|By Jason Bloomberg||
|April 5, 2012 10:00 AM EDT||
Anybody who is considering a move to the Cloud knows that the greatest economic motivation for Cloud Computing is the pay-as-you-go, pay-for-what-you-need utility computing benefit, right? Deal with spikes in demand much more cost-effectively, the public Cloud service providers gush, since we can spread the load over many customers and pass the savings from our economies of scale on to you. The utility benefit is also a central premise of Private Clouds. Build a Private Cloud for your enterprise, the vendors promise, and you can achieve the same economies of scale as Public Clouds without all that risk.
Unfortunately, what sounds too good to be true usually is. There are a number of gotchas on both the Public and Private Cloud provider sides that limit—or even prevent—organizations from obtaining a full measure of the utility benefit. Let’s go back to economics class and take a closer look.
Clouds Like Water?
Turn on the faucet, only instead of water, you get Cloud. Sounds good, but we use water very differently than we do IT resources. With water, we generally use all we need without worrying about price. We may try to economize, and perhaps we’ll go through the trouble of digging a well if we need to fill our pool, but generally we don’t think about the cost of each flush or load of laundry.
The Cloud is just the opposite. The techies might not be thinking in terms of cost, but the bean counters definitely are. For a CIO or purchasing manager comfortable with entering resource costs into annual budget spreadsheets, the unknown nature of the Cloud bill strikes fear into their hearts—and their wallets. Instead of focusing on lowered costs, their worry is increased costs, since Cloud usage is inherently unpredictable. After all, that’s why landlords don’t like including heating costs in the rent. If the tenants aren’t responsible for keeping costs down then pay-as-you-go inevitably translates into pay more—and just how much more is a mystery until the bill arrives.
Enterprise Cloud customers in particular are beginning to push back, and as a result, Public Cloud providers must change their pricing model accordingly. Unfortunately, there aren’t many alternatives to simple pay-as-you go. One increasingly popular alternative that might ease Cloud purchasers’ minds is for providers to offer a tiered pricing system, with a fixed price for any consumption up to a pre-defined threshold, and pay-as-you-go above that. However, tiered pricing is not a panacea. While such a pricing model is straightforward and gives organizations an increased measure of predictability, it still doesn’t solve the problem of cost spikes.
If tiered pricing sounds more like paying for your mobile phone service than for utilities like water or electricity, you’re right. Not only does this approach reduce perceived risks for Cloud purchasers, it’s also a familiar model for the telcos, all of whom are looking to enter the Cloud market, or at the least, grow their existing Cloud offerings. As a result, ZapThink expects tiered pricing to become the norm for Public Cloud services over time, in spite of its drawbacks.
The irony with tiered Cloud pricing is that the more you require elasticity, the greater the risk that you’ll use up your allotted consumption for the month—but elasticity is the most important benefit of the Cloud. Sure, if you have steady, predictable consumption then tiered pricing is low risk, but if all you want is steady, predictable availability, then chances are keeping your resources on-premise or in a traditional hosted facility will be more cost-effective than moving to the Cloud in the first place, since you’re not particularly worried about spikes in demand.
To make matters worse, not everyone likes tiered pricing, of course. Anyone who’s used up their minutes or texts for the month only to be surprised by an excessive phone bill knows what I’m talking about. It seems the mobile phone providers love to play games with their pricing plans for the sole purpose of squeezing every penny out of their hapless customers. I’m sure we don’t want our Cloud providers to play the same dirty tricks.
The Subtleties of Cloud Churn
While it’s a common water cooler pastime to demonize mobile phone companies for their underhanded pricing policies, there is a downside for the providers as well: the dreaded customer churn. Since it’s relatively easy for customers to change phone providers, especially now that number portability is a reality, shifty behavior on the part of providers simply chases away customers.
Cloud churn is a very real problem for Public Cloud providers as well, as the ease of deprovisioning Cloud resources naturally eases the deprovisioning of customers. But there is an extra complication with Cloud churn that doesn’t have a parallel in the mobile phone world: Cloud resources that are no longer being used but still remain allocated to customers. Depending on the provider’s pricing model, the cost to the customer to maintain such resources may be minimal, but it’s not always clear whether those minimal amounts sufficiently cover the providers’ costs.
