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Cloudonomics: The Business Value of Cloud Computing, + Website

ISBN: 978-1-118-22996-5
416 pages
September 2012
Cloudonomics: The Business Value of Cloud Computing, + Website (1118229967) cover image


The ultimate guide to assessing and exploiting the customer value and revenue potential of the Cloud

A new business model is sweeping the world—the Cloud. And, as with any new technology, there is a great deal of fear, uncertainty, and doubt surrounding cloud computing. Cloudonomics radically upends the conventional wisdom, clearly explains the underlying principles and illustrates through understandable examples how Cloud computing can create compelling value—whether you are a customer, a provider, a strategist, or an investor. Cloudonomics covers everything you need to consider for the delivery of business solutions, opportunities, and customer satisfaction through the Cloud, so you can understand it—and put it to work for your business. Cloudonomics also delivers insight into when to avoid the cloud, and why.

  • Quantifies how customers, users, and cloud providers can collaborate to create win-wins
  • Reveals how to use the Laws of Cloudonomics to define strategy and guide implementation
  • Explains the probable evolution of cloud businesses and ecosystems
  • Demolishes the conventional wisdom on cloud usage, IT spend, community clouds, and the enterprise-provider cloud balance

Whether you're ready for it or not, Cloud computing is here to stay. Cloudonomics provides deep insights into the business value of the Cloud for executives, practitioners, and strategists in virtually any industry—not just technology executives but also those in the marketing, operations, economics, venture capital, and financial fields.

