|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
Technology is enabling a new approach to collecting and using data. This approach, commonly referred to as the "Internet of Things" (IoT), enables businesses to use real-time data from all sorts of things including machines, devices and sensors to make better decisions, improve customer service, and lower the risk in the creation of new revenue opportunities. In his General Session at Internet of @ThingsExpo, Dave Wagstaff, Vice President and Chief Architect at BSQUARE Corporation, discuss the real benefits to focus on, how to understand the requirements of a successful solution, the flow of ...
Jan. 30, 2015 03:45 PM EST Reads: 3,126
Cloud Expo 2014 TV commercials will feature @ThingsExpo, which was launched in June, 2014 at New York City's Javits Center as the largest 'Internet of Things' event in the world.
Jan. 30, 2015 03:15 PM EST Reads: 3,504
"People are a lot more knowledgeable about APIs now. There are two types of people who work with APIs - IT people who want to use APIs for something internal and the product managers who want to do something outside APIs for people to connect to them," explained Roberto Medrano, Executive Vice President at SOA Software, in this SYS-CON.tv interview at Cloud Expo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
Jan. 30, 2015 02:30 PM EST Reads: 2,695
Performance is the intersection of power, agility, control, and choice. If you value performance, and more specifically consistent performance, you need to look beyond simple virtualized compute. Many factors need to be considered to create a truly performant environment. In his General Session at 15th Cloud Expo, Harold Hannon, Sr. Software Architect at SoftLayer, discussed how to take advantage of a multitude of compute options and platform features to make cloud the cornerstone of your online presence.
Jan. 30, 2015 02:15 PM EST Reads: 3,229
In this Women in Technology Power Panel at 15th Cloud Expo, moderated by Anne Plese, Senior Consultant, Cloud Product Marketing at Verizon Enterprise, Esmeralda Swartz, CMO at MetraTech; Evelyn de Souza, Data Privacy and Compliance Strategy Leader at Cisco Systems; Seema Jethani, Director of Product Management at Basho Technologies; Victoria Livschitz, CEO of Qubell Inc.; Anne Hungate, Senior Director of Software Quality at DIRECTV, discussed what path they took to find their spot within the technology industry and how do they see opportunities for other women in their area of expertise.
Jan. 30, 2015 01:45 PM EST Reads: 2,359
DevOps Summit 2015 New York, co-located with the 16th International Cloud Expo - to be held June 9-11, 2015, at the Javits Center in New York City, NY - announces that it is now accepting Keynote Proposals. The widespread success of cloud computing is driving the DevOps revolution in enterprise IT. Now as never before, development teams must communicate and collaborate in a dynamic, 24/7/365 environment. There is no time to wait for long development cycles that produce software that is obsolete at launch. DevOps may be disruptive, but it is essential.
Jan. 30, 2015 01:15 PM EST Reads: 2,618
Wearable devices have come of age. The primary applications of wearables so far have been "the Quantified Self" or the tracking of one's fitness and health status. We propose the evolution of wearables into social and emotional communication devices. Our BE(tm) sensor uses light to visualize the skin conductance response. Our sensors are very inexpensive and can be massively distributed to audiences or groups of any size, in order to gauge reactions to performances, video, or any kind of presentation. In her session at @ThingsExpo, Jocelyn Scheirer, CEO & Founder of Bionolux, will discuss ho...
Jan. 30, 2015 01:15 PM EST Reads: 2,026
Almost everyone sees the potential of Internet of Things but how can businesses truly unlock that potential. The key will be in the ability to discover business insight in the midst of an ocean of Big Data generated from billions of embedded devices via Systems of Discover. Businesses will also need to ensure that they can sustain that insight by leveraging the cloud for global reach, scale and elasticity.
Jan. 30, 2015 01:00 PM EST Reads: 4,132
“With easy-to-use SDKs for Atmel’s platforms, IoT developers can now reap the benefits of realtime communication, and bypass the security pitfalls and configuration complexities that put IoT deployments at risk,” said Todd Greene, founder & CEO of PubNub. PubNub will team with Atmel at CES 2015 to launch full SDK support for Atmel’s MCU, MPU, and Wireless SoC platforms. Atmel developers now have access to PubNub’s secure Publish/Subscribe messaging with guaranteed ¼ second latencies across PubNub’s 14 global points-of-presence. PubNub delivers secure communication through firewalls, proxy ser...
Jan. 30, 2015 12:45 PM EST Reads: 1,728
We’re no longer looking to the future for the IoT wave. It’s no longer a distant dream but a reality that has arrived. It’s now time to make sure the industry is in alignment to meet the IoT growing pains – cooperate and collaborate as well as innovate. In his session at @ThingsExpo, Jim Hunter, Chief Scientist & Technology Evangelist at Greenwave Systems, will examine the key ingredients to IoT success and identify solutions to challenges the industry is facing. The deep industry expertise behind this presentation will provide attendees with a leading edge view of rapidly emerging IoT oppor...
