A good 40% of the conference content was about cloud.  But for people in the cloud business for the past few years, it might have felt a lot like 2007.  Lots of very basic information being shared/discussed, and a whole bunch of people who don’t know or don’t want to know.  I stopped by the cPanel booth in the expo.  cPanel is the #1 hosting control panel for this shared hosting business, with a gazillion hosters using their stuff.  I asked one of their exectutives if they were going to make it easy for their customer to move to a cloud model?  “Customers are asking us, but then we ask them what they mean by cloud and as soon as they can give us a straight answer maybe we’ll do that,” was his reply.  Okay, that’s a failure to lead if I ever saw one.

Some of the guys who do have clouds, like Hosting.com’s vCloud Express, are seeing substantial uptake in this new (to them) market.  Clearly we should be expecting a new wave of clouds to start appearing in the next few months.  The average revenue per user (ARPU) of cloud is so much higher than shared hosting, they can’t let it pass them by.  However, most of these guys are going to struggle to get there with a general lack of capability to develop what they need to make this work (given that none of the “cloud stack” solutions on the market today are as plug & play as a cPanel and require a lot of knowledge, skill and investment to get running).  Uh, opportunity calling??

I did learn a lot about the business models these guys are used to, which are somewhat different than what we’re all comfortable with in the cloud space – a flat fee per user /per module/capability used per month is a good summary.  Basically, you make money when the hosting guys are selling, not when they have servers that are ready but not being used.  The $xxx / year / socket model won’t work for these guys.

Another big part of this market is the hosting reseller business.  Something for the cloud guys to consider.  A little host called SingleHop actually ran a session about reselling their cloud, and ReliaCloud from MN was looking to do the same.  How many ways can you slice and dice it.  That brings me to a point about VMware and their VSPP program.  It won’t fly for long in this market at the current prices.  There’s not enough margin left for the reseller business – which is a huge issue here.

So, that’s about it from HostingCon 2010. 

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Notice: This article was originally posted at http://CloudBzz.com by John Treadway.

(c) CloudBzz / John Treadway

Importantly, OpenStack is released under Apache 2.0, which basically means you can pretty much do as you please with the code – including commercializing it to a degree (e.g. charge for support).  As Krish tweeted to me last night – OpenStack is kind of the Apache of cloud stacks.

Lots of people are jumping on the bandwagon, and this could end up being a very big issue for a number of the stack providers I have listed previously.  My expectation is that this will serve the needs of service providers looking to deploy an SMB cloud offering similar to Rackspace Cloud, but that it won’t do much for the enterprise for some significant period of time.  Service providers might be leary too – first in terms of having no throat to choke (no commercialization partner), but also out of concerns of having a me too service.  Do you really want to compete with Rackspace with their own code? Smart people can still provide differentiation, but there may be a natural aversion to basing your cloud on one of your main competitor’s kit.

So, for now this is very exciting news that could change the face of the industry.  I’m here at HostingCon and will try to get a reaction from folks to see how they feel about it.  Some mass market hosters like Peer1 and SoftLayer have already joined the OpenStack bandwagon, but until they’ve actually deployed it (2011 ??), it’s just moral support.

Added CloudStack 2010-19-07

Updated 10:30PM 7-13-2010

Again at 4:30pm 7-14-2010 (added Intalio)

And 6:30 on 7-16-2010 (added Surgient)

It seems like every day there’s a new company touting their infrastructure stack.  In recent weeks we’ve seen new offerings from Nimbula and Cloud.com.  I’m sure I’m missing some, but I show 20 solutions for building clouds below, and I am sure that more are on their way.  The market certainly can’t support so many participants!  Not for very long anyway.  This is the definition of a “red ocean” situation — lots of noise, and lots of blood in the water.

This is the list of the stacks that I am aware of:

• Eucalyptus Enterprise Editon
• VMware vCloud
• Cloud.com CloudStack
• Enomaly ECP
• CA/3Tera AppLogic
• Abiquo
• Nimbula Director
• Citrix XenCloud
• Univa UniCloud
• Parallels Elastic IT
• RedHat Cloud Foundations
• Surgient Platform
• Morph Labs mCloud
• Joyent Smart OS
• Flexiant Extility
• Platform ISF
• Cloupia Unified Infrastructure Controller
• BMC Cloud Lifecycle Management
• Microsoft Azure Appliance (future)
• Intalio/IaaS
• HexaGrid VxDatacenter

Then there’s the private cloud appliances:

• IBM CloudBurst
• Unisys Secure Private Cloud
• others…?

