March 8th, 2011

@ Cloud Connect: Cloudonomics – Private, Public or Hybrid?

Cloudonomics: Private, Public, or Hybrid?

How should one quantify the ROI, costs, and benefits of cloud alternatives? What are the cost drivers of private, public, and hybrid delivery models, and how will they evolve over time? Is pay-per-use good or bad? What are the main cognitive biases in enterprise decision-making?

Speaker – Joe Weinman, Communications, Media, and Entertainment Industry Strategic Programs, HP

I’m starting the tracks with Joe Weinman’s cloudonomics session.  Joe’s session last year was a favorite of mine, so I’m back for more insights.

Joe is talking about some common cloud points/arguments that aren’t so clear.  A few comments:

  • Economies of scale are the key to cloud benefits.  Designing building your own server, is not an economy of scale. Locating near rivers and cheap power is not an economy of scale, it’s an economy of location. 
  • For larger companies, Capex vs. Opex is an accounting decision.  You can reserve cloud instances and then capitalize that expenditure.  Depends on what you need.
  • The end-state is probably going to be a hybrid cloud, some owned, some on-demand.

How to quantify value?

  1. unit cost reduction
  2. total cost reduction
  3. opportunity cost reduction
  4. time & profitability improvement
  5. revenue growth
  6. customer experience enhancement
  7. customer satisfaction / loyalty
  8. risk reduction
  9. competitive vitality
  10. life or death – winner take all dynamics

See Joe’s Meteorology slide, captured & posted by Randy Bias.

Joe referenced his 10 laws of cloudonomics. I also liked his 10 laws of behavioral economics.

Vapor or Cloud: virtualize or defer. Virtualization won’t give you 100% utilization.  Defer, is deferring the workload.  Not possible in consumer, event-driven workloads (tax filing, holiday shopping, sports event).

Hybrid: “Own the base, rent the spike”.

All other things being equal, if cloud services cost less than enterprise IT, then, use them.

If cloud services cost more than enterprise IT, then, don’t jump to conclusions.  Need to consider demand spikes / patterns.  Best to see Joe’s papers that demonstrate the math, decision factors.

Some architecture options for Hybrid Clouds:

  1. Pure Utility Cloud
  2. Mixed-Rate Hosting/Cloud
  3. Cloudbursting
  4. Front-End / Back-end – leave back-end, move front-end to cloud

Caveat: Remember the data.  If it costs more to move (network) the data payload than the resource savings, don’t do it.

Next point: Time is money, the value of on-demand.  Paper (pdf) & Abtract:

"Cloud computing and related services offer resources and services “on demand.” Examples include access to “video on demand” via IPTV or over-the-top streaming; servers and storage allocated on demand in “infrastructure as a service;” or “software as a service” such as customer relationship management or sales force automation. Services delivered “on demand” certainly sound better than ones provided “after an interminable wait,” but how can we quantify the value of on-demand, and the scenarios in which it creates compelling value?

We show that the benefits of on-demand provisioning depend on the interplay of demand with forecasting, monitoring, and resource provisioning and de-provisioning processes and intervals, as well as likely asymmetries between excess capacity and unserved demand…"

Smooth Operator: the value of demand aggregation Paper (pdf) & abstract:

“In industries such as cloud computing, lodging, and car rental services, demand from multiple customers is aggregated and served out of a common pool of resources managed by an operator. This approach can drive economies of scale and learning curve effects, but such benefits are offset by providers‘ needs to recover SG&A and achieve a return on invested capital. Does aggregation create value or are customers‘ costs just swept under a provider‘s rug and then charged back?

Under many circumstances, service providers—which one might call "smooth" operators—can take advantage of statistical effects that reduce variability in aggregate demand, creating true value vs. fixed, partitioned resources serving that demand.”

I think I’ll download some of Joe’s papers for the flight home. 

Tagged as: ccevent, Joe Weinman, live coverage

Posted by brenda michelson at 3:16 pm in Cloud Watch, economics | Permalink | Comments(1)
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January 13th, 2011

Changing lenses, McKinsey sees Agility side of Cloud Computing

Back in April 2009, McKinsey set the cloud computing community afire with a presentation arguing that corporate cloud computing adopters might expend more money using cloud versus traditional data center resources.  As reported by Steve Lohr in the NYTimes Bits blog:

“The McKinsey study, “Clearing the Air on Cloud Computing,” concludes that outsourcing a typical corporate data center to a cloud service would more than double the cost.”

Many in the cloud computing space, including Gartner’s highly respected Lydia Leong, immediately took the ‘math’ behind this report to task.