Jan. 30, 2015 12:45 PM EST Reads: 1,927
The 3rd International Internet of @ThingsExpo, co-located with the 16th International Cloud Expo - to be held June 9-11, 2015, at the Javits Center in New York City, NY - announces that its Call for Papers is now open. The Internet of Things (IoT) is the biggest idea since the creation of the Worldwide Web more than 20 years ago.
Jan. 30, 2015 12:00 PM EST Reads: 8,053
Connected devices and the Internet of Things are getting significant momentum in 2014. In his session at Internet of @ThingsExpo, Jim Hunter, Chief Scientist & Technology Evangelist at Greenwave Systems, examined three key elements that together will drive mass adoption of the IoT before the end of 2015. The first element is the recent advent of robust open source protocols (like AllJoyn and WebRTC) that facilitate M2M communication. The second is broad availability of flexible, cost-effective storage designed to handle the massive surge in back-end data in a world where timely analytics is e...
Jan. 30, 2015 12:00 PM EST Reads: 2,674
"There is a natural synchronization between the business models, the IoT is there to support ,” explained Brendan O'Brien, Co-founder and Chief Architect of Aria Systems, in this SYS-CON.tv interview at the 15th International Cloud Expo®, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
Jan. 30, 2015 11:45 AM EST Reads: 3,627
The Internet of Things will put IT to its ultimate test by creating infinite new opportunities to digitize products and services, generate and analyze new data to improve customer satisfaction, and discover new ways to gain a competitive advantage across nearly every industry. In order to help corporate business units to capitalize on the rapidly evolving IoT opportunities, IT must stand up to a new set of challenges. In his session at @ThingsExpo, Jeff Kaplan, Managing Director of THINKstrategies, will examine why IT must finally fulfill its role in support of its SBUs or face a new round of...
Jan. 30, 2015 11:45 AM EST Reads: 2,784
The BPM world is going through some evolution or changes where traditional business process management solutions really have nowhere to go in terms of development of the road map. In this demo at 15th Cloud Expo, Kyle Hansen, Director of Professional Services at AgilePoint, shows AgilePoint’s unique approach to dealing with this market circumstance by developing a rapid application composition or development framework.
Jan. 30, 2015 11:30 AM EST Reads: 2,328
The Internet of Things will greatly expand the opportunities for data collection and new business models driven off of that data. In her session at @ThingsExpo, Esmeralda Swartz, CMO of MetraTech, discussed how for this to be effective you not only need to have infrastructure and operational models capable of utilizing this new phenomenon, but increasingly service providers will need to convince a skeptical public to participate. Get ready to show them the money!
Jan. 30, 2015 11:30 AM EST Reads: 3,062
ARMONK, N.Y., Nov. 20, 2014 /PRNewswire/ -- IBM (NYSE: IBM) today announced that it is bringing a greater level of control, security and flexibility to cloud-based application development and delivery with a single-tenant version of Bluemix, IBM's platform-as-a-service. The new platform enables developers to build ap...
Jan. 30, 2015 11:15 AM EST Reads: 3,162
Building low-cost wearable devices can enhance the quality of our lives. In his session at Internet of @ThingsExpo, Sai Yamanoor, Embedded Software Engineer at Altschool, provided an example of putting together a small keychain within a $50 budget that educates the user about the air quality in their surroundings. He also provided examples such as building a wearable device that provides transit or recreational information. He then reviewed the resources available to build wearable devices at home including open source hardware, the raw materials required and the options available to power s...
Jan. 30, 2015 11:00 AM EST Reads: 2,444
The Internet of Things is not new. Historically, smart businesses have used its basic concept of leveraging data to drive better decision making and have capitalized on those insights to realize additional revenue opportunities. So, what has changed to make the Internet of Things one of the hottest topics in tech? In his session at @ThingsExpo, Chris Gray, Director, Embedded and Internet of Things, discussed the underlying factors that are driving the economics of intelligent systems. Discover how hardware commoditization, the ubiquitous nature of connectivity, and the emergence of Big Data a...
Jan. 30, 2015 10:45 AM EST Reads: 3,233
The Internet of Things promises to transform businesses (and lives), but navigating the business and technical path to success can be difficult to understand. In his session at @ThingsExpo, Sean Lorenz, Technical Product Manager for Xively at LogMeIn, demonstrated how to approach creating broadly successful connected customer solutions using real world business transformation studies including New England BioLabs and more.
Jan. 30, 2015 10:45 AM EST Reads: 2,693