Monthly Archives: September 2011

Cloud Conundrum: Private Cloud Computing With A Pay-for-Use Model

One of the touted benefits of cloud computing is supposed to be that it is a metered service. Much like your water and electric, the cloud is supposed to allow users to access compute resources as needed and be charged only for what is used. This is a great model for users of cloud computing since the risk is nominal. However, it’s a very costly investment on the part of cloud service providers since they need to create, market, manage and support the service without any guarantees that the service will be used. Moreover, pricing this usage so as to be profitable can be a complex initiative since users expect to pay less than it would cost for them to acquire and manage the resources themselves.

Now, some pundits and vendors can talk all they want about what they believe cloud is and isn’t, but the truth of the matter is that customers are speaking up, especially in the federal government, and they want usage-based charge models. Here’s the rub; many of these users also only want to be the only tenant. Hence, we have customers that want a low-risk, private cloud solutions on one hand and cloud service providers that offer either public usage-based charge models or private temporal-based charge models on the other hand.

The answer to this problem is not a simple one. The reason why these two options exist is to balance the risk. If you want to be the only tenant, then many cloud service providers are willing to share the risk, but want commitments for usage based on time. These contracts are analogous to your mobile phone contracts, where there are fees for early termination. Meanwhile, the cloud service provider can significantly reduce the costs and offer a usage-based charge model if they can share the resources among a wide enough audience such that they are likely to have a very high utilization rate.

However, recently I have learned that there are some companies, such as ESCgov, that are offering up alternative means of acquiring private cloud computing services based on usage. Due to the complexity these alternatives are not one-size-fits-all, but instead, are highly-dependent upon the individual business opportunity. Each opportunity needs to undergo an underwriting process that examines multiple variables, such as expected usage, other existing options for acquisition, and the private cloud architecture. Given that these businesses can qualify that the consumption patterns exist, they will develop custom private cloud services for customers that charge based on usage-based models.

I recently watched a video from Stanford University’s Entrepreneurship program in which the speaker made a very interesting statement, “big problems = big opportunities.” While challenging, answering the call from customers for private cloud pay-for-usage models could lead to the creation of the next Amazon Web Services.

Cloud and Tablets Favor the Content Publisher, LANs and PCs Favor the Content Creator

I recently added a Vizio tablet to my list of technological acquisitions. It’s a relatively good Android-based tablet that is very reasonably priced compared to equivalent functional models. However, I realized today a pattern emerging regarding my usage of the device–I’m more willing to pay for content when using my tablet than I was on when using my PC.

The primary reason for the tablet investment was to gain a hands-on experience with what the future is shaping up to look like. I would not be the first to state that tablets are consumption devices, but what I haven’t seen clearly stated is that the future is rosy for content publishers, such as the music industry, book publishers, magazine publishers and websites. While these devices are nothing more than scaled down operating systems, they are clearly not designed to offer a multi-windowed multi-tasking experience. This means that it’s highly unlikely you will find a burgeoning market for the creation of content, such as movies, music, art, books, and even blogs that run on these devices.

I am not saying some application developers won’t develop tools to support creation in this manner, but I am saying I don’t believe there will be a large audience of users who will be creating content on tablet and mobile platforms. Additionally, as cloud-based services continue to emerge for the storage of tablet and mobile content, such as Amazon’s Cloud Player and Google Music, the barrier for acquiring and loading the content on alternative devices through alternative means increases when compared to the ability to click a button and have it show up on your cloud storage system.

The thought of acquiring a CD, ripping it and then copying the songs onto my phone or ipod is already too burdensome a task compared to clicking one button, running the Amazon MP3 application on my tablet or phone and voila — my music. Plus, these devices don’t come with typical peripherals needed to perform these operations. The tablets and phones that do have USB ports are for tethering to PCs for maintenance and loading, not extension.

That said, I will never consider writing even a blog entry on that device because I would most likely want to slit my wrists before finishing the first paragraph. Heck, I can’t even stand IM’ing on that device because of the pain of typing on it. Which means that while the future is less rosy for the PC market, there is still going to be a need for power machines to help develop the content that is being consumed by our phones and tablets. It also means that I’m going to want responsive access to the files that I’m working on and most likely will not desire to wait for this data to be transferred over the Internet. So, this data will continue to be stored locally either on the PC or on a local area network, which may or may not be backed up to the cloud.

All-in-all, the tablet and mobile computing market has dramatically shifted the balance of power in favor of the cloud. Indeed, it might be fair to say that it’s these devices that have really breathed life into the need for cloud computing since most users are consumers, not producers, of content. The one gray area of course is social media, which turns all users into content producers, but typically at a level or volume that is achievable on the mobile device specifications and uses alternative input effectively, such as camera and audio. This begs the question, if the PC/LAN era is shrinking due to this fact, can it still be considered commodity or will it become specialized and will equipment for publishers cost more in the future due to less volume?

There Is No ROI in Cloud Computing

Return-on-Investment (ROI), perhaps the biggest crock-of-$%@& metric ever applied to the information technology industry. How does one measure return? If we use monetary return, then the question, “how much money did I make on my investment in a $10K server,” is relatively impossible to answer. One must consider the software run on that server, what role it’s playing in servicing customer value, etc. The answer is arbitrary; it’s a minute subcomponent of a complete capital expenditure plan directed at delivering a business service. Using an intangible metric is even more obtuse. “Gee, after we made that additional $10K investment in that server hardware the number of calls into the help desk seemingly decreased,” is bad Freakonomics at best.

ROI was created by management consultants to illustrate the relationship between investments and expenses on revenue. Then one of these quacks decided, “hey, vendors will love this tool as a means of explaining why IT management has to use their latest doohickey.” ROI is now a plague on the IT industry being used to show how spending more money now will save you money in the long run. To me this is akin to the US government paying citizens to shuck perfectly good working cars that were paid off for new working cars and additional consumer debt.

Okay, I’ll get to the point. Cloud computing is about an effective use of compute resources that provides agility and flexibility to my business in a cost-effective manner. I’m not investing in cloud computing, I’m consuming a service. Do you discuss the ROI on eating at McDonalds or having your car washed? Of course not, because there’s no ROI in using a service since using a service is not an investment. Using services is about effective use of cash flow relative as an alternative to using your own resources and assets.

You may ask, “but I’m investing in acquiring my own cloud computing infrastructure, and I’m expecting an ROI on that.” My answer, if you’re not a cloud service provider, good luck with that. Call the sales representative that sold that bill of goods to you and tell him Christmas gift will be paid for with the ROI on your new cloud infrastructure. I imagine you’ll break even on that investment just in time to need a technology refresh on those blades. If you’re investing in your own cloud infrastructure, I hope it’s because it will effectively allow you to scale certain processes that are not scaling well today and would be cost-ineffective to acquire dedicated hardware to support. Moreover, I would hope this investment is because you have some very rigid requirement that would not allow you to burst to an existing cloud service provider for that additional compute power when required.

Sorry Virginia, there is no ROI in cloud computing. If you want to compute the value of using cash to acquire a service versus doing it in-house, that would be a risk/reward or opportunity cost analysis, not an ROI. The only thing you are investing in with cloud computing is lining your cloud computing service provider’s pockets, which is okay as long as you applied the same resources and assets to an endeavor that will generate more revenue than you are spending on the service.