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Harnessing Economies of Scale in Cloud Computing to Realize a Greener Computing Option

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Economies of Scale have been much discussed in The Agile Executive since the recent OpsCamp in Austin, TX. The significant savings on system administration costs  in very large data centers have been called out as a major advantage of Internet-scale Clouds. Unlike various short-lived advantages, the benefits to the Cloud operator, and to the Cloud user when the savings are passed on to him/her, are sustainable.

In this guest post, colleague and friend Annie Shum analyzes the various sources of waste in operations in traditional data centers. Like an Agilist with Lean inclinations who confronts an inefficient Waterfall process, Annie explains how economies of scale apply to the various kinds of waste that are prevalent in today’s small and medium data centers. Furthermore, she connects the dots that lead toward a Green IT option.

Here is Annie:

Harnessing Economies of Scale in Cloud Computing to Realize a Greener Computing Option

Scale Matters: “Over time, however, competitive advantage within categories shifts inexorably toward volume operations architecture.” – Geoffrey Moore, “Dealing with Darwin”

It is a truism that today’s datacenters are systemically inefficient. This is not intended as an indictment of all conventional datacenters. Nor does it imply that today’s datacenters cannot be made more efficient (incrementally) through right sizing and other initiatives, notably consolidation by deploying virtualization technologies and governance by enforcing energy conservation/recycling policies. There are a myriad of inefficiencies, however, that are prevalent in datacenters today.

Many industry observers lament the “staggering complexity” that permeates on-premises datacenters. Over time, most, if not all, enterprise IT datacenters have become amalgamations of disparate heterogeneous resources. Generally, they can be described as incohesive, perhaps even haphazard, accumulations. The datacenter components and configurations often reflect the intersections of organizational politics (LOB reporting structures leading to highly customized/organizational asset acquisitions and configurations), business needs of the moment (shifting corporate strategies and changing business imperatives to gain competitive edge or meet regulatory compliances) and technology limitations (commercial tools available in the marketplace). It should come as no surprise that human interactions and errors are considered a major contributor to the inefficiencies of datacenters: IBM reported that human errors account for seventy percent of the datacenter problems.

The challenge of maximizing energy efficiency begins fundamentally with the historical capital-intensive ownership model for computing assets to enable each organization to operate its own datacenter and to provide “24×7 availability” to its own users.  The enterprise IT staff has been required to support unpredictable future growth, accommodate situational demands and unscheduled but deadline-critical events, meet performance levels within SLAs and comply with regulatory and auditing requirements. Hence, datacenters generally are over-configured and over-provisioned. In addition to highly skewed under-utilization of distributed platform servers, ninety percent of corporate datacenters have excess cooling capacity. Worst of all, according to IBM, about seventy-two percent of cooling bypassed the computing equipment entirely. Further compounding these problems for a typical enterprise datacenter, is the lack of transparency and the inability to control energy consumption properly due to inadequate and often inaccurate instrumentation to quantify energy consumption and waste due to energy lost.

The economics of Cloud Computing can offer a compelling option for more efficient IT: by lowering power consumption for individual organizations and by improving the efficiency of a large number of discrete datacenters. Although the electricity consumption of Cloud Computing is projected to be one to two percent of today’s global electricity use, Cloud service providers can still cultivate sustainable Green I.T. effectively at lower costs by leveraging state-of-the-art super energy efficient massive datacenters, proximity to power generation thereby reducing transmission costs and, above all, harnessing enormous economies of scale. To better understand how Cloud Computing can offer greener computing in the Cloud and how will it help moderate power consumption by datacenters and rein in run-away costs, a good starting place is James Hamilton’s September 2008 study on Internet-Scale Service Efficiency” as summarized in the table below.

Resource Cost in

Medium DC

Cost in

Very Large DC

Ratio
Network $95 / Mbps / month $13 / Mbps / month 7.1x
Storage $2.20 / GB / month $0.40 / GB / month 5.7x
Administration ≈140 servers/admin >1000 servers/admin 7.1x

Table 1: Internet-Scale Service Efficiency [Source: James Hamilton]

This study concludes that hosted services by Cloud providers with super large datacenters (at least tens of thousands of servers) can achieve enormous economies of scale of five to seven times over smaller scale (thousands of servers) medium deployments.  The significant cost savings is driven primarily by scale. Other key factors include location (low cost real estate and electricity rate, abundant water supply and readily available fiber-optic connectivity), proximity to electricity and power generators, load diversity, and virtualization technologies.

