The Economics of Open Source CloudsCarlo Daffara

@cdaffara

“cloud computing is a model for enabling ubiquitous, convenient, on-demand network access to a shared pool of configurable computing resources (e.g., networks, servers, storage, applications and services) that can be rapidly provisioned and released with minimal management effort or service provider interaction.” – NIST

Source: “The NIST Definition of Cloud Computing”, Special Publication 800-145.

cloud computing: a standardized IT capability (services, software, or infrastructure) network-delivered in a metered, fast, self-service way.

“Public cloud is better from any economic point of view”

(or so the experts say)

“The cloud has decimated sales of on-premises servers and storage (Source: “The Public Cloud Services Market Will Grow Rapidly To $236 Billion In 2020”, Forrester)

5%

“Statistically speaking, everyone says cloud, cloud, cloud, but only 1% of storage capacity in the world is in any public cloud” Urs Holzle (interview with Business Insider) may 2015

Why?

CAPEX/OPEX and flexibility

“Public cloud allows for rapid provisioning, saving money by using only the resources you need.”

“Public cloud allows for rapid provisioning, saving money by using only the resources you need.”

“Software Scalability issues aside. I am not sure if Pokemon Go would ever be possible if it not on the cloud. How could you get instances up this fast. It had explosion of players in very little time. There is no way you could have planned this resources ahead of time. And it die down fairly quickly, which means you would have lots of unused server if it were not for cloud.”

source: “The cloud dividend: Economic impact of cloud computing”, Centre for Economics and Business Research, Dec 2010.

source: “The cloud dividend: Economic impact of cloud computing”, Centre for Economics and Business Research, Dec 2010

Moore’s law & scale

source: Urs Hölzle's keynote at Google Cloud Live, 2014

source: “How Fast are Semiconductor Prices Falling?” David M. Byrne, Federal Reserve Board, Stephen D. Oliner, AEI & UCLA, Daniel E. Sichel, Wellesley College and NBER, March 2015

It’s true that Moore’s law has provided a y/y improvement in price/performance rate of around 30%, but companies have a depreciation period to respect. This, and the immobilized capital means that the maximum impact it may have is around 15% on hardware alone...

source: “Overall Data Center Costs.” James Hamilton, Amazon. http://perspectives.mvdirona.com/2010/09/overall-data-center-costs/

Source: Huan Liu, https://huanliu.wordpress.com/2014/02/26/amazon-ec2-grows-62-in-2-years/

Number of Amazon EC2 racks (est.)

Utilization and energy efficiency

source: “Cloud Computing, Server Utilization, & the Environment.” Jeff Barr, Amazon.

“Public cloud has far greater utilization rates”

Fact: Absolutely not. Reported rates for Google (that has a scale comparable to AWS) are not far from those reported for private clouds.

Source: NRDCHow VMware Virtualization Right-sizes IT Infrastructure to Reduce Power Consumption; VMware, 2008AWS

PUE: power usage effectiveness

PUE: practically useless estimate

So, who is right?

The fallacy: believing that every company is like a Silicon Valley startup.

… so Public clouds are bad?

Source: “Transportation Cost and Benefit Analysis II – Vehicle Costs” Victoria Transport Policy Institute, Dec 2015

Number of Amazon EC2 racks (est.)

Source: J. Arnold http://blackswanfarming.com/understanding-value/

cloud computing: a standardized IT capability (services, software, or infrastructure) network-delivered in a metered, self-service way

Source: J. Arnold http://blackswanfarming.com/urgency-profiles/

Amazon EC2 Service Level Agreement:“AWS will use commercially reasonable efforts to make Amazon EC2 and Amazon EBS each available with a Monthly Uptime Percentage (defined below) of at least 99.95%..”

“Unavailable” and “Unavailability” mean:For Amazon EC2, when all of your running instances have no external connectivity, for Amazon EBS, when all of your attached volumes perform zero read write IO, with pending IO in the queue.

So we simply have to rewrite all the software in use.

(1986)

(1986)

source: “2014 Worldwide Software Developer and ICT-skilled worker estimates.” IDC

So, we’re doomed?

(Cost of BT Spine contract: 620M£ in 10 years)

(Spine 2, OSS-based)

“While IBM initially contributed software that was valued at 40M$, external contributors to the project created software representing a value of roughly 1.7B$ over the examined period.”

Source: “Enabling knowledge creation through outsiders: towards a push model of open innovation” Spaeth, Stuermer, von Krogh. Int. J. of Technology Management 52(3/4). (2010)

Source: “Strategic use of Free Software at Siemens.” Karsten Gerloff

●Amazon AWS added 516 new features in 2014●AWS changes code every 16 seconds●Difficult for any vendor to match that rate●Open Source does, through coopetition●Microsoft has 30000 software engineers working

on all its cloud projects●… which is approximately the number of overall

contributors to an OpenStack (& Linux) based open source public cloud

Open Source allows any company to afford the same standardized platform approach of

Public cloud providers

But which platform?

There is more than one way

source: “The Quantitative State of the Open Cloud” Gonzalez-Barahona / Izquierdo (Bitergia), 2015

● Open Source provides a wide spectrum of tools - use the one more appropriate. Don’t stop to the first one or the most visible

● “There can be only one” is a nice line for an Hollywood movie, not for your IT systems

● What is niche today can become mainstream tomorrow

● Most users don’t need the complexity of the largest platform. Some necessary features can be added later as VMs on top

Conclusions

Public Cloud computing is a tool, not Harry Potter’s wand.

To change the economics, you have to change how you use your software (and

probably your software too)

Open Source coopetition is the only mechanism that can create software at the scale, speed and

quality necessary today

There are several Open Source platforms. Including the most appropriate for your needs.

Don’t stop at the first one.

Economics is fun! (for me)

Thanks!twitter: @cdaffara

carlo.daffara@cloudweavers.eu

Backup slides

Typical job posting for a private cloud builder

Medieval Portrait of an OpenStack sysadmin

Cloud as a commodity

If something is fungible (commodity), its pricing will move down thanks to competition in perfect markets with no collusion:

Brand A Brand B

If something is fungible (commodity), its pricing will move down thanks to competition in perfect markets with no collusion:

Brand A Brand B

If something is fungible (commodity), its pricing will move down thanks to competition in perfect markets with no collusion:

Brand A Brand B

source: Cloud Computing Benchmark V2 Burstorm & Rice University, march 2016

Jevons’ paradox

Lower TCO