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?
- unit cost reduction
- total cost reduction
- opportunity cost reduction
- time & profitability improvement
- revenue growth
- customer experience enhancement
- customer satisfaction / loyalty
- risk reduction
- competitive vitality
- 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:
- Pure Utility Cloud
- Mixed-Rate Hosting/Cloud
- Cloudbursting
- 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.
