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
we believe change - develop and host applications with infinite scalability (Windows Azure), stay secure with your private cloud
that the (Windows Server Hyper-V), enable productivity and real-time collaboration (Office 365) and get better customer
answer is in connection (Microsoft Dynamics CRM Online). With investments worth US $2.3 billion in cloud infrastructure, over
30,000 dedicated engineers and more than 9000 Microsoft Partners, the Microsoft cloud is Enterprise-ready.
the cloud;
and it’s going I invite you to explore more of the cloud to experience the benefits of the change that the cloud brings - being ready
to change the for anything, but paying only for actual results; being able to scale as high or low as you want; save energy, space and
way you do yet be omnipresent.
business. 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 - 61
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
SCALE Applications to near infinity 2 The ECONOMICS of the Cloud 15 - 35
Build applications flexibly on the familiar Windows Azure platform Read this Microsoft Whitepaper to understand the long-term vision of the underlying
economics of cloud computing
CONNECT PEOPLE without making them meet 4
Drive productivity by communicating with Microsoft Online Services in the Cloud CASE STUDIES of Cloud Power @ Work 36 to 61
CREATE a real-time collaboration hub 6 SEAMLESS MIgRATION @ 36
Enable people to work across time zones and locations with Microsoft Office 365 30,000 employees migrate to the Cloud without interrupting business or daily operations
DRIVE greater control and IT efficiency in your Private Cloud 8 Improved PRODUCTIVITY @ 44
Transform IT services for greater business intelligence with Microsoft System Center A simplified user experience improves collaboration and cuts IT costs by 30%
and Windows Server Hyper-V
EffICIENCY in the Private Cloud @ 49
KNOW what your customers want 10 120 servers become 20 with data center budgets getting cut by 40%
Respond faster with better customer intelligence with Microsoft Dynamics CRM Online
IT as a SERVICE @ 54
What Cloud Power holds for You 12 A global company builds an online Visual Attention service application on Windows Azure
Benefit from working with Microsoft Cloud Services

6. the most CompreheNsive
solutioNs for the Cloud. oN earth
the Microsoft Cloud for Businesses
SOfTWARE as a Service PLATfORM as a Service iNfRASTRUCTURE as a service
the Microsoft Cloud for Consumers
Windows Live
TM
TM
Hotmail
Windows Live TM
Windows
Messenger Update

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

8. sCale
APPliCAtionS easily scale your
develop
without boundaries
Creating in the cloud
Applications
to neAr infinity
means no more worries
While running applications about servers, storage or
Offer your developers a flexible and familiar in the Cloud, you don’t have hardware. Your developers
environment to easily create and host to worry about scalability or can focus on the code with
cloud-based applications with Windows Azure performance issues. If there a test bed always at hand
is a sudden demand or load and go from a test server
expected on the servers, the to a production server
performance can be boosted almost immediately.
easily by just increasing the
get the poWer to processing capabilities. Cloud Power @ Work
Analysts' View “By running manageCarbon
“Just as Windows played Cloud Power @ Work (HCL’s new carbon-data
a significant part in “Windows Azure helps 3M management application) on
earlier shifts, Windows customers take advantage of Windows Azure, our customers
Azure is poised to take an complex algorithms that encapsulate can be up and running in
important role in this new 30 years of research and get simple, one-quarter of the time that it
world. If you're responsible powerful results from their browser, took with an on-premises model.”
for charting your firm's almost instantly.” RAjESH BABU SURAPARAjU,
path, understanding and TERRY COLLIER, Marketing Manager, 3M Product Manager, HCL
evaluating the Azure on creating and launching a web-Based Visual
environment makes Attention service for customers on Windows Azure
good sense.”
David Chappell & Associates
2

9. Avoid training costs
The interoperable Azure A Secure
platform integrates with what Framework
no more data you already have. Visual Studio Use the security framework
maintenance developers can start building you are familiar with many of
With SQL Azure, you can easily applications in no time and the Windows Azure services
provision and deploy multiple also work across SOAP, REST, using the core .Net libraries,
databases without having to XML and PHP platforms from keeping much of the security
install, setup, parch or manage a single location. and encryption details the
any software. High-availability same. A firewall mechanism
and built-in fault tolerance Cloud Power @ Work enables you to allow or
makes physical administration “The software distribution system prevent connections from
obsolete. we built with Windows Azure is 10 various sources, right down to
times cheaper than our previous specifying IP addresses or IP
Cloud Power @ Work solution... Most of our developers range.
“By using these tools to rapid are experienced with Visual Studio
by build applications and services tools. That was a good argument for Cloud Power @ Work
and migrate them to the Windows using the Windows Azure platform, “Windows Azure gives IT
Azure platform, we will be able to because we can use the same departments, incredible flexibility
help our customers quickly react development environment.” and efficiency in deploying new
to market changes without major ELMAR STOECKER, Director Portfolio services. As a trusted third party,
capital expenditures.” Management, Siemens IT Solutions and Services VeriSign adds a layer of (online)
CHANDRA SURBHAT, Global Head of Microsoft security to those environments.”
Business Solutions, Wipro Technologies RYAN WHITE, Product Marketing Manager
for SSL, VeriSign on adding VeriSign® SSL
Certificates on Windows Azure.
3

