1. Conversations
CHANGE
about
A Guide to findinG your Cloud Power

3. A Conversation about Change
Every business has unique and dynamic needs. I am sure yours is no different. Being constantly connected yet
maintaining security, increasing productivity and agility, reducing capital expenses – the demands from IT are
changing. Now, it’s not just about doing the same things in a new way but about a new way of doing
new things.
A recent Gartner poll found that by 2012, 80% of Fortune 1000 enterprises will be using some form of cloud or
off-premises computing services, and 20% of businesses will own no IT assets. We believe that the answer is in
the cloud; and it’s going to change the way you do business.
Consider how fast we have shifted online as users – to store data, connect with friends and using apps on our
personal mobile devices. Your workplace undoubtedly stands to gain by integrating with this ‘consumerisation’.
With the most comprehensive IT solutions of the cloud on earth, we now bring you the power to take control
of this change - develop and host applications with infinite scalability (Windows Azure), stay secure with your
we believe private cloud (Windows Server Hyper-V), enable productivity and real-time collaboration (Office 365) and
that the get better customer connection (Microsoft Dynamics CRM Online). With investments worth US $2.3 billion in
answer is in cloud infrastructure, over 30,000 dedicated engineers and more than 9000 Microsoft Partners, the Microsoft
the cloud; cloud is Enterprise-ready.
and it’s going
to change the I invite you to explore more of the cloud to experience the benefits of the change that the cloud brings -
way you do being ready for anything, but paying only for actual results; being able to scale as high or low as you want;
business. save energy, space and yet be omnipresent.
As a technologist, our cloud opens up a world of choices for you. With solution-specific benefits, a
whitepaper on the ‘Economics of the Cloud’ and business impact studies of organisations that have
moved to the Cloud, this handbook will help you start a conversation of change within your
organisation.
This is an exciting journey for any business interested in being what’s next.
we call it cloud power, and it’s yours for the taking.
Warm Regards,
Sanket Akerkar,
Managing Director,
Microsoft India
www.cloudpower.in

5. contents
Your Guide to
NavigatiNg the Cloud
tHe Cloud Power PACK 1 - 13 RESOURCES 14 - 50
Explore the areas in which IT can change your business for the better Explore and share the power of cloud in business with
whitepapers and real-life case studies
CreAte a real-time collaboration hub 2 the eConoMiCS of the Cloud 15 - 30
Enable people to work across time zones and locations with Read this Microsoft whitepaper to understand the long-term
Microsoft Office 365 vision of the underlying economics of cloud computing
ConneCt PeoPle without making them meet 4 CASe StudieS of Cloud Power @ Work 31 - 50
Drive productivity by communicating with Microsoft online Services
in the Cloud SeAMleSS MiGrAtion @ 31
30,000 employees migrate to the Cloud without interrupting
Know what your customers want 6 business or daily operations
Respond faster with better customer intelligence with
Microsoft dynamics CrM online improved ProduCtiVity @ 37
A simplified user experience improves collaboration and
SCALE Applications to near infinity 8 cuts IT costs by 30%
Build applications flexibly on the familiar windows Azure platform
effiCienCy in the Private Cloud @ 41
DRIVE greater control and IT efficiency in your Private Cloud 10 120 servers become 20 with data center budgets getting
Transform IT services for greater business intelligence with cut by 40%
Microsoft System Center and windows Server Hyper-V
it as a SerViCe @ 45
what Cloud Power holds for you 12 A global company builds an online Visual Attention service
Benefit from working with Microsoft Cloud Services application on Windows Azure

6. the most CompreheNsive
solutioNs for the Cloud. oN earth.
the Microsoft Cloud for Businesses
infraStructure as a Service Platform as a Service Software as a Service
the Microsoft Cloud for Consumers
Windows Live
TM
TM
Hotmail
Windows Live TM
Windows
Messenger Update

7. piCK Your Cloud poWer for it ProfeSSionAlS
On-demand computing with the
Here’s what the Cloud means for everyone in your organisation
right infrastructure to actively
With the cloud, you can create a flexible IT ecosystem that addresses needs as they arise,
host, scale and manage all your
backed by the confidence that you always have the ability to do so.
The Microsoft technologies that you have already invested in is a great place to start. services with ease and speed. Plus
the choice to keep high-value
applications on-premises and move
commodity workloads to the cloud.
CREATE a Real-time collaboration hub | Pg 2 CONNECT without having to meet | Pg 4
KNOW what your customers for deVeloPerS
want | Pg 6
Easy scalability and reduced time to
market for developing applications
on the Windows Azure Platform.
Our family of on-demand services
provides a familiar deployment
experience that helps focus on
coding and reduces complexity.
SCALE Applications to near infinity | Pg 8 for inforMAtion worKerS
TRANSFORM IT services in your Enterprise | Pg 10 Productivity from any location
from the PC, phone and web
with familiar Applications, now
on the cloud. Our powerful
communication and collaboration
tools provide security-enhanced
connectivity and federated access
control.
1

8. Create
Connecting across
devices and versions Making the most of new
Make it easy to access, edit and share opportunities
A reAl-tiMe Office documents, presentations and
spreadsheets from the PC, phone or
Ensure reliability and connectivity for
all users - from colleagues located
CollABorAtion HuB
Connect your information workers
browser using Microsoft Office 365.
Users can collaborate across different
platforms (PC or Mac), different
around the world, to temporary
employees to people from a new
acquisition. With no server purchases
across time zones and geographies to share Microsoft Office versions and even or deployments on SharePoint
information and work together in real time without have Microsoft Office on Online, empower a small satellite
their computers (from any web office, interim staff, or a newly
browser). acquired business to work better
poWer up together right from the start.
CollaboratioN bY Cloud Power @ work Cloud Power @ work
”Infosys is going to use Office Web “Departments are getting
Apps extensively, and we expect it to information out to stores faster,
Analysts' View drastically reduce the time it takes to because SharePoint Online is so easy
“Cloud-based email and complete RFPs and budgets.” to use. We are excited to start using
collaboration services will ViVeK BHArAtHAn, workflows to automate common
see 10% penetration of Lead Technology Specialist, Infosys, processes such as onboarding new
the enterprise email and on overcoming document version employees.”
messaging market by compatibility across 100,000 rHondA CoBB,
2012 and will near 65% Microsoft Office users Information Technology Manager,
penetration by 2020.” Read More>> REEDS Jewelers
Read More>>
Gartner
Read More>>
2

