Tag Archives: Data Center

Willingness of Companies to Use Public vs. Private Clouds

Despite a significant shift to cloud applications, most companies (especially in Europe) remain conservative about which applications they put in public clouds. Less than 20% of U.S. and European companies would consider or seriously consider putting their most critical applications in public clouds. But 66% of U.S. and 48% of European companies would consider putting core applications in private clouds.


  • Differences by region of world

With cloud applications having made more than a foothold in large companies around the world, it might appear that senior executives are putting aside their fears about the security of data and systems in the cloud. But that would be a wrong presumption.

Business and IT executives appear to largely endorse the use of applications hosted in “private” clouds – data center(s) devoted to the computing needs of a one company (whether or not that data center is owned by the company or a third party). But they are not so trustful of applications running in “public” clouds – data centers that third parties run for numerous customers.

That is what we found from the answers to a series of questions in our survey to gauge interest in using public and private clouds for two types of applications software: “core” (strategic applications that provide competitive advantage) and “non-core” (applications that are necessary for doing business but which don’t deliver a competitive edge).

In the U.S., for example, only 18% said they would consider or highly consider putting core applications in public clouds; in contrast, a slight majority (51%) said they would not consider it at all or only slightly consider it. Nonetheless, two-thirds (66%) said they would consider or highly consider putting core applications in private clouds. Only 3% said they would reject the idea out of hand, vs. 30% who would reject putting core apps in public clouds.

Putting non-core applications in the cloud was an entirely different matter. Some 42% of our U.S. respondents said they would consider or highly consider putting non-core apps in public clouds – more than said they would not consider it at all or would only slightly consider it (30%).  And nearly three-quarters (72%) said they would consider or highly consider putting non-core apps in private clouds, a concept rejected by only 3%.

European Companies are Even More Conservative About the Cloud; Latin American and Asia-Pacific Companies are Less Conservative

Relative to their counterparts in Asia-Pacific and Latin America, U.S. and European companies were far less likely to put core applications in public clouds. But they and their counterparts in Asia-Pacific and Latin America were far more likely to put core apps in private clouds dedicated to their organizations. Still, European companies were very conservative on this measure, with less than half (48%) saying they were willing to put core apps in private clouds (vs. 79% of the Latin American companies that we surveyed).

The relatively high percentage of Latin American (30%) and Asia-Pacific (41%) companies that are willing to consider putting strategic applications in public clouds signifies that they have a higher risk tolerance than their colleagues in Europe (especially) and the U.S. Thus, it appears that private clouds are far more acceptable to most large companies today than public clouds – even though private clouds can’t deliver the cost savings of public clouds, which share costs among many clients.

 


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The Benefits That Companies Have Gained from Cloud Applications

The early returns on cloud applications are impressive. Companies using cloud applications are increasing the number of standard applications and business processes, reducing cycle times to ramp up IT resources, cutting IT costs, and launching a greater number of new products and processes. The story of a major telco shows the ambitions of the some of the most aggressive cloud adopters.


  • Operational and financial improvements from shifting on-premises applications to the cloud
  • Operational and financial improvements from launching new applications in the cloud
  • Case study: AOL Inc.
  • Case study: Major telco

We asked the companies we surveyed whether their use of cloud applications had generated benefits – both cloud applications that they shifted from on-premises computers, as well as whole new cloud applications for which they previously had no on-premises versions. For both types of cloud applications, their answers indicate that cloud applications are generating significant improvements in operational and financial performance.

Benefits from Shifting Existing Apps to the Cloud

In all four regions of the world, the average benefits from cloud applications of this type were impressive, especially in Latin American and Asia-Pacific companies:

  • In IT costs, 28% (Europe) to 55% (Latin America) average reductions
  • In standard applications and business processes, between 34% (Europe) and 60% (Latin America) increases in the number of apps and business processes that have been made common across a company or business
  • In cycle-time reductions to ramp IT resources up or down (a measure of “flexibility”): between 35% (U.S.) and 64% (Latin America) reductions
  • In systems downtime, 33% (Europe) to 59% (Latin America) reductions
  • In the time it takes to enhance applications, 37% (U.S. and Europe) to 57% (Latin America) reductions
  • Application fixes, from 35% (U.S.) to 64% (Latin America) reductions in the number of patches
  • In analytic reports, from 34% (Europe) to 66% (Latin America) increases in the number of reports, which gives companies greater ability to mine and analyze volumes of data

The more aggressive adopters of cloud computing – Latin American and Asia-Pacific companies (which had higher percentages of cloud apps to total corporate apps) – also reported much greater benefits from their cloud apps. Why is this the case? Perhaps greater benefits is a function of experience; the more you use cloud applications, the more knowledge you gain about how to deploy and use them, and thus the greater likelihood to generate benefits. Or it could be that using a higher number of cloud applications simply brings more cumulative benefits.

