cloud economics cloud connect 2011 rolf harms
DESCRIPTION
Presentation delivered at Cloud Connect 2011 on Economics of the Cloud.TRANSCRIPT
1 CORPORATE STRATEGY GROUP
CLOUD ECONOMICS ROLF HARMS
MARCH 2011
2 CORPORATE STRATEGY GROUP
EARLY DAYS OF THE AUTOMOBILES…
3 CORPORATE STRATEGY GROUP
THE HORSELESS CARRIAGE SYNDROME
"If I had asked my customers what they wanted, they would have said a faster horse."
- Henry Ford
“There will never be more than 1 million units because of the limited availability of good drivers”
- Daimler Company
Marketing
Engineering
Sales
“The horse is here to stay but the automobile is only a novelty, a fad.”
- Bank analyst
Analysts
…designed whip holders into the automobiles for the first 6-7 years, even though there was no horse…
(there were 8 million by 1918, over 600 million today)
4 CORPORATE STRATEGY GROUP
EARLY DAYS OF CLOUD…
"Maybe I'm an idiot, but I have no idea what anyone is talking about. What is it? It's complete gibberish. It's insane. When is this idiocy going to stop?”
Vs.
“The cloud services companies of all sizes…The cloud is for everyone. The cloud is a democracy.”
“Biggest change in IT in last 20 years..”
5 CORPORATE STRATEGY GROUP
MAINFRAME
• Centralized compute & storage, thin clients
• Optimized for efficiency due to high cost
CLIENT-SERVER
• PCs and servers for distributed compute, storage, etc.
• Optimized for agility due to low cost
CLOUD
• Large DCs, commodity HW, scale-out, devices ?
COMPUTING PARADIGM DISRUPTIONS
TECHNOLOGY ECONOMIC
More than just a technology shift…
6 CORPORATE STRATEGY GROUP
1. SUPPLY-SIDE ECONOMIES OF SCALE
Larger datacenters have almost 50% lower TCO per server
• Server hardware costs (~45%)
• Facility & operations (~25%)
• Hardware labor costs (~15%)
• Power costs (~15%)
ANNUAL TCO/SERVER DECLINES W/SCALE MAIN DATA CENTER COST BUCKETS
$0
$1,000
$2,000
$3,000
$4,000
$5,000
1k Server DC 100k Server DC
TC
O/S
erv
er
Server Hardware Facility Hardware Operations Power
7 CORPORATE STRATEGY GROUP
2. DEMAND SIDE ECONOMIES OF SCALE
Average server utilization rates are 5-10%
0%
25%
50%
75%
100%
CP
U U
tiliz
atio
n
Time
8 CORPORATE STRATEGY GROUP
TIME OF DAY VARIABILITY
9 CORPORATE STRATEGY GROUP
INDUSTRY VARIABILITY
Tax Services
Retail
Source: Alexa Internet
10 CORPORATE STRATEGY GROUP
UNCERTAIN GROWTH
• Uncertain Demand
• High cost of outage
• Long lead times for new capacity
DEMAND FORECASTING OVERPROVISIONING DRIVERS
11 CORPORATE STRATEGY GROUP
Instance
Client
Admins
Resources
Instance
Client
Admins
Resources
Instance
Admins
Resources
SINGLE-TENANT APPLICATION
3. BENEFITS OF MULTI-TENANCY
12 CORPORATE STRATEGY GROUP
Instance
Admins
Resources
Instance
Admins
Resources
Instance
Admins
Resources
MULTI-TENANT APPLICATION
3. BENEFITS OF MULTI-TENANCY
13 CORPORATE STRATEGY GROUP
OVERALL ECONOMIES OF SCALE
14 CORPORATE STRATEGY GROUP
PUBLIC AND PRIVATE CLOUDS
1) Supply-side
2) Demand-side
3) Multi-tenancy
PRIVATE CLOUD PUBLIC CLOUD
15 CORPORATE STRATEGY GROUP
PUBLIC AND PRIVATE CLOUDS
16 CORPORATE STRATEGY GROUP
Pu
blic
Clo
ud
Eco
no
mic
s
Private Cloud Preference
PUBLIC AND PRIVATE CLOUDS
• Technology improvements
• Increased public cloud scale
• Increasing comfort
• Decentralized IT • New public-only
services
17 CORPORATE STRATEGY GROUP
Pu
blic
Clo
ud
Eco
no
mic
s
Private Cloud Preference
PUBLIC vs. PRIVATE – PORTFOLIO APPROACH
Midsize Company Example
18 CORPORATE STRATEGY GROUP
SPEED OF ADOPTION
0%
20%
40%
60%
80%
100%
1955 1965 1975 1985 1995
% E
nte
rpri
se A
do
pti
on
Source: Teng, Grover, and Güttle, 2002
19 CORPORATE STRATEGY GROUP
LOWER PRICES WILL DRIVE ADDITIONAL IT INNOVATION
0
250
500
750
1,000
$0
$40
$80
$120
Cost of Storage ($/GB, LHS)
Total Capacity Shipped (Exabytes, RHS)
‘KEEPING LIGHTS ON’ DOMINATES IT BUDGETS….
…BUT CLOUD COST SAVINGS WILL ONLY INCREASE USAGE, DRIVING INNOVATION
53%
36%
11%
Current IT Spending
New AppDevelopment
Existing AppMaintenance
Infrastructure
89%
20 CORPORATE STRATEGY GROUP
LOWER FRICTION WILL ENABLE NEW SCENARIOS
CPU
Traditional IT
CPU 1,000 hrs
X
1 CPU for 1,000hrs
Cloud
1 hr
X
1,000 CPUs for 1hr
CPU CPU
Weeks/months to provision resources
CAPEX
Rigid, disconnected systems
Minutes/hours to provision resources
OPEX
Loosely coupled, flexible, & connected systems
21 CORPORATE STRATEGY GROUP
CASE STUDY: VIRTUALIZATION
Virtualization drove significant net new demand for OS instances
0%
100%
200%
300%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% o
f O
S In
stan
ces
Traditional Physical Machines Virtual Machines
Net new
Source: Lazard Capital Markets
22 CORPORATE STRATEGY GROUP
CASE STUDY: CONSUMER INTERNET
Source: Wired, 2010
23 CORPORATE STRATEGY GROUP
SUMMARY
1. Cloud represents both a technology and an economic shift
2. Cloud characterized by strong economies of scale
3. Long term shift towards shared, public clouds
4. Drastically lower cost & friction will boost innovation
24 CORPORATE STRATEGY GROUP
WE PUBLISHED A WHITEPAPER WITH OUR FINDINGS..
http://ow.ly/38gIf