For example, I get monthly charges on my credit card from Amazon Web Services (AWS) for a few cents each month. I can’t remember how I signed up for AWS, but the amounts are so minimal, it’s not worth my time or trouble to cancel the service. Do those few cents per month cover Amazon’s costs, assuming there are potentially millions of such customers? Perhaps in Amazon’s case—but for less experienced providers with wafer thin margins, the economics might work to their disadvantage.
Furthermore, the proliferation of such idle instances may be a more significant issue for Private Cloud providers, since they typically have constrained budgets for data center buildouts. Amazon may be building new data centers as fast as they can, but your Private Cloud likely has a maximum practical size given your budget for the effort. The last thing you want is to fill it up with idle resources that various people in your organization can’t be bothered to fully deprovision.
The Demotivation Paradox
For the Public Cloud provider, the obvious solution to the problem of idle resources left over from Cloud churn is to charge enough for those resources. Either the cost will motivate people to fully deprovision them, so the argument goes, or at the very least, they generate enough money so that keeping them around is worthwhile for the providers.
But what if we’re talking about Private Clouds here? The way to charge internal customers for using Cloud resources is via chargebacks. And everybody hates chargebacks. Not only are they a bookkeeping hassle, but they also demotivate the consumption of shared resources. We went through this problem when we dealt with shared Services and SOA, and now we’re sharing Cloud resources, but the problem remains: the whole point to the Private Cloud is to achieve economies of scale across the enterprise, but the only way to make such economies work is if most or all divisions participate. Chargebacks, however, discourage that participation.
As it was with shared Services, the way to compensate for chargebacks is through effective governance: establish and enforce Cloud consumption policies that counteract the demotivational effects of chargebacks, and come up with a way to motivate people to follow such policies. While you’re at it, formulate policies governing the deprovisioning of instances that no one needs any more. But in the Cloud, such governance is especially challenging because of the diversity of resources and their corresponding consumption scenarios: policies for provisioning virtual machines as part of IaaS is quite different from, say, provisioning development tools on PaaS. It will take organizations with Private Clouds a good bit of trial and error to get the balance right.
The ZapThink Take
Another downside to the idle-resource-masquerading-as-paying-customer problem is that it makes it very difficult for financial analysts to gauge the health of a Public Cloud provider. This obfuscation can skew traditional metrics like number of customers or revenue per customer, and the distortion may be different from one provider to another. Combine the resulting confusion with the lean profit margins in today’s Cloud space, as providers push their prices ever lower to encourage growth, and you have a recipe for disaster. An ostensibly healthy Cloud provider might suddenly collapse due to a foundation of underperforming customers and idle resources.
Private Clouds face a corresponding problem, as executives review the financials for the Cloud effort. ZapThink predicts a backlash against Private Clouds in the next year or two, as vendors underdeliver on their Cloud promises—not necessarily through any fault of their technology, but rather because the reality of achieving cost advantages with Private Clouds is far more difficult than the vendors’ and analysts’ spreadsheets might have you believe.
If you’d like to learn more about the subtleties of Cloud economics, I’d be happy to have a deeper discussion at Cloud Expo in New York or The Business of Cloud Computing in Dallas, or any of the other conferences I’ll be presenting at. Please drop me a line if you’re interested. I’m curious as to whether issues of Cloud churn or Private Cloud demotivation are concerns in your organization.
Image source: Vegan Feast Catering
SYS-CON Events announced today that 910Telecom will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Housed in the classic Denver Gas & Electric Building, 910 15th St., 910Telecom is a carrier-neutral telecom hotel located in the heart of Denver. Adjacent to CenturyLink, AT&T, and Denver Main, 910Telecom offers connectivity to all major carriers, Internet service providers, Internet backbones and ...
Jul. 29, 2016 06:00 PM EDT Reads: 910
Big Data, cloud, analytics, contextual information, wearable tech, sensors, mobility, and WebRTC: together, these advances have created a perfect storm of technologies that are disrupting and transforming classic communications models and ecosystems. In his session at @ThingsExpo, Erik Perotti, Senior Manager of New Ventures on Plantronics’ Innovation team, provided an overview of this technological shift, including associated business and consumer communications impacts, and opportunities it ...