For a $5 billion consumer products company, the cloud enabled one of its business functions to implement a new application without needing the typical “$10 million and 18 months to build it,” says an IT executive in the company. And the aforementioned telco hopes that standardizing applications through its private cloud data centers will help it reduce the number of those centers by 80% and save as much as $200 million in annual IT costs.

Companies Report Sizable Benefits from Launching Whole New Apps in the Cloud

We also asked survey respondents to report on benefits received to date from new applications that they launched in the cloud. Specifically, we had them indicate improvements in six areas:

  • Testing of new business processes that they would have considered too costly to test prior to the advent of the cloud (because of excessive technology costs). Here we asked them to indicate the percentage increase in new business processes tested.
  • The number of new business processes they actually launched or instituted
  • The number of new products/services they tested
  • The number of new products/services they launched
  • The annual revenue increase from launching new products/services in markets that they already served
  • The average reduction in the time it took to enter new markets with new products/services

While the average percentage improvements in these areas were about half those that companies reported from shifting on-premises applications to the cloud, they were nonetheless noteworthy:

  • Increases from 15% to 19% in the number of new business processes tested and launched in U.S., Europe and Asia-Pacific companies. Latin American companies, however, reported higher average numbers (22-27%)
  • Increases from 13% to 19% in the number of new products or services tested and launched by companies in the U.S., Europe and Asia-Pacific (which, again, trailed the 31-32% increases in new products/services in Latin America)
  • An average 14-17% reduction in cycle time to enter new markets with new products/services in the U.S., Europe and Asia-Pacific (bested again by Latin American companies, which claimed an average 35% cycle time reduction)
  • Average revenue increases of 13-17% from launching new, cloud-based products and services in existing markets (vs. an average 32% revenue increase reported by Latin American companies)

At AOL, a Private Cloud is Helping the Shift to a Web Advertising Model

Three decades ago AOL Inc. was a trailblazer in opening the online world to the American public. Today, despite competition from Facebook, Google, Yahoo and many other sites, AOL remains the sixth most heavily visited U.S. Website, with 106 million unique visitors in November 2011.[1] The $2.4 billion company will be 30 years old next year, an unusual lifespan in an industry that buried AltaVista, Boo.com, Pets.com and many other online companies long ago.

AOL outlasted them all because of its ability to shift strategies quickly and capably as the Web created new capabilities and competitors. The company has reincarnated itself several times – from proprietary online service in the early 1990s (supported by subscription fees) to Internet access provider in the late 1990s and 2000s (dial-up access fees) to online media content provider today (funded by advertising). In just the last five years, the company’s revenue mix has changed from about 43% advertising/54% subscription to 60% advertising/40% subscription and other.1

 

But because of its long history of providing online services such as email, instant messaging and Web media and entertainment content, AOL had accumulated a vast amount of computers, storage, other computing devices and software over that time, says Michael Manos, senior vice president of technologies at AOL. He has a playful name for this technology tangle: “cruft.” These legacy systems can weigh down companies that must continually adopt new web technologies while keeping IT infrastructure costs low. This is especially the case at AOL, whose strategy today requires focusing investments on online content and the people who produce it.

“Cruft adds tremendous complexity to a company’s technology operations and makes it difficult for it to be agile,” Manos explains.

To reduce its IT costs, AOL has embraced a private cloud infrastructure over the last year. It has dramatically lowered the technology expenses of sales, marketing and customer service. Manos estimated that 20% of the company’s business applications have moved to cloud in the last six months, and that another 15% will shift by mid-year.

That’s crucial in a company whose subscriber revenue has been falling sharply over the years. A decade ago, AOL had about 30 million subscribers. Today, the number is around 4 million. In 2011, the company reduced total expenses more than $500 million to make up for the decline in subscription revenue.1

Adopting a Private Cloud at Light Speed

Manos joined AOL in January 2011 after 17 years of managing data centers for such media and technology icons as Walt Disney Co., Microsoft, and Nokia. He had earned a solid track record in making data centers more effective and efficient.

