2015 velocity sc: convince your cfo that #perfmatters

Convince Your CFO that #PerfMatters@ColinBendell


• Convincing the Business (General)• Save you $100k in 10 minutes• COGS & CapEx Fin. Modeling• Revenue Modeling


Nobody likes waiting…


Source: Equation Research on behalf of Compuware


Source: Akamai


But does Perf. Investment

Business Sense?


• Use existing business metrics:• Revenue• Conversion Rate• Don't forget in-direct metrics:• Engagement• Successful Logins

Lara Hoganhttp://larahogan.me

Run A/B Tests; Compare results


Create Pride: Show your users' experience


Compare Yourself with Your Competition

Andy Davieshttp://andydavies.me/


Other Business'Success Stories


Performance Impacts Business Results

Source: Walmart, Torbit, Aberdeen Group


Speed Matters: Conversion Rate vs. Load TimeConversion Rate (%)

0-1 1-2 2-3 3-4 4-5 5-6 6-7 7-8 8-9 9-10 10-11 11+

Population Conversion Rate (%)

Page Load Time (Sec)


Performance Impacts Engagement

Josh Fraser@joshfraser


2 Seconds Faster Boosted Conversions By 66%

http://www.conversionconference.com/blog/case-study-how-making-pages-2-seconds-faster-boosted-conversions-by-66/

Tammy Everts@tameverts


Spreadsheets:the Language of the CFO


10 minute

MBA


Money buys beer


How do I get [more] Money?


Long Answer: GDP

+ ++

GDP = C + I + G + (X-M)


Short Answer: Your Company EarnesMore Money


Stock Price is What Others Think is the Company Value

Company_Value = Stock_Price * Shares


Discount Cash Flow // Common Valuation Technique1

𝐶𝑜𝑚𝑝𝑎𝑛𝑦_𝑉𝑎𝑙𝑢𝑒 =𝐶𝑎𝑠ℎ_𝐹𝑙𝑜𝑤2

1 + 𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑_𝐴𝑣𝑒𝑟𝑎𝑔𝑒_𝐶𝑜𝑠𝑡_𝐶𝑎𝑝𝑖𝑡𝑎𝑙 2 +𝐶𝐹=

1 + 𝑊𝐴𝐶𝐶 =+ ⋯+𝐶𝐹?

1 + 𝑊𝐴𝐶𝐶 ?

+

1This is one of many techniques. It is has *many* flaws.


Discount Cash Flow //a common valuation technique

𝐶𝑜𝑚𝑝𝑎𝑛𝑦_𝑉𝑎𝑙𝑢𝑒 =𝐶𝑎𝑠ℎ_𝐹𝑙𝑜𝑤2

1 + 𝑊𝑒𝑖𝑔ℎ𝑡𝑒𝑑_𝐴𝑣𝑒𝑟𝑎𝑔𝑒_𝐶𝑜𝑠𝑡_𝐶𝑎𝑝𝑖𝑡𝑎𝑙 2 +𝐶𝐹=

1 + 𝑊𝐴𝐶𝐶 =+ ⋯+𝐶𝐹?

1 + 𝑊𝐴𝐶𝐶 ?

+


Profit & Loss Statement (or Income Statement)

How Much Beer You Sold

Cost to Make Beer

ManagementSavings for more distilleries

Your Money


Three Big Leavers to Increase Profits

How Much Beer You Sold

Cost to Make Beer

Savings for more distilleries

Your Money


More Money. More Beer.


We are at a Performance Conference…… how does performance impact your P&L?


Velocity SC 2015: Financial Impact

How LinkedIn used RUM to drive optimizations and make the site fasterThursday @ 13:45pm - Ritesh Maheshwari (LinkedIn)

What are third-party components doing to your site?Thursday 14:40 - Andy Davies & Simon Hearne (NCC Group)

Reaching everyoneFriday 11:50 - Tim Kadlec (Akamai)

How Go is making us fasterFriday @14:40 - Wilfried Schobeiri (MediaMath

PHP 7Friday @16:10 - Rasmus Lerdorf (Etsy)

Speeding up the PlayStation 4 user interface- web performance optimization outside the browser

Friday 17:05 - JP CASTRO (Sony)

Yesterday's perf best-practices are today's HTTP/2 anti-patternsFriday 17:05 - Ilya Grigorik (Google)

Revenue COGS CapEx


Mapping performance to the Income Statement

Revenue COGS CapExReduce bytes

Reduce requests

Expedite rendering

Reduce time-to-last-byte


Financial ModelingPerformance


What is Financial Modeling?

• Excel! Yay!• Technique to build confidence in decision making• Consistent comparison for project planning outcomes

• Good: consistent IRR comparison• Bad: ignores Goodwill (Brand) and Job satisfaction (Culture)

• Two schools of thought:• Precision: Consider every detail• Directionality: Consider the big inputs


ProTip 1: Avoid the wormhole of Finance Precision. Use Directionality


ProTip 2: Use conservative shortcuts


Model 1:CapEx / OpEx CashFlow


Build-More or Optimize


CashFlow Opportunities: Requests, Bytes, TTLB

Server Time

Handshake


Pros & Cons of CashFlow Modeling

Use this model:• When you are optimizing backend processes• Adding caching layers (back-end, cdn, client) • Optimizing user workflows• Optimizing page layout

Don't use this model:• Optimizing client compute (eg: javascript)• Optimizing client rendering (eg: adding webp)


Cash_Flow = Capital_Exenses+ Operational_Expenses


Typical Year-over-Year Spend


Questions

• Will your improvements slow the rate of new hardware purchased? • Will it reduce the operating costs? • Will you be able to turn down servers?• What are the projected costs with and without improved performance?


