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Henry Ford and Bezos’s Law Signal it's Time to Ditch the Datacenter

Total Cost of Infrastructure Ownership (TCIO) dramatically favors Cloud

Editor’s note:  An abridged version of this post ran last week on the Gigaom blog.

With an ear to the ground and an eye on the sky, Gigaom's Barb Darrow chronicles the competitive factors shaping the bumpy journey that is cloud computing among the superpowers (AWS in fight of its life as customers like Dropbox ponder hybrid clouds and Google pricing). Wherever you stand on the debate over which cloud giant will reign supreme, it's clear the economic forces shaping the market are evolving quickly.

Now comes new cloud computing data based on Total Cost of Infrastructure (TCOI) proving cloud providers are innovating and reducing costs in areas beyond hardware. The result is a more compelling case for cloud as a far cheaper platform than a build-your-own datacenter. Further, the economic gap advantage favoring the cloud provider platform will widen over time.

In many ways, cloud computing is bringing to the enterprise world what Henry Ford did for cars. Ford developed and designed a method for manufacturing that steadily reduced the cost of manufacturing the Model T, thus lowering the price of his car. The result was a decline in the number of US auto manufacturers from more than 200 in the 1920s to just eight in 1940.  This astounding 96% reduction in manufacturers over 20 years foreshadows what could happen to enterprises running their own data centers in the not too distant future.

If you're still with me, here's why.

Previously, I posited that the future of cloud computing is the availability of more computing power at a much lower cost. This we call Bezos's law, defined as, "the history of cloud, a unit of computing power price is reduced by 50 percent approximately every three years."

Bezos’s law measures the cost of a given unit of cloud computing over a period of time, as compared to Moore's Law, which we know is, “the number of transistors on integrated circuits over a period of time.”               

Bezos’s law is a measure of the rate of change of Total Cost of Infrastructure Ownership (TCIO), while Moore’s law measures the rate of change of CPU, a small fraction of the cost of a datacenter or cloud.  

Why is TCIO so relevant?

The team from IBM SoftLayer commissioned McKinsey to do a study around TCIO.  The comprehensive analysis slide (below) highlights the following about total costs:

  • 30% for Labor

  • 35% for Hardware

  • 55% for Hardware and Facilities

Screenshot 2014-07-09 03.30.51.png

When considering the rate of Bezos’s law in light of IBM’s analysis, it is clear that cloud providers are innovating and reducing costs in areas beyond hardware.

There are obvious drivers ensuring the compounding trend line as described in Bezos’s law will continue for many decades.

  • Scale: Amazon, Google, IBM and Microsoft are everyday adding huge amounts of capacity capable of running most Fortune 1,000 companies.

  • Innovation: The cloud market is competitive with innovative approaches and services being brought to market quickly.

  • Competition & Price Transparency: While the base IaaS service varies among providers, they are close enough for customers to easily compare offerings

Let’s assume on average the Fortune 5000 each have seven datacenters for a total of 35,000.

Bezos’s law will drive (think Henry Ford – Model T) a similar titanic shift form datacenter to cloud, which will result in 90% reduction (approximately 30,000) in enterprise owned and operated datacenters by 2030.

This is of course obvious given the Gartner prognostication about the future size of the cloud market (Gartner: Public cloud services to hit $131B by 2017).  There is likely to be new businesses dedicated to repurposing datacenters to retirement homes or new fangled dance clubs.

Just as people first thought automobiles were toys, early critics said the cloud would only be for limited use -- test/dev environments and spiky workloads. Now consensus is that the cloud can be for almost all applications. Early cars were expensive and unreliable, but the evidence reveals a compelling reduction in TCIO that put the whole country on wheels. It may be the end of the road for the datacenter, but the economic forces shaping the cloud signal it's the beginning of a better idea for the enterprise.  

