Welcome!

Cloud Security Authors: John Walsh, Liz McMillan, Mehdi Daoudi, Kevin Jackson, Elizabeth White

Related Topics: @CloudExpo, Microservices Expo

@CloudExpo: Article

ROI: Justifying the Cloud

You can improve TCO by up to 80% by using applications in a public cloud

A classic use of ROI or its twin TCO is in the Microsoft Economics of the Cloud, Nov 2010 paper. The conclusion is you can improve TCO by up to 80% by using applications in public cloud versus on-premise deployment. The basics of the calculation being:

  • improved utilization (10% to 90%) enabled by virtualization/consolidation & elasticity
  • the economies (power, operations, HW purchase etc..) of scale of multi-tenant cloud scale hosting

Given most costs in a DC are directly linked to the amount of infrastructure deployed, then improving utilization from 10% to 90% sounds like the primary justification for the 80% improvement. The misuse of the information is not more evident that when Phil Wainewright writes that the strength of this "research" is enough to put the nail in the coffin of the concept of private cloud. Definitive words indeed.. The problem I have with this conclusion is it is a black & white, monolithic view of "what is cloud". This is combined with TCO/ROI modeling that uses some pretty broad assumptions to underpin the cost model. It is often good marketing or publicity to offer polarized view of the issues, but it does not provide a real-world executable decision making capability (read "value") for future consumer of cloud services (public or private). So why are people needing to kill the concept of the "private cloud"? James Urquhart tweeted it best (4/12/2011):

  • "I don't hear ANYONE who isn't a public cloud provider or SI who bet the farm on public cloud make any claims about "false clouds". Period."
  • "Oh, wait. There may be one or two startups and journalists in there...all of which stand to gain from public cloud. Sorry about that. :\ "

If you take that approach and as a result just build a "cloud" for the sake of "cloud" then you are making "the BIG mistake". Implementing a framework as a product is doomed to fail. If you implemented SOA this way then disaster, ITIL would equal chaos, Prince2 would create inertia, Web2.0 would have resulted in mega-$$$. These concepts, whether they be architectural, process or other are meant to guide execution, not be implemented blindly. So how should ROI be used? So when people ask the question. "What's is the ROI of the cloud?" it is not an issue of "What is an ROI?" or "What is the benefit of Cloud?" or even "What data goes into a ROI calculation?". It is about how to answer the question of why, what and how to adopt the cloud. Most of the Cloud ROI (return-on-investment) or TCO (total cost of ownership) discussions are like the whitepaper from Microsoft. Comparing side by side a complex cloud deployment with a traditional infrastructure deployment. In reality, it's too difficult to develop a model to cater "true total cost of ownership", you quickly have to jump to broad assumptions, and narrow scope to make it manageable. If you start you model as a greenfield cloud deployment, your model has radical inaccuracies as you try apply this to brownfield or legacy enterprises. Try starting based on data of a legacy deployment and you have huge problems dealing with the depreciation of assets. Brownfield models also have the challenge of dealing with the elasticity of the delivery assets or opportunity costs; for example, you can manage 100 or 150 servers with the same team, or your existing 20% utilized asset can possible only support 2X or maybe as much as 10X the workload. You then overlay this with the changing economics of real estate facilities, HVAC, compute. The result is, you end up with a model that can have error factors upward of 100% It's too complex a problem to solve without a huge dataset to validate the variables, dependencies, etc... Armada takes a Fast Track approach to solving the problem. You are looking at cloud as a reference framework to help develop a solution that returns the business value. You calculate ROI based on a specific situation and end-state solution. A ROI needs to have a pay back of less than a year, so long-term theoretical modeling has no significant value. So how do you do it? Remember three things;

  • You must have a triggering event
  • Use scenario analysis and not lifecycle modeling
  • Apply the 80/20 rule to data, and only the stuff that impacts your costs

Triggering Event
Most of the time being a technical architect in consulting creates looks of skepticism from engineers in enterprise customers. Fair enough, when I was in that seat I felt the same way. When I gave up internal politics for politics of "revenue/pipeline", "everyone is a salesperson" and "whitepapers and webinars" a few things became pretty crystal clear. The most important thing is, don't waste time doing anything unless there is a pain point, problem to solve, triggering event. Wants are good, but needs are better. This is important in ROI calculation. The triggering event is the anchor point for the evaluation and defines where you are looking for the biggest "return" in the ROI.. The triggering event can be something specific like;

  • "we will run out of datacenter space in 6 months"
  • "it takes us 6 months to deploy an environment"
  • "we are on CNN if our primary datacenter fails because we have no DR"

Alternatively, it can be softer and described as the business goal, business driver like:

  • "we need to reduce operational management costs"
  • "we need to improve our infrastructure utilization"

These things are scoping statements for the project and then the ROI is applied to the return for this project.