Will this mark the beginning of the end for traditional on-premises datacenters? Can enterprise IT continue to justify new business cases for expanding today’s non-renewable energy powered datacenters? According to the McKinsey article, the costs to launch a large enterprise datacenter have risen sharply from $150M to over $500M over the past five years. The facility operating costs are also increasing at about twenty percent per year. How long will the status quo last for enterprise IT considering the recent trend of Cloud service providers? Major players such as Google, Microsoft as well as the U.S. government itself have invested in or are planning ultra energy-efficient mega-size datacenters (also known as “container hotels”) with massive commoditized containerization and proximity both to power source and less expensive power rates. Bottom line: will the tide turn if the economics (radical cost savings) due to enormous economies of scale become too significant to ignore?

Despite the potential for significant cost savings, it is premature to declare the demise of traditional IT or the end of enterprise datacenters. After all, the rationale for today’s enterprise IT extends well beyond simplistic bottom-line economics – at least for now. To most industry observers, enterprise datacenters are unlikely to disappear although the traditional roles of enterprise IT will be changing. A likely scenario may involve redistributing IT personnel from operating low-level system operational tasks to addressing higher-level functions involving governance, energy management, security and business processes. Such change not only would become more apparent but will likely be precipitated by the rise of hybrid Clouds and the growing interconnection linking SOA, BPM and social computing. Another likely scenario is the rise of the mega datacenters or “container hotels” for Cloud Utility Computing providers. Although the global economic outlook will undoubtedly play a key role in shaping the development plans/timelines of the mega datacenters, they are here to stay. Case in point: by 2012, Intel estimates that it will design and ship about a quarter of the server chips (it sells) to such mega-data centers.


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Cloud Computing Forecasts: “Cloudy” Future for Enterprise IT

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In a comment on The Urgency of Now, Marcel Den Hartog discusses technology assimilation in the face of hype:

But if people are already reluctant to run the things they have, on another platform they already have, on an operating system they are already familiar with (Linux on zSeries), how can you expect them to even look at cloud computing seriously? Every technological advancement requires people to adapt and change. Human nature is that we don’t like that, so it often requires a disaster to change our behavior. Or carefully planned steps to prove and convince people. However, nothing makes IT people more cautious than a hype. And that is how cloud is perceived. When the press, the analysts and the industry start writing about cloud as part of the IT solution, people will want to change. Now that it’s presented as the silver bullet to all IT problems, people are cautious to say the least.

Here is Annie Shum‘s thoughtful reply to Marcel’s comment:

Today, the Cloud era has only just begun. Despite lingering doubts, growing concerns and wide-spread confusion (especially separating media and vendor spun hype from reality), the IT industry generally views Cloud Computing as more appealing than traditional ASP /hosting or outsourcing/off-shoring. To technology-centric startups and nimble entrepreneurs, Cloud Computing enables them to punch above their weight class. By turning up-front CapEx into a more scalable and variable cost structure based on an on-demand pay-as-you-go model, Cloud Computing can provide a temporary, level playing field. Similarly, many budget-constrained and cash-strapped organizations also look to Cloud Computing for immediate (friction-free) access to “unlimited” computing resources. To wit: Cloud Computing may be considered as a utility-based alternative to an on-premises datacenter and allow an organization (notably cash-strapped startups) to “Think like a ‘big guy’. Pay like a ‘little guy’ ”.

Forward-thinking organizations should not lose sight of the vast potential of Cloud Computing that extends well beyond short-term economics. At its core, Cloud Computing is about enabling business agility and connectivity by abstracting computing infrastructure via a new set of flexible service delivery/deployment models. Harvard Business School Professor Andrew McAffee painted a “Cloudy” future for Corporate IT in his August 21, 2009 blog and cited a perceptive 1983 paper by Warren D. Devine, Jr. in the Journal of Economic History called “From Shafts to Wires: Historical Perspective on Electrification”.[1] There are three key take-away messages that resonate with the current Cloud Computing paradigm shift. First: The real impact of the new technology was not apparent right away. Second: The transition to full utilization of the new technology will be long, but inevitable. Third: There will be detractors and skeptics about the new technology throughout the transition. Interestingly, telephone is another groundbreaking disruptive technology that might have faced similar skepticism in the beginning. Legend has it that a Western Union internal memo dated 1876 downplayed the viability of the telephone: “This ‘telephone’ has too many shortcomings to be seriously considered as a means of communications. The device is inherently of no value to us.”

