economics of cloud computing
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Economics of Cloud ComputingTRANSCRIPT
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Economics of Cloud Computing
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Economics
• Economics is the study of what constitutes balanced human behaviour in the attempt to fulfil needs and wants.
• Economics has always been a powerful force in driving industry transformations and as more and more customers evaluate cloud computing investments that will significantly affect ROI. Source: Unknown / Missing
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Economics of the Cloud
• Field of study concerned with Cloud computing
• Deals with the production, distribution, and consumption of IT services.
• Scope not limited to Cloud Computing paradigm’s Financial Benefits. • It is more about choices Cloud customers
make• To inquire into why?
• Economics of the Cloud should show the way and should not confuse the adopters.
Source: Unknown / Missing
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Scarcity
• For an Industry, limited resources include
– Capital– Labor force– Technology
• For an organization, resources include - Compute - Storage - Networking
Dev Test Prod
Apps
ENVs
HR
Dev Test Prod
Apps
ENVs
Marketing
Dev Test Prod
Apps
ENVs
Finance
Dev Test Prod
App
ENVs
IT
AppApps
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Resource Utilization
Capacity Utilization
OS(Linux)
H/W
App
HR
OS(Linux)
H/W
App
Marketing
OS(Windows)
H/W
App
Finance
OS(Windows)
H/W
App
IT
15% 15% 15% 15%Maximum Utilization
85% 85% 85% 85%Waste of Resources
100% 100% 100% 100%Total Capacity
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Virtualization-Resource Utilization
Hardware
Virtual Machine Monitor (VMM) / Hypervisor
Guest OS(Linux)
H/W
App
HR
Guest OS(Linux)
H/W
App
Marketing
Guest OS(Windows)
H/W
App
Finance
Guest OS(Windows)
H/W
App
IT
15% 15% 15% 15%
Total Capacity 100%
60%
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Journey towards Cloud
Dedicated Servers
Server Consolidation
Virtualization
Cloud Computing
Time
Res
ourc
e Ut
iliza
tion
1
2
3
4
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Immediate Benefits
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Opportunity Cost
• Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative foregone (that is not chosen).
• Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice".
• The opportunity cost of moving to cloud computing is supreme because it entails a commitment in ‘sunk costs’: those are costs that strengthen the business enterprise.
Decrease in some critical values that used to be gained with On Premise Computing
Increase in some values; Business value of Cloud Computing is significantly higher than that of On Premise
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Pareto Principle
Infrastructure/Platform Management
Data Center
Server Resources
OS
Platforms
Application Management
Business Focus20%
80%
Application Management
Business Focus
Innovations
Creativity
Agility
80%
Infrastructure/Platform Management
Cloud Resources
20%
Traditional Environment Cloud Environment
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Economic Impact
• Fundamental contribution to promote growth and competition
• Economic impact of an innovation in the hardware-software field
– Profound effect on the market structure of many sectors
– On the global macroeconomic performance in the next years.
• Macro and microeconomics are the two vantage points from which the Cloud economy is observed.
– Understanding of cloud phenomena– More informed decisions while using cloud
computing
Economics of the Cloud
Agility
Creativity
Innovation
Social ImpactBenefits
Trade off
Economic Benefits
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Agility
• Engineering resource availability– Rapid provisioning of computing resources;– Quick deployment of applications– Agility in new product development, Testing & Deployment
• Business response to changing conditions or opportunity
Source: VMware
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Agility
• The agility benefits of cloud computing overshadow the purely cost saving benefits.– It enhances a company’s
ability to bring new products to market
– Improves its capability to expand geographically Source: The European Business Review
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Creativity & Innovation
• Continuous examination of opportunities without spending a lot of money and lot of time.
Source: Unknown / Missing
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Creativity & Innovation
• Enable new business formation and new product development creates what could be called multinational small and medium businesses (SMBs).