9. enabling knowledge Know More
sharing quickly Sharing data
A unified enterprise content reliably without
work with what you know management system can help infrastructure costs
The familiar interface of Microsoft employees easily share best All documents and files saved
Outlook and Office applications is practices and expertise with online are hosted on Microsoft
now extended online with Office 365 blogs, wikis, search, surveys and servers maintained by our own
for Enterprises. Meaning no learning RSS feeds. Users can also easily trained experts. Patches and
curve plus now online productivity create and maintain collaborative security updates are supplied in real
features for your employees. workspaces using meeting and time, ensuring that users always
team site templates. work on the latest, most up-to-date
Cloud Power @ work versions of applications.
Cloud Power @ work
“The speech-to-text features will be Cloud Power @ work
great for our 20,000 or so mobile “Together with Microsoft, we
device users because they will be hit the overall goal in 142 days “Moving to Online Services
able to access their voice-mail and helped Aviva achieve the will enable us to reduce our IT
messages even if they can’t call into deployment in around one half of operational costs by roughly 30%
the system.” the cost of the original budget” of what we’re currently spending.
deAn SePStruP, toBy redSHAw, The ability to introduce a variable
Product Manager for Exchange, CIO, Aviva, on creating 1 intranet cost subscription model for these
Boeing on the Voice-Mail Preview in 12 languages for 60,000 collaborative technologies allows us
that’s helping drive employee employees to more rapidly scale or divest our
productivity Read More>> investment as necessary.”
Read More>> AlAStAir roBertSon,
VP, Information Workplace
Read More>>
3

10. CoNNeCt real-time meetings
without the travel
PeoPle witHout Connect with colleagues and
engage customers in real-time
MAKinG tHeM Meet
Help information workers meet and stay updated
meetings, trainings or events on
Microsoft Live Meeting. Interact by
sharing applications or desktops
An always-connected
remote workforce
Employees on the move can easily
from any location with secure online communication and using the multiple video and stay in touch with presence, instant
services for email, conferencing, chat and networking VoIP audio capabilities. Whiteboard messaging (IM), and PC-to-PC
tools and high-fidelity recording audio and video calling with Office
also help keep notes. Communications Online. Availability
can also be shown through
Cloud Power @ work embedded presence in Microsoft
poWer up “Our goal in the long term is to
Outlook.
CoNNeCtivitY With replace many of the PBX systems. Cloud Power @ work
The enhanced voice capabilities
simplify everything, cost less, and "We have improved our
give people more functionality. I organizational efficiency by
Analysts' View don’t see a downside.” 30 percent. We have senior
“Exchange Server 2010 JoHn tSCHAnnen, management using Windows Mobile
(is) an upgrade worth Director of IT and User Services, devices who needs messages ‘on
considering. Look Energizer, on deploy the voice over the go’, mobile users who need to
for improvements in IP (VoIP) capabilities of Microsoft access email from any connectivity
three areas: back-end Office Communications Online framework and sales personnel who
improvements largely read More>> work from cyber cafes and access
connected to storage; email using Outlook Web Access.”
benefits to information MAni MulKi,
workers; and built-in basic Vice President-IT,
archiving capabilities.” Godrej Industries Limited
read More>>
Forrester Research, Inc.
read More>>
4

11. increased email
reliability and security Know More
Moving to the cloud helps your
IT team provide multiple filters Seamless online migration familiar tools that can
and virus-scanning engines With Exchange Online, users be used by all
using Microsoft Forefront Online can acess their familiar Outlook Mobile access to Exchange Online
Protection to protect from spam, account online without needing a is available from all email-ready
viruses and phishing scams. A VPN connection. You can migrate phones, spanning Windows Phone,
central administration console all mailbox content including the iPhone, Android, Palm, Nokia,
helps manage subscriptions, e-mail, calendar items, contacts, and Blackberry devices. Choose
provision users, reset passwords, and tasks. between on-premises and online
and configure services from any mailboxes depending on what
location with Internet access. Cloud Power @ work users want.
Cloud Power @ work ”In a five-month timeframe, we Cloud Power @ work
migrated roughly 30,000 people
”In moving from Exchange Server to a hosted solution, without ”I’ve been able to provide equal
2007 to Exchange Server 2010, impacting their business or or better email service at a much
the big driver will be the changes interrupting their day-to-day lower cost, which is a big win
to service availability…. We can operations.” for Godiva. We’re looking at a
design a system that will have a eSAt Sezer, $250,000 annual savings from
much higher level of uptime.” CIO, Coca Cola Enterprises eliminating Notes.”
SteVen PreSley, read More>> SteVe wHitelAM,
IT Engineer - Staff, Qualcomm on Director of Information Technology,
cutting email recovery time from Global Shared Services, Godiva
10 minutes to less than 30 seconds Chocolatier on productivity gains
read More>> from moving to Microsoft Online
Services
read More>>
5

