Wednesday, January 27, 2010

Calculating Cloud Service Provider ROI

Bit of a buzz this morning around the new Cisco IaaS ROI and Configuration Guidance Tool which was launched last week. My comment on twitter was that it was overly complex. Although some interpreted my remark as a slight against Cisco (You know who you are) it was actually a broader remark about the complexities of determining a service providers rate of return (ROI) when deploying your own revenue generating cloud services.

In a nutshell that's the problem facing many data center and hosting providers looking to offer utility style IaaS products & services to their customers. To put it lightly, currently it's an overly complicated endeavor. To be competitive today means competing against Amazon Web Services. They've in a very real sense set the bar and the bar has been set extremely low. Not only does Amazon continue to produce new products and services at an amazing speed and consistency, they also continue to innovate on their cost model with latest improvements including Spot pricing and reserve instances. This means that AWS can offer their IaaS sometimes at less then a cent or two an hour while [mostly likely] continuing to turn a profit. Combined with these economic pressures are the competitive pressures to differentiate your service offering from that of your competitors. For example bundling additional software and services on top.

Cisco's ROI tool does a good job of shedding light on the complexities in defining cloud infrastructure focused business models. It outlines components such as operational costs like Labor, Power, Maintenance as well as capital costs including Data Center Build out (Construction), system integration, storage and compute. For me by far the most interesting part of the calculator is the compute related options. They've broken them down into 3 basic VM categories (Power, Average, and Light)

I also found the proposed scale (number of servers, customers etc) in which the ROI tool was built quite telling about the market Cisco is going after with minimum capital expenditures in the 12 - 15 million dollar range for a Cisco based IaaS deployment with smaller deployments actually returning negative ROI results.

The unfortunate part of the ROI tool is that you can't completely remove all the required fields. The tool forces you to include Cisco based pricing for it's calculations. Which does makes sense, it's a Cisco sales tool after all. Although it would be interesting to be able to insert your own hardware and software costs such as VMware Vs Enomaly ECP or HP servers Vs Cisco. If they add those capabilities, this might very well be the best IaaS calculator I've seen.

Another interesting aspect of this calculator is along with other related Cisco Service provider announcements they have effectively come to the same conclusion we at Enomaly (and others) reached about the current market opportunity for IaaS. Simply that in the short term, the real market, the money to be made within the cloud computing infrastructure enablement sector is with Cloud Service providers (Data Centers, Web Hosts, etc) looking to augment their existing service portfolio in an attempt to remain competitive.

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