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

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

12. Create
A reAl-tiMe
Connecting
across
devices and versions
Making the most of
new opportunities
Ensure reliability and
CollABorAtion HuB
Make it easy to access, edit connectivity for all users - from
and share Office documents, colleagues located around
Connect your information workers presentations and spreadsheets the world, to temporary
across time zones and geographies to share from the PC, phone or browser employees to people from
information and work together in real time using Microsoft Office 365. a new acquisition. With
Users can collaborate across no server purchases or
different platforms (PC or deployments on SharePoint
Mac), different Microsoft Office Online, empower a small
poWer up versions and even without satellite office, interim staff,
CollaboratioN bY have Microsoft Office on their
computers (from any web
or a newly acquired business
to work better together right
browser). from the start.
Analysts' View
“Cloud-based email and Cloud Power @ Work Cloud Power @ Work
collaboration services will ”Infosys is going to use Office Web “Departments are getting
see 10% penetration of Apps extensively, and we expect it to information out to stores faster,
the enterprise email and drastically reduce the time it takes to because SharePoint Online is so easy
messaging market by complete RFPs and budgets.” to use. We are excited to start using
2012 and will near 65% VIVEK BHARATHAN, Lead Technology Specialist, workflows to automate common
penetration by 2020.” Infosys, on overcoming document version processes such as onboarding new
Gartner compatibility across 100,000 Microsoft Office users employees.”
RHONDA COBB, Information Technology
Manager, REEDS Jewelers
6

13. enabling knowledge
sharing quickly Sharing data
A unified enterprise content reliably without
management system can help infrastructure costs
employees easily share best All documents and files saved
practices and expertise with online are hosted on Microsoft
work with blogs, wikis, search, surveys servers maintained by our
what you know and RSS feeds. Users can also own trained experts. Patches
The familiar interface of Microsoft easily create and maintain and security updates are
Outlook and Office applications collaborative workspaces supplied in real time, ensuring
is now extended online with using meeting and team site that users always work on
Office 365 for Enterprises. templates. the latest, most up-to-date
Meaning no learning curve plus versions of applications.
now online productivity features Cloud Power @ Work
for your employees. “Together with Microsoft, we hit the Cloud Power @ Work
overall goal in 142 days and helped “Moving to Online Services
Cloud Power @ Work Aviva achieve the deployment in will enable us to reduce our IT
“The speech-to-text features will be around one half of the cost of the operational costs by roughly 30%
great for our 20,000 or so mobile original budget” of what we’re currently spending.
device users because they will be able TOBY REDSHAW, CIO, Aviva, on creating 1 The ability to introduce a variable
to access their voice-mail messages intranet in 12 languages for 60,000 employees cost subscription model for these
even if they can’t call into the system.” collaborative technologies allows us
DEAN SEPSTRUP, Product Manager for Exchange, to more rapidly scale or divest our
Boeing on the Voice-Mail Preview that’s helping investment as necessary.”
drive employee productivity ALASTAIR ROBERTSON,
VP, Information Workplace
7

14. traNsform end-to-end
Management
it SerViCeS Efficiency through
Rs. Control
Automation and migrating
in your enterPriSe automation online doesn’t mean loss
Drive efficiency through Build a flexible and efficient of control. In fact, you can
private cloud infrastructure now manage your entire
greater flexibility and control of IT services using Windows Server 2008 R2 IT infrastructure spanning
in your own private cloud Hyper-V and System Center. physical on-premises and
By automating data resources virtual cloud environments
management and following from a single screen.
a self-service model, you can
poWer up busiNess save on operational costs in Cloud Power @ Work
agilitY With physical administration and
troubleshooting.
“We chose Windows Server 2008
R2 Hyper-V because we have
Analysts' View standardized our IT setup on
“For most organisations, Cloud Power @ Work Microsoft technologies. Moving to
virtualisation will provide the ”We have trimmed our physical a new platform would have meant
foundation and the stepping- server holdings from 120 to merely lack of predictability and increased
stone for the evolution to private 20 servers. The expenses on server costs”
cloud computing… Security must boxes have dropped drastically by 40 SHYAM CHANDRAMANI, Unit Manager -
become adaptive to support percent of our data center budget.” Global Server Team, Mphasis Limited
a model where workloads are SANDEEP gANDHI, Sr. Manager, Data Center
decoupled from physical hardware Operations, KPIT Cummins
and dynamically allocated to a
fabric of computing resources.”
Thomas Bittman, Gartner analyst
8