And some open source projects:

• OpenNebula
• Nimbus Project
• OpenStack
• Wakame-VDC (Japan)

I hope you’ll pardon my dubious take, but I can’t possibly understand how most of these will survive.  Sure, some will because they are big and others because they are great leaps forward in technology (though I see only a bit of that now).  There are three primary markets for stacks:  enterprise private clouds, provider public clouds, and public sector clouds.  In five years there will probably be at most 5 or 6 companies that matter in the cloud IaaS stack space, and the rest will have gone away or taken different routes to survive and (hopefully) thrive.

If you’re one of the new stack providers – think long and hard about this situation before you make your splash.  Sometimes the best strategy is to pick another fight.  If you swim in this red ocean, you might end up as shark bait.

“If you don’t know your destination, any road will do.”

That little nugget from one of my colleagues concisely sums up the theme of this brief post.  After having read a recent analyst note on IT chargeback, and knowing about some of the work going on in various IT organizations in this area, I was originally going to write a detailed post about some of the most interesting aspects of this domain.  While I was thinking, the folks at TechTarget were doing, resulting in a nice article on this topic that I encourage you to read if you want to understand more about IT chargeback concepts.

As companies invest more and more in cloud computing, one of the areas that seems to be generally overlooked is the central role of IT chargeback. After all, one of the key benefits of cloud is metering – knowing when you are using resources, at what level, and for how long.  For the first time, it is not a lot more feasible to directly allocate or allot costs for IT back to the business units that are consuming it. 

One of the reasons business units are now going around IT and using the cloud is this transparency of costs and benefits.  In most enterprises, the allocation of IT expenses can be very convoluted, resulting in mistrust and confusion about how and why charges are taken.  If I go to Amazon, however, I know exactly what I’m paying for and why.  I can also track that back to some business value or benefit of the usage of Amazon’s services. Now businesses are asking for the same “IT as a Service” approach from their IT organizations.  Anecdotally, internal customers appear willing to pay more than the public cloud price in order to get the security and manageability of an internal cloud service – at least for now. 

While many IT organizations are rushing to put up any kind of internal cloud, they are often ignoring this important aspect of their program.  Negotiating in advance with your business customers on how you’re going to charge for cloud services, and why, is a good first step.  Building the interfaces between the cloud an internal accounting systems can be pretty difficult.  It’s important to take a flexible approach to this, given that chargeback models can change quickly basesd on business conditions. 

Publishing a service catalog with pricing can make it a lot easier for internal customers to evaluate, track, and audit their internal cloud expenses.  Accurate usage information, pre-defined billing “dispute” processes, and - above all – high levels of transparency regarding internal costs to provide your services are all critical to user acceptance.  If possible, put your cloud IT chargeback plans in place before you build your cloud.  Your negotiations with business units might prompt you to make changes to your services – such as different storage solutions or networking topologies to lower costs or improve SLAs.  Making these changes at the start of a cloud project can be far less expensive than making them retroactively.

Bottom line – getting IT chargeback right is key to a successful cloud program.

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Notice: This article was originally posted at http://CloudBzz.com by John Treadway.

(c) CloudBzz / John Treadway

For clarity, here is my position on open source vs. proprietary source in this aspect of the market:  both have a role to play and natively one is not better or more advantaged than the other.  However, when you get into the details there are factors that might favor one model over the other in specific cases. I will look at this from the perspective of the service providers and enterprises who use cloud stacks.  In a future post I may touch on factors that vendors should when choosing between open source and closed source models.

For service providers, margins are critical.  Any increase in capital and operating costs must enable a corresponding increase in value provided in the market.  Amazon and Google have the scale and ability to build a lot of capabilities from scratch, trading a short-term increase in R&D against a long-term decrease in operating costs.

While some cloud providers may attempt to match the low-cost giants on pricing, they know that they need to differentiate in some other material way (e.g. performance, customer service, etc.).   For these providers, the more “free open source” technology that they can leverage, the lower their operating costs may be.

