Proformative:The Three Stages of Cloud Economics

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Learning Objectives

After participating in this event you will be able to:

• Define why "Cloud Computing Always Saves You Money" is a myth

• Define how your organization can deploy three stages of cloud technology to improve revenue •Define how to "Drive Up IT Business Relevancy by Mapping Cloud Economics to the Business"

© 2011 Forrester Research, Inc. Reproduction Prohibited 4

© 2011 Forrester Research, Inc. Reproduction Prohibited 5 © 2009 Forrester Research, Inc. Reproduction Prohibited

Activate Cloud Economics Maximizing the benefits of cloud computing

James Staten. VP and Principal Analyst


Scale out turns on the

cloud.

Scaling down turns on cloud

economics.


Definition:

A standardized IT capability (services, software, or infrastructure) delivered in a pay-per-use, self-service way.

What makes a cloud a cloud


Not everything is cloud . . . and shouldn’t be

PaaS

Storage

-as-a-

service

DB-as-a-

service

SaaS

Cloud

billing

IaaS VM

hosting

On-

demand

scaling

MSP

Dedicated

hosting

DC

outsourcing

Traditional IT

Cloud computing

• Variable costs/terms

• Standardized deployments

•Multitenant

• Highly automated

• Low control

•Limited customization

Traditional computing

• Fixed cost/terms

• Varied deployments

• Single tenant

• More manual

• High control

• High customization

IT

virtualization

Web

services

ASP

Deliver New Cloud Economics


Base: 148 North American and European IT decision makers at enterprises who have implemented or have plans to implement

SaaS

Source: Forrsights Hardware Survey, Q3 2011

“How important were the following in your firm’s decision to adopt cloud computing IaaS?”

23%

28%

27%

32%

34%

37%

29%

39%

33%

34%

20%

22%

32%

29%

27%

26%

39%

32%

38%

45%

Improved power and cooling efficiency

Temporary or project-based capacity needs, like special projects

Ability to use as peak capacity for times of high usage, such as the holiday season

Improved disaster recovery and business continuity

Faster time to market with new business capabilities

Provides developers with fast, easy resources for test and development

Lower total cost of ownership for servers

Improved IT infrastructure manageability and flexibility

Lower capital expenditures by purchasing services instead

On-demand capacity and scalability (available when needed, now and in the future)

4 5 - Very important

Speed Is Still The Biggest Driver For Cloud Adoption


Enterprise cloud use examples

AP — enabling content mashups and

new uses via a cloud API

NASDAQ — Market Replay service

US Army — Testing troop

vulnerability application on cloud

platform

Pathwork Diagnostics — cancer

tissue analysis

Sources: www.NASDAQ.com, www.espnfanzone.com, Indy500.com


The basics of cloud economics

• As demand rises, resources are added.

• Requires apps to scale out

• Load balancing governs

Elastic scale delivers just-in-time capacity

• No upfront payment

• No commitment whether you use it or not

• Costs aligned to use

Pay-per-use keeps costs low

• If you can build it, you can deploy it — fast.

• API access drives use of automation.

Self-service fuels productivity


NVoicePay taps the cloud to expand its market

AP Assist: Enable electronic payments for SMBs

90% of B2B invoice payments are still by check.

Solution: SaaS-based vendor payment

– $0.40 per payment; free vendor sign-up

– Tight integration with key SMB systems (i.e., ADP for car

dealers, First Data payment clearing-house)

– Needed elastic scalability, fast deploy, and iteration

Forecasted huge transaction volumes

Traditional hosting was more expensive —

wouldn’t achieve scale.

– Needed reusable cloud services to speed development

– Needed effectively 100% availability for ―Payment Dial Tone‖

The alternative was to build a massively expensive data center.

“Building a mission-critical B2B

payment network would have been

nearly impossible without the low

cost, pay-as-you-go [cloud].”