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Table of Contents

Preface xv

Acknowledgments xxi

CHAPTER 1 A Cloudy Forecast 1

Clouds Everywhere 2

Cashing In on the Cloud 6

Beyond Business 8

Clarifying the Cloud 11

Farther On 12

Summary 13

Notes 13

CHAPTER 2 Does the Cloud Matter? 17

Productivity Paradox 19

Competitiveness Confrontation 21

Summary 26

Notes 26

CHAPTER 3 Cloud Strategy 29

Insanity or Inevitability? 30

Democratization of IT 31

Industrialization of IT 32

Strategy 33

The Cloud: More than IT 35

The Networked Organization 38

Form Follows Function, IT Follows Form 41

Aligning Cloud with Strategy 42

Everyware, Anywhere 42

Summary 44

Notes 44

CHAPTER 4 Challenging Convention 49

What Is the Cloud? 50

Economies of Scale 50

Competitive Advantage and Customer Value 52

Cloud Ecosystem Dynamics 55

IT Spend 58

Issues with the Cloud 59

Summary 61

Notes 61

CHAPTER 5 What Is a Cloud? 63

Defining the Cloud 64

On-Demand Resources 66

Utility Pricing 67

Common Infrastructure 68

Location Independence 69

Online Accessibility 70

Difference from Traditional Purchase and Ownership 70

Cloud Criteria and Implications 72

Is the Cloud New or a New Buzzword? 73

Summary 75

Notes 76

CHAPTER 6 Strategy and Value 77

Access to Competencies 77

Availability 79

Capacity 79

Comparative Advantage and Core versus Context 80

Unit Cost 80

Delivered Cost 80

Total Solution Cost 82

Opportunity Cost and Cost Avoidance 83

Agility 83

Time Compression 84

Margin Expansion 85

Customer and User Experience and Loyalty 86

Employee Satisfaction 87

Revenue Growth 87

Community and Sustainability 87

Risk Reduction 88

Competitive Vitality and Survival 88

Summary 89

Notes 89

CHAPTER 7 When—and When Not—to Use the Cloud 91

Use Cases for the Cloud 91

Inappropriate Cloud Use Cases 101

Summary 104

Notes 104

CHAPTER 8 Demand Dilemma 107

A Diversity of Demands 108

Examples of Variability 109

Chase Demand or Shape It? 120

Summary 121

Notes 122

CHAPTER 9 Capacity Conundrum 125

Service Quality Impacts 126

Fixed Capacity versus Variable Demand 127

Splitting the Difference 129

Better Safe than Sorry 131

Capacity Inertia 134

Summary 135

Notes 135

CHAPTER 10 Significance of Scale 137

Is the Cloud Like Electricity? 139

Distributed Power Generation 140

Is the Cloud Like Rental Cars? 141

Capital Expenditures versus Operating Expenses 143

Benchmark Data 145

Cost Factors 147

Benchmarking the Leaders 150

Size Matters 151

Summary 155

Notes 155

CHAPTER 11 More Is Less 159

Is the Cloud Less Expensive? 159

Characterizing Relative Costs and Workload Variability 161

When Clouds Cost Less or the Same 163

If Clouds Are More Expensive 164

Beauty of Hybrids 164

Cost of the Network 167

Summary 169

Notes 170

CHAPTER 12 Hybrids 171

Users, Enterprise, and Cloud 172

Hybrid Architecture Implementations 174

Summary 180

Notes 180

CHAPTER 13 Fallibility of Forecasting 181

Even Stranger than Strange 182

Demand for Products and Services 183

System Dynamics 185

Whips and Chains 186

Exogenous Uncertainty 186

Behavioral Cloudonomics of Forecasting 187

Summary 190

Notes 191

CHAPTER 14 Money Value of Time 193

Demand and Resource Functions 193

Cost of Excess Capacity 195

Cost of Insufficient Capacity 196

Asymmetric Penalty Functions, Perfect Capacity, and On Demand 197

Flat Demand 197

Uniformly Distributed Demand 197

Better Never than Late 199

MAD about Being Normal 200

Triangular Distributions 201

Linear Growth 201

Exponential Growth 202

Random Walks 204

Variable Penalty Functions 206

Summary 207

Notes 208

CHAPTER 15 Peak Performance 209

Relationships between Demands 210

Lessons from Rolling Dice 212

Coefficient of Variation and Other Statistics 215

Statistical Effects in Independent Demand Aggregation 216

Significance of 1/ ffiffiffiffi mp 218

Issues with Perfectly Correlated Demand 220

Community Clouds 220

Simultaneous Peaks 221

Peak of the Sum Is Never Greater than the Sum of the Peaks 222

Utilization Improvements 224

Summary 225

Notes 226

CHAPTER 16 Million-Dollar Microsecond 227

On Time 228

Rapidity Drives Revenue 230

Built for Speed 232

Summary 233

Notes 233

CHAPTER 17 Parallel Universe 235

Limits to Speedup 236

Amdahl versus Google 237

Free Time 240

Summary 243

Notes 243

CHAPTER 18 Shortcuts to Success 245

Rapid Transit 246

Sending Letters 247

Short on Time 249

Bandwidth Isn’t Enough 252

Summary 253

Notes 253

CHAPTER 19 Location, Location, Location 255

Latency and Distance 255

Circle Covering and Circle Packing 257

Inverse Square Root Law 258

Spherical Caps and the Tammes Problem 260

Summary 263

Notes 263

CHAPTER 20 Dispersion Dilemma 265

Strategies for Response Time Reduction 266

Consolidation versus Dispersion 268

Trade-offs between Consolidation and Dispersion 269

Benefits of Consolidation 270

Benefits of Dispersion 271

The Network Is the Computer 272

Summary 274

Notes 274

CHAPTER 21 Platform and Software Services 277

Infrastructure as a Service Benefit 279

Paying on Actuals versus Forecasts 280

Installation 280

Investment 281

Updates 281

Service-Level Agreements 281

Continuously Earned Trust 282

Visibility and Transparency 282

Big Data and Computing Power 283

Ubiquitous Access 283

Response Time and Availability 284

Multitenancy, Shared Data 284

Cloud-Centric Applications 284

Scalability 285

Communities and Markets 285

Lock-in 285

Security and Compliance 286

PaaS: Assembly versus Fabrication 287

Innovation and Democratization 287

Deconstructing the Pure SaaS Model 288

Summary 290

Notes 291

CHAPTER 22 Availability 293

Uptime versus Downtime 295

Availability and Probability 296

Availability of Networked Resources 296

Availability via Redundancy and Diversity 297

On-Demand, Pay-per-Use Redundancy 300

Summary 301

Notes 301

CHAPTER 23 Lazy, Hazy, Crazy 303

Behavioral Economics 303

Loss and Risk Aversion 304

Flat-Rate Bias 305

Framing and Context 307

Need for Control and Autonomy 307

Fear of Change 308

Herding and Conformity 309

Endowment Effect 310

Need for Status 311

Paralysis by Analysis of Choice 311

Hyperbolic Discounts and Instant Gratification 312

Zero-Price Effect 313

Summary 313

Notes 314

CHAPTER 24 Cloud Patterns 317

Communications Patterns 317

Hierarchies 321

Markets 323

Repository 326

Perimeters and Checkpoints 326

Summary 327

Notes 328

CHAPTER 25 What’s Next for Cloud? 329

Pricing 329

Ecosystems, Intermediaries, and the Intercloud 332

Products versus Services 336

Consolidation and Concentration 336

City in the Clouds 338

Spending More while Paying Less 339

Enabling Vendor Strategies 340

Standards, APIs, Certification, and Rating Agencies 344

Commoditization or Innovation? 345

Notes 349

About the Author 353

About the Web Site 355

Index 357

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Author Information

JOE WEINMAN is Senior Vice President, Cloud Services and Strategy, Telx, and a former executive at HP, AT&T, and Bell Labs. He is the founder of Cloudonomics and the Cloudonomics® blog. He is a frequent global keynote speaker, a prolific inventor awarded fifteen patents, and a guest contributor syndicated to a variety of print and online publications, such as Bloomberg Businessweek, Forbes, CNNMoney, InformationWeek, and GigaOm.com. He has been interviewed frequently in the press and on global broadcast television.