 

Massive Windows Server 2003 Services Opportunity revealed at Microsoft’s World Wide Partner Conference

by Greg O'Connor

$45 Billion Market around Window Server 2003 End of Support Surfaced

Most people are aware that Windows Server 2003 is coming to the End of Support (EOS) on July 14, 2015.  This means enterprises are more or less forced to stop running applications on the WS2003 Operating System, migrate them to a newer OS or replace them.  EOS dramatically changes the solid “run-your-business operating platform” to one where there will be no security patches, no compliance and escalating costs.  There are few events that open up such large security concerns, throw compliance out the window and have a greater than million dollar price tag all at the same time.

In one of the Microsoft sessions at the recent World Wide Partner Conference (WPC), they revealed that there are 22 million machines still running Windows Server 2003. They estimate that 53% of them are physical, likely running on old hardware providing a big hardware refresh opportunity as well. Geographic estimates break down as follows:

  • 8M NA
  • 7M APAC
  • 5M EMEA
  • 2M Africa & S. America

It is impressive to see Microsoft sharing this information with its partners and evangelizing the huge services opportunity that exists for those partners to help customers migrate to WS 2012 or the Azure Cloud.

HP, a Microsoft and AppZero partner, was evangelizing the opportunity with banners all around the conference, in the hallways and even in the bathrooms.

WP_20140715_10_03_22_Pro.jpg

Over the past year or so as we at AppZero have prepared for WS2003 EOS, we have collected numerous data points on the topic, in the areas of security patches, machine counts and migration costs.

WS2003 was patched 37 times by Microsoft in 2013 or on average more then 3 times a month, but not for much longer.  Starting July 14, 2015 there will be no more patches and security holes will begin to pile up on the unsupported operating system. Many regulations and compliance rules require applications to be running on a supported OS. 

We’ve heard many industry people outside of Microsoft cite the number of affected machines at around 10 million. Last week at the Microsoft WPC Conference, the number seemed to jump from 10 million to 22 million. It is difficult to know the number precisely because the WS 2003 Enterprise Edition allows for creation of 4 instances and the Data Center Edition allows for unlimited creation of instances per physical processor in a machine. This makes counting the number of production instances more complicated than simply counting licenses.  Some people I have talked with think the number might actually be more like 30 million WS2003 production machines.

System Integrators typically charge customers $3,000 to $4,000 per machine for a modernization effort.  If we assume that 15 million machines will be migrated in the next 24 – 36 months, the market sizing calculation would look something like this:

$3,000 per machine x 15 million machines = $45 billion opportunity

Not only is the services opportunity huge, the destination where all these applications land is a big issue.  Companies are making a decade-long strategic and purchasing decision about where to host and run these machines. The following critical or strategic questions typically are raised in the context of a large migration project:

  • Should I move my applications to the cloud?
  • Should I buy new Cisco, Dell or HP machines?
  • Should I change my managed out-sourced environment?

Landing pad environment sizing might be 5 times as large as the $45 billion services opportunity. No matter what the exact numbers are, the opportunity is incredibly large and there is urgency to act today.

"I am always looking for a way to communicate better and cut to the heart of any discussion. So, if you have thoughts on this subject drop me a line at GregO {@} Appzero {dot} com or tweet me at @gregoryjoconnor."

3 Things you must know about Windows Server 2003 EOS

By Adine Deford

In the wake of the end of support of Windows XP and the almost immediate exploitation with the IE vulnerability, focus has turned to the next big End of Support (EOS) event which is for Windows Server 2003.  To help companies prepare to navigate large migration projects of WS 2003 AppZero and Microsoft teamed up last week in a webinar entitled “How to Solve the Challenge of WS2003.”  You can view the slides and recording here (registration required).  On-Demand Webinar, AppZero and Microsoft

The first big takeaway was “now is the time to act.” Customer feedback around XP migrations is that it is important to start planning early.  With time running out between now and next summer (the end of support for WS2003) it’s important to have a migration plan.  Many of the enterprise projects we at AppZero are seeing have a duration of eight months or more (depending on the number of servers) from the start date of the program.  And, there can be additional months of planning and preparation ahead of the start, especially for those moving more than one thousand servers.