12. KNoW ensuring rapid
wHAt your user adoption
Inflexible software and a poor user Closing
CuStoMerS wAnt experience often hamper usage
of CRM applications. Microsoft
Dynamics CRM Online provides
deals faster
Give sales professionals instant
fast access to customer data and
Strengthen customer interactions, an entire suite of marketing, sales history when connected to the
improve marketing and boost sales and service solutions within the Internet and even when offline.
with easy online access to information familiar interface of Microsoft Sales prospects and customers
Office Outlook on the PC or when can be informed of new product
accessed online, ensuring rapid and service offerings with wizard-
user adoption and fast results. based communication tools.
poWer up Customer Cloud Power @ work Cloud Power @ work
relatioNs bY
“We know that salespeople find “It would have taken 70 hours a
the new system much easier to month to get the pre-opportunity
Analysts' View use. The rate of responses in our data that now is just there in the
“Microsoft Dynamics new system has increased by 30 system. Our efficiency has soared
CRM shines by offering to 45 percent over what it was in by well over 100 percent with
flexibility for large and Salesforce.com.” Microsoft Dynamics CRM Online.”
midsized organizations… AiSHA tHoMAS, Jeff Kiely,
Offering buyers the Marketing IT Manager, Unico Vice President of Sales and
‘Power of Choice’ so that read More>> Marketing, Trion
companies may choose read More>>
how to deploy, how to
pay, and how to use the
application.”
The Forrester Wave
6

13. Generating
great demand
Understand your customers Better information Try it Now
better and target your resources sharing
to the areas of highest return Ensure customer loyalty with
with a comprehensive set of consistent, efficient service by Growing with your
marketing capabilities. Marketing empowering customer service business needs Know More
professionals can increase personnel with the right information. Easy-to-use wizards and point-
marketing effectiveness and track Customer data can be made and-click customization tools help
key performance with intuitive available as and when needed - you customise and connect your
data segmentation tools, campaign through the user interface, online or CRM data with existing business
management features and as an exported web file. The intuitive system data in real-time. The pay-
marketing analytics, all available configuration capabilities can be per-user model delivered online,
online. tailored to fit your business needs by makes setting up quick to scale as
quickly adding or modifying fields, required without any server setup
Cloud Power @ work forms, workflow and reports. or expensive hardware upgrades.
“Using Marketing Automation in Cloud Power @ work
Cloud Power @ work
Microsoft Dynamics CRM, we now
deliver over 5,000 birthday emails a “Microsoft Dynamics CRM has been “By switching to Microsoft Dynamics
day to participants, reminding them essential to helping us improve CRM Online from Salesforce.com,
to celebrate their birthdays with us.” our customer satisfaction levels we’re saving nearly $13,000 each
HeAtHer dorr, and implement an effective sales month with 160 users.”
Senior Manager of Marketing management process. It provides a Joel friedMAn,
Information Systems, Cold Stone single version of our customer data CIO, Century Payments
Creamery which has enrolled over to all our sales staff.” read More>>
15 lakh Birthday Club participants uMAir CHAudHAry,
with thousands of new members COO, Barclays Bank LP, UAE and
joining everyday Gulf on increasing customer
read More>> satisfaction by 15 percent
read More>>
7

14. sCale
APPliCAtionS easily scale your
Applications
to neAr infinity
Offer your developers a flexible and familiar
While running applications in the
Cloud, you don’t have to worry
about scalability or performance
develop
without boundaries
Creating in the cloud means
environment to easily create and host issues. If there is a sudden no more worries about servers,
cloud-based applications with Windows Azure demand or load expected on the storage or hardware. Your
servers, the performance can be developers can focus on the
boosted easily by just increasing code with a test bed always at
the processing capabilities. hand and go from a test server
to a production server almost
Cloud Power @ work immediately.
get the poWer to “Windows Azure helps 3M Cloud Power @ work
customers take advantage
Analysts' View of complex algorithms that “By running manageCarbon
“Just as Windows played encapsulate 30 years of research (HCL’s new carbon-data
a significant part in and get simple, powerful results management application) on
earlier shifts, Windows from their browser, almost Windows Azure, our customers
Azure is poised to take an instantly.” can be up and running in one-
important role in this new terry Collier, quarter of the time that it took
world. If you're responsible Marketing Manager, 3M with an on-premises model.”
for charting your firm's on creating and launching a web- rAJeSH BABu SurAPArAJu,
path, understanding and Based Visual Attention service for Product Manager, HCL
evaluating the Azure customers on Windows Azure read More>>
environment makes read More>>
good sense.”
David Chappell &
Associates
8

15. Avoid training costs Try it Now
The interoperable Azure platform A Secure Framework
integrates with what you already Use the security framework
have. Visual Studio developers can you are familiar with many of
no more data maintenance start building applications in no the Windows Azure services Know More
With SQL Azure, you can easily time and also work across SOAP, using the core .Net libraries,
provision and deploy multiple REST, XML and PHP platforms keeping much of the security and
databases without having to from a single location. encryption details the same. A
install, setup, patch or manage firewall mechanism enables you
any software. High-availability Cloud Power @ work to allow or prevent connections
and built-in fault tolerance from various sources, right down
makes physical administration “The software distribution system to specifying IP addresses or IP
obsolete. we built with Windows Azure is 10 range.
times cheaper than our previous
Cloud Power @ work solution... Most of our developers Cloud Power @ Work
are experienced with Visual Studio
“By using these tools to rapid tools. That was a good argument “Windows Azure gives IT
by build applications and for using the Windows Azure departments, incredible flexibility
services and migrate them to platform, because we can use the and efficiency in deploying new
the Windows Azure platform, same development environment.” services. As a trusted third party,
we will be able to help our elMAr StoeCKer, VeriSign adds a layer of (online)
customers quickly react to Director Portfolio Management, security to those environments.”
market changes without major Siemens IT Solutions and Services RYAN WHITE,
capital expenditures.” read More>> Product Marketing Manager
CHAndrA SurBHAt, for SSL, VeriSign on adding
Global Head of Microsoft VeriSign® SSL Certificates on
Business Solutions, Wipro Windows Azure.
Technologies read More>>
read More>>
9