15. faster
time to market
With its flexibile setup, private
cloud technology
accelerates development Maximise your it
freedom to focus times for custom applications investments
on business and lets IT respond quickly to Leverage your existing
Simplifying IT management and changing business needs. The assets and skill sets - across
the assurance of security means private cloud can integrate identity (Active Directory),
more time for you to focus on with existing toolsets and management (System Center)
developing solutions that would provide symmetry with your and developer technologies
have not been possible before. on-premises or cloud (.Net, SQL Server and
database. Visual Studio) - to work on
Cloud Power @ Work private and public cloud
“Microsoft has invested billions of Cloud Power @ Work environments.
dollars in cloud technologies, which “You simply plug in and use the
gives us peace of mind... confidence relevant resources... The ability to Cloud Power @ Work
at the Associated Press that our data receive these resources as a service “With Windows Azure, we didn’t
is secure, even though it is made it possible for us to have to make changes to the
off-premises.” considerably speed up the process architecture of our solution to get it
PRAMOD ANCHUPARAYIL, Software Architect, of reaching customers. Plus, we running. To start up quickly - that is
Associated Press on hosting its Breaking News API avoided spending US $50,000 on really big for us.”
on Azure hardware and a hosting facility.” RAIK DITTRICH, Innovation Manager, T-Systems
NIR HAgSHURY, Chief Technical Officer, TicTacTi
9

16. know wHAt your ensuring rapid
Customers
user adoption
Inflexible software and a poor Closing
user experience often hamper deals faster
wAnt usage of CRM applications.
Microsoft Dynamics CRM
Give sales professionals
Strengthen customer Online provides an entire suite
instant fast access to
interactions, improve marketing of marketing, sales and service
customer data and history
and boost sales with easy when connected to the In-
online access to information solutions within the familiar ternet and even when offline.
interface of Microsoft Office Sales prospects and
Outlook on the PC or when customers can be informed
accessed online, ensuring rapid of new product and service
poWer up Customer user adoption and fast results. offerings with wizard-based
relatioNs bY Cloud Power @ Work
communication tools.
Analysts' View “We know that salespeople find the Cloud Power @ Work
“Microsoft Dynamics CRM new system much easier to use. The “It would have taken 70 hours a
shines by offering flexibility rate of responses in our new system month to get the pre-opportunity
for large and midsized has increased by 30 to 45 percent data that now is just there in the
organizations… Offering over what it was in Salesforce.com.” system. Our efficiency has soared
buyers the ‘Power of Choice’ AISHA THOMAS, Marketing IT Manager, Unico by well over 100 percent with
so that companies may Microsoft Dynamics CRM Online.”
jEff KIELY,
choose how to deploy, how
Vice President of Sales and Marketing, Trion
to pay, and how to use the
application.”
The Forrester Wave
10

17. Generating Better information
great demand sharing
Understand your customers Ensure customer loyalty with
better and target your resources consistent, efficient service Growing with your
to the areas of highest return by empowering customer business needs
with a comprehensive set of service personnel with the right Easy-to-use wizards and
marketing capabilities. Marketing information. Customer data point-and-click customization
professionals can increase can be made available as and tools help you customise and
marketing effectiveness and when needed - through the connect your CRM data with
track key performance with user interface, online or as an existing business system data
intuitive data segmentation tools, exported web file. The intuitive in real-time. The pay-per-user
campaign management features configuration capabilities can model delivered online, makes
and marketing analytics, all be tailored to fit your business setting up quick to scale as
available online. needs by quickly adding or required without any server
modifying fields, forms, workflow setup or expensive hardware
Cloud Power @ Work and reports. upgrades.
“Using Marketing Automation in
Microsoft Dynamics CRM, we now Cloud Power @ Work Cloud Power @ Work
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, Senior Manager of Marketing and implement an effective sales month with 160 users.”
Information Systems, Cold Stone Creamery which management process. It provides a jOEL fRIEDMAN, CIO, Century Payments
has enrolled over 15 lakh Birthday Club participants single version of our customer data
with thousands of new members joining everyday to all our sales staff.”
UMAIR CHAUDHARY, COO, Barclays Bank LP, UAE
and Gulf on increasing customer satisfaction
by 15 percent
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
off-premises resources.
paY for What Build on your existing IT
happeNs assets and connect them to
IT costs are now online services.
flexible – just pay per
user per month on any
application as a service.
Different usage models
also help you accurately
predict costs.
12

