|By Tim Negris||
|November 22, 2010 08:30 AM EST||
A few days ago, Microsoft published The Economics of the Cloud, a whitepaper that has so far not gotten nearly as much attention or consideration as it deserves. Perhaps this indifference is due to a collective freshman flashback on the dreaded "Econ 101" or, to skepticism about Microsoft's importance in the new world of cloud computing. Either way, it is unfortunate because the paper presents some startling new data about the cloud, and, not entirely intentionally, reveals the company's cloud strategy at a level of nuance that we have not seen before.
The paper is by Rolf Harms and Michael Yamartino, a director and manager, respectively, in Microsoft's Corporate Strategy Group. The paper is pointed at "IT leaders", a phrase used 16 times in 22 pages, and has the ostensible goals of sharing the cloud wisdom Microsoft has gained from doing Azure, Bing, Windows Live, and Office 365, and of sharing data gathered and conclusions drawn by Microsoft about the future of cloud computing from modeling done in its Strategy Department.
The numerical data in the report and what the researchers make of it are quite interesting in their own right, but, when calibrated, Da Vinci Code style with the company's history and recent activities, they may reveal a bit more than the authors intended. In any case, neither Ray Ozzie's dreamy "Dawn of a New Day" farewell memo nor Steve Ballmer's buzzy "All In" UW speech and internal memo helped us see this coming.
I admit it, until this whitepaper, I was one of those who took the "All In" stuff for opportunistic hyperbole and simply did not believe Ballmer when he said in his memo, "We need to be (and are) willing to change our business models to take advantage of the cloud." Yeah, given what the cloud will do to the licensed software business, he should be saying that. But, a company that big and successful changing its business model seemed impossible. In short, I thought the cloud would turn Microsoft into the world's biggest dairy farm. Now, I am not so sure.
Biggest is Bestest
The intended takeaways from the paper are summarized like this:
"Private clouds address many of the concerns IT leaders have about cloud computing, and so they may be perfectly suited for certain situations. But because of their limited ability to take advantage of demand-side economies of scale and multi-tenancy, we believe that private clouds may one day carry a cost that is as much as 10x the cost of public clouds."
"Based on our analysis, we see a long-term shift to cloud driven by three important economies of scale: (1) larger datacenters can deploy computational resources at significantly lower cost than smaller ones; (2) demand pooling improves the utilization of these resources, especially in public clouds; and (3) multi-tenancy lowers application maintenance labor costs for large public clouds. Finally, the cloud offers unparalleled levels of elasticity and agility that will enable exciting new solutions and applications."
They are saying that the private cloud will be a niche business for them and a costly specialty for customers - the future is all about big public clouds, due to their dramatic economies of scale gained through lower infrastructure costs, higher utilization, and multi-tenancy cost amortization.
Microsoft must be changing to a new business model, because those things are all bad for their old one. Today they make most of their money from dedicated servers, desktop software, and single-user and single-tenant applications.
Supply, Demand, and Multi-Tenancy
The supply-side economies of scale gained through big public clouds highlighted in the paper are:
- Lower power costs through strategic power grid location and bulk purchasing
- Lower labor costs from fewer employees managing more servers and apps.
- Higher security and reliability due to provider expertise and infrastructure quality
- Higher buying power from high volumes of a few standardized configurations
The demand-side economies of scale are gained through optimizing infrastructure utilization in these five areas:
- Randomness of end-user access
- Time of day patterns for applications
- Industry-specific variability
- Multi-resource variability
- Uncertain growth patterns
- About these factors, the paper says,
"A key economic advantage of the cloud is its ability to address variability in resource utilization brought on by these factors. By pooling resources, variability is diversified away, evening out utilization patterns. The larger the pool of resources, the smoother the aggregate demand profile, the higher the overall utilization rate, and the cheaper and more efficiently the IT organization can meet its end-user demands."
In other words, the bigger the cloud, the more the users, and the more diverse the applications, the greater the economies of scale on the demand (customer/user) side will be.
Finally, the report breaks out the multi-tenancy economies of scale like this:
- Fixed application labor amortized over a large number of customers.
- Fixed component of server utilization amortized over large number of customers.
The whitepaper elaborates on these factors in great detail to make a compelling case for big clouds and then goes on at length to impugn the private cloud and provide reassurance that the common IT concerns of security and compliance about the public cloud would soon be non-issues.
The report's big finish is an analysis of two points of probable market and the conclusions that should be drawn by "IT leaders."
We can do this the easy way or the hard way.