16. traNsform
it SerViCeS Efficiency through
rs.
in your enterPriSe automation
Build a flexible and efficient
private cloud infrastructure using
end-to-end Management
Control
Drive efficiency through Windows Server 2008 R2 Hyper-V Automation and migrating online
greater flexibility and control of IT and System Center. By automating doesn’t mean loss of control. In
services in your own private cloud data resources management and fact, you can now manage your
following a self-service model, entire IT infrastructure spanning
you can save on operational costs physical on-premises and virtual
in physical administration and cloud environments from a single
troubleshooting. screen.
poWer up busiNess
agilitY With Cloud Power @ work Cloud Power @ work
”We have trimmed our physical “We chose Windows Server 2008
Analysts' View server holdings from 120 to R2 Hyper-V because we have
“For most organisations, merely 20 servers. The expenses standardized our IT setup on
virtualisation will provide on server boxes have dropped Microsoft technologies. Moving to
the foundation and the drastically by 40 percent of our a new platform would have meant
stepping-stone for the data center budget.” lack of predictability and increased
evolution to private cloud SAndeeP GAndHi, costs”
computing… Security must Sr. Manager, Data Center SHyAM CHAndrAMAni,
become adaptive to support Operations, KPIT Cummins Unit Manager - Global Server
a model where workloads read More>> Team, Mphasis Limited
are decoupled from physical read More>>
hardware and dynamically
allocated to a fabric of
computing resources.”
Thomas Bittman, Gartner
analyst
read More>>
10

17. faster Try it Now
time to market
With its flexibile setup, private Maximise your it
freedom to focus cloud technology accelerates investments
on business development times for custom Leverage your existing assets and Know More
Simplifying IT management and applications and lets IT respond skill sets - across identity (Active
the assurance of security means quickly to changing business Directory), management (System
more time for you to focus on needs. The private cloud can inte- Center) and developer technolo-
developing solutions that would grate with existing toolsets and gies (.Net, SQL Server and Visual
have not been possible before. provide symmetry with your on- Studio) - to work on private and
premises or cloud database. public cloud environments.
Cloud Power @ work
Cloud Power @ work Cloud Power @ work
“Microsoft has invested billions of
dollars in cloud technologies, “You simply plug in and use the “With Windows Azure, we didn’t
which gives us peace of mind... relevant resources... The ability have to make changes to the ar-
confidence at the Associated to receive these resources as a chitecture of our solution to get it
Press that our data is secure, even service made it possible for us to running. To start up quickly - that
though it is off-premises.” considerably speed up the process is really big for us.”
PrAMod AnCHuPArAyil, of reaching customers. Plus, we rAiK dittriCH,
Software Architect, Associated avoided spending US $50,000 on Innovation Manager, T-Systems
Press on hosting its Breaking hardware and a hosting facility.” read More>>
News API on Azure nir HAGSHury,
read More>> Chief Technical Officer, TicTacTi
read More>>
11

18. What Cloud poWer
holds for You
Benefit from working with Microsoft Cloud Services
the most comprehensive set of solutions for the cloud
doN’t throW
aNYthiNg aWaY
Move only what you want
to the cloud with a hybrid
model of on-premises and
paY for What happeNs off-premises resources. Build
IT costs are now flexible – just on your existing IT assets
pay per user per month on and connect them to online
any application as a service. services.
Different usage models also
help you accurately predict
costs.
12

19. develop faster
Build applications faster than
ever with a million-strong
No more developer base writing to
maiNteNaNCe 15 Years of experieNCe Microsoft platforms and alWaYs available
Always use the latest software When you work in the more coming through our All the resources needed for
without worrying about Microsoft Cloud, you leverage interoperability support of a robust cloud computing
upgrades and patches. The the knowledge and expertise third-party solutions. infrastructure - a global reach,
cloud automatically updates of 15 years, ranging from a commitment to security, 99.9
to the latest versions. applications (Hotmail) to percent uptime SLA with 24/7
search (Bing) and platforms service and support.
(Xbox Live)
staY seCure
No traiNiNg required Your data is stored on a global
All your users can easily move network of 200+ enterprise- loWer Costs
to and from the cloud, using help at haNd class data centers with SAS No more paying for hardware
their skill sets and familiarity Our ecosystem of 9,000 70 and ISO 27001 security and facility expenses. Cut down
with the products they partners - spanning ISVs, value- certifications audited by an on maintenance and operational
currently use. Get a consistent added resellers and systems independent third party. overheads by paying for service.
experience across all devices. integrators - choose from
our ecosystem to help you in
migration, hosting services
and creating customised
applications.
13

20. resourCes why the Cloud makes Business Sense
Thousands of companies are discovering why making their IT an enterprise-
ready service makes business sense. Explore more with our whitepaper and see
how global companies are seeing business benefits in the Microsoft Cloud.
The Economics of the Cloud | Pg 15 Seamless migration at Coca Cola Enterprises | Pg 31
Improved Productivity at GlaxoSmithKline | Pg 37
Efficiency in the Private Cloud at KPIT Cummins | Pg 41
IT as a Service at 3M | Pg 45
14

21. Computing is undergoing a seismic shift from client/server to the
cloud, a shift similar in importance and impact to the transition from
the
mainframe to client/server. Speculation abounds on how this new
era will evolve in the coming years, and IT leaders have a critical
eCoNomiCs of need for a clear vision of where the industry is heading. We believe
the Cloud
the best way to form this vision is to understand the underlying
economics driving the long-term trend. In this paper, we will assess
the economics of the cloud by using in-depth modeling. We then use
this framework to better understand the long-term IT landscape.
For comments or questions regarding the content of this paper, please contact Rolf Harms
(rolfh@microsoft.com) or Michael Yamartino (michael.yamartino@microsoft.com)
15