In just 90 days, Manos and his team implemented AOL’s first-ever private cloud in a new data center the company calls ATC. (AOL operates three other data centers in the U.S. – two in Virginia and one in Silicon Valley.1) Since going live last Oct. 1, ATC and the private cloud have enabled AOL to shut down about 10,000 computer servers at its other computer facilities. Furthermore, AOL’s private cloud can more quickly increase the firm’s computing capacity on demand, without the need for additional manpower. Such “dynamic scalability” is essential in a business like AOL, where breaking news such as election results generates huge spikes in viewers clicking on its websites.

Because of its private cloud, AOL can now get a new server up and running in just minutes, compared to 6-12 weeks a decade ago.1 In fact, on the ATC data center’s first day of operation, it took only an hour to have nearly 100 virtual servers running. Manos says provisioning a new server now takes only about 5 minutes via the cloud, compared to the 8-12 hours it previously took. “We now can spin up capacity extremely quickly,” he says. “More importantly, we can spin down capacity very quickly.  So it’s given us a substantial amount of agility within our business that we’ve never had before.” The cloud has also reduced energy costs. The more efficient servers at ATC (about 800 in all) have replaced 3,000 old servers, paring AOL’s electricity bill by about $700,000 a year.

Biggest Barrier to Embracing the Cloud: IT People

Manos says the biggest barrier to adopting cloud technology at AOL is that IT employees worry that cloud technology will replace them. However, companies like AOL have no choice but to reduce costs in technology and other realms. ATC is a 100% “lights-out” facility, meaning it doesn’t need anyone operating the machines on its premises. Manos’ team of five people can now manage 12,000-15,000 servers that are spread across the company’s data centers. Still, the main objective is not to eliminate IT staff but rather to deploy them in jobs where they can play a more important role.

Manos has gained support for cloud computing throughout AOL, from the CEO down. Through regular emails, newsletters and meetings, CEO Tim Armstrong has gone to great lengths to make the transition transparent. Armstrong has become a big proponent of the firm’s private cloud because of the cost savings and ability to launch new Web content more quickly.

“If you would have told me nine months ago that the CEO would be talking about the technology side of the business, I would have said you were crazy,” Manos says. “But he is now saying that AOL is a technology company as well as a media company.”

Major Telco: Cloud as Game-Changer and Data Center Consolidator

This company sees cloud as a major external and internal opportunity — to sell new services to customers and induce large reductions in its technology costs as well as standardized business processes and applications software.

Top management at the telco believes that if the company wishes to get numerous customers to adopt cloud services, it must demonstrate how it has benefited from using the cloud internally. With that mandate, the company in the last two years has moved financial systems such as general ledger, payables and fixed assets to its private cloud. It is also moving human resource applications to the cloud (including the corporate email system, and employee savings and financial plans). Customer records ordering and processing will move to cloud as well. All in all, the company has moved 30% of its applications to its private clouds (data centers that it owns and operates), a number it hopes will reach 80% by year-end.

The company is moving to organize its IT architecture completely around its private clouds, with the intention of eventually putting all applications in the cloud and providing cloud services for each company business unit. Today, its business units have their own financial, HR, customer management and other systems. That, of course, results in large duplications of software, hardware and data center space that could be consolidated if business units could standardize on many fewer applications and let them run on hardware at fewer but centrally managed data centers.

If the firm can achieve this, it believes it will reduce the need for dozens of data centers (reducing the number by as much as 80%), which would achieve cost savings in the range of $100 million to $200 million.

What must the company do to reach such ambitious goals? The two biggest obstacles that we heard were “fear of the unknown” and “fear of losing control” – both coming especially from the IT functions within the company’s business units.

That said, the company believes the issue is no longer whether the company will broadly adopt cloud computing but rather how quickly it will do so. “We believe cloud is something that is going to be gaming-changing,” says one executive. “It’s going to become a way of life. I think we’re at the very beginning of this, and that many companies have a ‘toe in the water’ approach because of the security concerns.” The gating factor, he believes, is whether cloud vendors can provide a highly secure service with nearly 100% uptime.

 


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Why Companies are Using Cloud Applications

The biggest driver of cloud applications is not to cut IT costs. IT cost reduction is an important factor, but not the most important. Rather, standardizing software applications and business processes across a company (in the U.S. and Asia-Pacific) and ramping systems up or down faster (in Europe and Latin America) are the most highly rated drivers for shifting on-premises applications to the cloud. And the factors driving companies to launch entirely new applications in the cloud are quite different – to institute new business processes and launch new technology-dependent products and services. The case of assessment testing company CTB/McGraw-Hill shows why cloud computing will become a key tool for delivering pioneering IT-enabled offerings.


