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Demystifying the cloud: New economics of cloud computing . Bruce E. Otte IBM Cloud Computing Marketing December 1, 2009. The world is getting smarter – more instrumented, interconnected, intelligent. Intelligent oil field technologies . Smart retail. Smart energy grids.

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demystifying the cloud new economics of cloud computing

Demystifying the cloud:New economics of cloud computing

Bruce E. Otte

IBM Cloud Computing Marketing

December 1, 2009

the world is getting smarter more instrumented interconnected intelligent
The world is getting smarter – more instrumented, interconnected, intelligent.

Intelligent oil field technologies

Smart retail

Smart energy grids

Smart traffic systems

Smart food systems

Smart healthcare

Smart water management

Smart supply chains

Smart countries

Smart weather

Smart regions

Smart cities

Cloud Computing

a crisis of complexity the need for progress is clear


Power and cooling costs

Management and admin costs


New system spend





















A crisis of complexity. The need for progress is clear.

Global Annual Server Spending


Uncontrolled management and energy costs

Steady CAPEX spend

To make progress, delivery organizations must address the server, storage and network operating cost problem, not just CAPEX

Source: IBM Corporate Strategy analysis of IDC data

Cloud Computing



Business Intelligence and Analytics






Risk Management and Compliance



Mobility Solutions



Customer and Partner Collaboration



Self-Service Portals


CIOs’ visions of enhancing competitiveness include business oriented elements

Six Most Important Visionary Plan Elements

Interviewed CIOs could select as many as they wanted

Low growth


High growth


Source: IBM Global CIO Study 2009; n = 2345

Cloud Computing

renovate innovate
Renovate & innovate
  • How do we address the immediate pressure to cut costs, reduce risk and complexity?
  • How do we Innovate to take advantage of new opportunities?

How can we do both at the same time?

  • We focus on delivering services in new ways - lowering cost while increasing speed and flexibility!

Cloud Computing

cloud consumption delivery models optimized by workload
Cloud: Consumption & Delivery Models Optimized by Workload

“Cloud” is:

Cloud enables:

  • A new consumption and delivery model inspired by consumer Internet services.
  • Self-service
  • Sourcing options
  • Economies-of-scale

Cloud Services

Cloud Computing Model

Multiple Types of Clouds will co-exist:

“Cloud” represents:

  • The Industrializationof Deliveryfor IT supported Services
  • Private, Public and Hybrid
  • Workload and/or Programming Model Specific

Cloud Computing

is cloud computing really new yes and no
Is cloud computing really new? Yes, and no.
  • Cloud computing is a new consumption and delivery model inspired by consumer Internet services. Cloud computing exhibits the following 5 key characteristics:
    • On-demand self-service
    • Ubiquitous network access
    • Location independent resource pooling
    • Rapid elasticity
    • Pay per use
  • While the technology is not new, the end user focus of self-service, self-management leveraging these technologies is new.



Web 2.0

Business Services

IT Services

End User Focused





Cloud Computing


Today there are three primary delivery models that companies are implementing for cloud


Traditional Enterprise IT

Public Clouds

Private Cloud

Hybrid Cloud

Private Cloud

IT activities/functions are provided “as a service,” over an intranet, within the enterprise and behind the firewall

  • Key features include:
    • Scalability
    • Automatic/rapid provisioning
    • Chargeback ability
    • Widespread virtualization

Hybrid Cloud

Internal and external service delivery methods are integrated, with activities/functions allocated to based on security requirements, criticality, architecture and other established policies.

Public Cloud

IT activities/functions are provided “as a service,” over the Internet

  • Key features:
    • Scalability
    • Automatic/rapid provisioning
    • Standardized offerings
    • Consumption-based pricing.
    • Multi-tenancy

Source: IBM Market Insights, Cloud Computing Research, July 2009.

Cloud Computing

cost savings and faster time to value are the leading reasons why companies consider cloud
Cost savings and faster time to value are the leading reasons why companies consider cloud

To what degree would each of these factors induce you to acquire public cloud services?

