Session 2. The economics of Cloud Computing

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Erin Knight
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1 Session 2. The economics of Cloud Computing

2 Cloud computing is the next step in the on-going evolution of Information Technology. From a technical standpoint, very little that currently is done on cloud platforms could not have been done with previously available technology. However the cost reductions, rapid scalability and flexibility of cloud solutions give them a revolutionary potential in many economic sectors. These factors also open many significant economic questions in industrial organization, labor economics, and other areas on both the theoretical and empirical side. The economics of Cloud computing can be grouped into three broad categories: Direct cost savings Productivity improvements Innovation

3 Direct cost savings Direct cost savings the largest and most identifiable economic benefit of cloud computing for organizations occurs from changes from both within the organization, and also the large data center hosting the IT infrastructure. Supply-side savings large scale data centers potentially lower costs per server due superior buying power and expertise. Demand-size aggregation aggregating demand for computing can smooth overall variability, allowing multiple users across varying industries, regions and time zones allowing average server utilization rates to increase. Multi-user efficiency increasing the number of users often lowers the application management and server cost per tenant. Lower electricity consumption and accommodation costs for IT infrastructure Dynamic provisioning: Reducing wasted computing resources through better matching of server capacity with actual demand.

4 Multi-tenancy enabling sharing of resources (and costs) among a large number or organizations and users, allowing: Centralization of infrastructure in areas with lower costs (e.g. real estate, electricity) Peak-load capacity increases (users do not need engineer for highest possible load levels) Utilization and efficiency improvements for systems that are often only 10-20% used Server utilization: Operating servers at higher utilization rates. Data centre efficiency: Utilizing advanced data centre infrastructure designs that reduce power loss through improved cooling, power conditioning Economic impact of the private sector: the e-government service needs the support of private companies, the cloud may involve additional players, especially private small businesses.

5 In outsourced and public deployment models, cloud computing provides convenient rental of computing resources: users pay service charges while using a service but do not need to pay large up-front acquisition cost to build a computing infrastructure. The reduction of up-front cost reduces the risk for pilot projects and experimental efforts, and enhances organizational flexibility. In outsourced and public deployment models, cloud computing allows the customer to request, receive and later release as many resources as needed. This elasticity can enable the customer to avoid excessive costs from overprovisioning capacity to meet peak demand but not using the capacity in nonpeak periods. A careful analysis of the cost of operation, compliance and security, including cost to migrate to and, if necessary, migrate from a cloud, is necessary to determine overall costs. Cloud computing offers an opportunity for consumers to meet economic goals by using computing resources with small or modest up-front costs; also cloud computing promotes business agility by reducing the costs of pilot efforts and may reduce the costs to consumers through economies of scale.

6 Cloud Computing key factors for lower energy use and carbon emission Dynamic provisioning reducing wasted computing resources through better matching of server capacity with actual demand Multi-tenancy Server utilization Data center efficiency

7 Productivity Improvements Scalability & flexibility: The scalable systems of the cloud mean services and usage can expand or contract on demand. The adaptation to the size and needs of the organization are easy. With cloud computing, organizations can have on-demand self-service for computing capabilities, such as server time and network storage when needed, and through a single provider. Cloud computing allows the ability to open offices, geographically move staff and operations without compromising access to business systems, put new ideas into practice and meet new business requirements faster than before. Cloud also enables organizations to scale up or down the level of service required, allowing optimization of required capacity and reduced costs. The on-demand up/down elasticity of cloud-based computing services allows the ability to quickly scale computing resources to match business growth while minimizing downside risk, that is, preserving the ability to release resources if a new project fails to get traction.

8 Device and location independence through broad network access Cloud computing allows staff to access files and data using a web browser when they are working remotely or after office hours. Capabilities for different platforms, such as mobile phones, laptops, computers and personal digital assistants are available through broad network access. E-commuting has widespread potential benefits to both business and consumers. The provider s computing resources are pooled to serve multiple consumers using a multi-tenant model, with different physical and virtual resources dynamically assigned and reassigned according to the consumer demand. While the location of the resources, such as storage, processing memory, network bandwidth and virtual machines is not controlled by the subscriber, it may be possible for the subscriber to specify the country, state, or data center that provides the cloud services. Cloud capabilities can be provided to the subscriber rapidly and elastically, allowing the subscriber to either increase or decrease services. The capabilities available often appear to unlimited to the subscriber and can be purchased in any quantity at any time. Cloud computing provides the ability to scale up and down when additional users are added and when the application requirements change.

9 Innovation The benefits of cloud computing may also be translated into a faster time to market for customer-facing activity. New services can potentially be build, and existing services adapted more rapidly in response to feedback or changing customer requirements (from months to weeks or from weeks to days). Organizations may also progress to building entirely new services or products on cloud platforms taking full advantage of centralized data, easy scalability and web accessibility. Many companies spend a significant portion of their IT budget on maintaining existing services and infrastructure, leaving few resources available for innovation. Cloud computing has the potential to free up significant resources that can be redirected to innovation.

10 Cloud systems automatically control and optimize resource use through a capability that is appropriate for the type of service provided. Resource usage can be monitored, controlled and reported providing transparency for both the provider and the consumer of the utilized service. Software Updates: with cloud computing, the server maintenance is in the hands of people who do it professionally, so future upgrades are removing the need for costly and lengthy upgrade cycle. Reliability refers to the probability that a system will offer failure-free service for a specified period of time within the bounds of a specified environment. Cloud reliability is a function of the reliability of four individual components: the hardware and the software facilities offered by providers; the provider s personnel; connectivity to the subscribed services and the consumer s personnel. Reliability by way of multiple redundant sites, which makes it suitable for business continuity and disaster recovery.

11 Sustainability through improved resource utilization, more efficient systems and carbon neutrality. Cloud computing improves security due to centralization of data, increased security-focused resources, etc. Service delivery improvement, online services make the public service easier to use and new forms of use permits simplify managements. Public services are accessible easier, anytime and anywhere in the world, with the cloud appearing as a single point of access for all the computing needs of citizens. They only need an internet connection. The purpose of the service is Public administration performance improvement, quicker process and Data sharing between administrations. The development of new public services on the cloud make easy the deployment of new online public services.

12 Conclusions 1. Cloud Computing can potentially create huge savings calculations from analysts suggest saving up to 80% in business applications 2. Cost profile is different between cloud and traditional computing CapEx to OpEx 3. Cloud Computing is not always cheaper 4. In addition to dropped unit costs cloud can reduce barrier to entry and time to market

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