22. Initially there was a broad failure to fully comprehend the new paradigm. Banks
claimed that, The horse is here to stay but the automobile is only a novelty, a fad”.
Even the early pioneers of the car didn‘t fully grasp the potential impact their work
could have on the world. When Daimler, arguably the inventor of the automobile,
attempted to estimate the long-term auto market opportunity, he concluded there
could never be more than 1 million cars, because of their high cost and the shortage
of capable chauffeurs1.
By the 1920s the number of cars had already reached 8 million, and today there are
over 600 million cars – proving Daimler wrong hundreds of times over. What the early
pioneers failed to realize was that profound reductions in both cost and complexity of
iNtroduCtioN operating cars and a dramatic increase in its importance in daily life would overwhelm
prior constraints and bring cars to the masses.
W
hen cars emerged in the Today, IT is going through a similar change: the shift from client/server to the cloud.
early 20th century, they were Cloud promises not just cheaper IT, but also faster, easier, more flexible, and more
initially called “horseless effective IT. Just as in the early days of the car industry, it‘s currently difficult to see
carriages”. Understandably, people where this new paradigm will take us. the goal of this whitepaper is to help build
were skeptical at first, and they viewed a framework that allows it leaders to plan for the cloud transition2. We take a
the invention through the lens of the long-term view in our analysis, as this is a prerequisite when evaluating decisions and
paradigm that had been dominant for investments that could last for decades. As a result, we focus on the economics of cloud
centuries: the horse and carriage. The rather than on specific technologies or other driving factors like organizational change,
first cars also looked very similar to as economics often provide a clearer understanding of transformations of this nature.
the horse and carriage ( just without
the horse), as engineers initially failed In Section 2, we outline the underlying economics of cloud, focusing on what makes it
to understand the new possibilities of truly different from client/server. In Section 3, we will assess the implications of these
the new paradigm, such as building economics for the future of IT. We will discuss the positive impact cloud will have but will
for higher speeds, or greater safety. also discuss the obstacles that still exist today. Finally, in Section 4 we will discuss what‘s
Incredibly, engineers kept designing important to consider as IT leaders embark on the journey to the cloud.
the whip holder into the early models
before realizing that it wasn‘t necessary 1
Source: Horseless Carriage Thinking, William Horton Consulting
2
Cloud in this context refers to cloud computing architecture, encompassing both public and private clouds.
Horseless Carriage Syndrome anymore.
16

23. eCoNomiCs of the Cloud
Economics are a powerful force in shaping industry transformations. Today‘s discussions
fig. 3: BEGINNING THE TRANISATION TO CLIENT SERVER TECHNOLOGY
on the cloud focus a great deal on technical complexities and adoption hurdles. While
we acknowledge that such concerns exist and are important, historically, underlying
economics have a much stronger impact on the direction and speed of disruptions, as
technological challenges are resolved or overcome through the rapid innovation we‘ve
grown accustomed to (Fig. 2). During the mainframe era, client/server was initially viewed
Source: Microsoft
as a toy technology, not viable as a mainframe replacement. Yet, over time the client/
server technology found its way into the enterprise (Fig. 3). Similarly, when virtualization 2.1 Supply-Side economies of Scale
technology was first proposed, application compatibility concerns and potential vendor Cloud computing combines the best economic properties of mainframe and client/server
lock-in were cited as barriers to adoption. Yet underlying economics of 20 to 30 percent computing. The mainframe era was characterized by significant economies of scale due
savings3 compelled CIOs to overcome these concerns, and adoption quickly accelerated. to high up-front costs of mainframes and the need to hire sophisticated personnel to
manage the systems. As required computing power – measured in MIPS (million instructions
The emergence of cloud services is again fundamentally shifting the economics of IT. Cloud per second) – increased, cost declined rapidly at first (Fig. 4), but only large central IT
technology standardizes and pools IT resources and automates many of the maintenance organizations had the resources and the aggregate demand to justify the investment. Due
tasks done manually today. Cloud architectures facilitate elastic consumption, self-service, to the high cost, resource utilization was prioritized over end-user agility. Users‘ requests
and pay-as-you-go pricing. were put in a queue and processed only when needed resources were available. With the
advent of minicomputers and later client/server technology, the minimum unit of purchase
The massive aggregate scale of these mega DCs will bring considerable and ongoing was greatly reduced, and the resources became easier to operate and maintain. This
R&D to bear on running them more efficiently, and make them more efficient for their modularization significantly lowered the entry barriers to providing IT services, radically
customers. Providers of large-scale DCs, for which running them is a primary business goal, improving end-user agility. However, there was a significant utilization tradeoff was, resulting
are likely to benefit more from this than smaller DCs which are run inside enterprises. in the current state of affairs: datacenters sprawling with servers purchased for whatever
needed existed at the time, but running at just 5%-10% utilization4.
Cloud also allows core IT infrastructure to be brought into large data centers that take
advantage of significant economies of scale in three areas: Cloud computing is not a return to the mainframe era as is sometimes suggested, but in fact
offers users economies of scale and efficiency that exceed those of a mainframe, coupled
with modularity and agility beyond what client/server technology offered, thus eliminating
Fig. 2: CLOUD OPPORTUNITY the tradeoff.
the economies of scale emanate from the following areas:
Cost of power: Electricity cost is rapidly rising to become the largest element of total cost
of ownership (TCO),5 currently representing 15%-20%. Power Usage Effectiveness (PUE)6
Source: “How convention shapes our market”
longitudinal survey, Shana Greenstein, 1997.
tends to be significantly lower in large facilities than in smaller ones. While the operators of
• Supply-side savings. Large-scale data centers (DCs) lower costs per server.
3
Source: Dataquest Insight: Many Midsize Businesses Looking Toward 100% Server Virtualization. Gartner, May 8, 2009
4
Source: The Economics of Virtualization: Moving Toward an Application-Based Cost Model, IDC, November 2009.
• demand-side aggregation. Aggregating demand for computing smooths overall variability, allowing 5
Not including app labor. Studies suggest that for low-efficiency datacenters, three-year spending on power and
cooling,including infrastructure, already outstrips three-year server hardware spending.
server utilization rates to increase. 6
Power Utilization Effectiveness equals total power delivered into a datacenter divided by critical power – the power needed
• Multi-tenancy efficiency. When changing to a multitenant application model, increasing the number to actually run the servers. Thus, it measures the efficiency of the datacenter in turning electricity into computation.The best
theoretical value is 1.0, with higher numbers being worse.
of tenants (i.e., customers or users) lowers the application management and server cost per tenant.
17