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"In his new book, Joe Weinman explores many of the areas being impacted by the cloud computing phenomenon, offering compelling value propositions. He spells out, extremely thoroughly, the business cases and cost justifications that go behind cloud computing efforts. He also provides 28 business areas where cloud does and doesn't make business and financial sense." (Forbes.com, September 2012)
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Press Release

September 04, 2012
Cloudonomics: The Business Value of Cloud Computing

“With this comprehensive, deeply researched book, Joe Weinman closes the case on cloud computing.  And who could imagine a book on IT infrastructure and strategy could be a great read too?  This book is going to help companies optimize their IT investment but, more important, position them to exploit the technology revolution of our time for competitive advantage and success.”

-- Don Tapscott, consultant, best-selling author, and an adjunct professorat the University of Toronto’s Rotman School of Management

The cloud, shorthand for “cloud computing”, is transforming all aspects of personal life, business, and society. With that transformation comes deep interest in economic justification, as well as a bit of fear, uncertainty, and doubt.  CLOUDONOMICS: The Business Value of Cloud Computing (John Wiley & Sons; September 2012; $60.00) looks well beyond the ephemeral specifics of particular service provider offerings or technologies, and instead uses understandable examples to explain how the cloud can be wielded strategically to create profitable revenue while delivering clear benefits to customers.  Written by cloud computing thought leader Joe Weinman, the book demystifies business models and economic benefits of the cloud, offering insights to business executives in virtually any industry--CIOs, developers, architects, IT managers, academics, students, investors, and policy-makers.

            Exploring the details of cloud economics involves a rigorous, multidisciplinary analytical approach leveraging economics, behavioral economics, statistics, calculus, computational complexity theory, simulation, and system dynamics.  Fortunately, Weinman uses other pay-per-use, on-demand service businesses, such as hotels, rental car services, taxi cabs, and coffee shops to clearly explain the laws of Cloudonomics to determine strategy and guide readers through implementation. CLOUDONOMICS examines:

  • How IT and cloud computing can help achieve strategic competitive advantage;
  • When and when not to use the cloud;
  • Where the conventional wisdom regarding the cloud errs, and why;
  • The properties and architectural implications of pay-per-use pricing and on-demand resources, and the conditions under which such charging and provisioning drive value;
  • The increasing importance of proximity, and the economics of dispersion in enhancing the user experience and thus revenue;
  • The trade-offs between consolidation and dispersion;
  • Behavioral economic concerns for and against cloud adoption with an overview of the psychology, neuroscience, and economics involved;
  • Analysis of cloud patterns such as communications and markets, considering not just cost but topics such as the expected marginal value of an additional participant in a market.

            Cloud start-ups are forming on a daily basis, and billions of dollars in wealth are being created as companies craft innovative strategies to exploit this opportunity. Conversely, long-standing corporate icons that have failed to do so are becoming history instead of making it.  In short, the cloud is disrupting every dimension of business, whether it is the research, engineering, or design of new products and services; their manufacturing, operations, and delivery; or any point along the customer interface. CLOUDONOMICS explores the implications of the cloud and how it applies to the evolution of modern business, as well as reveals how the next decade is likely to bring untold innovation.  


Joe Weinman (Basking Ridge, NJ) is Senior Vice President, Cloud Services and Strategy at Telx. He has held executive leadership positions at AT&T, Hewlett-Packard, and Bell Laboratories, in areas such as corporate strategy, business development, product management, operations, and R&D. Named a "Top 10 Cloud Computing Leader" by TechTarget,  Weinman is a frequent international keynote speaker, blogger and the founder of Cloudonomics--a rigorous, multidisciplinary approach to valuing the cloud. He has been awarded 15 U.S. and international patents in diverse fields and has been showcased in numerous print and online publications and global video broadcasts. He has a Bachelors and Masters in Computer Science from Cornell University and UW-Madison respectively, and has completed Executive Education at the International Institute for Management Development in Lausanne.  


The Business Value of Cloud Computing

Published by John Wiley & Sons, Inc.

Publication date: September 10, 2012

$60.00; Hardcover; 416 pages; ISBN: 978-1-118-22996-5

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