Cloudonomics: The Business Value of Cloud Computing. Editor(s). Joe Weinman Summary · PDF · Request permissions · xml. CHAPTER 1. Cloudonomics: the Economics of Cloud Computing //lockfollolatu.mlace. com/hosting_knowledge/whitepapers/ The ultimate guide to assessing and exploiting the customervalue and revenue potential of the Cloud A new business model is sweeping the world--the Cloud.

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“Cloudonomics” describes his newly created model .. CloudComputing/ (retrieved Cloudonomics: A Rigorous Approach to Cloud. Cloudonomics: the Economics of Cloud Computing. 2 .. lockfollolatu.mlace. com/hosting_knowledge/whitepapers/ Request PDF on ResearchGate | On Jan 1, , J. Weinman and others published Cloudonomics: A rigorous approach to cloud benefit quantification.

The indirect costs of running a server: network and storage infrastructure and IT operations to manage the general infrastructure. The overhead costs of owning a server: procurement and accounting personnel, not to mention a critical resource in short supply: IT management and its attention. All of these hidden costs make a direct cost comparison difficult.

Despite these cost savings however, we believe Cloud Computing offers significant extra value to organizations by merit of the fact that it allows them to focus on their core business.

It is our contention that this value side of the equation is even more compelling than any cost savings possible.

Vend built their retail POS application, VendHQ, from the ground up to leverage the benefits of Cloud Computing and provide the cost saving benefits and no stress infrastructure management to retail business owners.

They previously hosted their own server infrastructure internally to provide the retail platform and POS for all their stores which required a private network, creating problems keeping all 12 stores in sync.

They also moved to other Cloud Applications including Google Apps15 for mail, calendaring and contacts, DropBox16 for sharing file and documents, and Xero17 for accounting. Using VendHQ, they can manage their users and product catalogue, and get real-time statistics on their retail stores from any computer, while no longer having to manage an internal network.

From an economic perspective, the savings are impressive. Their IT support requirements are now much simpler as well, significantly reducing IT support costs.

Cloudonomics: the Economics of Cloud Computing Diversity Limited, Non-commercial reuse with attribution permitted Time is Money: Focus on What Matters A recurring theme among Cloud proponents is the fact that Cloud Computing enables organizations to focus on their core business.

In the same way that we consider it bizarre that, given widespread availability of electricity on tap, an organization might create their own electricity plant to power their factory, so too is it becoming more bizarre to host ones own software or download ones own hardware. It is worth reviewing their rationale, in particular a deciding factor that directly relates to focusing on core activities.

As Netflix explained: The problems [the Cloud hosting company is] trying to solve are incredibly difficult ones, but they arent specific to our business. Every successful internet company has to figure out great storage solutions, hardware failover, networking infrastructure, etc.

Cloudonomics: The Economics Of Cloud Computing

We want our engineers to focus as much of their time as possible on product innovation for the Netflix customer experience; that is what differentiates us from our competitors.

We chose to be pioneers in this transition [to the Cloud] so we could leverage our investment as we grow, rather than to double down on a model we expect will decline in the industry. In the 18th century, economist Adam Smith described in The Wealth of Nations19, the production of a pin in the following way One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head: to make the head requires two or three distinct operations: to put it on is a particular business, to whiten the pins is another It is our view that Cloud Computing will drive benefits for organizational focus akin to those that Smith witnessed in the pin factory.

Cloudonomics: the Economics of Cloud Computing Diversity Limited, Non-commercial reuse with attribution permitted Conclusion We believe that there are significant economic benefits to be gained from a move to Cloud Computing. These benefits accrue to a business in two distinct ways directly through reduced costs and indirectly by allowing for increased focus on core business functions.

We stress however, and have covered in a previous report,21 that there are multiple forces at work leading to the growth of Cloud Computing. The economics are but one of these forces and, as such, we urge organizations considering the Cloud to look at broader benefits and impacts beyond pure economics.

Many of these benefits will be covered in future CloudU reports. Weve reproduced an abridged version of the Cloudonomics laws below. Cloudonomics Law 1: Utility services cost less even though they cost more. Although utilities cost more when they are used, they cost nothing when they are not. Consequently, customers save money by replacing fixed infrastructure with Clouds when workloads are spiky, specifically when the peak-to-average ratio is greater than the utility premium.

