While 1bn CPU hours seems awfully high, Sun thinks the total is achievable. It points to an IDC estimate for 2006 that says the financial sector alone will need 10bn CPU hours. (Only the magicians at IDC know the formula used to obtain this forecast. Lord knows, they've had troubles with some predictions.)

Anyone with functioning synapses realizes there is no real way to predict how this grid gamble will play out. IBM seems to be giving Sun some grief about the idea, which validates it in a way.

But Sun should get credit for putting the product out there in the first place. Major and minor vendors have been beating the grid computing bandwagon for what feels like centuries. True enough, a few laboratories have linked up their data centers, and SETI is nice, but grid computing has not lived up to its marketing.

One of the biggest detractors from the concept has been the lack of large corporations giving grids a go. Sun is giving these companies a real chance to take a risk and "embrace the future." If you're a CIO that really believes in the grid, then here's your chance to a build an application that uses clusters well and send it off to Sun.

Bidding on CPU hours has an Enron-like "we'll make a market out of anything" ring to it, but it sure looks like a coming reality. Get ready to bid on the grid. ®

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