My issue at the time wasn’t the math  more >>

Tagged as: change-friendly, popular post

Posted by brenda michelson at 1:02 pm in adoption, Blog, economics, pundit positions | Permalink | Comments(0)
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March 17th, 2010

@ Cloud Connect: The Surprising Economics of the Cloud

Session title: Cloudonomics: The Surprising Economics of the Cloud

Session abstract: What’s the math behind cloud computing? In this opening session, Joe Weinman — who coined the term "Cloudonomics" and writes and researches the economics of on-demand IT — will discuss the inevitability of cloud computing, review his analysis of elastic computing and offer some counterintuitive insights into valuing the cloud.  Bernard Golden — CEO of Hyperstratus — will provide nuanced insights into cloudonomics using some real world examples.

Speaker – Joe Weinman, Strategy and Business Development VP, Author, AT&T

Speaker – Bernard Golden, CEO, HyperStratus

Joe Weinman opened the session with the most important question, Why do Cloud?  In the why, he was referring to the hard economic value of doing cloud.  Not cloud computing for technology innovation or patents, but for economic benefits. 

Before delving into the cloudonomics, Joe walked through some definitions of cloud computing, including NIST, but then settled on something simple.  Cloud is Common, Location Independent, Online, Utility, on-Demand.  He contrasted this with another definition, Vapor = Virtualized, Automated, Provisioning, of Resources.  In Joe’s opinion, a complete private cloud implementation is ‘vapor’. 

 more >>

Tagged as: bernard golden, ccevent, Joe Weinman, live coverage

Posted by brenda michelson at 1:29 am in 100-days, Blog, economics | Permalink | Comments(1)
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March 1st, 2010

Impressions from CIO Magazine Survey: Do the Math, Don’t forget the Business

Continuing my survey of the cloud computing surveys, I’ve been staring at the results from the June 2009 CIO Magazine cloud computing survey, wondering what I’m missing.  The responses that have me scratching my head are related to cloud computing drivers, budget spend and budget reductions.  Snapshots of the three questions follow.

[Click on pictures to enlarge].

As you can see, the first question shows reduce hardware and staffing costs as the primary drivers of cloud computing.  The second question attempts to quantify this savings (% budget reduction) over time.  Take note of the Average (Mean) line.  The expected reductions are 5.6%, 7.6% and 9.3% over 1, 3 and 5 years respectively.  As a former Senior IT leader with budget responsibility, I recognize that 5.6-9.3% budget savings aren’t easy to come by, and certainly add up as savings, or provide an alternative source for strategic investments.

So, all good.  Until you review the Average (Mean) line of the projected spend question.  That line shows on-demand service expenditure as 5.6%, 8.0% and 10.2% of budget over 1, 3 and 5 years respectively.  Comparing the spend against savings, you’ll see the spend is equal to, or greater than, the projected savings.

Ok. Initial years IT spend outpacing projected savings isn’t exactly a newsflash.  IT is a long-term investment, and return isn’t immediate.  Certainly, if respondents are building on-premise cloud computing environments, you would expect a longer time period to savings, with a more sustainable savings stream.

However, this survey focused on “on-demand services”, as in ‘from away’:

“The way most CIOs define cloud computing today is as a Software-as-a-Service-like arrangement where your company does not own the software, hardware or any specific equipment run by the provider. Access to the cloud vendor’s systems takes place over the Internet in some secured way and for that access, customers pay a subscription fee that rises or falls with the level of use. Cloud computing offerings are often referred to as “on-demand services”, “cloud services”, “Software-as-a-Service (SaaS)”, etc.”

Translation: a subscription (rental) economic model.  If that’s the case, then this survey shows that on average, organizations are paying more in rent than they expect to recoup as savings.  Obviously, no CIO is consciously making that call, spend $1.00 to save 90 cents, indefinitely.  Something is missing, and I don’t think it’s me. 

Rather, there are business value benefits the survey didn’t consider, such as shortening time to value, increased focus on core capabilities, extending a value chain, or even the creation of short-term business innovation spaces. 

So, this is a long-winded way of saying, do benchmark analysis, but then do your own math.  In doing that math, don’t limit your sights to the IT side of the equation.

Tagged as: business drivers, CIO Magazine, enterprise considerations

Posted by brenda michelson at 5:21 pm in 100-days, adoption, Cloud Watch, economics | Permalink | Comments(0)
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February 16th, 2010

F5 Networks Cloud Computing Survey: Business Reasons, Business Influencers

After a short break for some client work, I’m back to my cloud computing survey list.  This afternoon, I’ve reviewed the Google Communications Intelligence Report, October 2009, Rackspace’s No More Servers, November 2009 and F5 Networks’ Cloud Computing Survey, June- July 2009.  The Google and Rackspace surveys were interesting, but small and midsize business oriented and therefore not relevant for my enterprise considerations project.