Source: http://www.eoi.es
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Creativity & Innovation
Cloud Computing
GovernmentEducation &
Health
Banking, Finance & Business
Services
Transport & Communica- tions
Distribution, Retail & HotelsManu - facturing
Energy & Utilities
Agriculture, Forestry &
Fishing
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Social Impact
• “Green” IT
• Global Collaboration
• Services to be delivered to developing nations which have limited access to IT
• Employment impacts– Indirect and induced economic activity that arises from the result of the cost saving and business ‐
development impacts– Direct employment impacts resulting from business creation.
• Perfect competition is characterized by many buyers and sellers, many products that are similar in nature and, as a result, many substitutes. E.g. VMware, Microsoft and Eucalyptus in Private Cloud
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Benefits
• Economies of Scale• Multi-Tenancy• Capacity Utilization• “Zero” capex model• Long term TCO of the IT
paradigm that support business
• Support for new business models which were constrained by the resources in the past– Big data processing
• Competitive Advantages
• Speed and Flexibility of business Changes– On Demand self service– Automation– Standardization– Elasticity– Pay per Use Model– Reduced time to market
• Complete focus on Business• Efficiency in global
communication and collaboration
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Trade off
• Security• Loss of Control• Availability• Reliability• Speed• Cost• Learning Curve• Quality of support• Change in organization
culture• Interoperability and
Standards
• Privacy and Data Confidentiality
• Shift in Liability• Regulatory Compliance• Transparent Infrastructure
Scalability• Application Deployment
Mechanisms• Economic Modeling of new
Market• Portability for Legacy IT in
Clouds
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Economic Benefits
Source: Microsoft
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Economic Benefits
Source: Unknown / Missing
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Comparison of Basic Cost Savings Variables for Public and Private Sector Cloud Customers
http://safegov.org/2011/11/1/government-decision-making-the-economics-of-cloud-computing
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Value Model
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Business Models for Cloud
Models ExamplesCommunications, Conversations Telephony, MicroblogsCorrespondences search and dating sitesCollaboration, Competition, Commerce
on-line gaming, vertical market sites, on-line auctions
Clearing On-line payments Conversion audio and video bridging, currency servicesCommunity Social networking sitesCrowd sourcing On-line movie rental / streaming sites, news or tagging sites with
popularity voting or recommendation engines.
Commons - Collections online book or patent databasesContinuous Cross-Device Access, Continuous Cross-Network Access
Web mail or photos accessible from your laptop or your smart phone, or anyone else’s, if you choose.
Cost Electricity, cheaper to buy from the grid than run a nuclear power plant in your back yard
Comparative Advantage - Context vs. Core
Outsourcing HR, CRM, tax prep, or stock picking via a mutual fund.
Capabilities and Competencies proprietary search algorithms and heuristicsCelerity software, platform, or infrastructure as a serviceCustomer Experience - Convenience Content and application delivery networks.
Consistency - Currency - Change Control - Coordination
Any SaaS service.
Checkpoints Network-based firewalls, anti-DDoS, email filtering for anti-virus or anti-spam.
Chokepoints Network traffic management, in digital networks, air traffic networks (gate delays), or highways.
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Country impact on timeframe
India 7% 36% 43% 14% 14
Japan 0% 9% 9% 82% 11
China 25% 13% 38% 25% 8
JCI 9% 21% 30% 39% 33
< 6 months< 12
months12 – 24 months
2 – 3 yearsTotal
numberOVUM Research
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Cloud Adoption Trends By Industry
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Cloud Adopters
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Laws of Cloudonomics
• Cloudonomics Law #1: Utility services cost less even though they cost more. Although utilities cost more when they are used, they cost nothing when they are not. Consequently, customers save money by replacing fixed infrastructure with Clouds when workloads are spiky, specifically when the peak-to-average ratio is greater than the utility premium.
• Cloudonomics Law #2: On-demand trumps forecasting. Forecasting is often wrong, the ability to up and down scale to meet unpredictable demand spikes allows for revenue and cost optimality.
• Cloudonomics Law #3: The peak of the sum is never greater than the sum of the peaks. Enterprises deploy capacity to handle their peak demands. Under this strategy, the total capacity deployed is the sum of these individual peaks. However, since clouds can reallocate resources across many enterprises with different peak periods, a cloud needs to deploy less capacity.