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

20. why the Cloud makes Business Sense
resourCes 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 36
Improved Productivity at GlaxoSmithKline | Pg 44
Efficiency in the Private Cloud at KPIT Cummins | Pg 49
IT as a Service at 3M | Pg 54
14

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

23. Fig. 2: Cloud Opportunity
eCoNomiCs
of the Cloud
Economics are a powerful force in shaping industry transformations. Today‘s
discussions on the cloud focus a great deal on technical complexities and
adoption hurdles. While we acknowledge that such concerns exist and are
Source: Microsoft
important, historically, underlying economics have a much stronger impact
on the direction and speed of disruptions, as technological challenges are fig. 3: Beginning the Transition to Client Server Technology
resolved or overcome through the rapid innovation we‘ve grown accustomed
to (Fig. 2). During the mainframe era, client/server was initially viewed 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 technology was first proposed, application compatibility
concerns and potential vendor lock-in were cited as barriers to adoption. Source: “How convention
shapes our market”
Yet underlying economics of 20 to 30 percent savings3 compelled CIOs to longitudinal survey,
overcome these concerns, and adoption quickly accelerated. Shana Greenstein, 1997.
The emergence of cloud services is again fundamentally shifting the economics Cloud also allows core IT infrastructure to be brought into large data centers
of IT. Cloud technology standardizes and pools IT resources and automates that take advantage of significant economies of scale in three areas:
many of the maintenance tasks done manually today. Cloud architectures • Supply-side savings. Large-scale data centers (DCs) lower costs per server.
facilitate elastic consumption, self-service, and pay-as-you-go pricing. • Demand-side aggregation. Aggregating demand for computing smooths
The massive aggregate scale of these mega DCs will bring considerable and overall variability, allowing server utilization rates to increase.
• Multi-tenancy efficiency. When changing to a multitenant application
3
Source: Dataquest Insight: Many Midsize Businesses Looking Toward 100% Server Virtualization. model, increasing the number of tenants (i.e., customers or users) lowers
Gartner, May 8, 2009 the application management and server cost per tenant.
17

24. Fig. 4: ECONOMIES OF SCALE (ILLUSTRATIVE)
2.1 Supply-Side Economies of Scale
Cloud computing combines the best economic properties of mainframe and
client/server computing. The mainframe era was characterized by significant
economies of scale due to high up-front costs of mainframes and the need to
hire sophisticated personnel to manage the systems. As required computing Source: Microsoft
power – measured in MIPS (million instructions per second) – increased, cost
declined rapidly at first (Fig. 4), but only large central IT organizations had The economies of scale emanate from the following areas:
the resources and the aggregate demand to justify the investment. Due to Cost of power: Electricity cost is rapidly rising to become the largest element of
the high cost, resource utilization was prioritized over end-user agility. Users‘ total cost of ownership (TCO),5 currently representing 15%-20%. Power Usage
requests were put in a queue and processed only when needed resources were Effectiveness (PUE)6 tends to be significantly lower in large facilities than in
available. With the advent of minicomputers and later client/server technology, smaller ones. While the operators of small data centers must pay the prevailing
the minimum unit of purchase was greatly reduced, and the resources became local rate for electricity, large providers can pay less than one-fourth of the
easier to operate and maintain. This modularization significantly lowered the national average rate by locating its data centers in locations with inexpensive
entry barriers to providing IT services, radically improving end-user agility. electricity supply and through bulk purchase agreements7. In addition, research
However, there was a significant utilization tradeoff was, resulting in the current has shown that operators of multiple data centers are able to take advantage
state of affairs: datacenters sprawling with servers purchased for whatever of geographical variability in electricity rates, which can further reduce
needed existed at the time, but running at just 5%-10% utilization4. energy cost.
4
Source: The Economics of Virtualization: Moving Toward an Application-Based Cost Model, IDC,
Cloud computing is not a return to the mainframe era as is sometimes November 2009.
5
Not including app labor. Studies suggest that for low-efficiency datacenters, three-year spending on
suggested, but in fact offers users economies of scale and efficiency that power and cooling,including infrastructure, already outstrips three-year server hardware spending.
exceed those of a mainframe, coupled with modularity and agility beyond what 6
Power Utilization Effectiveness equals total power delivered into a datacenter divided by critical power
– the power needed to actually run the servers. Thus, it measures the efficiency of the datacenter in
client/server technology offered, thus eliminating the tradeoff. turning electricity into computation.The best theoretical value is 1.0, with higher numbers being
worse.
7
Source: U.S. Energy Information Administration (July 2010) and Microsoft. While the average U.S.
commercial ratesome locations offer power for is 10.15 cents per kilowatt hour, as little as 2.2 cents per
kilowatt hour
18