Cloudonomics Law 2: On-demand trumps forecasting.

Forecasting is often wrong, the ability to up and down scale to meet unpredictable demand spikes allows for revenue and cost optimalities. Cloudonomics Law 3: The peak of the sum is never greater than the sum of the peaks. Enterprises deploy capacity to handle their peak demands.

Under this strategy, the total capacity deployed is the sum of these individual peaks. However, since Clouds can reallocate resources across many enterprises with different peak periods, a Cloud needs to deploy less capacity.

Cloudonomics Law 4: Aggregate demand is smoother than individual.

Aggregating demand from multiple customers tends to smooth out variation. Therefore, Clouds get higher utilization, enabling better economics. Cloudonomics Law 5: Average unit costs are reduced by distributing fixed costs over more units of output.

Cloudonomics law 3 the peak of the sum is never

Larger Cloud providers can therefore achieve some economies of scale. Cloudonomics Law 6: Superiority in numbers is the most important factor in the result of a combat Clausewitz. Service providers have the scale to fight rogue attacks. Cloudonomics: the Economics of Cloud Computing Diversity Limited, Non-commercial reuse with attribution permitted 11 Cloudonomics Law 7: Space-time is a continuum.

Organizations derive competitive advantage from responding to changing business conditions faster than the competition.

With Cloud scalability, for the same cost, a business can accelerate its information processing and decision-making. Cloudonomics Law 8: Dispersion is the inverse square of latency. Reduced latency is increasingly essential to modern applications. A Cloud Computing provider is able to provide more nodes, and hence reduced latency, than an enterprise would want to deploy. Cloudonomics Law 9: Dont put all your eggs in one basket.

Although not their terms, one might describe human behavior as lazy, hazy and crazy. These should be of interest to cloud service providers, as they can be intangible barriers to cloud computing acceptance, and to customers, who can recognize these behaviors and moderate their impact. Certainly CIOs must exercise due diligence regarding proposed cloud initiatives, but should also be aware that these asymmetries may cause some concerns to be overweighted relative to benefits such as total cost reduction and enhanced agility.

Flat-Rate Bias — One effect of loss aversion is that consumers often prefer flat-rate plans PDF even when pay-per-use would cost less.

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With flat rates or up-front capital expenditures, the charges are never in doubt. Flat-rate buckets, monitoring and reporting, and auto-scaling policy management with maximum capacity limits can help.

Owning a data center may provide a perception of greater control over assets, making dashboards, portals, transparent policies and fine-grained management essential for cloud providers. Developers can autonomously procure infrastructure resources, and platform services enable the democratization of IT.

Fear of Change — Rock also observes that people are often uncomfortable with uncertainty and therefore fear change. The cloud offers not just new technologies but new business and organizational models.

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The Endowment Effect — People value goods that they already own more than they would pay to acquire them. Add in the choice-supportive bias , which rationalizes selected options and discounts unselected ones, and a stubborn fondness for existing IT technology and organization assets can be understood.

Again, this can lead to inertia slowing the adoption of new approaches. Hyperbolic Discounts and Instant Gratification — People tend to discount future risks and benefits hyperbolically , that is, more steeply than accounting texts teach: a chocolate chip cookie is much more valuable now than in an hour.I believe that no topic in cloud computing is more important, because without a rock-solid business and financial rationale, no amount of technological sophistication will really matter.

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The flat-rate price rises, and defections tilt increasingly to pay-per-use. This is a mixed blessing, since many operators are treating these three areas separately, potentially missing out on opportunities for cost synergies and organisational optimisation. Regardless of where a telco or integrated network and IT provider is on this spectrum, the accelerating transition to cloud computing has transformational ramifications for the industry A Cloud service provider can locate greenfield sites optimally.

Financial Considerations OpEx is beneficial for the organization, as it gives it the flexibility to terminate costs at will. Recently, however, wire-line and wireless providers are circling back, either trialing or instituting tiered or pay-per-use pricing, and in the world of cloud computing, pay-per-use is touted as a major benefit. We chose to be pioneers in this transition [to the Cloud] so we could leverage our investment as we grow, rather than to double down on a model we expect will decline in the industry.