This low-cost focus must permeate their decision making, from the physical infrastructure (commodity servers, JBOD/DAS storage, etc.) to the hypervisor (Xen or KVM vs. VMware), to the cloud provisioning/automation layer, and more.  Open source CMDBs (example), monitoring technologies (e.g. Nagios) and other technologies are often found in these environments.

There are trade-offs, of course.  Open source can often be more difficult to use, lack key functionality, or suffer from poor support – all of which increases costs in often material and unintended ways (note that proprietary solutions can have many of the same issues, and do more often than most people realize).

Other service providers may target the enterprise and focus on highly-differentiated offerings (though I really haven’t see much differentiation yet, at least at the IaaS level).  For these providers, the benefits of enterprise-grade storage (EMC, NetApp, HP), VMware’s HA and fault-tolerant capabilities, and other capabilities gained from using tools from HP, IBM, BMC and other vendors, may be well worth the increase in cost.  And make no mistake, the cost increase from using these technologies can be quite substantial.

Newer vendors, such as Enomaly, are having some success despite their closed-source nature (Enomaly started as open source but changed models in 2009).  Further, even when a provider uses a solution from Cloud.com or Abiquo, both of them with open source models, they will often choose to pay for premium editions in order to get functionality or support not available via open source.  In reality, anybody serious about this market will want a mix of open-source (though not necessarily free) and closed-source technologies in their environment.

In the enterprise, the story is a bit different.  If you’re already paying VMware for an all-you-can-eat enterprise license agreement (ELA), the marginal cost to use vSphere in your private cloud is zero.  KVM or Xen are not less expensive in this case.  Same is true for tools from HP, IBM, BMC and others.

The primary question, then, is whether or not these are the right solutions.  Does BMC have a better answer for private clouds than Eucalyptus?  Is IBM CloudBurst better than Abiquo for development and test?  

Open source for open source’s sake is not rational.

In addition, focusing on only the economics of open source misses what might be the bigger value – risk reduction.  Closed-source projects can go under – either because the developer goes out of business, or if an acquirer decides to no longer keep a product on the market.  This does happen all of the time.  For large and well-established technologies, the risk of abandonment is generally lower.  VMware, HP and EMC are not going anywhere soon.

Open source projects, in contrast, can always be continued.  The cost may fall to those dependent on the project, but at least you get the option.  Not so with closed source – especially if the solution is killed by its owner.

Most buyers can get source code escrow terms that give them access to the source for a product in the event of bankruptcy or similar situations.  In 20 years I have not seen a source escrow addendum include a trigger to release the code if the developer stops or slows investing in it.  Today your vendor might have 20 top-tier developers delivering on a roadmap.  What if in 3 years they have only 4 folks maintaining the current code line and making minor updates?  Can I get the source code then?  Typically not.

There’s another issue that often gets overlooked.  Even if you have a source escrow agreement, that doesn’t mean that the code deposits are being made on a regular basis.  It also doesn’t mean that the code is well-commented or that accurate build scripts are included such that a person of “commercially reasonable” skill can take over the code and move it forward.  I have seen this situation happen more than once, including recently, and it’s quite a shock to learn that your vaunted supplier has been careless, lazy, or even deliberately misleading about their source code responsibilities.

CloudBzz Recommendations

1.  Insist on open source (or at least full source access – not escrow) when one or more of the following situations exist:

- the supplier is small or thinly funded (VCs can and do pull the plug even after many million$ have been invested)
- the capability/functionality provided by the technology is strategically important to you, especially when investment must be maintained to remain leading-edge in a fast-moving and intensely competitive market
- migration costs to a different technology are very high and disruptive

2.  Consider closed-source/proprietary solutions when at least two or more of the following factors are present:

- the functionality provided by the software is not core to your competitive positioning the market
- replacement costs (particularly internal change costs) are moderate or low
- the functionality and value is so much higher than open source alternatives that you’re willing to take the risk
- the technology is so widely deployed and successful that the risks of abandonment is very low
- the costs are low enough so as not to make your offering uncompetitive or internal environment unaffordable

Balancing risk, capability and control is very difficult – even more so in a young and emerging market like cloud computing.  The decisions made in haste today can have a profound impact on your success in the future – especially if you are a cloud service provider.