25. 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 Fig. 5:
thousands of servers. This allows IT employees to focus on higher value-add RECENT LARGE
activities like building new capabilities and working through the long queue of DATA-CENTER
PROJECTS
user requests every IT department contends with.
Source: Press Releses
Security and reliability: While often cited as a potential hurdle to public cloud ongoing R&D to bear on running them more efficiently, and make them more
adoption, increased need for security and reliability leads to economies of scale efficient for their customers. Providers of large-scale DCs, for which running them
due to the largely fixed level of investment required to achieve operational is a primary business goal, are likely to benefit more from this than smaller DCs
security and reliability. Large commercial cloud providers are often better able which are run inside enterprises.
to bring deep expertise to bear on this problem than a typical corporate IT
department, thus actually making cloud systems more secure and reliable.
2.2 Demand-Side Economies of Scale
Buying power: Operators of large data centers can get discounts on The overall cost of IT is determined not just by the cost of capacity, but also by the
hardware purchases of up to 30 percent over smaller buyers. This is degree to which the capacity is efficiently utilized. We need to assess the impact
enabled by standardizing on a limited number of hardware and software that demand aggregation will have on costs of actually utilized resources (CPU,
architectures. Recall that for the majority of the mainframe era, more than 10 network, and storage)9. In the non-virtualized data center, each application/work-
different architectures coexisted. Even client/server included nearly a dozen load typically runs on its own physical server10. This means the number of servers
UNIX variants and the Windows Server OS, and x86 and a handful of RISC scales linearly with the number of server workloads. In this model, utilization of
architectures. Large-scale buying power was difficult in this heterogeneous 8
Source: James Hamilton, Microsoft Research, 2006.
9
In this paper, we talk generally about resource utilization. We acknowledge there are important differences
environment. With cloud, infrastructure homogeneity enables scale economies. among resources.For example, because storage has fewer usage spikes compared with CPU and I/O resources,
Going forward, there will likely be many additional economies of scale that we the impact of some of what we discuss here will affect storage to a smaller degree.
10
Multiple applications can run on a single server, of course, but this is not common practice. It is
cannot yet foresee. The industry is at the early stages of building data centers very challenging to move a running application from one server to another without also moving
at a scale we‘ve never seen before (Fig. 5). 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.
19

26. servers has traditionally been extremely low, around 5 to 10 percent11. To meet service level agreements, capacity buffers have to be built in to
Virtualization enables multiple applications to run on a single physical server account for a certain probability that many people will undertake particular
within their optimized operating system instance, so the primary benefit of tasks at the same time. If servers are pooled, this variability can be reduced.
virtualization is that fewer servers are needed to carry the same number of
workloads. But how will this affect economies of scale? If all workloads had 2. Time-of-day patterns: There are daily recurring cycles in people‘s behavior:
constant utilization, this would entail a simple unit compression without consumer services tend to peak in the evening, while workplace services tend
impacting economies of scale. In reality, however, workloads are highly variable to peak during the workday. Capacity has to be built to account for these daily
over time, often demanding large amounts of resources one minute and peaks but will go unused during other parts of the day causing low utilization.
virtually none the next. This opens up opportunities for utilization improvement This variability can be countered by running the same workload for multiple
via demand-side aggregation and diversification. time zones on the same servers (Fig. 7) or by running workloads with
complementary time-of-day patterns (for example, consumer services and
We analyzed the different sources of utilization variability and then looked at the enterprise services) on the same servers.
ability of the cloud to diversify it away and thus reduce costs.
Fig. 7: TIME-OF-DAY PATTERNS FOR SEARCH
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).
Fig. 6: RANDOM VARIABILITY (EXCHANGE SERVER)
Source: Bing Search volume over 24-hour period
11
Source: The Economics of Virtualization: Moving Toward an Application-Based Cost Model, IDC,
Source: Microsoft November 2009.
20

27. Fig. 9: MULTIRESOURCE VARIABILITY (ILLUSTRATIVE)
3. Industry-specific variability: Some variability is driven by industry
dynamics. Retail firms see a spike during the holiday shopping season while
U.S. tax firms will see a peak before April 15 (Fig. 8).
Fig. 8: INDUSTRY-SPECIFIC VARIABILITY
Source: Microsoft
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 may not be economic from a capacity perspective. This
variability will lead to resources going unutilized unless workload diversification
is employed by running workloads with complementary resource profiles.
Source: Alexa Internet
5. Uncertain growth patterns: The difficulty of predicting future need for
There are multiple kinds of industry variability - some recurring and predictable computing resources and the long leadtime for bringing capacity online is
(such as the tax season or the Olympic Games), and others unpredictable (such another source of low utilization (Fig. 10).
as major news stories). The common result is that capacity has to be built for
Fig. 10: DIVERSIFYING RANDOM VARIABILITY
the expected peak (plus a margin of error). Most of this capacity will sit idle the
rest of the time. Strong diversification benefits exist for industry variability.
4. Multi-resource variability: Compute, storage, and input/output (I/O)
resources are generally bought in bundles: a server contains a certain amount
of computing power (CPU), storage, and I/O (e.g., networking or disk access).
Some workloads like search use a lot of CPU but relatively little storage or I/O,
while other workloads like email tend to use a lot of storage but little
CPU (Fig. 9). Source: Microsoft
21