The first behavioral point is that "Decentralized IT (also known as ‘rogue IT') will continue to lead the charge." In support of this as follows:
"Many prior technology transitions were led not by CIOs but by departments, business decision makers, developers, and end users - often in spite of the objections of CIOs. For example, both PCs and servers were initially adopted by end users and departments before they were officially embraced by corporate IT policies. [...]
"We‘re seeing a similar pattern in the cloud: developers and departments have started using cloud services, often without the knowledge of the IT group (hence the name -rogue clouds‖). Many business users will not wait for their IT group to provide them with a private cloud; for these users, productivity and convenience often trump policy. [...]
"CIOs should acknowledge that these behaviors are commonplace early in a disruption and either rapidly develop and implement a private cloud with the same capabilities or adopt policies which incorporate some of this behavior, where appropriate, in IT standards."
In other words, Hey, CIO, get with the program or we will help the business users go rogue on you.
Go public. You'll feel better.
The second behavioral point is that "Perceptions are rapidly changing," supported by the observation continued SaaS successes are building trust in the cloud that will only increase, and closed out with this carrot and stick:
"In summary, while there are real hurdles to cloud adoption today, these will likely diminish over time. While new, unforeseen hurdles to public cloud adoption may appear, the public cloud economic advantage will grow stronger with time as cloud providers unlock the benefits of economics we discussed [earlier.] While the desire for a private cloud is mostly driven by security and compliance concerns around existing workloads, the cost effectiveness and agility of the public cloud will enable new workloads."
In the final section, the paper, this last point is reinforced in this way:
"For businesses of all sizes, the cloud represents tremendous opportunity. It represents an opportunity to break out of the longstanding tradition of IT professionals spending 80 percent of their time and budget -keeping the lights on, with few resources left to focus on innovation. Cloud services will enable IT groups to focus more on innovation while leaving non-differentiating activities to reliable and cost-effective providers. Cloud services will enable IT leaders to offer new solutions that were previously seen as either cost prohibitive or too difficult to implement. This is especially true of cloud platforms (Platform as a Service), which significantly reduce the time and complexity of building new apps that take advantage of all the benefits of the cloud."
In other words, Why don't you IT people leave all that infrastructure management to someone else and do something new and innovative?
What are they really saying?
They seem to be trying to talk IT out of implementing private clouds, or any other kind of internal IT infrastructures, so that means that Microsoft is moving away from selling stuff directly to IT. But, if the public cloud is the future, does that mean that their new customers will be cloud service providers, like telcos or Rackspace, or Salesforce.com? Maybe not.
It appears to me that the end-game for Microsoft is to become the biggest public cloud in the world, comprising AZURE PaaS, plus Office, Bing, and Windows Live SaaS, and partner applications re-engineered as multi-tenant services. They put it like this:
"We have over 600,000 partners in more than 200 countries servicing millions of businesses. We are already collaborating with thousands of our partners on the cloud transition. Together we are building the most secure, reliable, scalable, available, cloud in the world. [...]
"Microsoft and our partners helped bring PCs to over one billion homes and desktops. Millions of developers and businesses make their living on PCs and we are fortunate to play a role in that. [...]
"Now, we have a vision of bringing the power of cloud computing to every home, every office, and every mobile device. The powerful economics of cloud drive all of us towards this vision. Join Microsoft and our partners on the journey to bring this vision to life."
So, their customers remain the same -SME and enterprise IT. Their functional products remain the same - applications and enablers for custom and partner applications. What changes is the way that functionality is delivered to those customers, with a large portion of private IT and its supporting vendors evaporating and transferring value and power to Microsoft and their really big honkin' cloud.
In the whole carefully written whitepaper, there was not a single mention of other cloud service providers and how Microsoft will partner with them, because they may not. It is conceivable that Microsoft would license Azure to, say, hosting services currently based on Windows, but I think it is unlikely. There is no reason to think that Microsoft doesn't believe that the economics are telling them that they can dominate the new world as much or more than they did the previous one.
As organizations shift toward IT-as-a-service models, the need for managing and protecting data residing across physical, virtual, and now cloud environments grows with it. CommVault can ensure protection &E-Discovery of your data – whether in a private cloud, a Service Provider delivered public cloud, or a hybrid cloud environment – across the heterogeneous enterprise. In his session at 16th Cloud Expo, Randy De Meno, Chief Technologist - Windows Products and Microsoft Partnerships, will discuss how to cut costs, scale easily, and unleash insight with CommVault Simpana software, the only si...