While open source can be a very potent source of competitive advantage, it should not be adopted purely on philosophical grounds.  If you do adopt closed source, especially at the core stack level, work hard to aggressively manage your exposure and make sure you work hard to ensure that those “unforeseen events” don’t leave you high and dry.

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Notice: This article was originally posted at http://CloudBzz.com by John Treadway.

(c) CloudBzz / John Treadway

People are optimists – well, at least most of us are. We naturally believe that the application we spend our valuable time creating and perfecting will be widely used. That holds true whether the application is internal- or external-facing.

In IT projects, such optimism can be very expensive because we feel the need to purchase many more servers than we typically need. On the other hand, and with the typical lead time of many weeks or even months to provision new servers and storage in a traditional IT shop, it’s important to not get caught with too little infrastructure. Nothing kills a new system’s acceptance more than poor performance or significant downtime due to overloaded servers. The result is that new systems typically get provisioned with far more infrastructure than they really need. When in doubt, it’s better to have too much than too little.

As proof of this it is typical for an enterprise to have server utilization rates below 15%. That means that, on average, 85% of the money companies spend with IBM, HP, Dell, EMC, NetApp, Cisco and other infrastructure providers is wasted. Most would peg ideal utilization rates at somewhere in the 70% range (performance degrades above a certain level), so that means that somewhere between $5 and $6 of every $10 we spend on hardware only enriches the vendors and adds no value to the enterprise.

Even with virtualization we tend to over-provision. It takes a lot of discipline, planning and expense to drive utilization above 50%, and like most things in life, it gets harder the closer we are to the top. And more expensive. The automation tools, processes, monitoring and management of an optimized environment require a substantial investment of money, people and time. And after all, are most companies even capable of sustaining that investment?

I haven’t even touched on the variability of demand. Very few systems have a stable demand curve. For business applications, there are peaks and valleys even during business hours (10-11 AM and 2-3 PM tend to be peaks while early, late and lunchtime are valleys). If you own your infrastructure, you’re paying for it even when you’re not using it. How many people are on your systems at 3:00 in the morning?

If a company looks at their actual utilization rate for infrastructure, is it still cheaper to run it in-house? Or, does the cloud look more attractive. Consider that cloud servers are on-demand, pay as you go. Same for storage.

If you build your shiny new application to scale out – that is, use a larger quantity of smaller commodity servers when demand is high – and you enable the auto-scaling features available in some clouds and cloud tools – your applications will always use what they need, and only what they need, at any time. For example, at peak you might need 20 front-end Web servers to handle the load of your application, but perhaps only one in the middle of the night. In this case a cloud infrastructure will be far less costly than in-house servers. See the demand chart below for a typical application accessed from only one geography.

So, back to the point about over-provisioning. If you buy for the peak plus some % to ensure availability, most of the time you’ll have too much infrastructure on hand. In the above chart, assume that we purchased 25 servers to cover the peak load. In that case, only 29% of the available server hours in a day are used: 174 hours out of 600 available hours (25 servers x 24 hours).

Now, if you take the simple math a step further, you can see that if your internal cost per hour is $1 (for simplicity), then the cloud cost would need to be $3.45 to approach equivalency ($1 / 0.29). A well-architected application that usea autoscaling in the cloud has the ability to run far cheaper than in a traditional environment.

Build your applications to scale out, and take advantage of autoscaling in a public cloud, and you’ll never have to over-provision again.

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Notice: This article was originally posted at http://CloudBzz.com by John Treadway.

(c) CloudBzz / John Treadway

Cloud computing can be the catalyst that transforms IT to a more dynamic and flexible state, enabling responsiveness and value creation not possible in its current solid form.  The cloud can free IT from the shackles of capital budgeting, the tax of application maintenance, the root canal of software upgrades and the drain of constant infrastructure refresh cycles.

A cloud or consumerization approach to end user devices can extend this transformation.  Subsidizing employee purchases of PCs, laptops and smartphones can eliminate much of the cost of helpdesks and maintenance depots.  Provisioning virtual desktops to these devices further reduces the cost.  Employees get the most up-to-date equipment, and can get their support from the place they bought it.