28. For startups, this is sometimes referred to as the TechCrunch effect. Enterprises large, multi-geography organizations, the majority of employees and users
and small businesses all need to secure approval for IT investments well in will live in similar time zones, bringing their daily cycles close to synchrony.
advance of actually knowing their demand for infrastructure. Even large private Also, most organizations do not tend to have workload patterns that offset one
companies face this challenge, with firms planning their purchases six to another: for example, the email, network and transaction processing activity
twelve months in advance (Fig. 10). By diversifying among workloads across that takes place during business hours is not replaced by an equally active
multiple customers, cloud providers can reduce this variability, as higher- stream of work in the middle of the night. Pooling organizations and workloads
than-anticipated demand for some workloads is canceled out by lower-than- of different types allows these peaks and troughs to be offset.
anticipated demand for others.
A key economic advantage of the cloud is its ability to address variability in
resource utilization brought on by these factors. By pooling resources, variability
Fig.11:
is diversified away, evening out utilization patterns. The larger the pool of
DIVERSIFYING
resources, the smoother the aggregate demand profile, the higher the overall
RANDOM
utilization rate, and the cheaper and more efficiently the IT organization can
VARIABILITY
meet its end-user demands.
We modeled the theoretical impact of random variability of demand on server
utilization rates as we increase the number of servers12. Fig. 11 indicates that a Source: Microsoft
theoretical pool of 1,000 servers could be run at approximately 90% utilization Industry variability results in highly correlated peaks and troughs throughout
without violating its SLA. This only holds true in the hypothetical situation each firm (that is, most of the systems in a retail firm will be at peak capacity
where random variability is the only source of variability and workloads can around the holiday season (e.g., web servers, transaction processing, payment
be migrated between physical servers instantly without interruption. Note that processing, databases)13. Fig. 12 shows industry variability for a number of
higher levels of uptime (as defined in a service level agreement or SLA) become different industries, with peaks ranging from 1.5x to 10x average usage.
much easier to deliver as scale increases. 12
To calculate economies of scale arising from diversifying random variability, we created a Monte
Carlo model to simulatedata centers of various sizes serving many random workloads. For each
simulated DC, workloads (which are made to resemble hypothetical web usage patterns) wer
Clouds will be able to reduce time-of-day variability to the extent that they successively added until the expected availability of server resources dropped below agiven uptime of
are diversified amongst geographies and workload types. Within an average 99.9 percent or 99.99 percent. The maximum number of workloads determines the maximum
utilization rate at which the DC‘s servers can operate without compromising performance.
organization, peak IT usage can be twice as high as the daily average. Even in 13
Ideally, we would use the server utilization history of a large number of customers to gain more
insight into such patterns. However, this data is difficult to get and often of poor quality. We therefore
used web traffic as a proxy for the industry variability.
22

29. Microsoft services such as Windows Live Hotmail and Bing take advantage of Windows Azure because every frame of their movies takes eight hours to
multi-resource diversification by layering different subservices to optimize render today on a single processor, meaning it would take 272 years to
workloads with different resource profiles (such as CPU bound or storage render an entire movie. As they said, We are not that patient. With Azure,
bound). It is difficult to quantify these benefits, so we have not included multi- they can get the job done as fast as they need. The result is huge spikes
resource diversification in our model. in Pixar‘s usage of Azure as they render on-demand.
Some uncertain growth pattern variability can be reduced by hardware
standardization and just-in-time procurement, although likely not completely.
Based on our modeling, the impact of growth uncertainty for enterprises with
up to 1,000 servers is 30 to 40 percent overprovisioning of servers relative to
a public cloud service. For smaller companies (for example, Internet startups), Fig 12:
the impact is far greater. INDUSTRY VARIABILITY
Source: Microsoft
So far we have made the implicit assumption that the degree of variability will
stay the same as we move to the cloud. In reality, it is likely that the variability • Batch processes will become real time: Many processes — for example,
will significantly increase, which will further increase economies of scale. There accurate stock availability for online retailers — that were previously
are two reasons why this may happen: batch driven, will move to real-time. Thus, multi-stage processes that
• Higher expectation of performance: Today, users have become were once sequential will now occur simultaneously, such as a manufac-
accustomed to resource constraints and have learned to live with them. turing firm that can tally its inventory, check its order backlog, and order
For example, users will schedule complex calculations to run overnight, new supplies at once. This will amplify utilization variability.
avoid multiple model iterations, or decide to forgo time-consuming and
costly supply chain optimizations. The business model of cloud allows We note that even the largest public clouds will not be able to diversify away all
a user to pay the same for 1 machine running for 1,000 hours as he variability; market level variability will likely remain. To further smooth demand,
would for 1,000 machines running for 1 hour. Today, the user would likely sophisticated pricing can be employed. For example, similar to the electricity
wait 1,000 hours or abandon the project. In the cloud, there is virtually market (Fig. 13), customers can be incented to shift their demand from high
no additional cost to choosing 1,000 machines and accelerating such utilization periods to low utilization periods. In addition, a lower price spurs
processes. This will have a dramatic impact on variability. Pixar Animation additional usage from customers due to price elasticity of demand. Demand
Studios, for example runs its computer-animation rendering process on management will further increase the economic benefits of cloud.
23

