Maybe you can already recite the sales pitch for cloud computing in your sleep—how it’s faster, more flexible, and economical than amassing your own servers on site. But, as Joe Weinman argues in “Rethinking the Business Benefits of Cloud,” that’s just scratching the surface. In these slides, Joe Weinman, author of Cloudonomics: The Business Value of Cloud Computing, explores some of the overlooked—and more nuanced—business benefits of moving workloads to the cloud, such as faster innovation, global expansion, and customer satisfaction.

1. Rethinking the Business
Benefits of the Cloud
GigaOm Research
Joe Weinman
joeweinman at gmail
@joeweinman
© 2014 Joe Weinman. All Rights Reserved

2. Cloudonomics
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3. Quantitative Analysis of Clouds.
Common
- Penalty Cost Reduction to
Location-independent
Online
- Smart networks improvement on 푛 paths ≅
Utility
on-Demand
1
푚
for 푚 independent demands
- Latency ∝ to
1
푛
for n nodes, adjusted by
1−cos(2훽)
1−cos(훽)
- Hub vs. P2P Benefit of
1
푛
Connections; Latency Penalty of
4
3
×
45휋
128
- Pure Cloud Better when
푃
퐴
1
2
> 푈; Hybrid Best with Breakeven at 푡 = 푇/푈
- Linear Benefit for 퐷 푡 = 푘푡; Exponential for 퐷 푡 = 푒푡;
1
푛
for Random Walk
Source: Joe Weinman, Cloudonomics
+
1
(푛+1)
−
휋
2푛
© 2014 Joe @joeweinman Weinman. All Rights Reserved 3

4. “The Benefits of the Cloud
are Cost Reduction and
Business Agility”
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5. Revenue Growth
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6. Does IT Matter??
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7. Firm Profitability
Fixed Effect Models*
Base Model Incl Sales, OPEX
IT 1.912 1.837
Sales 0.054
OPEX 0.137
Advertising 0.155 0.142
R&D 1.001 0.993
R2 (overall) 0.49 0.51
Observations 276
Number of Firms 86
Source: Sunil Mithas, Ali Tafti, Indranil Bardhan, and Jie Mein Goh, “Information
Technology and Firm Profitability: Mechanisms and Empirical Evidence”
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8. Range of IT Value
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9. The Discipline of Market Leaders
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10. Digital Disciplines
Digital Technology
+
Value Disciplines
=
Digital Disciplines
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11. Updating the Value Disciplines?
Value
Discipline
“Virtual”
Extrapolation
(Physical)
Operational
Excellence
Virtual
Operational
Excellence
(Physical)
Product
Leadership
Virtual
Product
Leadership
(Face-to-Face)
Customer
Intimacy
Virtual
Customer
Intimacy
Source: NYTimes.com
© 2014 Joe @joeweinman Weinman. All Rights Reserved 11

12. Updating the Value Disciplines
Value Discipline “Virtual”
Extrapolation
Digital Discipline
Operational
Excellence
Virtual Operational
Excellence
Information Excellence
Product
Leadership
Virtual Product
Leadership
Solution Leadership
Customer
Intimacy
Virtual Customer
Intimacy
Collective Intimacy
(Traditional Innovation) Accelerated Innovation
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13. Information Excellence
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14. Solution Leadership
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15. Collective Intimacy
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15

16. Business Agility
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17. Product Life Cycle
Revenue
Introduction Growth Maturity Decline
Time
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18. Industry Rivals
Industry Rivals
Introduction Growth Maturity Decline
Time
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19. Industry Profit
Industry Profit
Introduction Growth Maturity Decline
Time
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20. Industry Profit
Industry Profit
Introduction Growth Maturity Decline
Time
Higher Market
Lower
Share
Development
Expenses
Higher Profit
Time Value
Of Money
Lower
Marketing Costs
Lower Forecast
Risk
© 2014 Joe @joeweinman Weinman. All Rights Reserved 20

21. Digital Business Intervals
Introduction Growth Maturity Decline
Time to Volume
Time
Time to Market
Platform
as a Service
Infrastructure
as a Service
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22. Accelerated Innovation
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23. Accelerated Innovation
Challenge
Source: Joe Weinman, Cloudonomics
Solutions
Solution
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24. Accelerated Innovation
Goldcorp Netflix Innocentive
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25. New Business Models
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26. Business Model Generation
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27. The Business Model Canvas
© 2014 Joe Weinman. All Rights Reserved 27
Key
Partners
Key
Resources
Value
Proposition
Channels
Customer
Segments
Key
Activities
Cost Structure
Customer
Relationships
Revenue Streams
Source: Alex Osterwalder and Yves Pigneur, Business Model Generation
@joeweinman

28. Nike Basketball Hyperdunk+
Source: Nike.com
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29. Automobile Insurance
- Speed
- Route
- Distance
- Acceleration
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30. Global Market Expansion
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31. The Networked Economy
Greater Bandwidth & More Endpoints
Greater Global
Knowledge-Intensive Flows
Faster Growth than Labor, Capital-Intensive Segments
Source: McKinsey Global Institute
Increasing Network
Ubiquity
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31