The F5 Networks survey presented findings in 5 areas:

  • Confusion about the definition of cloud computing
  • Cloud computing has gained critical mass
  • Cloud computing is more than SaaS
  • Core technologies for building the cloud
  • Influencers go beyond IT

The section I found most interesting was the last, which covered the business drivers for public and private cloud computing adoption, as well as the organizational areas leading the adoption charge.

Business Drivers:

“77 percent of respondents reported that efficiency is a driver for public clouds. Additionally, respondents claim that reducing capital costs (68 percent) and easing staffing issues (61 percent) are key drivers behind public clouds.

For private cloud computing, respondents listed reducing capital cost (63 percent), agility (50 percent) and easing staffing issues (50 percent) as drivers.”

In a supporting chart, the remaining drivers of public cloud computing: agility (58%), make it easier to add/remove services (57%), avoid over provisioning (55%), infinite scalability (53%), reduce operating expense (51%), Green (51%), better choice (47%), and reliability (45%).

From the same chart, other drivers of private cloud computing: ease staffing issues (50%), infinite scalability (46%), efficiency (45%), reduce operating expense (45%), better choice (44%), make it easier to add/remove services (43%), avoid over provisioning (38%), reliability (37%), and Green (35%).

Although respondents might be confused about the definition of cloud computing, they clearly understand the benefits, and in particular how the benefits change between public and private cloud computing.  In a private cloud computing environment, assuming on-premise ownership and management, the benefits for staffing, over provisioning avoidance, reliability and green still exist, but in smaller amounts.

Business Influencers:

“According to respondents, the top influencers for public clouds include IT (45 percent), application development (41 percent) and LOB business stakeholders (41 percent).

On a similar note, respondents claimed the top three influencers in the implementation process for private clouds are IT (45 percent), LOB business unit stakeholders (36 percent) and application development teams (24 percent).”

The accompanying chart describes the 41 and 36% business influence bars as “Drive the Initiative”.  While the report doesn’t specify the types of initiatives, it’s not far fetched to imagine many of those public cloud computing adoption scenarios are business involvement only.  In other words, the next wave (tsunami) of end-user development.  Are you prepared?

Tagged as: business drivers, citizen development, end user development, enterprise considerations, F5

Posted by brenda michelson at 6:15 pm in 100-days, adoption, Cloud Watch, economics | Permalink | Comments(0)
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January 27th, 2010

Enterprise Management Associates: CapEx reduction is largest, but not sole, cloud computing benefit

Each time I think I have my cloud computing survey list set, another is released.  The latest is from Enterprise Management Associates, in a report entitled The Responsible Cloud.  The report price is outside of my price range, but Data Center Knowledge provides a good summary.

The survey sample:

“Enterprise Management Associates (EMA) interviewed 159 enterprises with active, or immediately planned cloud deployments, and reports that 75 percent said private cloud is the preferred model. Fifty two percent are implementing both on-premises and off-premises clouds…”

The key findings, according to Data Center Knowledge:

“Of the enterprises already running cloud computing, lowered IT capital costs (hardware, facilities, licenses, etc.) was cited by 61% of respondents. One quarter of all respondents reported that they had reduced both capital expenditure and operational expenditures such as staff, power, rent and maintenance costs.”

“Other benefits include freeing up strategic resources (49%), enabling disaster recovery/business continuity planning (46%), and increased flexibility and agility (46%). Overall, 89% of customers reported multiple outcomes, with just under half of all enterprises (46%) reporting five or more significant outcomes.

The report also found that the single most common level of OpEx reduction (from a sample of 79 respondents) was in the range of 21-30 percent. However, across all these respondents, cloud computing returned an average 22 percent OpEx saving.

Of the 76% of cloud customers that also reported real, measurable cost savings, the single most common level of CapEx reduction was between 11-20%. The CapEx return across all these respondents was 26%.”

Given the mix of public and private cloud and early adoption stage, it’s not surprising the CapEx reduction is in the 11-20% range.  As more use cases (workloads) shift to a cloud computing environment, you’d expect the CapEx reduction to increase.  Those CapEx reductions will further increase as use cases shift to a public cloud.  However, some of those savings will be offset by OpEx increases, as pay-as-you-go is a new OpEx item, and in-house personnel are still required to manage cloud computing deployments and business service levels.

Suffice to say, ROI calculators will become an important tool for cloud computing adopters and prospects.

Tagged as: business drivers, capex, Data Center Knowledge, enterprise considerations, Enterprise Management Associates, metrics, opex

Posted by brenda michelson at 12:19 pm in 100-days, adoption, Cloud Watch, economics | Permalink | Comments(0)
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