Pay only for what we use

Hardware savings

Reduce costs


Software licenses savings

Lower labor and IT

support costs Lower outside maintenance costs

Take advantage of latest functionality

Faster time to value


Speed deployment

Simplify updating/upgrading

Scale IT resources to meet needs

Improve system reliability

Improve reliability


Improve system availability

Respondents could rate multiple drivers items

Source: IBM Market Insights, Cloud Computing Research, July 2009. n=1,090

Cloud Computing

elements that drive cloud efficiency and economics
Elements that Drive Cloud Efficiency and Economics

Infrastructure Leverage

Virtualization of Hardware

Drives lower capital requirements

Virtualized environments only get benefits of scale if they are highly utilized

Utilization of Infrastructure

Clients who can “serve themselves” require less support and get services

Self Service

Labor Leverage

Automation of Management

Take repeatable tasks and automate

More complexity = less automation possible = people needed

Standardization of Workloads

Cloud Computing

managing cloud adoption
Managing Cloud Adoption
  • Cloud economics can be compelling
    • Small companies will adopt as reliable, easy-to-use services are available
    • Scale economics are within reach of many enterprises
  • Client migration will be work load driven
    • Trade-off is value vs. risk of migration
    • Workload characteristics are critical
    • New workloads will emerge as cloud makes them affordable (eg pervasive analytics, Smart Healthcare)

Cloud Computing

enterprise benefits from cloud computing
Enterprise Benefits from Cloud Computing




Cloud accelerates business value across a wide variety of domains.

Legacy environments

Cloud enabled enterprise

Cloud Computing

clients cite push factors for and barriers against cloud adoption for each workload type
Clients cite "push factors" for and "barriers" against cloud adoption for each workload type


Higher propensity for cloud

  • Data privacy or regulatory and compliance issues
  • High level of Internal control required
  • Accessibility and reliability are a concern
  • Cost is not a concern
  • Fluctuating demand
  • Highly standardized applications
  • Modular, independent applications
  • Unacceptably high costs

Lower propensity for cloud

Push factors

Source: IBM Market Insights, Cloud Computing Research, July 2009. n=1,090

Cloud Computing

ibm best practices align the dr approach with the environment and virtualize
IBM Best Practices: Align the DR approach with the environment and virtualize
  • Align DR to match environment
  • Update DR in line with changes in production
  • Provide choices to match customers considerations
  • Virtualizing the DR environment, along with the production servers and storage, can dramatically improve recovery times as measured in both recovery time objectives (RTOs), and recovery point objectives (RPOs).

Customer Example:

A large defense contractor client was interested in the Resilient Cloud Validation program to combat the very real fear in the industry that clouds should only run applications that you can actually do without for a couple of days.

Since their end-user clients are all DOD, they needed to be able to prove to them that the proposed Cloud services could provide the same level of reliability that traditional data center centric service offerings provide.

The Resilient Cloud Validation program demonstrates to their clients and to the press that they are running a true cloud service that can be trusted.

Cloud Computing

so what is ibm s approach it needs to become smarter about



Desktop and Devices

Development and Test



So what is IBM’s approach?IT needs to become smarter about…
  • … delivering“services” and service management
    • Standardized processes
    • Service management systems provide visibility, control and automation
    • Lower operational costs and higher productivity
  • … optimizingworkloads
    • Rate and degree of standardization of IT and business services
    • Complex transaction and information management processes
    • Rapid return-on-investment and productivity gains
  • … deploymentchoices
    • New models are emerging for the enterprise
    • Self-service, economies-of-scale, and flexible sourcing options
    • New choices of deployment – define these new models

Cloud Computing

focus on managing services
Focus on Managing Services

End to End Service Management

Architectural and process level integration that delivers business aligned Visibility, Control and Automation of all Data Center Elements

  • Modular, Self-contained, Scalable Workload Delivery Platform
  • Legacy Environment :
  • NON – IBM Solutions
  • Requiring workload connectivity
  • Modular, Self-contained, Scalable Workload Delivery Platform

Service Management

Service Management

Service Management









Facilities Infrastructure




Communications Infrastructure

Cloud Computing



Data mining, text mining, or other analytics

Data warehouses or data marts

Transactional databases

Business Services

CRM or Sales Force Automation


ERP applications

Industry-specific applications


Audio/video/web conferencing

Unified communications

VoIP infrastructure

Desktop and devices


Service/help desk

Development and test

Development environment

Test environment


Application servers

Application streaming

Business continuity/disaster recovery

Data archiving

Data backup

Data center network capacity




Training infrastructure

WAN capacity



Desktop and Devices


Development and Test


Clients told us their implementation strategies — public or private Cloud, present or future — for 25 specific workloads

Source: IBM Market Insights, Cloud Computing Research, July 2009.

Cloud Computing

Smart Business Services – cloud services delivered.

Standardized serviceson the IBM cloud – Public Cloud.

Private cloud services,built and/or run by IBM – Private Cloud.

Smart Business Systems – purpose-built infrastructure.