— Karla Friede, CEO, NVoicePay

For more info, check out NVoicePay website (http://nvoicepay.com/wp-content/uploads/2010/10/NVoicePay-MS-Case-Study.pdf).


But cloud costs can be deceiving

$0.08 per hour for a Small VM

X 24 hours

X 30 days

= $57.60

Add in network and storage costs

= $157.60/month

Traditional hosting for the same:

= $50/month

Cost optics


The key to benefitting from the cloud

Elasticity

Transiency


Turning cloud economics to your favor is the key

• How quickly can you turn off resources no longer in use?

• How small can you get your base footprint?

• Are you leveraging caching as much as you can?

Elastic scale: Scaling down for profitability

• Discrete component scaling drives efficiency.

• Autoscaling cloud services often costs less.

• Where traffic goes affects cost.

What you scale matters

• Some cloud services have off-peak pricing concepts.

• Some cloud services have better costs for certain services/uses.

When and where you do things matters


How NVoicePay activates cloud economics

If it’s running, it’s cutting into profitability

Profits are pennies on each $0.40 transaction

Mission: Lower the cost of each payment

– Scale only when necessary

Scale only what needs to be scaled when necessary

– Chatter can cost you

Traffic flowing out of the cloud costs $$

Keep this traffic to a minimum using:

– Caching, Batching, Rich-client actions

– Use cloud services to speed development

Cloud-based Service Bus and Access Control

Cloud-based Storage

For more info, check out NVoicePay website (http://nvoicepay.com/wp-content/uploads/2010/10/NVoicePay-MS-Case-Study.pdf).


The Stage of Cloud Economic Maturity

• Deploying transient applications that come and go based on need, business cycles or other on-demand bases • Leveraging elastic applications that grow with traffic loads

Stage One: Scale Up


Cost optimize your deployments

Dedicated

hosting

(traditional

outsourcing)

Virtual

hosting,

SaaS

Cloud

infrastructure

Common

Transient

Metered

Custom

Fixed

Owned

DB (RAC) App Logic

(static)

Web Web

Web


Cost optimize your portfolio - overall

Physical Virtual Internal

cloud

Common

Transient

Metered

Custom

Fixed

Owned

Public

cloud

Virtual

hosting Trad out

Common

Transient

Metered

Custom

Fixed

Owned

CapEx OpEx Flexible

OpEx


Cloud economics apply to public as well as private clouds But who gets cloud economics is different with private cloud

Source: See the April 2009 ―Which Cloud Computing Platform Is Right For You?‖ report.

Private cloud


The Stage of Cloud Economics

• Deploying transient applications that come and go based on need, business cycles or other on-demand bases

• Leveraging elastic applications that grow with traffic loads

Stage One: Scale Up

• Using performance monitoring and consumption thresholds to reduce application scale as soon as traffic subsides

• Optimizing application designs and architectures to finely control application scale and shrink baseline footprint

Stage Two: Scale Down

• Designing or rearchitecting services around cloud economics that deliver new profit potential for the company

• Deploying service over a hybrid architecture that matches the economics of each application component

Stage Three: Profit Center

22 Entire contents © 2008 Forrester Research, Inc. All rights reserved.

Recommendations

• How does it generate revenue?

• What actions are taken to get that revenue?

• What components are involved?

• What does the transaction flow cost?

Understand the profitability profile of cloud apps

• What parts best belong on what type of deployment?

• Where can applications be replaced by SaaS?

• Are applications with transiency exhibiting this behavior?

Analyze the performance profile

• Think cloud first – takes design changes

• Be prepared to move apps out of the cloud if their pattern changes

• Revisit your portfolio often — as the cloud matures quickly.

Bake cloud economics into new app design

© 2009 Forrester Research, Inc. Reproduction Prohibited

Thank you

James Staten

+1 650.581.3824

[email protected]

@Staten7

www.forrester.com


Want to see more Forrsights data? Email: [email protected]

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Proformative:The Three Stages of Cloud Economics