Just how big is the security risk of not moving off WS 2003 and onto a supported platform? In 2013, Microsoft released 37 critical updates for WS 2003.  After end of support, there will be none.  With the one, post EOS fix for Windows XP, there are those who feel the issue has less urgency.  This is not the case.  Microsoft has said there will be no post-EOS patches for WS 2003.

Moore’s law gives way to Bezos’s law

The future of cloud computing is the availability of more computing power for much lower cost
 
Editor’s note:  An abridged version of this post ran earlier this week on the GigaOm blog.

Cloud providers Google, AWS and Microsoft are doing some spring-cleaning - out with the old, in with the new - when it comes to pricing services.

With the latest cuts, here's a news flash:
There's a new business model driving cloud that is every bit as exponential in growth -- with order of magnitude improvements to pricing -- as Moore's Law has been to computing. Let's call it "Bezos' Law," and go straight to the math

Bezos' law is the observation that, over the history of clouda unit of computing power price is reduced by 50% approximately every 3 years

If Bezos’ law reflects reality, most enterprises should dump their datacenters and move to the public cloud.
 
Let's factor in recent events.
 
Google was first to announce “deep” cuts in on-demand instance pricing across the board.  GigaOm's Barb Darrow was quick to capture the excitement:
And bam: Google cuts on-demand cloud prices by a third, demos live migration for its cloud
 
To make the point that cloud pricing has been long overdue, Google's Urs Hölzle showed just how much cloud pricing hasn't followed Moore's Law. Over the past five years, hardware costs decreased by 20-30 percent annually, but public cloud prices fell at just 8% annually.
 
 

The Cloud – Modernize as you migrate

 
Assuming that your organization is well down the road when it comes to adopting the Cloud and in fact, has been utilizing the Cloud for a while, then you are likely a true believer that ultimately all of your applications will be migrated to the Cloud. It is no longer a question of “if” but more a question of “when” and “how.”  These days, the majority of test, dev, external websites and mobile apps are already born in the cloud.                 
 
Applications make businesses run. Businesses have tons of applications ranging from purchased (commercial off the shelf) to homegrown (bespoke) and likely some customized, purchased apps that now look a lot like the homegrown ones. One of the big problems with apps is that once they are built and deployed they rarely get replaced or decommissioned.   Application sprawl and aging application portfolios are among the root causes for much of the fixed cost in an IT budget and can consume close to 80% of the dollars.
 
With Cloud, IT can get visibility into the true cost of running an application. There is a bill every month that can be passed onto the application owner. Easy, clear charge- back for much of the fixed operating cost of a business application allows the business to make more informed decisions about how to spend their money. Is XYZ application really worth more than ABC app every month?
 
Most data centers do not have easy charge-back and monthly billing built into their operating infrastructure.
 
At AppZero we have seen a few companies who are moving legacy apps to the Cloud in order to be able to send the app owner a bill every month.  We have heard consistently that the visibility provided by a monthly bill accelerates the decommissioning of apps that are no longer necessary. “Trimming the herd” was an expression that caught my ear last week.
 
There are a lot of reasons to modernize the infrastructure that runs your apps. Operating System end of support like what will soon happen with Windows Server 2003 is one of them.  Harmonizing disparate data centers accumulated over the years via acquisition and adopting cloud with a standardized foundation for automation, scale and visibility, are a couple more.     
 
WS2003 Level of Readiness
 
Adopting the Cloud without modernizing is like going to a tropical island in your winter coat, with no swimsuit and while you are “on the wagon.” Sure you are in a great place that will make all of your friends jealous, but you are not really enjoying it to the fullest extent possible. In fact you are sweating your butt off and dying for a margarita. The polar freeze back home actually is looking good to you in your heavy down jacket.
 