Mar. 4, 2015 07:00 PM EST Reads: 1,004
Analytics is the foundation of smart data and now, with the ability to run Hadoop directly on smart storage systems like Cloudian HyperStore, enterprises will gain huge business advantages in terms of scalability, efficiency and cost savings as they move closer to realizing the potential of the Internet of Things. In his session at 16th Cloud Expo, Paul Turner, technology evangelist and CMO at Cloudian, Inc., will discuss the revolutionary notion that the storage world is transitioning from mere Big Data to smart data. He will argue that today’s hybrid cloud storage solutions, with commodity...
Mar. 4, 2015 06:00 PM EST Reads: 2,000
Cloud data governance was previously an avoided function when cloud deployments were relatively small. With the rapid adoption in public cloud – both rogue and sanctioned, it’s not uncommon to find regulated data dumped into public cloud and unprotected. This is why enterprises and cloud providers alike need to embrace a cloud data governance function and map policies, processes and technology controls accordingly. In her session at 15th Cloud Expo, Evelyn de Souza, Data Privacy and Compliance Strategy Leader at Cisco Systems, will focus on how to set up a cloud data governance program and s...
Mar. 4, 2015 04:15 PM EST Reads: 979
Every innovation or invention was originally a daydream. You like to imagine a “what-if” scenario. And with all the attention being paid to the so-called Internet of Things (IoT) you don’t have to stretch the imagination too much to see how this may impact commercial and homeowners insurance. We’re beyond the point of accepting this as a leap of faith. The groundwork is laid. Now it’s just a matter of time. We can thank the inventors of smart thermostats for developing a practical business application that everyone can relate to. Gone are the salad days of smart home apps, the early chalkb...
Mar. 4, 2015 04:15 PM EST Reads: 383
Roberto Medrano, Executive Vice President at SOA Software, had reached 30,000 page views on his home page - http://RobertoMedrano.SYS-CON.com/ - on the SYS-CON family of online magazines, which includes Cloud Computing Journal, Internet of Things Journal, Big Data Journal, and SOA World Magazine. He is a recognized executive in the information technology fields of SOA, internet security, governance, and compliance. He has extensive experience with both start-ups and large companies, having been involved at the beginning of four IT industries: EDA, Open Systems, Computer Security and now SOA.
Mar. 4, 2015 04:00 PM EST Reads: 1,492
The industrial software market has treated data with the mentality of “collect everything now, worry about how to use it later.” We now find ourselves buried in data, with the pervasive connectivity of the (Industrial) Internet of Things only piling on more numbers. There’s too much data and not enough information. In his session at @ThingsExpo, Bob Gates, Global Marketing Director, GE’s Intelligent Platforms business, to discuss how realizing the power of IoT, software developers are now focused on understanding how industrial data can create intelligence for industrial operations. Imagine ...
Mar. 4, 2015 03:15 PM EST Reads: 1,544
We certainly live in interesting technological times. And no more interesting than the current competing IoT standards for connectivity. Various standards bodies, approaches, and ecosystems are vying for mindshare and positioning for a competitive edge. It is clear that when the dust settles, we will have new protocols, evolved protocols, that will change the way we interact with devices and infrastructure. We will also have evolved web protocols, like HTTP/2, that will be changing the very core of our infrastructures. At the same time, we have old approaches made new again like micro-services...
Mar. 4, 2015 02:30 PM EST Reads: 3,067
Operational Hadoop and the Lambda Architecture for Streaming Data Apache Hadoop is emerging as a distributed platform for handling large and fast incoming streams of data. Predictive maintenance, supply chain optimization, and Internet-of-Things analysis are examples where Hadoop provides the scalable storage, processing, and analytics platform to gain meaningful insights from granular data that is typically only valuable from a large-scale, aggregate view. One architecture useful for capturing and analyzing streaming data is the Lambda Architecture, representing a model of how to analyze rea...
Mar. 4, 2015 02:00 PM EST Reads: 1,519
SYS-CON Events announced today that Vitria Technology, Inc. will exhibit at SYS-CON’s @ThingsExpo, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Vitria will showcase the company’s new IoT Analytics Platform through live demonstrations at booth #330. Vitria’s IoT Analytics Platform, fully integrated and powered by an operational intelligence engine, enables customers to rapidly build and operationalize advanced analytics to deliver timely business outcomes for use cases across the industrial, enterprise, and consumer segments.
