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© Copyright 2011 Hewlett-Packard Development Company, L.P.1
Joe WeinmanWorldwide Lead,
HP Communications, Media, and
Entertainment Business Solutions
CLOUDONOMICS AND THE IMPLICATIONS FOR CSPS, MEDIA, AND ENTERTAINMENT
CTO TELECOM/CIO CME SUMMIT
SEPTEMBER 19, 2011
© Copyright 2011 Hewlett-Packard Development Company, L.P.22
SERVICE PROVIDER CHALLENGES TODAY
NETWORK
SP
• Revenue Growth, Time to Market
• Traffic Growth, CapEx
• Cost Management, Agility
INDUSTRY
• Competition• Regulatory
BACK OFFICESERVICES
© Copyright 2011 Hewlett-Packard Development Company, L.P.33
BACK OFFICEPRIVATE CLOUD
SERVICESCLOUD FORCONSUMERS
CLOUD HAS MULTIPLE APPLICATIONS
SP
NETWORKCLOUD
SERVICESCLOUD FOR
SMBS
SERVICESCLOUD FOR
ENTERPRISES
3RD PARTYCLOUD SERVICES
© Copyright 2011 Hewlett-Packard Development Company, L.P.44
CLOUD BASICS THAT EVERYONE KNOWS…
• Cloud is a brand new technology and business model
• Cloud = Services accessed over the web via a browser
• Cloud = Pay-per-Use = On-Demand
• Large clouds have huge economies of scale & price advantages
• Economies of scale are the key to cloud benefits
• Only the largest providers will thrive and survive
• It is important to replace CapEx with OpEx
• Rational decision-makers will want to save money
• IT is just like electricity: cloud will replace enterprise DCs, hosting
• Cloud cost reduction will drive lower IT spend
© Copyright 2011 Hewlett-Packard Development Company, L.P.5
HOW TO QUANTIFY “VALUE”?
1. Unit Cost Reduction
2. Total Cost Reduction
3. Opportunity Cost Reduction
4. Time & Profitability Improvement
5. Market Share / Revenue Growth
6. Customer Experience Enhancement
7. Customer Satisfaction / Loyalty
8. Risk Reduction
9. Competitive Vitality
10. Life or Death – Winner Take All Dynamics
© Copyright 2011 Hewlett-Packard Development Company, L.P.6
PRO FORMA RELATIVE UNIT COSTS OF IT
Consumer TypicalEnterprise
Well-RunEnterprise
Mid-SizedCloud SP
LargestCloud SP
Cost Economies of Scale
Scale-Invariant Costs
Diseconomies of Scale
© Copyright 2011 Hewlett-Packard Development Company, L.P.7
PRO FORMA DELIVERED UNIT COSTC
ost
SG&A, Margin,Uncollectibles, …
Consumer TypicalEnterprise
Well-RunEnterprise
Mid-SizedCloud SP
LargestCloud SP
© Copyright 2011 Hewlett-Packard Development Company, L.P.8
BUY OR RENT?
CAPACITY
“RENT”
CAPACITY
FROM A
SERVICE
PROVIDER
CUSTOMER
PURCHASE CAPACITY
“RENT” MONEY
© Copyright 2011 Hewlett-Packard Development Company, L.P.9
TYPICAL COST CONSIDERATIONS
Physical Hardware
Power & Cooling
Space
Virtualization Software
Networking
Security
Mgt. & Admin. Labor & Tooling
Multitenancy Overhead
Economies of Scale
Learning Curve Effects
Quantization Discontinuities
Statistics of Scale
Utilization Factors
Capacity Planning & Engineering
SG&A
Margin
Uncollectables
Transaction Costs
Switching Costs
GAAP & Tax Laws
© Copyright 2011 Hewlett-Packard Development Company, L.P.10
EXAMPLE DEMAND VARIABILITY
Web Traffic Data Courtesy of Alexa, Used with Permission
Excess Capacity
Unserved Demand
© Copyright 2011 Hewlett-Packard Development Company, L.P.11
PROVABLY CORRECT
All other things being equal:
1. If cloud services cost less than enterprise IT, then…
…use them
2. If cloud services cost more than enterprise IT, then…
…don’t…
…jump to conclusions, because if demand is “spikier” than the cloud
is “costly,” a pure cloud solution will cost less than a dedicated one
3. If demand has any variation, a hybrid solution is optimal
Joe Weinman, “Time to Do the Math on Cloud Computing,” InformationWeek.com, and“Mathematical Proof of the Inevitability of Cloud Computing.”