Scenario Analysis
You scope the project, but if you try and calculate the return based on lifecycle costs over a long term, you will be scratching your head forever. If the ROI is not 1-3 years, then you are probably not doing it. Most likely it needs to be in less than a year. Scenario analysis is fairly simple, but a little time consuming. It is, however, a step down the direction of implementation, rather than a detour into developing a business case that will never be used or validated later. You create three (3) scenarios:

  • Business as usual - sometimes this is the "no decision, decision" or just solve the problem the way you have in the past
  • Option 1 - the "go big or go home" scenario, build the pure play cloud solution
  • Option 2 - the "pragmatic solution", or sometimes called the cheap solution. This is often the winner, but generally can be folded into option 1 after a subsequent round of funding.

Gather the requirements. Design the end-state architectures for three options and price out the implementation and on-going costs. You are already starting the design, so when the solution is green lighted, you are ready to go..

80/20 Rule of Data
A basic premise of the Fast Track method is to make decisions based on readily available information. Creating data and model takes time and effort for little return. In the time it takes to do this, IT services are evolving and changing. So in collecting data for a ROI analysis, use what is available, don't over process it and limit yourself to the data that impacts your business. From Gartner and other models we know that the biggest contributors to ROI/TCO are;

  • Hardware Costs (storage, compute, network)
  • Hardware Maintenance/Support
  • Software License (applications licenses, tools licenses etc..)
  • Software Maintenance/Support
  • Management & Operations (people, benefits etc..)
  • Facilities (real estate, hvac, security etc..)
  • Development/Customization/System Integration
  • Opportunity Cost (increase costs in existing infrastructure by reducing its scale)

Focus on capturing this information to support the scope of your project. If your project is not looking for value in reduction of power costs, then don't include it in the model. Just deliver the value you have visbility and control over. You should try and be as complete as possible, without creating an environment of political inertia. So with this approach its easy to capture a return on investment (ROI) calculation. I need to add, that David Linthicum wrote a very relevant post that reinforced that ROI does not make a business case. You need to also include the soft value factors, which for the cloud revolve around agility and time-to-market. Hard to define or place a value, but critical to the final assessment.

More Stories By Brad Vaughan

Brad Vaughan is a twenty year veteran consultant working with companies around the globe to transform technology infrastructure to deliver enhanced business services.

