EIS
Vikram Gawande
Juan Mario Álvarez Aguilar
The Tuck School at Dartmouth 10/11/2010
About Cloud Computing:
Cloud computing is a model for enabling convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.1
Today in case of individual customers, they have their own software and hardware running on their own machines. In case of enterprises, without Cloud Computing, businesses generally house their own computer servers, from which all employees access the company’s licensed programs. Through Cloud Computing, the servers which house the software would entirely be off-site, with program and resource usage licensed on an as-needed basis through subscription avoiding the purchase of in-house licenses and hardware. This may bring down the cost per user and the subscriptions would be scalable per actual need with more immediate access to additional programs.
The three service models 2provided by Cloud Computing are:
1. Software as a Service (SaaS) - The capability provided to the consumer to use the provider’s applications running on a cloud infrastructure.
2. Platform as a Service (PaaS) - The capability provided to the consumer to deploy onto the cloud infrastructure consumer-created or acquired applications created using programming languages and tools supported by the provider.
3. Infrastructure as a Service (IaaS) - The capability provided to the consumer to provision
processing, storage, networks, and other fundamental computing resources, where the consumer is able to deploy and run arbitrary software, which can include operating systems and
applications.
Cloud History and Present:
After the dot-com bubble Amazon played a key role in the development of cloud computing by modernizing their data centers, which were usually utilizing just 10% of their capacity at any one time. Having found that the new cloud architecture resulted in significant internal efficiency improvements, Amazon initiated a new product development effort to provide cloud computing to external customers and launched Amazon Web Service (AWS) on a utility computing basis in 2006. 3
In 2007, Google, IBM, and many universities jumped into cloud computing research4. In early 2008, Eucalyptus became the first open source AWS API compatible platform for deploying private clouds. By mid-2008, Gartner saw cloud computing as an opportunity "to shape the relationship among consumers of IT services, those who use IT services and those who sell them" and that the "projected shift to cloud computing ... will result in dramatic growth in IT products in some areas and significant reductions in other areas."
Many big players in the Technology arena such as IBM, Microsoft are betting heavily on cloud computing. Microsoft CEO made a statement in March, 2010 that Microsoft is "all in" when it comes to the cloud. 5Microsoft has also joined hands with governments to offer cloud services to government agencies. At the same time there is another School of thought which is opposed to Cloud computing. For instance GNU founder Richard Stallman warns “Cloud computing is a trap, aimed at forcing more people to buy into locked, proprietary systems that would cost them more and more over time”.6
3 http://www.businessweek.com/magazine/content/06_46/b4009001.htm 4 http://www.nytimes.com/2007/10/08/technology/08cloud.html 5 http://gcn.com/articles/2010/03/05/ballmer-microsoft-cloud.aspx
Cloud Computing Taxonomy:
The Taxonomy diagram for Cloud computing is shown in the below figure.
In this diagram, Service Consumers use the services provided through the cloud, Service Providers manage the cloud infrastructure and Service Developers create the services themselves.7
So on a broad level the main actors in cloud computing can be divided into 4 categories:
1. Service Consumers 2. Standards Developers 3. Service Providers 4. Service Developers
The Cloud Ecosystem:
The various players in the Ecosystem can be represented as in the figure below:
Let’s look at the responsibility and the expectations of each actor:
Actor Responsibility What the Actor expects from
Cloud?
Cloud Service Provider (CSP) (e.g. Amazon)
Provide a platform where customers can access all the cloud resources.
After making huge
expenditure on erecting the cloud, software service developers should deploy their software on the cloud and customers should use them.
The customers should trust them for performance and security.
In the competitive market, price charged to customer should be able to recover investments made.
Software Service Developer (e.g. IBM)
Usually the IT companies who provide IT solutions to customer needs.
All clouds should be able to support their applications; portability should not be an issue.
Customers who used to trust them should not leave because of the new cloud
intermediary.
Use based charges to client should not fall below current incomes.
The costs of providing both cloud and non-cloud based services should not be an issue.
Security of customer information/data should not be an issue.
Customers The ends users of cloud. Using cloud applications
should be beneficial in terms of costs and efficiency. The data shared with cloud
should be secured.
The metering of application use should be reliable. Application portability if
switching clouds should not be an issue.
Standards Developer (e.g. IEEE, NIST)
The organizations like IEEE and NIST who would govern the standards of cloud computing.
The standards and regulations developed are followed. Cloud computing is a choice
and not a compulsion to consumers.
There is fair amount of competition in the cloud market.
Hardware Manufacturers (e.g. Intel, Seagate)
The providers of hardware computing power to the CSPs.
Current margins should not be hit.
The CSP platforms should be deployable on their hardware.
Software Kernel Providers (e.g. Microsoft, VMware)
The providers of platforms to run applications.
Use based charges to client should not fall below current incomes.
The costs of providing both cloud and non-cloud based services should not be an issue.
Virtualized Resource Provider The software vendors who would take care of the virtualization of resources in the cloud.
