Cloud Computing

Contents

Introduction        

Economics of Cloud Business        

Industry Description        

Firm Analysis – Core Competencies of AWS        

Economies of Scale and Pricing        

Positioning: Competition and Coopetition        

Consumerization of Business        

The Game in Cloud Service Provisioning        

Price Discrimination in cloud offerings        

Digital India and cloud computing        

Cloud Computing in China and other developing countries        

Future of cloud computing        

Appendix        

Exhibit 1        

Exhibit 2        

Introduction

Cloud Computing or the Cloud is the general term given to all computing services which are accessible on demand from the internet and across platforms and geographies. Cloud computing offers economies of scale and allows businesses to use their limited resources in a more efficient manner (such as not having to invest in infrastructure yet having access to similar computing capabilities).

Cloud computing, in the modern sense, began to take shape in the early 2000s. Amazon’s EC2 was launched in 2006 and was among the first could computing providers. This was followed by Microsoft’s Azure, Google Cloud Platform, IBM SmartCloud and Oracle Cloud among others.

Cloud computing is offered in three avatars: infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS) and software-as-a-service (SaaS). IaaS abstracts the cloud user from the intricacies of computing infrastructure. It provides users access to flexible computing capability to manage dynamic computing needs (such as spikes in website traffic). The service is charged according to the resources allocated and consumed by the user. Amazon Web Services is an example of an IaaS provider. PaaS provides an environment for application developers including operating system, web servers and other software components. An example of a PaaS provider is the Google App Engine. SaaS forms the largest set of providers and allows users access to applications without having to download and install them on their personal machines. SaaS applications are run directly off web browsers. SaaS makes it easy for software vendors to ensure better maintenance and support for their applications since it gives them greater control over application management. Salesforce.com and Gmail are examples of SaaS.

Over the last decade, Amazon Web Services (AWS) has clearly come out on tops in the cloud marketplace, having diversified their offerings since the early days of 2006. Gartner, a research advisory specializing in providing IT insights, has yet again named AWS as the market leader^[1] among IaaS providers. Analysts ascribe this phenomenon to the ‘cloud virtuous cycle’^[2] - Amazon was the first to enter market and attracted early application developers whose experiments paid out and led to further innovations for AWS. This ensured that AWS stayed ahead of its competitors by always having on offer the best product in the market.

Economics of Cloud Business

In 2008, Joe Weinman, then Strategic Solutions Sales VP for AT&T Global Business Services, created the 10 Laws of cloud economics that detail on how cloud computing achieves economic goals.

Following is an abridged version of the same:

1. Utility services cost less even though they cost more.  The cloud usage comes at a premium that is priced higher than owning or leasing the server. However, the trick here is that one is charged only for the data that he consumes.  When workloads are spiky, specifically when the peak-to-average ratio is greater than the premium, cloud infrastructure helps save costs by charging only for the usage and not for capacity unused.
2. On-demand trumps forecasting. Forecasting often tends to be misleading. With cloud, one gets to utilize on demand rather than risking incorrect forecasting.
3. The peak of the sum is never greater than the sum of the peaks. Enterprises deploy capacity to handle their peak demands. The total capacity deployed is the sum of these individual peaks. A cloud needs to deploy less capacity as available capacity can be reallocated across different usage patterns.
4. Aggregate demand is smoother than individual demand. Integrated demand across multiple customers evens out differences in usage patterns. Hence clouds get better utilization.
5. Average unit costs are reduced by distributing fixed costs over more units of output. This helps in achieving economies of scale for larger Cloud businesses.
6. Superiority in numbers: Cloud Service providers have the ability to scale up to fight bot attacks in the orders of 100,000s.
7. Space-time is a continuum. Companies secure sustainable competitive advantage from responding to changing business conditions faster than the competition. Scalability enhances decision making and information processing.
8. Dispersion is the inverse square of latency. A Cloud provider is able to span out more nodes without disturbing, and hence lower latency, than an enterprise infrastructure would.
9. Don’t put all your eggs in one basket. The resilience of a system increases with the addition of repetitive, geographically distributed server infrastructure components such as data centres. Cloud Computing vendors have the scale and diversity to do so.
10. An object at rest tends to stay at rest. A data centre is a very large object and private data centres are more likely to remain in their base locations for company specific strategic reasons. But a cloud service provider can

Industry Description

Firm Analysis – Core Competencies of AWS

From an Internet-enabled business, AWS ^[3]transformed itself into a complete technology provider, competing with the likes of Google, Microsoft and Apple. The e-commerce portal of Amazon had exponential growth in the past decade. An estimated 650 million users visit Amazon.com every year, generating a revenue of more than 15 billion USD. About 76 million customers and 1.3 million sellers interact on the portal every day. Due to the enormous volume of transactions, Amazon’s core is in its in-house infrastructure. These consist of massive storage and computing facilities that are always available and is resistant to failure. In 2002, Amazon launched Amazon Web Services, selling this same infrastructure as commodity on a shared basis, thus catapulting itself as the market leader in cloud computing.

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