24. small data centers must pay the prevailing local rate for electricity, large providers can pay With cloud, infrastructure homogeneity enables scale economies. Going forward, there
less than one-fourth of the national average rate by locating its data centers in locations will likely be many additional economies of scale that we cannot yet foresee. The industry
with inexpensive electricity supply and through bulk purchase agreements7. In addition, is at the early stages of building data centers at a scale we‘ve never seen before (Fig. 5).
research has shown that operators of multiple data centers are able to take advantage of
geographical variability in electricity rates, which can further reduce energy cost. 2.2 demand-Side economies of Scale
The overall cost of IT is determined not just by the cost of capacity, but also by the degree
Fig. 4: ECONOMIES OF SCALE (ILLUSTRATIVE) to which the capacity is efficiently utilized. We need to assess the impact that demand
aggregation will have on costs of actually utilized resources (CPU, network, and storage)9.
In the non-virtualized data center, each application/workload typically runs on its own
physical server10. This means the number of servers scales linearly with the number of server
workloads. In this model, utilization of servers has traditionally been extremely low, around
5 to 10 percent11.
Fig. 5: RECENT LARGE DATA-CENTER PROJECTS
Source: Microsoft
infrastructure labor costs: While cloud computing significantly lowers labor costs at
any scale by automating many repetitive management tasks, larger facilities are able to
lower them further than smaller ones. While a single system administrator can service
approximately 140 servers in a traditional enterprise,8 in a cloud data center the same
administrator can service thousands of servers. This allows IT employees to focus on higher
value-add activities like building new capabilities and working through the long queue of Source: Press Releses
user requests every IT department contends with.
Security and reliability: While often cited as a potential hurdle to public cloud adoption, Virtualization enables multiple applications to run on a single physical server within
increased need for security and reliability leads to economies of scale due to the largely their optimized operating system instance, so the primary benefit of virtualization is that
fixed level of investment required to achieve operational security and reliability. Large fewer servers are needed to carry the same number of workloads. But how will this affect
commercial cloud providers are often better able to bring deep expertise to bear on this economies of scale? If all workloads had constant utilization, this would entail a simple
problem than a typical corporate IT department, thus actually making cloud systems more unit compression without impacting economies of scale. In reality, however, workloads
secure and reliable. are highly variable over time, often demanding large amounts of resources one minute
and virtually none the next. This opens up opportunities for utilization improvement via
Buying power: Operators of large data centers can get discounts on hardware purchases demand-side aggregation and diversification.
of up to 30 percent over smaller buyers. This is enabled by standardizing on a limited
number of hardware and software architectures. Recall that for the majority of the 8
Source: James Hamilton, Microsoft Research, 2006.
9
In this paper, we talk generally about resource utilization. We acknowledge there are important differences among resources.For
mainframe era, more than 10 different architectures coexisted. Even client/server included example, because storage has fewer usage spikes compared with CPU and I/O resources, the impact of some of what we discuss
here will affect storage to a smaller degree.
nearly a dozen UNIX variants and the Windows Server OS, and x86 and a handful of RISC 10
Multiple applications can run on a single server, of course, but this is not common practice. It is very challenging to move a running
architectures. Large-scale buying power was difficult in this heterogeneous environment. application from one server to another without also moving the operating system, so running multiple applications on one operating
system instance can create bottlenecks that are difficult to remedy while maintaining service, thereby limitingagility. Virtualization
allows the application plus operating system to be moved at will.
7
Source: U.S. Energy Information Administration (July 2010) and Microsoft. While the average U.S. commercial ratesome 11
Source: The Economics of Virtualization: Moving Toward an Application-Based Cost Model, IDC,November 2009.
locations offer power for is 10.15 cents per kilowatt hour, as little as 2.2 cents per kilowatt hour
18

25. We analyzed the different sources of utilization variability and then looked at the ability Fig. 8: INDUSTRY-SPECIFIC VARIABILITY
of the cloud to diversify it away and thus reduce costs.
We distinguish five sources of variability and assess how they might be reduced:
1. randomness: End-user access patterns contain a certain degree of randomness.
For example, people check their email at different times (Fig.6). To meet service level
agreements, capacity buffers have to be built in to account for a certain probability that
many people will undertake particular tasks at the same time. If servers are pooled, this
variability can be reduced.
Fig. 6: RANDOM VARIABILITY (EXCHANGE SERVER)
Source: Alexa Internet
There are multiple kinds of industry variability - some recurring and predictable (such
as the tax season or the Olympic Games), and others unpredictable (such as major
news stories). The common result is that capacity has to be built for the expected peak
(plus a margin of error). Most of this capacity will sit idle the rest of the time. Strong
Source: Microsoft
diversification benefits exist for industry variability.
2. time-of-day patterns: There are daily recurring cycles in people‘s behavior: consumer
services tend to peak in the evening, while workplace services tend to peak during the 4. Multi-resource variability: Compute, storage, and input/output (I/O) resources are
workday. Capacity has to be built to account for these daily peaks but will go unused generally bought in bundles: a server contains a certain amount of computing power
during other parts of the day causing low utilization. This variability can be countered (CPU), storage, and I/O (e.g., networking or disk access). Some workloads like search use a
by running the same workload for multiple time zones on the same servers (Fig. 7) or by lot of CPU but relatively little storage or I/O, while other workloads like email tend to use a
running workloads with complementary time-of-day patterns (for example, consumer lot of storage but little
services and enterprise services) on the same servers. CPU (Fig. 9).
Fig. 7: TIME-OF-DAY PATTERNS FOR SEARCH
Fig. 9: MULTIRESOURCE VARIABILITY
(ILLUSTRATIVE)
Source: Microsoft
Source: Bing Search volume over 24-hour
period
While it‘s possible to adjust capacity by buying servers optimized for CPU or storage,
this addresses the issue only to a limited degree because it will reduce flexibility and
3. Industry-specific variability: Some variability is driven by industry dynamics. Retail may not be economic from a capacity perspective. This variability will lead to resources
firms see a spike during the holiday shopping season while U.S. tax firms will see a peak going unutilized unless workload diversification is employed by running workloads with
before April 15 (Fig. 8). complementary resource profiles.
19