Similarly, to get the most benefit from moving existing applications to the Cloud, modernization is a key requirement. When migrating to the Cloud, separating the application and moving it into a modern environment that is standardized and designed for low-cost operation at scale is a must.
 
Move apps not machines to the cloud.
 
Don’t use those antiquated machine migration tools to migrate old operating systems and data center-centric infrastructure to the Cloud. When you migrate to an island leave the winter attire behind -- it does not belong there.
 
"I am always looking for a way to communicate better and cut to the heart of any discussion. So, if you have thoughts on this subject drop me a line at GregO {@} Appzero {dot} com or tweet me at @gregoryjoconnor."

Cloud Pulse: Wherever You Go, There You Are

By - Greg O'Connor

There are people who take life slowly, accept it on its terms, meditate, read about meditation, and internalize books like "Wherever You Go, There You Are," a bestseller by a guy with a hyphenated name. I'm more of a Malcolm Gladwell fan -- Outliers or his newest book “David and Goliath: Underdogs, Misfits, and the Art of Battling Giants."  

Maybe I'm just naturally the type that will spend 10,000 hours practicing, sharpening, mastering, thinking about the advantages a startup has over leaders in the market, getting back in the game. I've been in enterprise software for 30 years and the cloud since its formation. A long time ago, I faced the fact that I don’t have the basketball gene (although I do coach several boys’ sports teams) and I'm pretty sure meditating will not increase my productivity as a start-up CEO. I could be wrong on the meditating part.  

Recently, I was in Las Vegas at IBM's Pulse cloud conference. There were some great presentations and a lot of good conversations about transforming computing and easing the ever-evolving job of the CIO and her IT organization. In cloud computing, we've actually come quite far. Where only a short time ago, our industry was focused on how to help IT combat a loss of control in the cloud, now we see more and more smart CIOs embracing shadow IT, enabling their users to make use of cloud self services and admitting that, perhaps, deploying safe and effective clouds and hybrids is not just a dream. 

IBM Pulse 2014

The big news at Pulse was that IBM is making a $1B investment in helping customers connect their software investments to clouds and cloud-enabling new businesses; and in the process, creating huge opportunity for developers.

Those of us who are in the cloud game to win it are excited to see even more capital pouring into the cloud market. There's extraordinary opportunity for companies that can help connect enterprise applications to the cloud, especially those focused on how to bridge new cloud and legacy environments and how to be the best at what they do. The IBM strategy is clear: enable enterprises for the cloud, integrate across enterprise environments, and provide an open ecosystem platform for development. The timing could not be better. Today's cloud is much more scalable than ever, considerably more secure, more service-oriented and better able to handle modern IT requirements.  

Yet, as I think about the opportunities for cloud developers to leverage these fast-emerging opportunities, I return to some of Gladwell's core themes and how seizing on opportunity means hard work plus an approach that is fundamentally different than the giant in the market.

When we started AppZero we wanted to do something completely different by migrating just the server applications rather than the whole machine.  This initially turned out to be particularly good when moving server apps to the cloud because you can modernize your underlying infrastructure but keep your apps and data. Now comes Microsoft's end of support for Windows Server 2003 and it looks like another market driver is working in favor of cloud developers who can help solve thorny problems like “up-level” OS and cloud migration.

AppZero Collaborates with Microsoft

For sure, the cloud is maturing from a development sandbox to its promise of being able to run everything all the time in the cloud. Migrating existing systems to the cloud is a 20 year shift that is just getting started. That's our strategy and we're sticking to it.

No matter where you go, being irreplaceable to customers by being the best at what you do is, in the cloud and everywhere, always a good strategy for success. In any case, that is what I'm thinking about. Or meditating on. What about you, what do you think are the best opportunities for cloud developers? What's your strategy?

