How to Avoid the Hidden Costs of Cloud Computing

Summary: We all know the conventional wisdom about cloud computing: it's cheap, fast and easy. But is it really that much cheaper? Or is it simply optics that make it appear cheaper?

We all know the conventional wisdom about cloud computing: it's cheap, fast and easy. But is it really that much cheaper? Or is it simply optics that make it appear cheaper?

Optics can absolutely change your perception of the cost of something. Just think about your morning jolt of coffee. $3.50 for a no-foam, half-caf, sugar-free vanilla latte doesn't seem that expensive. It's a small daily expense when viewed by the drink. It appears even cheaper if you pay for it with a loyalty card where you don't even have to fork over the dough and the vanilla shot is free. But what if you bought coffee like IT buys technology? You would pay for it on an annual basis. That $3.50 latte would now be about $900/year. For coffee? How many of you would go for that deal? That's optics and it plays right into the marketing hands of the public cloud services your business is consuming today.

But optics aside, is that $99/month per user SaaS application just another $20,000 per year enterprise application? Is that $0.25 per hour virtual machine just another $85 per year hosted VM? No, it's not the same. Because the pricing models are not just optics but an indication of the buying pattern that is possible. If you buy it the same way you do traditional IT, then yes, the math says, there's little difference here. The key to cloud economics is to not buy the cloud service the same way you do traditional IT. The key to taking advantage is to not statically and rotely consume the cloud. Instead, consume only what you need when you need it - and be diligent about turning off when you aren't.

That said, however, there are cost gotchas for which you need to be watchful. Otherwise you will face the "hidden costs" of the cloud. So what are these gotchas and how to you avoid them? You have to look at this question in two groups: SaaS and cloud platforms.

SaaS services nearly always carry a perpetual, per-user license (you pay monthly on an annual or multi-year term). The hidden costs here fall into 3 areas:

1. Customization - the more you can use the SaaS solution as it was designed the lower your costs. Customizations can quickly lead to development and maintenance costs you didn't anticipate. this is the most widely made error by enterprises. It is more cost effective to teach your employees to use the SaaS as it is designed than to try to bend it to your processes. This isn't always possible but should be used as a rule of thumb.
2. Integration - you will inevitably integrate SaaS services with in-house applications, data stores and other SaaS services. These integrations must be built, managed and maintained. Best practice is to define a clear integration architecture via as few means as possible.
3. Sprawl - A SaaS app you bought initially for just 15 employees, sounds like a great investment and low-cost solution until you open up the app to 1500 employees. Suddenly $99 per user could be more than an in-house solution. Be diligent about who you grant access to any SaaS app.

On the cloud platform front, these services tend to have a pay-per-use model that can be positively be affected by application behavior rather than use pattern. Thus the hidden costs to avoid are:

1. Not turning things off - It's easy to see how pay per use makes your startup costs low and elastic scaling as traffic rises easy. But it is just as easy to not pay attention to application use/load patterns when they go the other way. This is where you can save tremendous money, by turning off resources that are no longer needed. 
2. Storage grows, it never shrinks - and on a pay-per-use service you are constantly reminded of this. which means you need to actively manage your storage consumption by moving data to lower cost services when they are no longer in constant use, leveraging caching as much as possible and deleting files or copies of files if you don't need them.
3. Not activating cloud economics - Not every application is a fit with a pay-per-use platform. The best fit are those that take advantage of the pricing model through either elastic scale or transiency. Elastic scale means the app increases or decreases its resource consumption based on use. Best fit are apps that do this as granularly as possible. Transient apps are those that are not active all the time and can be parked or completely shut off when not in use. Batch work, high performance computing, seasonal or cyclical applications are all good examples. An app that just sits there 24/7 consuming the same resources is usually a bad fit and should be moved either back into your data center or to traditional hosting.

Story from http://www.zdnet.com/how-to-avoid-the-hidden-costs-of-cloud-computing-7000011504/

Cloud Computing: IT Services Trend Towards Greater Use of Cloud

By Dick Weisinger, on January 29th, 2013

Businesses want the cloud.  The number of IT services contracts that have been awarded since 2010 that include some component of the cloud have tripled, according to a study by the Information Services Group (ISG).  In 2010 the number of such deals represented 9 percent of deals.  In 2012 the number of those deals reached 27 percent, and service providers say that the number of deals in their pipeline with a cloud component is now around 25 percent.