Moving the virtualization away from individual clients to the CSP should not decrease margins.
Security Providers The providers of Security
applications on the cloud.
Should be able to provide satisfactory services to both CSPs and customers.
Cloud should be a new stream of revenues.
Cloud Management Providers These could be brokers/agents
who carry out activities such as metering, SLA management etc.
Their services should be compatible with all types of clouds and applications. There should be enough traffic to returns the costs incurred.
Mapping the Cloud Computing Ecosystem:
We can classify the various risks involved in the ecosystem as follows:
Co-Innovation Risk: Since the cloud is comprised of many services and components, all these participants would have to co-innovate. For instance the Software Kernel developers should develop kernels which are deployable on the cloud at the same time take care of multiple users accessing at the same time and that proper system APIs are exposed to users at various levels. On the other hand, the standards developers would have to maintain a good level of transparency of standards and the compliance of standards.
Initiative Risk: The owner of every component of the cloud would be responsible for taking care of meeting the desired deadlines, feasibility of the product, the competition and appropriateness of the supply chain.8 Software developer developing cloud compatible applications even before this Kernel is stable does not make sense, instead they should set timelines as per the timings of others in the value chain.
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Adoption Chain Risk: Every component needs to fit in the value chain to make cloud computing success as a whole. For instance various platforms developed by SaaS, IaaS, PaaS should fit together well in the cloud and they should be portable.
In the following table we are try to analyze the Pros and Cons for every player in the value chain of cloud computing and what would be its effect on the adaption time.
Layer Added Value Pro Cons Adoption Time
Customer Lean and
standardized programs at low cost. No CapEx on software, hardware and services. Low IT Cost Service. Low Management Overhead. IT supports highly skilled and trained.
Existing Infrastructure. Switching cost is high.
Loss capabilities to govern its own data.
At the end of the contract exiting costs are high High Dependency on Internet and cloud. Due to high switching cost time for cloud computing adoption time will be large Cloud Service Provider Provide cloud computing service and create a competitive advantage over competitors Develop this business concept. Increase company revenues.
Gain power position in the computing world. No full legislation in place. Competition would be an issue, depending on the alliances that take place.
Hardware, Kernel and other
providers should co-ordinate. Still missing key
elements like standardization. Software Service Developers, Software Kernel Providers and Security Providers, Virtualized Resource Provider Cost efficient software deployment model. High performance software with higher contribution
margins. Deal with less
number of clients. Less piracy. Government could now be a key customer. Unit gross margin will be higher but less number of licenses, less income. No incentive to develop new programs, since competition would be high and the required applications are always available to client from other vendors. Reduced contact
with the end consumer.
Right now, there are some cloud applications in place like Google with GoogleDocs or Microsoft with Outlook.
To all software developers to be on cloud, the trust that their
traditional customers are not taken away needs to be established.
Hardware Manufactures
Standardized hardware. Less staff due to
High Performance servers with higher margin.
Less sales due to a decrease in sales of
less number of customers
computing power to end customers. In this table we try have a quick look at the Complementors:
Added Value Advantage Disadvantage Adoption Time
Internet Suppliers High Margins
due to faster connections High Margins and Increase in Number of contracts - Depends on the time required to update current communication infrastructure globally to supply high speed and reliable internet
Standards Developers Standardized
formats for audits and reports Fast and accurate information. Customers’ high switching cost.
Provide fair rules to all involved.
Strategy deployed to align the actors:
We feel that presently all major players are trying to vertically integrate in the value chain to decrease the risks. For instance Google offers both SaaS and PaaS9; as SaaS it offers Google Apps and as PaaS it offers Google App Engine, a platform for developing and hosting web applications in Google-managed data centers.
Another movement that is going on is to create an open environment for clouds, whereby once application can be shared among different vendors or clouds. CloudWare from 3Tera works towards bridging the clouds, and creating standards which will lead to open environment for clouds.10
Third, some industry alliances are also taking place, VMware partnered with Cisco & EMC, to help business customers and service providers to build out clouds.11
9 http://www.techno-pulse.com/2009/12/top-cloud-computing-service-providers.html 10 http://www.techno-pulse.com/2009/12/top-cloud-computing-service-providers.html
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Conclusion:
Cloud computing builds on and developed on already established technologies in the industry, such as virtualization, SOA. But if implemented the right way it would offer huge revolution in the IT Industry, benefiting both customers and the IT Solutions providers and creating business for the CSPs. However all knowledge about working of the cloud is concentrated at the CSP, so CSP would gain an undue power position in the IT world, this would not fit the efficient markets philosophy.
Right now, most organizations are still experimenting with small implementations within test and development environments or within other internal IT functions, and they are often using homogenous cloud-in-a box offerings built on top everything - hardware and software - is integrated into one neatly wrapped package12. Open standards for various components of the cloud are not in place, they need to evolve; right now every participant is trying to establish his own position by having its own cloud. Until standards for portability, interoperability, APIs etc. do not evolve we are far away from cloud computing becoming a success