Jul. 29, 2016 05:15 PM EDT Reads: 366
You think you know what’s in your data. But do you? Most organizations are now aware of the business intelligence represented by their data. Data science stands to take this to a level you never thought of – literally. The techniques of data science, when used with the capabilities of Big Data technologies, can make connections you had not yet imagined, helping you discover new insights and ask new questions of your data. In his session at @ThingsExpo, Sarbjit Sarkaria, data science team lead ...
Jul. 29, 2016 04:45 PM EDT Reads: 1,239
WebRTC is bringing significant change to the communications landscape that will bridge the worlds of web and telephony, making the Internet the new standard for communications. Cloud9 took the road less traveled and used WebRTC to create a downloadable enterprise-grade communications platform that is changing the communication dynamic in the financial sector. In his session at @ThingsExpo, Leo Papadopoulos, CTO of Cloud9, discussed the importance of WebRTC and how it enables companies to focus...
Jul. 29, 2016 04:15 PM EDT Reads: 1,078
ReadyTalk has expanded the capabilities of the FoxDen collaboration platform announced late last year to include FoxDen Connect, an in-room video collaboration experience that launches with a single touch. With FoxDen Connect, users can now not only engage in HD video conferencing between iOS and Android mobile devices or Chrome browsers, but also set up in-person meeting rooms for video interactions. A host’s mobile device automatically recognizes the presence of a meeting room via beacon tech...
Jul. 29, 2016 04:15 PM EDT Reads: 383
Manufacturers are embracing the Industrial Internet the same way consumers are leveraging Fitbits – to improve overall health and wellness. Both can provide consistent measurement, visibility, and suggest performance improvements customized to help reach goals. Fitbit users can view real-time data and make adjustments to increase their activity. In his session at @ThingsExpo, Mark Bernardo Professional Services Leader, Americas, at GE Digital, discussed how leveraging the Industrial Internet a...
Jul. 29, 2016 03:15 PM EDT Reads: 650
On Dice.com, the number of job postings asking for skill in Amazon Web Services increased 76 percent between June 2015 and June 2016. Salesforce.com saw its own skill mentions increase 37 percent, while DevOps and Cloud rose 35 percent and 28 percent, respectively. Even as they expand their presence in the cloud, companies are also looking for tech professionals who can manage projects, crunch data, and figure out how to make systems run more autonomously. Mentions of ‘data science’ as a skill ...
Jul. 29, 2016 03:00 PM EDT Reads: 441
IoT generates lots of temporal data. But how do you unlock its value? You need to discover patterns that are repeatable in vast quantities of data, understand their meaning, and implement scalable monitoring across multiple data streams in order to monetize the discoveries and insights. Motif discovery and deep learning platforms are emerging to visualize sensor data, to search for patterns and to build application that can monitor real time streams efficiently. In his session at @ThingsExpo, ...
Jul. 29, 2016 02:00 PM EDT Reads: 1,203
"delaPlex is a software development company. We do team-based outsourcing development," explained Mark Rivers, COO and Co-founder of delaPlex Software, in this SYS-CON.tv interview at 18th Cloud Expo, held June 7-9, 2016, at the Javits Center in New York City, NY.
Jul. 29, 2016 01:00 PM EDT Reads: 2,113
SYS-CON Events announced today that LeaseWeb USA, a cloud Infrastructure-as-a-Service (IaaS) provider, will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. LeaseWeb is one of the world's largest hosting brands. The company helps customers define, develop and deploy IT infrastructure tailored to their exact business needs, by combining various kinds cloud solutions.
Jul. 29, 2016 11:15 AM EDT Reads: 1,344
Amazon has gradually rolled out parts of its IoT offerings in the last year, but these are just the tip of the iceberg. In addition to optimizing their back-end AWS offerings, Amazon is laying the ground work to be a major force in IoT – especially in the connected home and office. Amazon is extending its reach by building on its dominant Cloud IoT platform, its Dash Button strategy, recently announced Replenishment Services, the Echo/Alexa voice recognition control platform, the 6-7 strategic...
