plications that were hosted at another
ISP. As part of our initial assessment
of the client’s environment, we discovered that he had received Athlon desktop processors in the servers that he
was paying top dollar for.
This difference between advertised
and provided value is possible because
cloud computing delivers abstracted
hardware that relieves the client of
the responsibility for managing the
hardware, offering an opportunity for
situations such as those listed here to
occur. As our experience in the marketplace shows, the customer base is
inexperienced with purchasing this
commodity and overwhelmed with the
complexity of selecting and determining the cost of the service, as well being hamstrung by the lack of accurate
benchmarking and reporting tools.
Customer emphasis on pricing levels
over results drives selection of poorly
performing cloud products. However,
the enterprise will not be satisfied with
this state of affairs.
Extra charges. For example, ingress
and egress bandwidth is often charged
separately and using different rates,
overages on included baseline storage,
or bandwidth quantities are charged
at much higher prices than the advertised base rates, charges are applied to
the number of IOPS used on the storage system, and charges are levied on
HTTP get/put/post/list operations,
to name but a few. These additional
charges cannot be predicted by the end
user when evaluating the service, and
are another way the cloud providers are
able to make the necessary money to
keep their businesses growing because
the prices they are charging for compute aren’t able to support the costs of
providing the service. The price of the
raw compute has become a loss-leader.
illustration by gary neill
Long-term commitments.
Commitment hasn’t been a prominent feature
of cloud customer-vendor relationships so far, even to the point that pundits will tell you that “no commitment”
is an essential part of the definition of
cloud computing. However, the economics of providing cloud computing
at low margins is changing the landscape. For example, Amazon AWS introduced reserved instances that require a
one- or three-year long commitment.
There are other industries that offer
their services with a nearly identical
delivery model, most obviously cellular telephone providers and to some
extent electrical utilities. However,
for some reason, cloud computing is
not delivered with the same pricing
models as those developed over the
last hundred years to deliver electricity. These providers all use long-term
commitments to ensure their economic viability by matching their pricing to customer resource usage that
determines their costs. Long-term
commitments—in other words, contracts—allow for time-of-use pricing
and quantity discounts. We feel these
characteristics will become ubiquitous features of cloud computing in
the near future. For cloud computing
delivered as SaaS, long-term commitments are already prevalent.
navigating today’s
Perfectly competitive
cloud computing market
Today’s price-focused cloud comput-
ing market, which is moving rapidly
toward perfect competition, presents
challenges to the end customer in pur-
chasing services that will meet their
needs. This first-generation cloud of-
fering, essentially Cloud 1.0, requires
the end customer to understand the
trade-offs that the service provider has
made in order to offer computing to
them at such a low price.