“I am always looking for a way to communicate better and cut to the heart of any discussion. So, if you have thoughts on this subject drop me a line at GregO {@} Appzero {dot} com or tweet me at @gregoryjoconnor.”

2014 Cloud Computing Predictions Round-Up – Part 2

 
As promised in our earlier post, here are the final predictions we saw making the rounds in the blogosphere at the start of the year.
 
3 [More] Cloud Predictions of 2014:
  1. Cloud computing will become mainstream.
  2. Bring-your-own-encryption will dominate the security discussion in 2014
  3. Microsoft and Google get serious about the cloud
2014 Cloud Predictions by AppZero
 
“We’ll continue to call it “cloud” for some time to come,” says Joe McKendrick in Forbes, “and vendors will continue to pitch it as “cloud,” but it’s now the mainstream. We’ve seen this before. In the early 1990s, there was client/server computing, in which PCs were provided access to larger back-end systems. Then, it was Internet computing, in which applications and data were exposed through websites. We still have mobile computing, but the act of using smartphones to access back-end applications and data is simply being thought of as computing as well.”
 
“One of the top trending inquiry topics hitting our cloud and security analysts lately are about cloud encryption solutions for AWS and Salesforce.com,” says Forrester’s James Staten over on ZDNet.  Others agree, explaining why “Cloud Security” predictions abound. Staten goes on to say that “Cloud security will be much more centralized and automated.  If you're resisting the cloud because of security concerns, you're running out of excuses. The leading public cloud providers have made strong gains in security and compliance, and there are few workloads completely off-limits for public cloud anymore.”
 
Many are predicting that Microsoft will get more serious about the cloud. Amazon dominated the cloud news in 2013, but 2014 will be a good year for Microsoft and Google, said Dan Sullivan on Search Cloud Computing.  “Microsoft is paving the way for hybrid clouds with Windows Server 2012 R2 and Windows Azure Pack.  By the end of 2014, we should have a better understanding of good practices for managing workloads across hybrid Azure clouds. 
 
Bernard Golden on CIO echoes the sentiment. “In a way, AWS has had a free ride to this point. Most of its competition has come from the hosting world, and, as noted, is unable to take a software approach to the domain. The inevitable result: AWS has improved, and grown, much more rapidly than other CSPs. That unopposed free run will end in 2014. Both Google and Microsoft have AWS in their crosshairs and are rolling out serious competitive offerings, designed for an all-out battle royale.”
 
Finally, be sure to check out AppZero CEO Greg O’Connor’s predictions about “Legacy Modernization” as a priority in 2014, “Executive Viewpoint 2014 Prediction: AppZero Ranks Modernization as Top Priority for any Enterprise IT Department.” With 10+million Windows Servers running WS2003, which reaches end of support next year, enterprises need a plan to move their WS 2003 production applications onto a newer platform or accept the risks of running on an unsupported OS.

Windows XP Countdown Foreshadows End of Support for Windows Server 2003

“Meanwhile, in Windows XP land, the countdown continues with the April deadline looming” said Jessica Davis in a recent article in MSPmentor.  “Reports say that the XP installed base has dipped below 30 percent for the first time, while comments on this same story speculate that the numbers are much higher still. Meanwhile, if you have customers with XP machines still in place, you need to be worrying how you will secure those after the deadline. Microsoft Security Essentials for Windows XP is sharing the same dead date with the OS it supports, according to this report.

Industry watchers are very interested in seeing what happens to those vulnerable desktops after April.  Will a storm of viruses be unleashed?  Let’s hope not, but we’ll have to wait to find out.  What does happen next will provide insight into the predicament that customers running Windows Server 2003 will face next summer when it reaches the end of support in July. 

We are hearing from some AppZero customers that the required custom support agreements needed in order to purchase extended support for WS2003 are very costly. (Pricing for extended support for will be communicated to customers by Microsoft this summer.) That’s just one of the reasons why forward-looking enterprises are taking this opportunity to conduct an app inventory.  As you take a closer look at all of the applications running in the enterprise, different decisions can be made.