26. 5. Uncertain growth patterns: The difficulty of predicting future need for computing amongst geographies and workload types. Within an average organization, peak IT usage
resources and the long leadtime for bringing capacity online is another source of low can be twice as high as the daily average. Even in large, multi-geography organizations,
utilization (Fig. 10). the majority of employees and users will live in similar time zones, bringing their daily
cycles close to synchrony. Also, most organizations do not tend to have workload patterns
Fig. 10: DIVERSIFYING RANDOM VARIABILITY that offset one another: for example, the email, network and transaction processing
activity that takes place during business hours is not replaced by an equally active stream
of work in the middle of the night. Pooling organizations and workloads of different types
allows these peaks and troughs to be offset.
Fig.11: DIVERSIFYING RANDOM VARIABILITY
Source: Microsoft
For startups, this is sometimes referred to as the TechCrunch effect. Enterprises and
small businesses all need to secure approval for IT investments well in advance of
actually knowing their demand for infrastructure. Even large private companies face this
challenge, with firms planning their purchases six to twelve months in advance (Fig. 10).
By diversifying among workloads across multiple customers, cloud providers can reduce Source: Microsoft
this variability, as higher-than-anticipated demand for some workloads is canceled out by
lower-than-anticipated demand for others.
industry variability results in highly correlated peaks and troughs throughout each firm
A key economic advantage of the cloud is its ability to address variability in resource (that is, most of the systems in a retail firm will be at peak capacity around the holiday
utilization brought on by these factors. By pooling resources, variability is diversified season (e.g., web servers, transaction processing, payment processing, databases)13. Fig.
away, evening out utilization patterns. The larger the pool of resources, the smoother the 12 shows industry variability for a number of different industries, with peaks ranging from
aggregate demand profile, the higher the overall utilization rate, and the cheaper and 1.5x to 10x average usage.
more efficiently the IT organization can meet its end-user demands.
Microsoft services such as Windows Live Hotmail and Bing take advantage of multi-
We modeled the theoretical impact of random variability of demand on server utilization resource diversification by layering different subservices to optimize workloads with
rates as we increase the number of servers12. Fig. 11 indicates that a theoretical pool of different resource profiles (such as CPU bound or storage bound). It is difficult to quantify
1,000 servers could be run at approximately 90% utilization without violating its SLA. This these benefits, so we have not included multi-resource diversification in our model.
only holds true in the hypothetical situation where random variability is the only source
of variability and workloads can be migrated between physical servers instantly without 12
To calculate economies of scale arising from diversifying random variability, we created a Monte Carlo model to simulatedata centers of various
interruption. Note that higher levels of uptime (as defined in a service level agreement or sizes serving many random workloads. For eachsimulated DC, workloads (which are made to resemble hypothetical web usage patterns) wer
successively added until the expected availability of server resources dropped below agiven uptime of 99.9 percent or 99.99 percent. The
SLA) become much easier to deliver as scale increases. maximum number of workloads determines the maximum utilization rate at which the DC‘s servers can operate without compromising
performance.
13
Ideally, we would use the server utilization history of a large number of customers to gain moreinsight into such patterns. However, this data is
Clouds will be able to reduce time-of-day variability to the extent that they are diversified difficult to get and often of poor quality. We therefore used web traffic as a proxy for the industry variability.
20

27. Some uncertain growth pattern variability can be reduced by hardware standardization • Batch processes will become real time: Many processes — for example, accurate
and just-in-time procurement, although likely not completely. Based on our modeling, the stock availability for online retailers — that were previously batch driven, will move
impact of growth uncertainty for enterprises with up to 1,000 servers is 30 to 40 percent to real-time. Thus, multi-stage processes that were once sequential will now occur si-
overprovisioning of servers relative to a public cloud service. For smaller companies (for multaneously, such as a manufacturing firm that can tally its inventory, check its order
example, Internet startups), the impact is far greater. backlog, and order new supplies at once. This will amplify utilization variability.
So far we have made the implicit assumption that the degree of variability will stay the We note that even the largest public clouds will not be able to diversify away all variability;
same as we move to the cloud. In reality, it is likely that the variability will significantly market level variability will likely remain. To further smooth demand, sophisticated pricing
increase, which will further increase economies of scale. There are two reasons why this can be employed. For example, similar to the electricity market (Fig. 13), customers can
may happen: be incented to shift their demand from high utilization periods to low utilization periods.
• Higher expectation of performance: Today, users have become accustomed to In addition, a lower price spurs additional usage from customers due to price elasticity of
resource constraints and have learned to live with them. For example, users will demand. Demand management will further increase the economic benefits of cloud.
schedule complex calculations to run overnight, avoid multiple model iterations,
or decide to forgo time-consuming and costly supply chain optimizations. The Fig. 13: VARIABLE PRICING IN ELECTRICITY
business model of cloud allows a user to pay the same for 1 machine running for
1,000 hours as he would for 1,000 machines running for 1 hour. Today, the user
would likely wait 1,000 hours or abandon the project. In the cloud, there is virtually
no additional cost to choosing 1,000 machines and accelerating such processes. This
will have a dramatic impact on variability. Pixar Animation Studios, for example runs
its computer-animation rendering process on Windows Azure because every frame
of their movies takes eight hours to render today on a single processor, meaning it
would take 272 years to render an entire movie. As they said, We are not that patient.
With Azure, they can get the job done as fast as they need. The result is huge spikes
in Pixar‘s usage of Azure as they render on-demand Source: Ameren Illinois Utilities
2.3 Multi-tenancy economies of Scale
Fig 12: INDUSTRY VARIABILITY The previously described supply-side and demand-side economies of scale can be
achieved independent of the application architecture, whether it be traditional scale-up or
scale-out, single tenant or multitenant. There is another important source of economies of
scale that can be harnessed only if the application is written as a multitenant application.
That is, rather than running an application instance for each customer – as is done for
on-premises application and most hosted applications such as dedicated instances of
Microsoft Office 365 – in a multitenant application, multiple customers use a single
instance of the application simultaneously, as in the case of shared Office 365. This has
two important economic benefits:
• fixed application labor amortized over a large number of customers: In a
single-tenant instance, each customer has to pay for its own application management
(that is, the labor associated with update and upgrade management and incident
Source: Microsoft, Akexa Internet, Inc. resolution). We‘ve examined data from customers, as well as Office 365-D and
21