© Copyright 2011 Hewlett-Packard Development Company, L.P.12
DedicatedCapacity Dedicated
Capacity
DedicatedCapacity
BuildTo
Peak
BuildTo
Baseline
On-DemandCapacity
PureCloud
HybridDelivery
UnservedDemand
On-DemandPay-Per-Use
TYPICAL COMPARISON OF ALTERNATIVESTo
tal C
ost
© Copyright 2011 Hewlett-Packard Development Company, L.P.1313
RATIONALE FOR HYBRID DELIVERY
STRATEGYCore , Context, Compliance
OPTIMIZATION AND ECONOMICSEnterprise Architecture and Demand Spikiness
PRACTICALITYDue to Legacy Migration Costs
USER EXPERIENCEFor Global Access to Interactive Applications
FREEDOM OF CHOICEDo-It-Yourself and Services Options
© Copyright 2011 Hewlett-Packard Development Company, L.P.14
SOME ARCHITECTURE OPTIONS
Cloudbursting Front-End / Back-End
Pure Utility Cloud
CloudEnterprise CloudEnterprise
Mixed-Rate Hosting/Cloud
$ $$ $$$
© Copyright 2011 Hewlett-Packard Development Company, L.P.15
DATA REQUIRES CARRIER-GRADE NETWORKS
Enterprise Cloud Provider
Remote Access
Internet
VPN
Optical
Enterprise Cloud Provider
Non-Persistent Session Data
Internet
Enterprise Cloud Provider
Dynamic Migration
Internet
Optical
Enterprise Cloud Provider
Coherent
Internet
OpticalB
A A
B
Source: Joe Weinman, “4 ½ Ways to Deal with Data During Cloudbursts,” GigaOM.com
© Copyright 2011 Hewlett-Packard Development Company, L.P.16
CLOUDBURSTING VIA HYBRIDS
Cloud Provider, Utilization - -, Unit Cost++
Enterprise Data Center, Utilization++, Unit Cost - -
© Copyright 2011 Hewlett-Packard Development Company, L.P.17
MULTIPLEXING UNCORRELATED BURSTS
Cloud ProviderEnterprise Data Center
Penalty Cost ∝ 1/√n⇒ Penalty Cost 0 as n ∞
© Copyright 2011 Hewlett-Packard Development Company, L.P.18
THE STATISTICS OF SCALE
Individual
Random
Demand
Moderate
Aggregation
Of Demand
Aggregate
Demand
At Scale
• Peak near Pro
Forma Maximum
• High Coefficient Of
Variation
• Peak near
Normalized Mean
• Coefficient Of
Variation Approaches
Zero
Mean Capacity
Required
Utilization
100%
© Copyright 2011 Hewlett-Packard Development Company, L.P.19
BEHAVIOR OF 1/√n
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
1 7
13
19
25
31
37
43
49
55
61
67
73
79
85
91
97
103
109
115
121
127
133
139
145
151
157
163
169
175
181
187
193
199
© Copyright 2011 Hewlett-Packard Development Company, L.P.2020
AMDAHL’S LAW
The maximum possible speedup is the inverse of the serial code portion.