The ISG report says that cloud computing is finding its way into service deals primarily in the following three ways:

• Consulting on Cloud Strategy and Cloud Architecture
• Provider of Cloud Infrastructure Services
• Creation and offering of Software as a Service applications and vertical-specific applications

Stanton Jones, ISG emerging technology analyst, said that “Clearly, cloud is a disruptive trend in the enterprise, and we predict that this disruption will not only continue but accelerate, especially for the traditional IT service providers. From well-known software vendors to more nimble mid-market players and emerging pure-play infrastructure and SaaS providers, traditional IT service providers face significant pressure in nearly every direction…  SaaS can be cheaper in the long run, but it requires a significant commitment.”

Stanton Jones, ISG emerging technology analyst, said that “Clearly, cloud is a disruptive trend in the enterprise, and we predict that this disruption will not only continue but accelerate, especially for the traditional IT service providers. From well-known software vendors to more nimble mid-market players and emerging pure-play infrastructure and SaaS providers, traditional IT service providers face significant pressure in nearly every direction…  SaaS can be cheaper in the long run, but it requires a significant commitment.”

Story from http://www.formtek.com/blog/?p=3455

Chinese government to announce cloud computing plan

China's national-level development of the cloud computing industry has been approved by the country's State Council or cabinet and will be announced soon. The industry is expected to provide business opportunities worth 200 billion (US$31.8 billion) over the next three years.

The country's Ministry of Science and Technology finally wrapped up the country's cloud computing plan in March, according to the state-run news agency Xinhua. The industry will be the fourth innovation in the area of IT, following mainframe computers, personal computers and internet development, the ministry said.

The future cloud computing market is projected to expand by a compound rate of 28%, according to some market research companies. Leading IT research firm Internet Data Center forecast that the global cloud computing market will be worth US$800 billion over the next three years and will attract global IT giants to grab a share the market.

To support the development of cloud computing, the National Development and Reform Commission and the ministries of finance and of industry and information technology a few days ago jointly approved special funding of as much as 1.5 billion yuan (US$238 million) and selected five pilot cities with 12 key programs for the project.

Some of programs will be given more than 50 million yuan (US$7.9 million) in subsidies, said ministry sources, adding that the government is seeking to cultivate around 10 leading cloud computing companies with more than 10 million users and annual revenue of 5 billion yuan (US$795 million) separately to meet the goal of reaching 200 billion yuan (US$31.8 billion) for cloud computing operations over the next three years.

Story from http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20120506000057&cid=1201

Snapshot of start-up culture in China

China is often seen as a cheap manufacturing base but, while new business ideas are thin on the ground, angel investors are beginning to find a role

We’ve invested in 26 start-ups, and many of them are doing things that are unique. We see a lot of innovation. We see music and literature start-ups

ALL OVER Beijing you can see the banners – “Patriotism, Innovation, Inclusion, Virtue” – a campaign by the Communist Party to distil the Chinese capital’s spirit.

One of these four qualities is proving particularly tricky to cultivate, especially in the much desired tech business, and that is innovation.

Foreign firms are keen to take advantage of China as a low-cost manufacturing base, but few are keen to invest in China as a place to research and develop new products. Ideas are thin on the ground, while piracy and intellectual property theft are a bane.

Angel investors are increasingly finding a role, however.

Xu Xiaoping, one of China’s best-known angel investors, has gone on the record as saying that he does not believe that China will be an innovation hub for at least 20 years because creativity is simply not a mainstream phenomenon right now.

It doesn’t stop him looking however, and focusing on what niche opportunities there are.

Xu’s Zhen Fund aims to provide young entrepreneurs with seed capital to start new ventures focused on the Chinese market. The fund was set up at the start of last year, and within a year had invested in more than 80 companies, including the online dating site Jiayuan.com, which listed on the Nasdaq Stock Exchange in May 2011.

Formerly vice-chairman of New Oriental Education Technology Group, Zhen Fund hooked up with Sequoia Capital China late last year to create a €22.5 million joint venture seed fund.

Zhen Fund’s plan is to invest in about 100 companies within two years, with each investment ranging from around €75,000 to €225,000. About €2.3 million of the new fund has already been invested.

“On the principle that great people are the key to successful companies, we invest in the brightest and most promising entrepreneurs, rather than certain industries or markets,” Xu told the China Daily recently.

Steve Bell, managing director of Trilogy VC, which specialises in funding start-ups founded by Chinese university students, says there is a herd mentality in every country when it comes to investing in start-ups, and this is also true in China.

In China, there is very little in the way of angel investor culture – this is, after all, the first generation to get involved like this.

“There is a real lack of good investors. I am absolutely sure the biggest companies are going to be started by students. My brother is in Stanford and there are 500 guys there looking for investments. Here, at Tsinghua and Beijing University, it’s just me,” said Bell.

“We focus on the very young entrepreneurs. I was with a group of 300 students and it was very clear they don’t hear from people like me. I asked them: ‘How many of you will start a company?’ Two hands went up. The others said: ‘I’ve no experience’.”