30. 365-S to assess the impact. In dedicated instances, the same activities, such
Fig. 13: VARIABLE PRICING IN ELECTRICITY
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.14:
Source: Ameren Illinois Utilities UTILIZATION
OVERHEAD
2.3 Multi-tenancy Economies of Scale
Source: Microsoft
The previously described supply-side and demand-side economies of scale
can be achieved independent of the application architecture, whether it • fixed component of server utilization amortized over large number
be traditional scale-up or scale-out, single tenant or multitenant. There is of customers: For each application instance, there is a certain amount
another important source of economies of scale that can be harnessed only of server overhead. Fig. 14 shows an example from Microsoft‘s IT
if the application is written as a multitenant application. That is, rather than department in which intraday variability appears muted (only a 16
running an application instance for each customer – as is done for on-premises percent increase between peak and trough) compared to actual variability
application and most hosted applications such as dedicated instances of in user access. This is caused by application and runtime overhead, which
Microsoft Office 365 – in a multitenant application, multiple customers use a is constant throughout the day. By moving to a multitenant model with
single instance of the application simultaneously, as in the case of shared a single instance, this resource overhead can be amortized across all
Office 365. This has two important economic benefits: customers. We have examined Office 365-D, Office 365-S, and Microsoft
• fixed application labor amortized over a large number of customers: Live@edu data to estimate this overhead, but so far it has proven
In a single-tenant instance, each customer has to pay for its own technically challenging to isolate this effect from other variability in the
application management (that is, the labor associated with update and data (for example, user counts and server utilization) and architectural
upgrade management and incident resolution). differences in the applications. Therefore, we currently assume no benefit
We‘ve examined data from customers, as well as Office 365-D and Office from this effect in our model.
24

31. Applications can be entirely multitenant by being completely written to take This raises the question: what impact will the Cloud Economics we described
advantage of these benefits, or can achieve partial multi-tenancy by leveraging have on the IT budget? From customer data, we know the approximate
shared services provided by the cloud platform. The greater the use of such breakdown between the infrastructure costs, costs of supporting and
shared services, the greater the application will benefit from these multi- maintaining existing applications, and new application development costs (Fig.
tenancy economies of scale. 16). Cloud impacts all three of these areas. The supply-side and demand-side
savings impact mostly the infrastructure portion, which comprises over half of
2.4 Overall Impact spending. Existing app maintenance costs include update and patching labor,
The combination of supply-side economies of scale in server capacity end-user support, and license fees paid to vendors. They account for roughly a
(amortizing costs across more servers), demand-side aggregation of workloads third of spending and are addressed by the multi-tenancy efficiency factor.
(reducing variability), and the multi-tenant application model (amortizing costs Fig 16: IT SPENDING BREAKDOWN
across multiple customers) leads to powerful economies of scale. To estimate
the magnitude, we built a cost scaling model which estimates the long term
behavior of costs.
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 (TCO) compared to a 1,000-server datacenter.
Source: Microsoft
New application development accounts for just over a tenth of spending14, even
though it is seen as the way for IT to innovate. Therefore IT leaders generally
Fig 15: ECONOMIES OF
want to increase spending here. The economic benefits of cloud computing
SCALE IN THE CLOUD described here will enable this by freeing up room in the budget to do so. We
will touch more on this aspect in the next paragraph as well as in Section 3.
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 elsewher
Source: Microsoft
25