S
P
© Copyright 2011 Hewlett-Packard Development Company, L.P.2121
EVOLUTION OF “SAAS”BA
ND
WID
TH
h otmail
h ulu
h ome depot
h alloween costumes
h ollister
h obby lobby
h p
h & m
h urricane earl
h ondaSearch
h|
hertz
heb
hereafter
hell’s kitchen
hershey park
hellcats
heroes
heart
health
heidiSearch
he|
hewlett packard
hewitt associates
hewlett packard printer drivers
hewlett foundation
hewlett packard careers
hewitt school
hewes middle school
hewlett packard customer service
hewescraft
hewes boatsSearch
hew|
INTERACTIVITY
© Copyright 2011 Hewlett-Packard Development Company, L.P.2222
END-TO-END RESPONSE TIME
© Copyright 2011 Hewlett-Packard Development Company, L.P.2323
EXAMPLE HTTP RESPONSE TIMES, JAN 2011
0 to 300, (31%)
HTTP Response Time \ ms
300 to 400, (15%)
400 to 500, (13%)
500 to 750, (20%)
>750, (21%)
Source: Marty Kagan, cedexis
© Copyright 2011 Hewlett-Packard Development Company, L.P.24
THE COST OF LATENCY
“Users really respond to speed”
Book and Merchandise:
100 ms = “substantial …revenue”
Search: 10 30 results per page 400 ms 900 ms 20% drop in traffic 20% drop in revenue
James Hamilton, http://perspectives.mvdirona.com/2009/10/31/TheCostOfLatency.aspx
© Copyright 2011 Hewlett-Packard Development Company, L.P.2525
THE LAW OF CLOUD RESPONSE TIME
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
Priority of Dispersion
*Joe Weinman, “As Time Goes By: The Law of Cloud Response Time”
T = F + N + PSingle Entities
T = F + N + P__ __√n p
Multiplicity of Nodes and Processors
n = ∛ QN 2
2P( )Minimum Time for a given Quantity of resources
© Copyright 2011 Hewlett-Packard Development Company, L.P.2626
PERFORMANCE VS. COST
Tune YourApplication
Performance
Cost
Performance
Cost
Performance
Cost
Use MoreServers
GeoDisperse
© Copyright 2011 Hewlett-Packard Development Company, L.P.2727
EMERGING ARCHITECTURES/ECOSYSTEM
Enterprise Data Centers Cloud Data Centers
Users
Internet IaaSIntercloud
Intracloud
IP/MPLS/VPLS
OpticalIaaS/
IP, VPNs,Optical
SaaS Intercloud
SaaS/Internet
Mashups/Internet
Agents/Brokers Communities Virtual OperatorsFranchises Alliances
Re-Bursters RegulatorsInsurersPartnershipsBranded Federations
Ratings AgenciesStandards Bodies Trusted 3rd Parties Enabling Vendors
Markets Buyers Co-ops Boutiques/SpecialistsCloud IntegratorsDerivatives
© Copyright 2011 Hewlett-Packard Development Company, L.P.28
HP’S APPROACH
SELF-SERVICE USER
- Infrastructure- Platform
- Applications- Industry
Open Cloud Marketplace
BROKER
Orchestrate
BRIDGE BRIDGE
PRIVATE CLOUDVIRTUAL PRIVATE AND INDUSTRY CLOUDS
PUBLIC CLOUDS
SECURE
© Copyright 2011 Hewlett-Packard Development Company, L.P.29
29
HP CLOUDSYSTEM OUT-OF-THE-BOX CLOUD BURSTING
POC now; Solution with Savvis planned to be available by end 2011; Solution with other SP’s, planned to be available in 2012
New Services business model and offering
© Copyright 2011 Hewlett-Packard Development Company, L.P.3030
A VARIETY OF SOLUTIONS FOR SPS
BC/DR
Cloudbursting
WhiteLabeling
Footprint Augmentation
SP HP
Private Cloud
Public CloudSP
HPHP
HP HP
© Copyright 2011 Hewlett-Packard Development Company, L.P.31
SUMMARY
– The cloud generates multiple types of value
– Recognize cloud value is application dependent
– Consider evolving to a single cloud across internal, commercial, network
– CSP’s can achieve competitive price points and succeed
– Leverage existing assets: multi-layer network footprint, customer
relationships, and geo dispersion
– Focus on high bandwidth, interactive apps
– Network intelligence and flexibility can provide an additional edge
– Cloud intelligence and interoperability will be key
© Copyright 2011 Hewlett-Packard Development Company, L.P.32