 

  • Factors driving companies to shift on-premises applications to the cloud
  • Factors driving companies to launch whole new applications in the cloud
  • Case study: CTB/McGraw-Hill

We asked companies to rate on a scale of importance (1 to 5) what had driven them to implement two kinds of cloud applications:

  • Cloud applications that had previously been installed on on-premises computers
  • Entirely new cloud-based applications for which there had been no on-premises versions before

How they rated a set of drivers that we offered provides insights into the motivations for adopting cloud applications. We’ll start with the factors that pushed companies to shift on-premises apps to the cloud.

 

Shifting On-Premises Apps to the Cloud: IT Cost-Cutting Isn’t the Leading Driver

Among U.S. and Asia-Pacific companies, the most important driver of shifting on-premises applications to the cloud is not what many think it would be – to reduce technology costs (although that is a key driver). Ahead of that is something that is not as well understood by the press, analysts and others covering cloud trends: standardizing applications and the business operations that those applications support.

Numerous large companies – especially those with multiple business units/divisions – are saddled with huge duplications in technologies: commercial application software packages, hardware and data centers that are serve individual business units (and sometimes even just a single compute-intensive business function such as R&D or manufacturing in a division). By giving companies the ability to take such applications out of departmental or business unit data centers and put them in a centrally accessible location – a private or public data center that hosts the applications – cloud computing creates the prospect of standardizing applications across a big business.

The major telco that we spoke with said offering standardized cloud applications will help its business units reduce their IT costs and the need for so many data centers (which today are in the hundreds). Having dozens of financial, HR, customer management and other applications today – each devoted to a narrow slice of its business – has resulted in huge IT costs (software, hardware and data centers). In fact, the company believes that its shift to cloud applications will help it reduce its number of data centers by 80%, which would produce an estimated annual cost savings of $100 million to $200 million.

Another highly rated driver of cloud applications in both the U.S. and Asia-Pacific companies was increasing applications or systems “flexibility.” In both regions, this was the third most important driver of shifting on-premises applications to the cloud. What does this mean? It refers to the ability to scale an application up or down.

The need to process “big data” – huge volumes of transactional and other digitized data (video, social media chatter, and other) — appears to be a big driver of cloud applications. Nearly two-thirds (65%) of the U.S. survey respondents they were driven to the cloud to improve the way they gathered and analyzed data (rated as an important or very important factor). A similar number of Asia-Pacific companies said this was an important or very important driver of their shift to the cloud. Less than half (47%) of the European companies said it was an important or very important factor in using cloud. However, 80% of the Latin American companies said this was an important or very important factor. One of the biggest differences that we found between the companies that had generated the largest benefits from the cloud and the ones that had generated the least benefits was, in fact, their interest in using the cloud to manage “big data.”

Big Data and the Push for Cloud

Our U.S. data shows that savvier uses of cloud applications are distinct in many ways – one of which is their interest in using the cloud to process and analyze volumes of digital data.

We compared the answers of the companies in the top quartile of benefits achieved from shifting on-premises apps to the cloud (the “leaders”) to those in the bottom quartile (“laggards”). Some 74% of the leaders said using the cloud to process and analyze data for trend identification was important or very important. But a much lower percentage of laggards (55%) said that was a key driver.

We found a similar set of drivers in the Asia-Pacific companies that we polled. The three most important drivers in this region – just like in the U.S. – were 1) standardizing applications and business processes, 2) reducing IT costs, and 3) increasing application flexibility.

The biggest factor driving Commonwealth Bank of Australia to shift on-premises applications to its private cloud was to use the savings in IT costs to providing more bank services through mobile applications and social media. “For us, cloud is not just about on-demand, selective scalability and automation,” says Rajasingham. “It’s also about self-funding IT, removing cost from running the business – and reallocating that into delivering more value-added services.”

In both Europe and Latin America, the most important driver of shifting to cloud applications was the need to increase “system flexibility” – the ability to launch or shut down applications quickly.


In Latin America, standardizing applications and business processes ranked below four other drivers, which were led by increasing application flexibility. IT cost-cutting was rated the lowest of the seven options we provided. Perhaps Latin American companies look at cloud less as giving them more efficient ways to deploy computing applications and more as a tool giving them a greater ability to adopt strategic applications of technology.