@ThingsExpo Stories
Coca-Cola’s Google powered digital signage system lays the groundwork for a more valuable connection between Coke and its customers. Digital signs pair software with high-resolution displays so that a message can be changed instantly based on what the operator wants to communicate or sell. In their Day 3 Keynote at 21st Cloud Expo, Greg Chambers, Global Group Director, Digital Innovation, Coca-Cola, and Vidya Nagarajan, a Senior Product Manager at Google, discussed how from store operations and ...
In his session at 21st Cloud Expo, Carl J. Levine, Senior Technical Evangelist for NS1, will objectively discuss how DNS is used to solve Digital Transformation challenges in large SaaS applications, CDNs, AdTech platforms, and other demanding use cases. Carl J. Levine is the Senior Technical Evangelist for NS1. A veteran of the Internet Infrastructure space, he has over a decade of experience with startups, networking protocols and Internet infrastructure, combined with the unique ability to it...
It is of utmost importance for the future success of WebRTC to ensure that interoperability is operational between web browsers and any WebRTC-compliant client. To be guaranteed as operational and effective, interoperability must be tested extensively by establishing WebRTC data and media connections between different web browsers running on different devices and operating systems. In his session at WebRTC Summit at @ThingsExpo, Dr. Alex Gouaillard, CEO and Founder of CoSMo Software, presented ...
Gemini is Yahoo’s native and search advertising platform. To ensure the quality of a complex distributed system that spans multiple products and components and across various desktop websites and mobile app and web experiences – both Yahoo owned and operated and third-party syndication (supply), with complex interaction with more than a billion users and numerous advertisers globally (demand) – it becomes imperative to automate a set of end-to-end tests 24x7 to detect bugs and regression. In th...
"Space Monkey by Vivent Smart Home is a product that is a distributed cloud-based edge storage network. Vivent Smart Home, our parent company, is a smart home provider that places a lot of hard drives across homes in North America," explained JT Olds, Director of Engineering, and Brandon Crowfeather, Product Manager, at Vivint Smart Home, in this SYS-CON.tv interview at @ThingsExpo, held Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA.
"Cloud Academy is an enterprise training platform for the cloud, specifically public clouds. We offer guided learning experiences on AWS, Azure, Google Cloud and all the surrounding methodologies and technologies that you need to know and your teams need to know in order to leverage the full benefits of the cloud," explained Alex Brower, VP of Marketing at Cloud Academy, in this SYS-CON.tv interview at 21st Cloud Expo, held Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clar...
"MobiDev is a software development company and we do complex, custom software development for everybody from entrepreneurs to large enterprises," explained Alan Winters, U.S. Head of Business Development at MobiDev, in this SYS-CON.tv interview at 21st Cloud Expo, held Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA.
SYS-CON Events announced today that CrowdReviews.com has been named “Media Sponsor” of SYS-CON's 22nd International Cloud Expo, which will take place on June 5–7, 2018, at the Javits Center in New York City, NY. CrowdReviews.com is a transparent online platform for determining which products and services are the best based on the opinion of the crowd. The crowd consists of Internet users that have experienced products and services first-hand and have an interest in letting other potential buye...
"There's plenty of bandwidth out there but it's never in the right place. So what Cedexis does is uses data to work out the best pathways to get data from the origin to the person who wants to get it," explained Simon Jones, Evangelist and Head of Marketing at Cedexis, in this SYS-CON.tv interview at 21st Cloud Expo, held Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA.
"IBM is really all in on blockchain. We take a look at sort of the history of blockchain ledger technologies. It started out with bitcoin, Ethereum, and IBM evaluated these particular blockchain technologies and found they were anonymous and permissionless and that many companies were looking for permissioned blockchain," stated René Bostic, Technical VP of the IBM Cloud Unit in North America, in this SYS-CON.tv interview at 21st Cloud Expo, held Oct 31 – Nov 2, 2017, at the Santa Clara Conventi...
WebRTC is great technology to build your own communication tools. It will be even more exciting experience it with advanced devices, such as a 360 Camera, 360 microphone, and a depth sensor camera. In his session at @ThingsExpo, Masashi Ganeko, a manager at INFOCOM Corporation, introduced two experimental projects from his team and what they learned from them. "Shotoku Tamago" uses the robot audition software HARK to track speakers in 360 video of a remote party. "Virtual Teleport" uses a multip...
SYS-CON Events announced today that Telecom Reseller has been named “Media Sponsor” of SYS-CON's 22nd International Cloud Expo, which will take place on June 5-7, 2018, at the Javits Center in New York, NY. Telecom Reseller reports on Unified Communications, UCaaS, BPaaS for enterprise and SMBs. They report extensively on both customer premises based solutions such as IP-PBX as well as cloud based and hosted platforms.
SYS-CON Events announced today that Evatronix will exhibit at SYS-CON's 21st International Cloud Expo®, which will take place on Oct 31 – Nov 2, 2017, at the Santa Clara Convention Center in Santa Clara, CA. Evatronix SA offers comprehensive solutions in the design and implementation of electronic systems, in CAD / CAM deployment, and also is a designer and manufacturer of advanced 3D scanners for professional applications.
Leading companies, from the Global Fortune 500 to the smallest companies, are adopting hybrid cloud as the path to business advantage. Hybrid cloud depends on cloud services and on-premises infrastructure working in unison. Successful implementations require new levels of data mobility, enabled by an automated and seamless flow across on-premises and cloud resources. In his general session at 21st Cloud Expo, Greg Tevis, an IBM Storage Software Technical Strategist and Customer Solution Architec...
A strange thing is happening along the way to the Internet of Things, namely far too many devices to work with and manage. It has become clear that we'll need much higher efficiency user experiences that can allow us to more easily and scalably work with the thousands of devices that will soon be in each of our lives. Enter the conversational interface revolution, combining bots we can literally talk with, gesture to, and even direct with our thoughts, with embedded artificial intelligence, whic...
To get the most out of their data, successful companies are not focusing on queries and data lakes, they are actively integrating analytics into their operations with a data-first application development approach. Real-time adjustments to improve revenues, reduce costs, or mitigate risk rely on applications that minimize latency on a variety of data sources. In his session at @BigDataExpo, Jack Norris, Senior Vice President, Data and Applications at MapR Technologies, reviewed best practices to ...
An increasing number of companies are creating products that combine data with analytical capabilities. Running interactive queries on Big Data requires complex architectures to store and query data effectively, typically involving data streams, an choosing efficient file format/database and multiple independent systems that are tied together through custom-engineered pipelines. In his session at @BigDataExpo at @ThingsExpo, Tomer Levi, a senior software engineer at Intel’s Advanced Analytics gr...
When talking IoT we often focus on the devices, the sensors, the hardware itself. The new smart appliances, the new smart or self-driving cars (which are amalgamations of many ‘things’). When we are looking at the world of IoT, we should take a step back, look at the big picture. What value are these devices providing? IoT is not about the devices, it’s about the data consumed and generated. The devices are tools, mechanisms, conduits. In his session at Internet of Things at Cloud Expo | DXWor...
Everything run by electricity will eventually be connected to the Internet. Get ahead of the Internet of Things revolution. In his session at @ThingsExpo, Akvelon expert and IoT industry leader Sergey Grebnov provided an educational dive into the world of managing your home, workplace and all the devices they contain with the power of machine-based AI and intelligent Bot services for a completely streamlined experience.
SYS-CON Events announced today that Synametrics Technologies will exhibit at SYS-CON's 22nd International Cloud Expo®, which will take place on June 5-7, 2018, at the Javits Center in New York, NY. Synametrics Technologies is a privately held company based in Plainsboro, New Jersey that has been providing solutions for the developer community since 1997. Based on the success of its initial product offerings such as WinSQL, Xeams, SynaMan and Syncrify, Synametrics continues to create and hone inn...