32. Enhanced User Experience
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33. Amdahl’s Law.
Source: Joe Weinman, Cloudonomics
P
S
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34. Cloud Response Time.
Source: Joe Weinman, Cloudonomics
© 2014 Joe @joeweinman Weinman. All Rights Reserved 34

35. Geo Dispersion.
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36. The Law of Cloud Response Time.
T = F + N + P
T = F + _N_ + _P_
√n p
Multiplicity of Nodes and Processors
n = ∛( Q N ) 2
Minimum Time for a given Quantity of resources
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
Source: Joe Weinman, Cloudonomics
Single Entities
2P
Priority of Dispersion
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37. Cost Reduction
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38. Statistical Multiplexing of IID RVs.
1
0.8
0.6
0.4
0.2
0
1
0.8
0.6
0.4
0.2
0
1
0.8
0.6
0.4
0.2
0
1
0.8
0.6
0.4
0.2
0
1
25
4
100
Source: Joe Weinman, Cloudonomics
© 2014 Joe @joeweinman Weinman. All Rights Reserved 38

39. 1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
1
6
11
16
21
26
31
36
41
46
51
56
61
66
71
76
81
86
91
96
101
106
111
116
121
126
131
136
141
146
151
156
161
166
171
176
181
186
191
196
201
Inverse Square Root Behavior.
Source: Joe Weinman, Cloudonomics
© 2014 Joe @joeweinman Weinman. All Rights Reserved 39

40. Cloud Cost Structures.
Well-Run
Enterprise
Mid-Size
Cloud SP
Largest
Cloud SP
Scale-Invariant Costs
SG&A, Margin, Uncollectibles, …
Consumer Typical
Enterprise
Economies of Scale
Diseconomies
Source: Joe Weinman, Cloudonomics
Cost (/Price)
© 2014 Joe @joeweinman Weinman. All Rights Reserved 40

41. The Math.
1. U < 1  A * U * C * T <= P * U * C * T < P * 1 * C * T = P * C * T
2. U = 1 & A=P  A * U * C * T = P * U * C * T = P * 1 * C * T = P * C * T
3. U = 1 & A < P  A * U * C * T < P * U * C * T = P * 1 * C * T = P * C * T
4. 1 < U < ( P / A )  A * U * C * T < A * (P / A) * C * T = P * C * T
5. U > 1, & (Tp / T) < (1 / U) 
[(P - ε) * T * C] + [ε * Tp * C * U] < [(P - ε) * T * C] + [ε * T * C]
6. (TNZ / T) > (1 / U) & U > 1  ε * T * C < ε * TNZ * U * C
7. D uniform, U > 1  TotalCost = [F * T * C] + [ ½V * (V / P) * T * U * C]
 Min(TotalCost) when 0 = [T * C] * [0 – 1 + V * U / P]  V / P = 1 / U
A = Average, P = Peak, C = Baseline Resource Cost, U = Utility Premium, T = Time, Tp = Peak Duration,
TNZ = Non-Zero Baseline Duration, F = Fixed Capacity, V = Variable Capacity, D = Demand over Time
Source: Joe Weinman, Cloudonomics
© 2014 Joe @joeweinman Weinman. All Rights Reserved 41

42. The English.
All other things being equal:
1. If cloud services cost less than enterprise IT, then…
…use them
2. If cloud services cost more than enterprise IT, then…
…don’t…
…jump to conclusions, because if demand is “spikier” than the
cloud is “costly,” a pure cloud solution will cost less than a
dedicated one
3. If demand has any variation, a hybrid solution is optimal
Source: Joe Weinman, Cloudonomics
© 2014 Joe @joeweinman Weinman. All Rights Reserved 42

43. Hybrid Economics, P/A>U>1.
$$$
$$
$
Private Hybrid Public
Source: Joe Weinman, Cloudonomics
Cost
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44. Hybrids over Space.
Stateless Elasticity BC/DR
Content/Service Delivery Data Integration
Source: Joe Weinman, Cloudonomics
© 2014 Joe @joeweinman Weinman. All Rights Reserved 44

45. Hybrids over Time.
Dev/Test Production Production Dev/Test
Migration to Cloud Migration from Cloud
Source: Joe Weinman, Cloudonomics
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46. Risk Mitigation
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47. Linear Demand Growth.
Unserved
Demand u Resources R(t)
Time
t2
Provisioning
Source: Joe Weinman, Cloudonomics
Demand D(t) = a+bt
t1
Time tp
© 2014 Joe @joeweinman Weinman. All Rights Reserved 47

48. Exponential Demand Growth.
Unserved
Demand
Time
Demand D(t) = et
Resources R(t)=e(t-tp)
t1 t2
tp
tp
Source: Joe Weinman, Cloudonomics
© 2014 Joe @joeweinman Weinman. All Rights Reserved 48

49. White Papers.
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50. Thank You
joeweinman at gmail
@joeweinman
© 2014 Joe Weinman. All Rights Reserved