In some ways, small and mid-sized enterprises (SMEs) are far more likely to achieve cloudification in the near term.  They have less in-house infrastructure to begin with and get far more value from “using” IT than acquiring it.  The lack of capital also has a part to play. When you’re small, you’re less likely to have the flexibility to invest in systems with a long payback period.

By letting others (e.g. service providers) wrestle with these issues, enterprise IT can focus far more on value creation through new systems and capabilities.  It can also focus more on governance and security.  A truly “cloudified” IT function is more nimble, productive, and efficient than a traditional environment.

Hey John, with the cloud is IT even necessary anymore?  I mean, if I can buy computing and storage at Amazon and they manage it, what will happen to all of those IT guys we’re paying?  Do we just get rid of them?

Well, no, not exactly.  But their jobs are changing in fairly meaningful ways and that will only accelerate as cloud computing penetrates deeper and deeper into the enterprise.

It’s no big news that most new technologies enter the enterprise at the department or user level and not through IT.  This is natural given the disincentive for risk taking by IT managers.  As a rule, new things tend to fail more often (and often more spectacularly) than the mature stuff that’s been hanging around the shop.  And this is not good for IT careers (CIO does often stand for “career is over” afterall). 

This departmental effect happened with mini computers, workstations, and eventually PCs.  Sybase and Sun got into Wall Street firms through the trading desk after Black Monday (Oct. 19, 1987) because older position-keeping systems could not keep up with the volume (effectively shutting down most trading floors).   IT does not lead technology revolutions.  Often times IT works to hinder the adoption of shiny new objects.  But there are good reasons for that…

For many years, these incursions were still traditional on-premise systems.  In most cases, over time, IT eventually found a way to assert control over these rogue technologies and install the governance processes and stability of operations that users and executive management expected.

More recently, in the SaaS era, Salesforce.com’s success hinged on getting sales reps to adopt outside of the official SFA procurement process supported by IT.  Marketing apps often come in through the marketing department with no IT foreknowledge, but then are partly turned over to IT when integrating them with existing systems proves to be no simple matter.  I say partly because the physical servers and software running SaaS apps never gets into IT’s sphere of control.  Often, the level of control turns into one of customization, oversight, monitoring, and involvement in the procurement process.

Like it or not, in a SaaS world, a fair bit of the traditional work of IT is forever more disintermediated.  But how about in the IaaS world??

As we move to IaaS, the level of disintermediation actually diminishes – a lot.  Most people assume the opposite without stopping to think about it.  

As shown above, however, in the IaaS world IT has a HUGE role to play in managing everything above the hypervisor.  Vendor management, ITSM, monitoring, configuration, service catalogs, deployment management, automation, and many more core IT concepts are still very much alive and well – thank you!  The only difference is that IT gets out of the real estate, cabling, power, and racking business – and most would agree that is a good thing. 

What else changes?

First off, the business process around provisioning needs to change.  If I can get a virtual machine at Rackspace in 5 minutes, don’t impose a lot of overhead on the process and turn that into 5 days (or more!) like it is in-house at many enterprises.  But do keep track of what I’m doing, who has access, what my rights and roles are, and ensure that production applications are deployed on a stack that is patched, plugged and safe from viruses, bots and rootkits. 

Second, IT needs to go from being the gatekeeper, to the gateway of the cloud.  Open the gates, tear down the walls, but keep me safe and we’ll get along nicely (thank you).  IT will need to use new tools, like newScale, enStratus, RightScale, Ping Identity and more to manage this new world.  And, IT will need to rethink their reliance on decades-old IT automation tools from BMC, HP, IBM and others. 

Lastly, the cloud enables a huge explosion in new technologies and business models that are just now starting to emerge.  The MapReduce framework has been used very successfully for a variety of distributed analytics workloads on very large data sets, and is now being used to provide sentiment analysis in real-time to traders on Wall Street.  Scale out containers like GigaSpaces enable performance and cost gains over traditional scale-up environments.  And there are many more.  IT needs to develop a broad knowledge of the emerging cloud market and help their partners on the business side leverage these for competitive advantage. 

If there’s one thing that the cloud can change about IT, it’s to increase the strategic contribution of technology to the business.