For example, the end of support may be the right time to retire some legacy apps.  As the rest of the applications are migrated off of WS2003, perhaps some are well suited to move to the cloud, while you prefer to keep other on-premises.  Below are just some of the details you should gather as you begin your app inventory:

  • Application Name
  • Application Version
  • Application Vendor Support available?
  • Is the System backed?
  • Application Owner/Sys Admin                                
  • Migration Window
  • Service Level Agreements?
  • Business value and
  • Has the application migration or OS modification been tried before
  • System Type (Physical or Virtual)
  • OS Source and Target
  • Physical Source and Target (Datacenter, Rack, Location)
  • Known external software level dependencies
  • Known external hardware level dependencies
  • Application Components/Services

If you would like assistance in conducting an application assessment or inventory to better inform your application migration planning feel free to contact AppZero.  Keep in mind, the countdown to WS2003 end of support has begun.  

2014 Cloud Computing Predictions Round-Up – Part 1

By - Adine Deford

As 2013 ended and 2014 began, the cloud prognosticators came out in true form, including AppZero CEO Greg O’Connor.  Here are some of the more interesting predictions and surprising areas of agreement.

5 Cloud Predictions of 2014

  1. Hybrid Cloud will dominate. 
  2. Cloud security will ramp and organizations will bring their own security to the public cloud.
  3. Datacenters will be consolidated.
  4. 2014 is the year of PaaS.
  5. Lots of money will be spent on cloud computing!

Hybrid Cloud is the way to go according to Business Today :  “This year’s catchwords will be “hybrid cloud,” or the combination of both private and public cloud services. Analyst house Gartner released a report revealing that half of major enterprises will deploy hybrid cloud solutions by 2017.

Security concerns will drive encryption everywhere, says Richard Seroter, head of cloud product management, CenturyLink Cloud, in the Business Cloud News Prediction Roundup.

Data center consolidation will become the new driver for private cloud computing to enable even greater efficiencies and cost savings, ranked number nine on the list by Business News Daily.

According to Eric Knorr in Infoworld, enterprise developers will turn toward to PaaS, as more enterprises debut their own fancy Web and mobile apps, enterprise developers will see the benefits of such PaaS plays as Microsoft Azure, Pivotal Cloud Foundry, Red Hat OpenShift, or SalesForce Heroku.

Sizing the market is always a favorite sport of industry watchers.  According to IDC’s Predictions, cloud spending, including cloud services and the technology to enable these services will surge by 25% in 2014, reaching over $100B.

Bonus Prediction:  In an “Executive Viewpoint” in Virtual Strategy Magazine. AppZero CEO Greg O’Connor cites “Legacy Modernization” as a priority in 2014. With 10+million Windows Servers running WS2003, which reaches end of support next year, enterprises need a plan to move their WS 2003 production applications onto a newer platform over the next 18 months or accept the risks of running on an unsupported platform.

Windows Server 2003 End of Support: an opportunity to move to the cloud

 
On July 14, 2015 Windows Server (WS) 2003 will reach the end of extended support. This means no more patches or security fixes without a custom support agreement in place. The security and uptime implications of your applications are about to be refactored in a dramatic way. Many compliance requirements, especially in regulated industries, state that applications have to run on a supported Operating System (OS).
 
On the surface, date-driven deadlines mandating remediation can be viewed in two very different lights. The first: A glass half empty, a tax that must be paid to continue business as usual. The other: A glass half full, an opportunity to change out old systems and reinvent the business on an agile platform that provides a competitive advantage. The question: How do you deal with the inevitable?
 
To learn about your options, view our on demand webinar with Microsoft and AppZero on Wednesday, December 11 at 11:00 am (EST).  (The webcast will be recorded for those in other time zones.)
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