Rethinking the Business Benefits of The Cloud

Rethinking the Business Benefits of the Cloud

GigaOm Research

Joe Weinman

joeweinman at gmail

@joeweinman

Cloudonomics

@joeweinman

Common

Location-independent

Online

Utility

on-Demand

Quantitative Analysis of Clouds.

- Penalty Cost Reduction to for independent demands

- Latency to for n nodes, adjusted by

- Hub vs. P2P Benefit of Connections; Latency Penalty of

- Pure Cloud Better when ; Hybrid Best with Breakeven at

- Linear Benefit for Exponential for ; for Random Walk

Source: Joe Weinman, Cloudonomics

- Smart networks improvement on paths

@joeweinman

“The Benefits of the Cloud are Cost Reduction and

Business Agility”

Revenue Growth

Does IT Matter??

@joeweinman

Firm ProfitabilityFixed Effect Models*

Base Model Incl Sales, OPEX

IT 1.912 1.837

Sales 0.054

OPEX 0.137

Advertising 0.155 0.142

R&D 1.001 0.993

R2 (overall) 0.49 0.51

Observations 276

Number of Firms 86

@joeweinman

Source: Sunil Mithas, Ali Tafti, Indranil Bardhan, and Jie Mein Goh, “Information Technology and Firm Profitability: Mechanisms and Empirical Evidence”

Range of IT Value

The Discipline of Market Leaders

Digital Disciplines

@joeweinman

Digital Technology+

Value Disciplines=

Digital Disciplines

Updating the Value Disciplines?

@joeweinman

Value Discipline

“Virtual” Extrapolation

(Physical) Operational Excellence

Virtual Operational Excellence

(Physical)Product

Leadership

Virtual Product

Leadership

(Face-to-Face)Customer Intimacy

Virtual Customer Intimacy

Source: NYTimes.com

Updating the Value Disciplines

@joeweinman

Value Discipline “Virtual” Extrapolation

Digital Discipline

Operational Excellence

Virtual Operational Excellence

Information Excellence

Product Leadership

Virtual Product Leadership

Solution Leadership

Customer Intimacy

Virtual Customer Intimacy

Collective Intimacy

(Traditional Innovation) Accelerated Innovation

Information Excellence

Solution Leadership

15@joeweinman

Collective Intimacy

Business Agility

Product Life CycleR

Introduction Growth Maturity Decline

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Industry RivalsIn

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Industry ProfitIn

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Industry ProfitIn

Lower Development

Expenses

Higher ProfitTime ValueOf Money

LowerMarketing Costs

Lower ForecastRisk

Higher MarketShare

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Digital Business Intervals

Time to Market

Time to Volume

Platformas a Service

Infrastructureas a Service

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Accelerated Innovation

Challenge

Solutions

??Solution

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Netflix InnocentiveGoldcorp

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New Business Models

Business Model Generation

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The Business Model Canvas

KeyPartners

KeyResources

ValueProposition

Channels

CustomerSegments

KeyActivities

Cost Structure

CustomerRelationships

Revenue Streams

Source: Alex Osterwalder and Yves Pigneur, Business Model Generation

@joeweinman

Nike Basketball Hyperdunk+

Source: Nike.com

Automobile Insurance

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- Speed- Route- Distance- Acceleration

Global Market Expansion

The Networked Economy

Source: McKinsey Global Institute

@joeweinman

Greater Bandwidth & More Endpoints

Greater GlobalKnowledge-Intensive Flows

Faster Growth than Labor, Capital-Intensive Segments

Increasing NetworkUbiquity

Enhanced User Experience

Amdahl’s Law.

Cloud Response Time.

Geo Dispersion.

The Law of Cloud Response Time.

T = F + N + PSingle Entities

T = F + N + P__ __√n p

Multiplicity of Nodes and Processors

( )n = ∛ QN 2

2PMinimum Time for a given Quantity of resources

Priority of Dispersion

Cost Reduction

00.10.20.30.40.50.60.70.80.9

Statistical Multiplexing of IID RVs.

1 6 11 16

Inverse Square Root Behavior.

Cloud Cost Structures.

SG&A, Margin, Uncollectibles, …

Economies of Scale

Diseconomies

Scale-Invariant Costs

Consumer TypicalEnterprise

Well-RunEnterprise

Mid-SizeCloud SP

LargestCloud SP

1. U < 1 A * U * C * T <= P * U * C * T < P * 1 * C * T = P * C * T

2. U = 1 & A=P A * U * C * T = P * U * C * T = P * 1 * C * T = P * C * T

3. U = 1 & A < P A * U * C * T < P * U * C * T = P * 1 * C * T = P * C * T

4. 1 < U < ( P / A ) A * U * C * T < A * (P / A) * C * T = P * C * T

5. U > 1, & (Tp / T) < (1 / U)

[(P - ε) * T * C] + [ε * Tp * C * U] < [(P - ε) * T * C] + [ε * T * C]

6. (TNZ / T) > (1 / U) & U > 1 ε * T * C < ε * TNZ * U * C

7. D uniform, U > 1 TotalCost = [F * T * C] + [ ½V * (V / P) * T * U * C]

Min(TotalCost) when 0 = [T * C] * [0 – 1 + V * U / P] V / P = 1 / U

A = Average, P = Peak, C = Baseline Resource Cost, U = Utility Premium, T = Time, Tp = Peak Duration,TNZ = Non-Zero Baseline Duration, F = Fixed Capacity, V = Variable Capacity, D = Demand over Time

The Math.

All other things being equal:

1. If cloud services cost less than enterprise IT, then…

…use them

2. If cloud services cost more than enterprise IT, then…

…don’t…

…jump to conclusions, because if demand is “spikier” than the cloud is “costly,” a pure cloud solution will cost less than a dedicated one

3. If demand has any variation, a hybrid solution is optimal

The English.

Hybrid Economics, P/A>U>1.

Private PublicHybrid

Stateless Elasticity BC/DR

Content/Service Delivery Data Integration

Hybrids over Space.

Dev/Test Production Production Dev/Test

Migration to Cloud Migration from Cloud

Hybrids over Time.

Risk Mitigation

Linear Demand Growth.

Demand D(t) = a+bt

UnservedDemand u Resources R(t)

ProvisioningTime tp

Demand D(t) = et

Resources R(t)=e(t-tp)

UnservedDemand

Exponential Demand Growth.

White Papers.

Thank You

joeweinman at gmail

@joeweinman

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