You see, cloud isn’t just about how cheap you can make a VM, or how much less money Amazon costs than your internal infrastructure, even though it’s absolutely critical to the success of cloud computing that this is the case. Instead, the real value being created is how cloud computing dramatically lowers the barriers to experimentation and new models of delivering capability, thus increasing the chance that true innovation can occur.

Consider the following. Cloud computing is still way more prevelant in the U.S. than elsewhere in the world. There are relatively few non-U.S. clouds, even in Western Europe, though the pace of new cloud investments there appears to be increasing. All VCs now tell their Web-based portfolio companies to save their capital and use cloud computing to launch their service. Why? Because it reduces the amount of capital required to get to market. If the U.S. has a more vibrant cloud ecosystem, it has a positive impact on the level of start-up activity driving new innovations to market. Cloud computing, therefore, increases start-up activity.

Here’s another example. There’s a new pre-market company in the complex event processing (CEP) market called Cloud Event Processing (disclaimer – I am an advisor) using cloud instances, Map/Reduce for massively parallel computation, and a lot of other techniques that are becoming more prevelent in a cloud environment (e.g. no SQL databases). This is a new model that promises to dramatically change the face of the CEP market. Founder Colin Clark’s blog is incredibly open and forthcoming about why he feels that cloud-based CEP is a great and disruptive innovation. His post on Why CEP in the Cloud Makes Sense lays it out for all to see.

When Eli Lilly needed lots of processing power to drive drug discovery, they too turned to the cloud to generate a large map/reduce cluster in a matter of hours vs. the hundreds of days it would have taken through traditional provisioning. As pointed out in this Information Week article on Eli Lilly’s cloud success, the key value is the enabling effect that this cloud project has had on innovation (a word used 5 times in this article).

Have you ever had to go in front of your company’s capital committee to ask for money? This is one of the more painful things most companies put people through. Sometimes it takes months of analysis, justification, and back room lobbying to get a capex request approved. What do you think that does to innovation?? Imagine that tomorrow, instead of asking for $1m for your new speculative project’s infrastructure, you ask your boss for a few thousand dollars of expense budget to try out this new idea. If it takes off, you’re a hero. If it’s a dud, at least the company is not out $1m. That’s how cloud lowers the barriers to innovation and encourages experimentation.

While cost does matter, the cloud is about eliminating the opportunity cost, and the opportunity lost, by discouraging innovation. Next time someone argues with you over “cloudonomics,” change the discussion. To borrow from a famous campaign office sign from Bill Clinton’s 1992 presidential campaign – “It’s the Innovation, stupid!”

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Notice: This article was originally posted at http://CloudBzz.com by John Treadway.

(c) CloudBzz / John Treadway

At “The State of the Cloud” conference in Boston today, most of the users talked about their concerns over public clouds and their plans for (or experience with) private clouds.  There was some openness to low-value applications, and for specific cases such as cloud analytics.  We do hear about “a lot” of enterprise cloud usage these days, but most of that is dev/test or unified communications, and not strategic business applications.  So where’s the disconnect?

One of the speakers said it best — “we’re just at the beginning stages here and the comfort level will grow.”  So enterprise IT is getting comfortable with the operational models of clouds while the technologies and providers mature to the point that “we can trust them.”  It’s understandable that this would be the case.  If enterprises fully adopt cloud automation models and cost optimization techniques internally, any scale benefits for external cloud providers will take longer to become meaningful.  IT can be far more efficient than it is today in most companies, and if the private cloud model gets the job done, it will delay what is likely the inevitable shift to public cloud utilities.

Stated another way, the more successful we are at selling private clouds to the enterprise, the longer it will take for the transition to public clouds to occur. 

As you see in the chart above, it is likely that the TCO gap between traditional IT and the public cloud will narrow as enterprises implement private clouds.  Some enterprises are already at or below the TCO of many public cloud providers – especially the old-line traditional hosting companies who don’t have the scale of an Amazon or Google.  Over time, the survivors in the public cloud space, including those with enterprise class capabilties, will gain the scale to increase their TCO advantage over in-house IT. 

It may take a long time to see this out, and this is a general model.  Individual companies and cloud providers won’t fit this chart, but it’s likely that the overal market will trend this way.  TCO is not the only factor – but where costs matter the public cloud model will eventually win out.