The dominance of Cloud Computing as a computing platform, however, is far from a fait accompli. Nor will it ever be complete, a “one-size fits all” or a “big and overnight switch”. The shape of computing is constantly changing but it is always a blended and gradual transition, analogous to a modern city. While the cityscape continues to change, a complete “rip-and-replace” overhaul is rarely feasible or cost-effective. Instead, city planners generally preserve legacy structures although some of them are retrofitted with standards-based interfaces that enable them to connect to the shared infrastructure of the city. For example, the Paris city planners retrofitted Notre Dame with facilities such as electricity, water, and plumbing. Similarly, despite the passage of the last three computing paradigm shifts – first mainframe, next Client/Server and PCs, and then Web N-tier – they all co-exist and can be expected to continue in the future. Consider the following. Major shares of mission-critical business applications are running today on mainframe servers. Through application modernization, legacy applications – notably Cobol for example – now can operate in a Web 2.0 environment as well as deploy in the Cloud via the Amazon EC2 platform.

Cloud Computing can provide great appeal to a wide swath of organizations spanning startups, SMBs, ISVs, enterprise IT and government agencies. The most commonly cited benefits include the promise of avoiding CapEx and lowering TCO to on-demand elasticity, immediacy and ease of deployment, time to value, location independence and catalyzing innovation. However, there is no magic in the Cloud and it is certainly not a panacea for all IT woes. Some applications are not “Cloud-friendly”. While deploying applications in the Cloud can enable business agility incrementally, such deployment will not change the characteristics of the applications fundamentally to be highly scalable, flexible and automatically responsive to new business requirements. Realistically, one must recognize that the many of the challenging problems – security, data integration and service interoperability in particular – will persist and live on regardless of the computing delivery medium: Cloud, hosted or on-premises.

[1] “The author combed through the contemporaneous business and technology press to learn what ‘experts’ were saying as manufacturing switched over from steam to electrical power, a process that took about 50 years to complete.” – Andrew McAfee, September 21, 2009.

I will go one step further and add quality to Annie’s list of challenging problem. A crappy on-premises application will continue to be crappy in the cloud. An audit of the technical debt should be conducted before “clouding” an application. See Technical Debt on Your Balance Sheet for a recommendation on quantifying the results of the quality audit.

The Urgency of Now – Guest Post by Annie Shum

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Failure to learn, failure to anticipate, and failure to adapt are the three generic causes of military disasters. Each one of these three failures is bad enough. In combination, they can be catastrophic. Germany swiftly defeated and conquered France in 1940 due to the utter failure of the French army to grasp the nature of future war, to conceive the probable action of the German forces and to adequately react to the German initiative once it unfolded through the Ardennes. The patterns leading to the catastrophe suffered by the French are similar in some ways to the eco-meltdowns described by Jared Diamond in Collapse: How Societies Choose to Succeed or Fail.

In this guest post, colleague and friend Annie Shum poses disturbing questions with respect to our willingness and ability as IT professionals to learn, anticipate and adapt to the imperatives of Cloud Computing. Between shockingly low (15%) server capacity utilization on the one hand, and dramatic changes in the needs of the business on the other hand, companies who continue to use industrial-era IT models are at peril. Annie weaves theses and other related threads together, and makes a resounding call-to-action to re-think IT.

It is remarkable that Annie’s analysis herein of the root causes of a possible meltdown in IT identifies worrisome patterns similar to those that the Agile movement has pointed out to with respect to arcane methods of software development. The very same core problems that afflict software development manifest themselves in the IT paradigm as well as in the corresponding business design. Painful and wasteful that this repeated manifestation is, it actually creates the opportunity to manage software, IT, and the business in unison. To do so, we need to embrace a data-driven version of the economics of IT, to grasp the true nature of Cloud Computing without the hype that currently surrounds it, and to adapt software development, IT operations and business design accordingly. As the title of this post states, we need to start carrying out these three tasks now.

Here is Annie:

The Urgency of Now: The Edge of Chaos and A “Strategic Inflection Point” for IT

“It was the worst of times. It may be the best of times.” – IBM

Consider the following table. It contains a list of statistics pertaining to the enterprise datacenter index compiled by Peter Mell and Tim Grance, NIST. Overall, the statistics are sobering, perhaps even alarming, and do not bode well for the long-term sustainability of traditional on-premises datacenters. Prudent IT organizations – whether big or small, stalwart or startup – should consider this as a wake-up call. In particular, out of the almost twelve million servers in US datacenters today, the typical server capacity utilization is only around fifteen percent. Although not explicitly shown in this table, the average utilization of the mainframe z/OS servers is typically over eighty percent. However, mainframe z/OS server utilization is only a minor component of the overall average server utilization.