28. Office 365-S to assess the impact. In dedicated instances, the same activities, such as
applying software patches, are performed multiple times - once for each instance. In
a multi-tenant instance such as Office 365-S, that cost is shared across a large set of
customers, driving application labor costs per customer towards zero. This can result
in a meaningful reduction in overall cost, especially for complex applications.
Fig 15: ECONOMIES OF SCALE
IN THE CLOUD
Fig.14: UTILIZATION OVERHEAD
Source: Microsoft
Source: Microsoft
Fig. 15 shows the output for a workload that utilizes 10 percent of a traditional server. The
model indicates that a 100,000-server datacenter has an 80% lower total cost of ownership
• fixed component of server utilization amortized over large number of (TCO) compared to a 1,000-server datacenter.
customers: For each application instance, there is a certain amount of server
overhead. Fig. 14 shows an example from Microsoft‘s IT department in which intraday This raises the question: what impact will the Cloud Economics we described have on
variability appears muted (only a 16 percent increase between peak and trough) the IT budget? From customer data, we know the approximate breakdown between the
compared to actual variability in user access. This is caused by application and infrastructure costs, costs of supporting and maintaining existing applications, and new
runtime overhead, which is constant throughout the day. By moving to a multitenant application development costs (Fig. 16). Cloud impacts all three of these areas. The supply-
model with a single instance, this resource overhead can be amortized across all side and demand-side savings impact mostly the infrastructure portion, which comprises
customers. We have examined Office 365-D, Office 365-S, and Microsoft Live@ over half of spending. Existing app maintenance costs include update and patching labor,
edu data to estimate this overhead, but so far it has proven technically challenging end-user support, and license fees paid to vendors. They account for roughly a third of
to isolate this effect from other variability in the data (for example, user counts and spending and are addressed by the multi-tenancy efficiency factor.
server utilization) and architectural differences in the applications. Therefore, we
currently assume no benefit from this effect in our model.
Fig 16: IT SPENDING BREAKDOWN
Applications can be entirely multitenant by being completely written to take advantage
of these benefits, or can achieve partial multi-tenancy by leveraging shared services
provided by the cloud platform. The greater the use of such shared services, the greater
the application will benefit from these multi-tenancy economies of scale.
2.4 overall impact
The combination of supply-side economies of scale in server capacity (amortizing costs
across more servers), demand-side aggregation of workloads (reducing variability), and
the multi-tenant application model (amortizing costs across multiple customers) leads to Source: Microsoft
powerful economies of scale. To estimate the magnitude, we built a cost scaling model
which estimates the long term behavior of costs.
22

29. New application development accounts for just over a tenth of spending14, even though failover, redundancy, and active resource management. This limits the extent to which
it is seen as the way for IT to innovate. Therefore IT leaders generally want to increase they are able to aggregate demand and increase server utilization. Second, traditional
spending here. The economic benefits of cloud computing described here will enable this packaged applications are not written for multi-tenancy, and simply hosting them in the
by freeing up room in the budget to do so. We will touch more on this aspect in the next cloud does not change this. For packaged apps, the best way to harness the benefits of
paragraph as well as in Section 3. cloud is to use SaaS offerings like Office365, which have been architected for scale-out
and multi-tenancy to capture the full benefits.
2.5 Harnessing Cloud Economics
Capturing the benefits described above is not a straightforward task with today‘s new/custom applications: Infrastructure-as-a-Service (IaaS) can help capture some of
technology. Just as engineers had to fundamentally rethink design in the early days the economic benefits for existing applications. Doing so is, however, a bit of a horseless
of the car, so too will developers have to rethink design of applications. Multi-tenancy carriage in that the underlying platform and tools were not designed specifically for the
and demand-side aggregation is often difficult for developers or even sophisticated IT cloud. The full advantage of cloud computing can only be properly unlocked through a
departments to implement on their own. If not done correctly, it could end up either significant investment in intelligent resource management. The resource manager must
significantly raising the costs of developing applications (thus at least partially nullifying understand both the status of the resources (networking, storage, and compute) as well
the increased budget room for new app development); or capturing only a small subset of as the activity of the applications being run. Therefore, when writing new apps, Platform
the savings previously described. The best approach in harnessing the cloud economics is as a Service, most effectively captures the economic benefits. PaaS offers shared services,
different for packaged apps vs. new/custom apps. advanced management, and automation features that allow developers to focus directly
on application logic rather than on engineering their application to scale.
Packaged applications: While virtualizing packaged applications and moving them to
cloud virtual machines (e.g., virtualized Exchange) can generate some savings, this solution To illustrate the impact, a startup named Animoto used Infrastructure-as-a-Service
is far from ideal and fails to capture the full benefits outlined in this Section. The cause is (IaaS) to enable scaling - adding over 3,500 servers to their capacity in just 3 days as
twofold. First, applications designed to be run on a single server will not easily scale up they served over three-quarters of a million new users. Examining their application later,
and down without significant additional programming to add load-balancing, automatic however, the Animoto team discovered that a large percentage of the resources they
were paying for were often sitting
idle - often over 50%, even in a supposedly elastic cloud. They re-architected their
Fig.17 CAPTURING CLOUD BENEFITS application and eventually lowered operating costs by 20%. While Animoto is a cloud
success story, it was only after an investment in intelligent resource management that
they were able to harness the full benefits of cloud. PaaS would have delivered many of
these benefits out-of-the-box without any additional tweaking required.
Source: Microsoft
14
New application development costs include only the cost of designing and writing the application and excluding the cost of hosting .them on new
infrastructure. Adding these costs results in the 80% / 20% split seen elsewhere
23