Mar. 4, 2015 01:45 PM EST Reads: 1,397
Today’s enterprise is being driven by disruptive competitive and human capital requirements to provide enterprise application access through not only desktops, but also mobile devices. To retrofit existing programs across all these devices using traditional programming methods is very costly and time consuming – often prohibitively so. In his session at @ThingsExpo, Jesse Shiah, CEO, President, and Co-Founder of AgilePoint Inc., discussed how you can create applications that run on all mobile devices as well as laptops and desktops using a visual drag-and-drop application – and eForms-buildi...
Mar. 4, 2015 01:45 PM EST Reads: 3,319
Containers and microservices have become topics of intense interest throughout the cloud developer and enterprise IT communities. Accordingly, attendees at the upcoming 16th Cloud Expo at the Javits Center in New York June 9-11 will find fresh new content in a new track called PaaS | Containers & Microservices Containers are not being considered for the first time by the cloud community, but a current era of re-consideration has pushed them to the top of the cloud agenda. With the launch of Docker's initial release in March of 2013, interest was revved up several notches. Then late last...
Mar. 4, 2015 01:00 PM EST Reads: 1,073
SYS-CON Events announced today that Dyn, the worldwide leader in Internet Performance, will exhibit at SYS-CON's 16th International Cloud Expo®, which will take place on June 9-11, 2015, at the Javits Center in New York City, NY. Dyn is a cloud-based Internet Performance company. Dyn helps companies monitor, control, and optimize online infrastructure for an exceptional end-user experience. Through a world-class network and unrivaled, objective intelligence into Internet conditions, Dyn ensures traffic gets delivered faster, safer, and more reliably than ever.
Mar. 4, 2015 01:00 PM EST Reads: 988
CommVault has announced that top industry technology visionaries have joined its leadership team. The addition of leaders from companies such as Oracle, SAP, Microsoft, Cisco, PwC and EMC signals the continuation of CommVault Next, the company's business transformation for sales, go-to-market strategies, pricing and packaging and technology innovation. The company also announced that it had realigned its structure to create business units to more directly match how customers evaluate, deploy, operate, and purchase technology.
Mar. 4, 2015 12:45 PM EST Reads: 619
In their session at @ThingsExpo, Shyam Varan Nath, Principal Architect at GE, and Ibrahim Gokcen, who leads GE's advanced IoT analytics, focused on the Internet of Things / Industrial Internet and how to make it operational for business end-users. Learn about the challenges posed by machine and sensor data and how to marry it with enterprise data. They also discussed the tips and tricks to provide the Industrial Internet as an end-user consumable service using Big Data Analytics and Industrial Cloud.
Mar. 4, 2015 12:30 PM EST Reads: 3,328
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.
Mar. 4, 2015 12:00 PM EST Reads: 3,615
The explosion of connected devices / sensors is creating an ever-expanding set of new and valuable data. In parallel the emerging capability of Big Data technologies to store, access, analyze, and react to this data is producing changes in business models under the umbrella of the Internet of Things (IoT). In particular within the Insurance industry, IoT appears positioned to enable deep changes by altering relationships between insurers, distributors, and the insured. In his session at @ThingsExpo, Michael Sick, a Senior Manager and Big Data Architect within Ernst and Young's Financial Servi...
Mar. 4, 2015 12:00 PM EST Reads: 1,480
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.
Mar. 4, 2015 11:45 AM EST Reads: 4,530
IoT is still a vague buzzword for many people. In his session at @ThingsExpo, Mike Kavis, Vice President & Principal Cloud Architect at Cloud Technology Partners, discussed the business value of IoT that goes far beyond the general public's perception that IoT is all about wearables and home consumer services. He also discussed how IoT is perceived by investors and how venture capitalist access this space. Other topics discussed were barriers to success, what is new, what is old, and what the future may hold. Mike Kavis is Vice President & Principal Cloud Architect at Cloud Technology Pa...
Mar. 4, 2015 11:30 AM EST Reads: 4,475
Even as cloud and managed services grow increasingly central to business strategy and performance, challenges remain. The biggest sticking point for companies seeking to capitalize on the cloud is data security. Keeping data safe is an issue in any computing environment, and it has been a focus since the earliest days of the cloud revolution. Understandably so: a lot can go wrong when you allow valuable information to live outside the firewall. Recent revelations about government snooping, along with a steady stream of well-publicized data breaches, only add to the uncertainty
Mar. 4, 2015 11:15 AM EST Reads: 847
Mar. 4, 2015 10:30 AM EST Reads: 2,780