Statistics Enterprise Datacenter Index
11,800,000 Servers in US datacenters
15% Typical server capacity utilization
$800,000,000,000/year Purchasing & maintaining enterprise software
80% Software costs spent on maintenance: the “80-20” ratio
100x Power consumption/sq ft compared to office building
4x Increase in server power consumption, 2001 to 2006
2x Increase in number of servers, 2001 to 2006
$21,300,000 Datacenter construction cost, 9000 sq ft
$1,000,000/year Annual cost to power the datacenter
1.5% Portion of national power generation
50% Potential power reduction from green technologies
2% Portion of global carbon emissions

 

Over the years, organizations have accepted such skewed levels of server inefficiency and escalating maintenance costs of IT infrastructure as the norm. Even as organizations continue to express concerns, many seem resigned to the status quo tacitly: akin to what Bob Evans of InfoWeek described as “insurmountable laws of physics.” Looking ahead, however, the status quo may no longer be a viable option for most organizations. Due to soaring electricity/power costs compounded by the recent global financial meltdown with a near collapse of the financial system that triggered a prolonged (and for now, apparently indefinite) credit crunch, these are unparalleled strident and chaotic times for businesses. Pressured by business decision-makers who are under a heightened level of anxiety, enterprise IT is now confronting a transformative dilemma whether to preserve the status quo or to re-think IT.

On one hand, the current global recessionary down cycle is a particularly powerful (albeit rooted in fear) and instinctive deterrent to challenging the status quo. For risk-adverse organizations, it is only understandable why status quo, fundamental flaws notwithstanding, may trump disruptive change during these challenging times. On the other hand, forward-thinking decision-makers may make the bold but disruptive (radical) choice to view status quo as the fundamental problem: acknowledge the growing “urgency of now” by resolving to overcome and correct the entrenched shortcomings of enterprise IT.

“You never want a serious crisis to go to waste”. That quote (or its many variations) has been attributed alike to economists and politicians. The same could be said for IT. Indeed a growing number of IT industry observers believe the profound impact of the on-going economic crisis could offer a rare window of opportunity for organizations to rethink traditional capital-intensive, command-control, on-premises IT operations and invest in new and more flexible self-service IT delivery/deployment models. Think of this defining moment as what Andy Grove, co-founder of Intel, described as the “strategic inflection point”.  He was referring to the point in the dynamic when the fundamentals of a business are about to change and “that change can mean an opportunity to rise to new heights.” Nonetheless, the choices will be hard decisions because the options are stark: either counter-intuitively invest in a down cycle by focusing on a more sustainable but disruptive trajectory or hunker down and risk irreversible shrinking business. 

As one considers how to address the challenges of today’s enterprise IT, perhaps the following two observations should be taken into account. First, despite the quantum leap in technology advancements, generally the basic design and delivery models of existing IT applications/services are variations of traditionally insular, back-office automation business tools. Second, the organizational structure and business models of most companies are deeply rooted in models of yesteryear, in many instances dating back to the Industrial Revolution. In theory, adhering to the traditional organizational model of top-down command-control can maximize predictability, efficiency and order. Heretofore, this has been the modus operandi for most organizations that Umair Haque succinctly characterized as “ industrial-era companies that make industrial-era stuff — and play by industrial-era rules.” In today’s exponential times, however, the velocity of change and the rapidly growing need of interconnecting to other organizations and automating value chains inevitably lead to an increase in uncertainty and disorder.  Strategically, forward-thinking organizations should consider seeking alternative models to address the interdependent and shifting new world order.  

In their book, “Presence – Human Purpose and the Field of the Future”, authors Peter Senge, Otto Schramer, Joe Jaworski and Betty Sue Flower observe that many of the practices of the Industrial Age appear to be largely unaffected by the changing reality of today’s society and continue to expand in today’s business organizations. They conclude with this advice:  “As long as our thinking is governed by industrial ‘machine age’ metaphors such as control, predictability, and faster is better, we will continue to re-create organizations as we have had – for the last 100 years – despite their increasing disharmony with the world and the science of the 21st century.”  Likewise, the traditional top-down command-control modus operandi of enterprise IT today does not reflect adequately and hence likely is unable to accommodate fully the transformational shift of business from silo organizations to “all thing’s digital all the time”, hyper-interconnected and hyper-interdependent ecosystems.