Friday, November 5, 2010

Group Buying For Cloud Computing Capacity

As many of you know, I've been to China many times this year. The market for cloud computing is booming over there. But what you may not know is that these trips to China have been a key part of the inspiration for the creation of SpotCloud. Some of my inspirations has come from the popular concept of group buying know as tuangou in Chinese.

If you haven't heard of Group buying wikipedia describes it as follows:
Group buying, which refers to social buying or collective buying as well, is the buying an offer which has been significantly reduced, due to the fact that it is only valid if enough buyers are found. Recently, group buying has been taken online in numerous forms, although group buys prior to 2009 usually referred to the grouping of industrial products for wholesale (especially in China).
Group buys are a variation of tuangou buying that also occurs in China, in which an item must be bought in a minimum quantity or dollar amount, otherwise, the seller will not allow the purchase. Since individuals typically do not need multiples of one item or do not have the resources to buy in bulk, group buys allow people to invite others to purchase in bulk jointly. These group buys often result in better prices for the individual buyers or ensure that a scarce or obscure item is available for sale.
So now lets think about how this approach could be applied to the buying of cloud infrastructure resources through a marketplace such as SpotCloud. A simple example could be buying Amazon EC2 reserve instances. With Reserved Instances you pay a one-time fee and in turn receive a significant discount on the hourly usage charge for that instance over a 1 to 3 year term. Using this model of reserved Instances can save you up to 49% over the cost of On-Demand EC2 instances. But there is a small problem, you need to commit to at least 1 - 3 years with a fairly high utilization for the full savings to be realized.

Now apply group buying to EC2 reserved instances, say 100 or so capacity buyers who need cheap capacity for short periods of time. The brokerage (SpotCloud) essentially buys on behalf of the group and makes the the capacity available at a greatly reduced cost for all market participants. The group buying approach also leads to interesting arbitrage models for increased cost reduction by taking advantage of a price difference between two or more cloud resource providers (Amazon's Spot Instances for example), as well as potentially negotiating wholesale discounts on behalf of the collective buying group from other large cloud capacity providers.

Lots of interesting SpotCloud ideas. I'll keep posting as they come to me.

#DigitalNibbles Podcast Sponsored by Intel

If you would like to be a guest on the show, please get in touch.