He visits university campuses and asks students for their role models – when they mention Microsoft and Apple and Google, he points out how all of them were started by students.

“All that matters is that you can build a great product. They have many ideas. I like start-ups that are doers, people who build a project,” said Bell.

When visiting universities, Bell gathers a large group of students, then gives them one minute to pitch their ideas in front of a large group of their colleagues. Bell gives the student with the best idea 3,000 yuan ($476).

“We’ve invested in 26 start-ups, and many of them are doing things that are unique. We see a lot of innovation. We see music and literature start-ups,” said the Texan.

Bell has been in China since 2006, but has been concentrating on China full-time since 2009.

“We want companies to get big in terms of revenue. We have an equity stake, are active investors generally with a minority board seat. We love to talk product and distribution with the teams but the entrepreneurs run their business. We generally get very involved in helping get ready for the next funding round and making those VC introductions once the product is successful in the market,” said Bell.

Kai-fu Lee, chairman and chief executive of the tech incubator Innovation Works, which invests in mobile internet, consumer internet, e-commerce and cloud computing ventures, believes China will become a tech giant, based on mobile internet growth.

The former head of Google China and a one-time executive at Microsoft, Lee bases his belief on the fact that by the end of last year, China had 513 million netizens, including 356 million mobile internet users, and about 35 per cent of urban Chinese use smartphones.

Lee said mobile internet start-up costs in China are very low. In China an angel investor can buy a 20 per cent stake in an early-stage company for €225,000, whereas a similar stake in the US would cost about €1.5 million.

China is the world’s third biggest smartphone market, with around 35 per cent of urban Chinese using smartphones, compared to Singapore’s 62 per cent and Australia’s 37 per cent, according to a survey in November by Google Inc and the research company Ipsos.

Innovation Works, which he set up in 2009, has so far incubated 47 projects. Of these, 28 are in progress, 13 have completed their first round of fundraising, also known as A-round investment, two have been traded in mergers and acquisitions, and four were failures.

In recent months Lee has also said that he is likely to invest in more online game projects as the sector is “developing very fast”.

This fast development awakened the interest in Ireland. During Taoiseach Enda Kenny’s visit to China in March, Enterprise Ireland announced the appointment of Liam Casey as start-up ambassador for the greater China region, trying to get the Corkman to use his considerable influence to get Chinese entrepreneurs to choose Ireland as the location for their next high-tech start-up businesses.

Story from http://www.irishtimes.com/newspaper/finance/2012/0507/1224315684273.html

Taiwan Cloud Valley aims to build a coherent ecosystem

By Sheila Lam, Computerworld Hong Kong 26-Apr-2012

Following the great success of its semi-conductor and hardware manufacturing industry, Taiwan is eyeing on cloud computing for the continuous development of its technology industry. The Cloud Computing Association in Taiwan (TCCA) launched the Cloud Valley project in March, aiming to build a comprehensive supply chain of cloud computing services that involve both hardware and software players.

Three phase-development

Divided into three different phases, the Cloud Valley project also plans to actively take part in China's cloud computing trial plan and join hands with the Chinese counterpart in formulating common cloud computing service and technological standards.

The first phase is the opening of the demonstration center, where more than 20 technology providers, including Trend Micro, to show case cloud computing base technology. The center also plans to provide a platform for integrated research and development, testing, display experience, incubation, and business matching services for cloud computing development.

In phase two, expected to be establish by 2013, will be a business incubation center. Located at the same building as the demonstration center, it plans to nurture and create new cloud computing business.

As part of phase three, a cloud service industry park is expected to open for development in 2014. Located at Fujhou at New Taipei City, the industrial park with a size of 5.19 hectares is expected to start its development in 2014, upon the land acquisition is completed.

According to Tzi-Cker Chiueh, secretary general of TCCA, development of the industrial park will be opened for property developers. The bidding process will be handled by the government and based on the development requirements established by TCCA.

Led by Taiwan's Ministry of Economic Affairs, Chunghwa Telecom as well as local tech industry associations and institutes, TCCA is an industry association that involved also different local and foreign tech players in Taiwan.

"TCCA aims to help members companies, the local and foreign tech providers, to connect and collaborate," said Shyue-Ching Lu (pictured), president of TCCA and CEO of Chunghwa Telecom. "Through collaboration, we hope to create an ecosystem to develop technologies in the cloud computing space, which is identified as the key future industry development in Taiwan."

Story from http://www.asiacloudforum.com/content/taiwan-cloud-valley-aims-build-coherent-ecosystem?section=feature&utm_source=silverpop&utm_medium=newsletter&utm_campaign=northcloud