Who Controls the Cloud Market – Providers or Consumers?

We first went from reserving cloud capacity to securing capacity on-demand, and then we even started to bid for unused capacity in the spot market – all in an effort to decrease cost in the cloud.  Can we take this one step further?  Instead of us bidding for capacity, wouldn’t it be interesting if we can get providers to bid for our demand?

Retail Supply Chain Market Analogy

In fact, this is a common phenomena in the retail supply chain industry.  For example, Walmart has a large amount of freight that needs to be shipped between different cities over the course of the year.  So, every year an auction is conducted in which Walmart lists all their shipments, and carriers such as JB Hunt, Schneider, Yellow etc. bid for the opportunity to carry these shipments using their fleet of trucks.  The reason carriers are bidding for retailer demand is because in general, capacity exceeds demand in the retail industry.

Cloud Computing Market

Keeping this in mind, let us now take a look at the Cloud Computing Market.  Does capacity exceed demand or is it the other way around?  A quick way to find out is by observing spot prices in the cloud market.  In today’s market, Amazon’s Spot Instances are 86% cheaper than their on-demand instances, and Enomaly’s SpotCloud also shows lower spot prices across the board.  This leads us to believe that capacity exceeds demand in the cloud market as well.  A related indicator is the predominance of data center consolidation initiatives in both the commercial and government marketplaces.

Since capacity exceeds demand, consumers have an upper hand and are in control of the cloud market at the moment.  Moreover, they should be able to replicate what is being done in the retail supply chain industry.  In other words, cloud consumers should be able to auction off their demand to the best fit lowest price cloud provider.

So, …

Consumers should seize the opportunity and control the market while the odds are in their favor i.e. Demand < Capacity.  At the same time, Service Integrators and Value Added Resellers can help Enterprise IT consumers in this process by conducting Primary-Market auctions using Cloud Service Brokerage technology.

Secure Environment for Federal Government Cloud Pilot

How is the Federal government hoping to achieve the $12 Billion in projected annual savings?  This projection was quoted by the MeriTalk Cloud Computing Exchange and published today by Forbes.com, and it doesn't seem too optimistic given that the Federal government is already saving approximately $5.5 Billion per year.

These savings have been achieved by individual agencies adopting cloud solutions, but such organic growth will only go so far.  In order to expand this in a generic and scalable manner, the Federal government would need a secure environment to test the cloud and run pilot programs.

Key features of such an environment:

1. Multi-provider provisioning and compliance

Agencies should be able to provision resources across cloud providers without having to worry about vendor lock-in.  This would require the use of a brokerage platform that enables auto provisioning across providers.  Monitoring would also be necessary to ensure the providers maintain SLA compliance, failing which they would be quarantined.

2. Fed certified cloud providers
The list of cloud providers should include those that are FedRAMP certified, or at least FISMA compliant.  Agencies should be able to compare providers side by side and pick the best-fit provider.  This requires standardization of cloud offerings and pricing models.

3. Integration with existing data centers private / hybrid clouds
Agencies should be able to interoperate between the cloud and their existing data centers and private clouds.  This provides a backup plan in case the cloud solution does not succeed.  For this feature, the test environment would need to be agnostic across VMware, Xen, Hyper-V, vCloud Director, etc.

4. Connectivity to existing security frameworks
The test environment should be integrated with the security frameworks currently used by the Federal government.  In this way, valuable resources need not be wasted in re-designing a security framework that is already very efficient.  Instead, resources can be assigned to enhance the existing framework with intrusion detection and intrusion prevention features.

5. Complete cost transparency
First of all, agencies should not be required to sign multi-year contracts with cloud providers.  Secondly, the cost of cloud services should be visible at the highest level so that budgets may be allocated based on resource requirement.  This allows complete auditability as well.

6. Recalibration based on historical data
Cloud usage data should be constantly correlated with cost to ensure that cost is minimized without impacting mission goals.  This requires the test environment to be powered by advanced analytics engines for continuous recalibration through command and control.

All the above features would need to be tested by the Federal government through a pilot program before executing any major cloud migration initiatives.  If successful, the test environment can then be established as the official government cloud portal which is bound to be successful because it has been built on NIST standards and governed through strict monitoring and compliance.

Part 1 - Your application may NOT YET be ready for the Public CommodityCloud if...

1. Your application demand is very stable and doesn't fluctuate much
If your servers are not under utilized, then you are better off keeping things the way they are, unless you want to plan for disasters or other unplanned events.  This is because cloud pricing models are geared for elastic computing. It would be more expensive to provision 4 VMs than to run 4 servers in-house.  The benefits of provisioning fewer VMs and using burst capabilities will only be realized if such demand fluctuations are expected.

Alternative: Look for cloud providers (like Terremark) that price by usage (regardless of the number of VMs provisioned).

2. Your application's licenses can only be tied to physical cores
Many software licenses have not yet made the shift to the world of virtual machines.  For example, Oracle licenses can only operate on a fixed physical core, whereas virtualization technology was developed precisely to separate the physical layer from the software layer.  If Oracle is installed on a VM, the VM would be assigned to certain physical core(s) at one point in time and some other core(s) at some other point in time, which would violate Oracle licensing rules.

Alternative: Look for cloud providers (like Savvis) that have managed hosting servers which share a VLAN with their cloud.  In this way, Oracle can be installed on the managed hosting server while the rest of the application can be deployed on the cloud.

3. Your application stores a very large amount of data on the cloudWith storage disks getting cheaper by the day (1TB for $80), it is becoming increasingly cheaper to store large amounts of data in-house rather than pay for cloud storage every month.  This is because cloud storage is typically priced per GB per hour.


Alternative: Share data storage with other customers using Symform (or any other similar technology) that breaks up the data into a number of encrypted parts and then stores them in the other customer's data centers.  This gives the benefits of elasticity without paying too much for it.  It also increases security of data in the cloud because no one can use the data without having all the parts and being able to decrypt all of them.

4. Your application transfers a large amount of data in or out of the cloudMost cloud providers price their bandwidth by GBs transferred per month.  This would be very costly for applications that stream large data files on a regular basis.

Alternative: Look for cloud providers that price by Mbps of dedicated network throughput.  This is typically found in enterprise cloud providers like Savvis and Terremark.

5. You do not have the capability of managing your VMs any better than you do your serversThe ease of provisioning VMs as and when necessary can also lead to VM sprawl if not managed appropriately.

Alternative: Subscribe to a cloud management console that can not only auto provision VMs when necessary, but also schedule VMs to be turned off after use.  Gravitant's cloudMatrix uses predictive analytics to create dynamic workload schedules that change over time based on historic demand trends.

Go to -> Part 2 - Your application would be a GREAT FIT in the Cloud if...