32. a bit of a horseless carriage in that the underlying platform and tools were
2.5 Harnessing Cloud Economics not designed specifically for the cloud. The full advantage of cloud computing
Capturing the benefits described above is not a straightforward task with today‘s can only be properly unlocked through a significant investment in intelligent
technology. Just as engineers had to fundamentally rethink design in the early resource management. The resource manager must understand both the status
days of the car, so too will developers have to rethink design of applications. of the resources (networking, storage, and compute) as well as the activity of the
Multi-tenancy and demand-side aggregation is often difficult for developers applications being run. Therefore, when writing new apps, Platform as a Service,
or even sophisticated IT departments to implement on their own. If not done most effectively captures the economic benefits. PaaS offers shared services,
correctly, it could end up either significantly raising the costs of developing advanced management, and automation features that allow developers to focus
applications (thus at least partially nullifying the increased budget room for new directly on application logic rather than on engineering their application to scale.
app development); or capturing only a small subset of the savings previously
described. The best approach in harnessing the cloud economics is different for
packaged apps vs. new/custom apps.
Packaged applications: While virtualizing packaged applications and moving
them to cloud virtual machines (e.g., virtualized Exchange) can generate some Fig.17 CAPTURING
savings, this solution is far from ideal and fails to capture the full benefits CLOUD BENEFITS
outlined in this Section. The cause is twofold. First, applications designed to
Source: Microsoft
be run on a single server will not easily scale up and down without significant
additional programming to add load-balancing, automatic failover, redundancy, To illustrate the impact, a startup named Animoto used Infrastructure-as-a-
and active resource management. This limits the extent to which they are able to Service (IaaS) to enable scaling - adding over 3,500 servers to their capacity in
aggregate demand and increase server utilization. Second, traditional packaged just 3 days as they served over three-quarters of a million new users. Examining
applications are not written for multi-tenancy, and simply hosting them in their application later, however, the Animoto team discovered that a large
the cloud does not change this. For packaged apps, the best way to harness percentage of the resources they were paying for were often sitting
the benefits of cloud is to use SaaS offerings like Office365, which have been idle - often over 50%, even in a supposedly elastic cloud. They re-architected
architected for scale-out and multi-tenancy to capture the full benefits. their application and eventually lowered operating costs by 20%. While Animoto
is a cloud success story, it was only after an investment in intelligent resource
New/custom applications: Infrastructure-as-a-Service (IaaS) can help capture management that they were able to harness the full benefits of cloud. PaaS
some of the economic benefits for existing applications. Doing so is, however, would have delivered many of these benefits out-of-the-box without any
additional tweaking required.
26

33. impliCatioNs
In this section, we will discuss the implications of the previously described
1. Elasticity is a game-changer because, as described before, renting 1
machine for 1,000 hours will be nearly equivalent to renting 1,000 machines for
1 hour in the cloud. This will enable users and agencies to rapidly accomplish
economics of cloud. We will discuss the ability of private clouds to address complex tasks that were previously prohibited by cost or time constraints.
some of the barriers to cloud adoption and assess the cost gap between Being able to both scale up and scale down resource intensity nearly instantly
public and private clouds. enables a new class of experimentation and entrepreneurship.
2. Elimination of capital expenditure will significantly lower the risk premium
3.1 Possibilities & Obstacles of projects, allowing for more experimentation. This both lowers the costs of
The economics we described in section 2 will have a profound impact on IT. starting an operation and lowers the cost of failure or exit – if an application no
Many IT leaders today are faced with the problem that 80% of the budget is longer needs certain resources, they can be decommissioned with no further
spent on keeping the lights on, maintaining existing services and infrastructure. expense or write-off.
This leaves few resources available for innovation or addressing the never- 3. Self-service Provisioning servers through a simple web portal rather than
ending queue of new business and user requests. Cloud computing will free up through a complex IT procurement and approval chain can lower friction in
significant resources that can be redirected to innovation. Demand for general the consumption model, enabling rapid provisioning and integration of new
purpose technologies like IT has historically proven to be very price elastic services. Such a system also allows projects to be completed in less time with
(Fig. 18). Thus, many IT projects that previously were cost prohibitive will now less risk and lower administrative overhead than previously.
become viable thanks to cloud economics. However, lower TCO is only one of 4. Reduction of complexity. Complexity has been a long standing inhibitor of
the key drivers that will lead to a renewed level of innovation within IT: IT innovation. From an end-user perspective SaaS is setting a new bar for user
friendly software. From a developer perspective Platform as a Service (PaaS)
greatly simplifies the process of writing new applications, in the same way as
cars greatly reduced the complexity of transportation.
These factors will significantly increase the value add delivered by IT. Elasticity
enables applications like yield management, complex event processing,
Fig 18:
logistics optimization, and Monte Carlo simulation, as these workloads exhibit
PRICE ELASTICITY
nearly infinite demand for IT resources. The result will be massively improved
OF STORAGE
experience, including scenarios like real-time business intelligence analytics
Source: Coughlin Associates and HPC for the masses.
27