Avoid including "Funny Numbers"

Don't include:• Productivity gains• Revenue from selling old hardware• Contract [re]negotiation time• Software Licensing savings

This will allow you to bypass a 7 week discussion with your procurement about the true cost of your enterprise agreement.


This company tried computing the true cost of the enterprise agreement.


Two Models

• CoLo / OnPrem• This years Capital Expense contributes to next years' Operating Expense• You can theoretically extend the life of purchased capital

• IaaS / PaaS• Everything is Operational Expenses


Operating_Exepnse = Number of Servers * Usage

OR

Capital_Expense= Number_of_New_Servers * Average_Server_Cost

Operating_Exepnse= Number_of_Servers * Average_Server_KVA

* CoLo_Cost_per_KVA


Calculating Capital Expenses (CapEx)

CapEx = Number_of_Servers * Average_Cost

• Use "Fully Loaded" cost (incl: cost to procure, security audits, coloservice tickets, rack & stack fees, etc)

• Use lowest-common-denominator to save inventorying your infrastructure

• If in doubt:

$5,000

$100,000


A Note about Virtual Machines

• Virtual Servers also require Capital

• Don't forget to include (vMotion) buffer

• Be consistent in calculation


Plugging in the Numbers

https://goo.gl/6OHj9a


Calculating Operating Expenses (OpEx)

Best Practice:• Include all servers, regardless of role• Assume that increase in user demand = increase in infrastructure use

Data-Center OpEx• Most Co-Lo providers bill based on power usage• Assume Co-Lo pricing includes cooling, floor space, and internet• Each datacenter is a special snowflake: be conservative in your

calculations


OpEx

OpEx = Number_of_Servers * KVA_per_Server * KVA_Price

• Pick one hardware profile that is representative• If in doubt, use the newest hardware’s power consumption• Use 80% of the manufacturers reported fully loaded power draw• Most hardware reports power as Watts and BTU. Assume a power-

factor of 0.9 and use:• KVA = Watts / 900

• When in doubt I use these approximation numbers:• 0.5KVA for an average pizza box server• 3.5KVA for a 6U high density compute chassis


Colo's charge by electricity

OpEx = Number_of_Servers * KVA_per_Server * KVA_Price

• Most CoLos bundle amenities and charge by electricity• Ranges from $0.70/KVA/mo to $0.20/KVA/mo• Running your own datacenter =~ colo space• If in doubt, a conservative, after tax value: $0.50/KVA/mo


Example

• 140 “pizza box” type servers ($5k, 0.5KVA)• 400 Page View/s peak• 30% YoY growth rate• Has a problem with personalization tracking


Before


After:


Ignore the size of the OpEx budgetFocus on user performance budget


PageView and Interaction Cost

• A Page View requests that return Content-‐Type: text/html.

• Page View is not perfect: use a metric that represents user activity • Conversions• Checkout-Rate• Logins


Page View is a proxy for 'user interaction'


Interaction Cost

Interaction_Cost = (OpEx + CapEx) / Page_View_per_Second

• Max page view per second tells us how much money is spent to maintain this peak traffic• You have built implicitly to meet peak traffic

• As user demand grows, you will build more hardware in lock step

• Interaction Cost to remain constant year over year


Before (with $/PVs)


After (with $/PVs)


What about IaaS / PaaS?

• Model still applies with a few tweaks; ignore Capital costs

• Each IaaS / PaaS provider has different pricing levers

• Focus on cost-per-interaction model


Please, tell me more

about your made-up financial model


User Performance Improvement (RUM Data)


Origin Bandwidth Reduced to Below 100mbps


Reduce Server Utilization

$-

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$90,000

CapEx …OpEx

Assumptions: 5yr Amortization;; 0.5KVA/server;; $0.50/VA/mo

$200,000savings over 5yrs


Cashflow Summary

• Backend performance can impact end-user performance• Performance can have financial impact

• Use CapEx and OpEx modeling to show directionality of impact• Avoid the detailed nuances – use conservative generalizations

• You can use the same model to project negative financial impact (eg: image responsive images)


RevenueProbabilistic Modeling


Revenue Modeling

• Your Operations teams can control CapEx and OpEx spending

What about Revenue?• How can performance improve total sales?• How performance increases user growth (CAGR)• How performance increases sales per user (ARPU)


Revenue Modeling is Hard


Applying Monte-Carlo Simulation

• Apply probability based input on an equation• Run many times• Evaluate the results


Notes about Revenue Modeling

• Use Revenue Modeling to show directionality

• Avoid absolute claims about performance

• Consider regression analysis to understand what probability inputs

• Know your user performance distribution first. (You are using Real-User-Monitoring, right?)


So yea, you're going to have to come in to work over the weekend now…


Summary

• Performance correlates to engagement

• Make performance part of your culture • Understand the user experience and leverage empathy

• Project cash flow savings from performance• Applies to OnPrem and IaaS/PaaS

• Project revenue impact from performance


Performance can make happy users and makes business sense!

Thank-You!@ColinBendell

2015 velocity sc: convince your cfo that #perfmatters

Software

akamai faster forwardtm

beer savings

population conversion

load time conversion

business general

beer management savings

revenue conversion rate

existing business metrics