• Cloudonomics Law #4: Aggregate demand is smoother than individual. Aggregating demand from multiple customers tends to smooth out variation. Therefore, Clouds get higher utilization, enabling better economics.
• Cloudonomics Law #5: Average unit costs are reduced by distributing fixed costs over more units of output. Larger cloud providers can therefore achieve some economies of scale.
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Laws of Cloudonomics
• Cloudonomics Law #6: Superiority in numbers is the most important factor in the result of a combat (Clausewitz). Service providers have the scale to fight rogue attacks.
• Cloudonomics Law #7: Space-time is a continuum. Organizations derive competitive advantage from responding to changing business conditions faster than the competition. With Cloud scalability, for the same cost, a business can accelerate its information processing and decision-making.
• Cloudonomics Law #8: Dispersion is the inverse square of latency. Reduced latency is increasingly essential to modern applications. A Cloud Computing provider is able to provide more nodes, and hence reduced latency, than an enterprise would want to deploy.
• Cloudonomics Law #9: Don’t put all your eggs in one basket. The reliability of a system increases with the addition of redundant, geographically dispersed components such as data centers. Cloud Computing vendors have the scale and diversity to do so.
• Cloudonomics Law #10: An object at rest tends to stay at rest. A data center is a very large object. Private data centers tend to remain in locations for reasons such as where the company was founded, or where they got a good deal on property. A Cloud service provider can locate greenfield sites optimally.
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Additional Slides
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Cloud: Boon for SMBs
• SMBs– Academia – Start-ups to corporations– Technology providers – Pay-as-you-go/grow model
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Business Processes and Paradigm Shift
• On-premises to On cloud• Development• Testing • New applications for the cloud• Hosting and supporting cloud
applications
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Business Drivers
• To slash IT costs and technology costs• Business Process Improvement
– To Standardize Applications and the Business Operations• Business Intelligence out of Big Data Processing• Availability• Cost Benefit of going for a Operating Expense (OpEx) based approach vs
Capital expenditure (CapEx) based approach in traditional IT• Time-to-Market improvement• Fast scale-up or scale-down of resources, with utility-based pricing model• Simple, Efficient, Agile, on-demand provisioning of all “data center
resources”• Innovations in technology• Proficient Resource management • Competitive Advantage: The ability to do development and testing, better,
faster, or at lower cost than the competitor.• Environmental Benefits
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Mobile Cloud Computing
• Emerging trend is a shift from Cloud computing to Flexible Cloud computing and that is, “Mobile Cloud Computing-Salesforce.com
• ABI Research forecasts that the number of mobile cloud computing subscribers worldwide will grow rapidly over the next 5 years; rising from 42.8 million subscribers in 2008, (approximately 1.1% of all mobile subscribers) to just over 998 million in 2014 (nearly 19%).
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Industry wise Cloud Adoption
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Cloud-Fit Applications and Verticals
•Front Office:CRM, Demand Generation
•Enterprise Services:HR, Procurement
Banking & Investment Services
•Channel Mgmt: Advertising,Placement, Display, Search
•Content Mgmt:3D Rendering, Content Delivery
Media
•Energy Supply:ETRM(small/single commodity)
Energy & Utilities
•Administration& Finance: Grants Management
•Public Safety & Justice:Crime analysis
Government
•Corporate: F & A (payroll)
•Clinical: Physician EMR
Healthcare
•Front Office:CRM, Distributor Portals
•Core: Document Management
•Enterprise Services:HR, Procurement
•Infrastructure: Storage
Insurance
•Business Applications: CRM
•Corporate: Web Teleconferencing
Manufacturing
•E-Commerce
Retail
•Cargo portals ,Maintenance, repair & overhaul, Transportation management systems, On-line travel shopping, booking, ticketing, Loyalty management Import/export management
Transportation
•Procure to Pay: SupplierMgmt
•Supply Chain Exec/Optimization: Global Trade Mgmt, Transportation Mgmt
Wholesale Trade
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Inhibitors
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