Jul. 29, 2016 11:15 AM EDT Reads: 687
For basic one-to-one voice or video calling solutions, WebRTC has proven to be a very powerful technology. Although WebRTC’s core functionality is to provide secure, real-time p2p media streaming, leveraging native platform features and server-side components brings up new communication capabilities for web and native mobile applications, allowing for advanced multi-user use cases such as video broadcasting, conferencing, and media recording.
Jul. 29, 2016 09:45 AM EDT Reads: 1,036
SYS-CON Events announced today that Venafi, the Immune System for the Internet™ and the leading provider of Next Generation Trust Protection, will exhibit at @DevOpsSummit at 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. Venafi is the Immune System for the Internet™ that protects the foundation of all cybersecurity – cryptographic keys and digital certificates – so they can’t be misused by bad guys in attacks...
Jul. 29, 2016 09:45 AM EDT Reads: 1,481
The cloud market growth today is largely in public clouds. While there is a lot of spend in IT departments in virtualization, these aren’t yet translating into a true “cloud” experience within the enterprise. What is stopping the growth of the “private cloud” market? In his general session at 18th Cloud Expo, Nara Rajagopalan, CEO of Accelerite, explored the challenges in deploying, managing, and getting adoption for a private cloud within an enterprise. What are the key differences between wh...
Jul. 29, 2016 09:45 AM EDT Reads: 2,145
There will be new vendors providing applications, middleware, and connected devices to support the thriving IoT ecosystem. This essentially means that electronic device manufacturers will also be in the software business. Many will be new to building embedded software or robust software. This creates an increased importance on software quality, particularly within the Industrial Internet of Things where business-critical applications are becoming dependent on products controlled by software. Qua...
Jul. 29, 2016 07:15 AM EDT Reads: 1,650
In addition to all the benefits, IoT is also bringing new kind of customer experience challenges - cars that unlock themselves, thermostats turning houses into saunas and baby video monitors broadcasting over the internet. This list can only increase because while IoT services should be intuitive and simple to use, the delivery ecosystem is a myriad of potential problems as IoT explodes complexity. So finding a performance issue is like finding the proverbial needle in the haystack.
Jul. 29, 2016 06:45 AM EDT Reads: 2,380
Machine Learning helps make complex systems more efficient. By applying advanced Machine Learning techniques such as Cognitive Fingerprinting, wind project operators can utilize these tools to learn from collected data, detect regular patterns, and optimize their own operations. In his session at 18th Cloud Expo, Stuart Gillen, Director of Business Development at SparkCognition, discussed how research has demonstrated the value of Machine Learning in delivering next generation analytics to imp...
Jul. 29, 2016 04:45 AM EDT Reads: 2,579
The 19th International Cloud Expo has announced that its Call for Papers is open. Cloud Expo, to be held November 1-3, 2016, at the Santa Clara Convention Center in Santa Clara, CA, brings together Cloud Computing, Big Data, Internet of Things, DevOps, Digital Transformation, Microservices and WebRTC to one location. With cloud computing driving a higher percentage of enterprise IT budgets every year, it becomes increasingly important to plant your flag in this fast-expanding business opportuni...
Jul. 29, 2016 04:15 AM EDT Reads: 2,692
The Internet of Things will challenge the status quo of how IT and development organizations operate. Or will it? Certainly the fog layer of IoT requires special insights about data ontology, security and transactional integrity. But the developmental challenges are the same: People, Process and Platform. In his session at @ThingsExpo, Craig Sproule, CEO of Metavine, demonstrated how to move beyond today's coding paradigm and shared the must-have mindsets for removing complexity from the develo...
Jul. 29, 2016 02:45 AM EDT Reads: 1,629
SYS-CON Events announced today that MangoApps will exhibit at the 19th International Cloud Expo, which will take place on November 1–3, 2016, at the Santa Clara Convention Center in Santa Clara, CA. MangoApps provides modern company intranets and team collaboration software, allowing workers to stay connected and productive from anywhere in the world and from any device.
Jul. 29, 2016 02:30 AM EDT Reads: 1,477