Why Companies are Launching Entirely New Applications in the Cloud: They Want to be Quicker to the Punch with New Business Processes

We also surveyed companies about any new applications that they launched in the cloud – applications for which they had no previous versions installed on their on-premises computers. In three of the four regions (all except for Europe), the factor rated as the most important was the need to institute new business processes to generate revenue and increase customer loyalty.This was not a surprise to us. Increasingly, companies are doing business with customers online, and cloud computing can give those businesses a faster route to changing the way they do business on the Web. The Web has become a critical place for many customers to find out about a company’s products and services, place orders, check on shipment status, and (post-delivery) get answers to questions about how to use the product or otherwise get support.

Take the case of Dell Inc., the multibillion-dollar supplier of innovative technology and technology services. One of the Round Rock, Texas-based company’s online marketing groups caters to large corporate and government customers (the Public and Large Enterprise business unit). It has put cloud applications at the center of the marketing tool strategy that it uses, according to Rishi Dave executive director of online marketing. Many vendors of online marketing tools – for example, those that assess social media influencers – provide their products via the cloud, he explained. Using cloud vendors’ applications enables Dell’s online marketing function to execute online marketing, social and community programs without having to “touch our internal infrastructure,” Dave explains.

The cloud helped Dell introduce gamification to customers and prospects at the 2011 Dell World conference. In the four months prior to Dell’s first Dell World client conference (which ran from Oct. 12-14, 2011 in Austin, Texas), Dell’s online marketing group decided to provide gamification to motivate customers to download Dell marketing content, visit physical locations at the conference, and network with each other. By using the cloud-based gamification services of one vendor, Dell was able to plan and execute the project in less than four months.

CTB/McGraw-Hill: Looking to the Cloud to Set the Pace in Online Student Testing

CTB/McGraw-Hill is one of the three largest suppliers of assessment tests for public and private schools in the U.S. and other countries. Million of students in all 50 states take CTB’s tests. They help school districts and states rate the quality of the teaching delivered in their classrooms, as well as determine how to improve it.

The company, based in Monterey, Calif., believes cloud computing will be essential for competing in a highly price-sensitive market (U.S. public schools). CTB/McGraw-Hill also feels that cloud will be critical to shifting its testing services from a paper-and-pencil process to an online experience – one with great potential to improve teachers’ ability to address students’ learning deficiencies. The company believes cloud computing will be a crucial channel for delivering its products and services to school districts in the future.

But given the nature of CTB’s business – delivering tests to hundreds of thousands of K-12 students over two weeks each year – that creates enormous demand for the ability to scale computing resources up or down to administer online tests, which it believes will be the wave of the future. “Given that we have high spikes in capacity, we must be able to increase it and lower it quickly,” says CTB’s chief technology officer, Jayaram “Bala” Balachander. “We can’t do that today. That’s where cloud will be critical.”

In 2011, CTB delivered online assessment testing to 180,000 U.S. K-12 students over a two-week period. With each student taking as many as five tests, this meant the company had to score 800,000 online tests concurrently. “This lends itself very much to the cloud because we can go up or down depending on the activity in our business.” In 2012, the numbers are expected to more than double, creating an increasing need for ramping up and down infrastructure resources. As a result, CTB is experimenting with cloud-based solutions.

Balachander predicts that about a million U.S. students will take their assessment tests online (including CTB’s tests) in 2012. Moreover, with U.S. schools wanting 100% of their assessment testing to be online at some point, that would require CTB to have the computing resources to serve the online assessment needs of millions of American children in K-12 grades at once, a number he believes could be reached as early as 2015.

Even if that turns out to be a smaller number in three years – say 75% of the 55 million U.S. students take online assessment tests — if CTB commanded a 20% share of that market, it would need computing resources to support the delivery and scoring of more than 40 million tests in a short period of time. “It would be very difficult for us to do that without the cloud – to invest in the infrastructure from a capital expenditure standpoint, and then make the ongoing technology investments,” Balachander explains.

By this August, CTB intends to shift six to eight on-premises applications to the cloud, one of which is the online testing. The firm’s website and extranet are also being evaluated as potential candidates to put in the cloud.

Balachander believes all new CTB applications should be cloud applications. “With new applications, we are saying that by default we should put them in the cloud.”

“At the end of the day, CTB needs IT services that can adapt to varying scalability demands,” Balachander says. “We clearly don’t want to invest in fixed infrastructure costs to handle our spikes in volume and scalability. The current set of cloud services and ongoing advances in technology in this area give us an ability to approach our infrastructure needs in a whole different way.”

 


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