Cloud Computing Economics Ville Volanen

Packaged Software  There are several fixed costs  Licence  Hardware  Datacenter  Maintanance staff  Scaling is problematic  Scaling up can be expensive and require of expertice and time if you need to invest to hardware  Scaling down might not save much as fixed costs stay the same  Difficult to estimate costs  High barrier of entry OpEx CapEx

Cloud  Service provider builds and maintains the capacity  Hardware  Datacenter  Maintanance staff  Customer pays what s/he uses  Scaling is simple  Costs of customer depend on usage  No investment to hardware required  Service provider has less need for scaling (average usage)  Costs are easy to estimate  Low barrier of entry OpEx

Datacenter, traditional way  Build datacenter componen by component  Each component needs to be handled separately  Ordering and shipping  Unpacking, racking, installing  Maintanance is continuous  Lots of skilled labour is needed  Increasing capacity increases costs  More ordering, shipping, unpacking, maintanance etc  New workforce needed

Datacenter, better option  Build datacenter module by module  Each module with 1000 (or so) systems  Modules need only electricity, network connection and cooling water  No unpacking or installing  Shipped once (instead of thousand times) and dropped to place  Modules are not serviced during their life span  Due to high number of systems in module broken hardware has only a small impact of module performance  Aged modules are shipped back to manufacturer and recycled

Datacenter, better option, cont  Adding capacity has only minimal effect to costs (as long as there is room)  No service, installations, etc.  Economies of scale drop costs  Module assembly can be automated  Again, economies of scale drop costs  Some extra challenges if the modules need to store information  Broken disks are not replaced since there is no service  For example networking does not have this problem

Is cloud always a good option?  Would it be economical to buy a couple of virtual servers for every day use from cloud?  Initial costs would be lower but is that relevant?  But also virtual servers need maintanance (install and update apllications, performance monitoring etc).  Cost per server could be around €1000  Cost per technician could be around € each year  Acquiring a relatively small number of servers from cloud is not necessarily very economical

Applications ”blocks”  For example services provided by Amazon and Google for system development  Simple databases  Data storage  …  Developing similar capabilities from scrath would cost huge amounts of money (datacenter costs plus software development)  Allows faster time to market as some blocks are already there. Also development can be done in production-like enviroment.

Internal services as cloud  Typically cloud computing is seen as a service for external customers  Company internal clouds are possible as well.  IT department is seen more like an internal service provider  This increases control to resources and adds accountability  Direct cost savings smaller compared to external clouds due to smaller number of ”customers”  Economies of scale

Conclusions  Cloud computing can potentially create huge savings  Calculations from analysts suggest savings up to 80% in business applications are possible  Cost profile is different between cloud and traditional computing  CapEx to OpEx  Cloud computing is not always cheaper  In addition to dropped unit costs cloud can reduce barrier of entry and time to market

Thank you Kiitos

References  Architecture for Modular Data Centers  The Benefits of Virtualization and Cloud Computing ( )  Cloud computing economics ( 