Integrated Service Delivery Platform

IBM has introduced 3 choices to deploy workloads – providing you the choice to meet your business needs!



Desktop and Devices

Development and Test



Cloud Computing

new deployment choices aligned to workloads
New deployment choices aligned to workloads.



Development and Test

Desktop and Devices





Business Services

IBM Smart Business Desktop on the IBM Cloud

Smart Business

on the IBM Cloud

Standardized services on the IBM Cloud

NEW - IBM LotusLive w/ iNotes

IBM Smart Business Dev & Test on the IBM Cloud (Beta)

IBM Smart Business End User Support-IBM Service Assist

IBM Compute on


IBM Information Protection Services

IBM BPM Blueworks (Design tools)

IBM Smart Business Expense Reporting on the IBM Cloud

Smart Business Cloud

Private cloud services, behind your firewall, built and/or managed by IBM

IBM Smart Analytics Cloud

Lotus Foundation

IBM Smart Business Test Cloud

IBM Smart Business Desktop Cloud

IBM Smart Business Storage Cloud

Smart Business Systems

Pre-integrated, workload

optimized systems

IBM Smart Analytics System

IBM CloudBurst

IBM Information Archive

IBM Smart Business for SMB (backed by the IBM cloud)


New - Oct

Cloud Computing

IBM services & technology in support of Cloud Computing To help customers get started and deploy more effectively
  • Services in support of cloud computing
  • IBM Infrastructure Strategy and Planning for Cloud Computing (GTS)
  • IBM Strategy & Change Services for Cloud Adoption (GBS)
  • IBM Strategy & Change Services for Cloud Providers (GBS)
  • IBM Testing Services for Cloud (GBS)
  • IBM Networking Strategy & Optimization – network application optimization for cloud computing (GTS - ICS)
  • IBM Data Center strategy (GTS – S&F)
  • IBM Data Center FamilyTM Solutions – data center design services (GTS – S&F)
  • IBM Vulnerability Management (GTS - ISS)
  • IBM Managed Email and Web Security (GTS – ISS)
  • Security Consulting Services in support of Cloud Computing (GTS – ISS)
  • Resiliency Validation for Cloud Computing (GTS – BCRS)
  • Technologies designed for cloud computing
  • IBM Solution Edition for Cloud Computing (System z)
  • IBM WebSphere CloudBurst Appliance (WebSphere)
  • IBM WebSphere Application Server Hypervisor (WebSphere)
  • Service Management Center for Cloud Computing (Tivoli)
  • Software Delivery Services for Cloud Computing (Rational)
  • Telelogic Systems Architect – Rational Transformation Workbench (Rational)
  • Developerworks (IBM SWG)
  • SOA Sandbox (IBM SWG)

Cloud Computing


Large Hotel Chain Leverages iNotes

  • Hundreds of thousands of employees working in >60 countries
  • Knowledge Workers are small % of the total workforce (~5%)
  • High % of under-served employees, many of whom were using free email accounts to conduct business.

Underserved Employee Types:

  • Customer Service Reps
  • Hotel Managers
  • Front Desk Staff
  • Catering
  • Housekeeping
  • Maintenance

Underserved Employee Needs:

  • Web-based Email
  • Small storage requirement
  • Infrequent usage patterns
  • Access to Corporate Addresses
  • Access to all-company notices
  • Easy communication within each locale

15,000 previously un-served users enabled with a Boundary Worker email account for 3+ years. Reps are no longer using Yahoo accounts to interact with customers. Per user costs are a fraction of those of the Knowledge Workers.

Cloud Computing


Smart Business Desktop Cloud – Pike County, Kentucky, USADelivers a modern education to its students without incurring modern costs with help from IBM

Business Challenge

  • 27 school buildings with computer labs
  • Outdated systems won’t run current applications
  • Budget cuts reduce capital fund by 80%

“We no longer worry about what hardware is in the school as much. We also no longer worry about the applications or processes that the schools are using because they are the same for everyone.”

— Maritta Horne, CIO

Pike County Schools


  • IBM Desktop Cloud leveraging x86 and VMWare
  • Reuse existing computers as thin clients
  • Capital investment only in central data center


  • Cost of solution 40% less than replacing desktops
  • Reused existing equipment
  • Improve learning for students
  • Lower application licensing costs

Solution components:

  • IBM Smart Business Desktop Cloud

Cloud Computing



North Carolina State University

Making a breakthrough in improving access to academic computing resources

Business ChallengeNC State has more than 31,000 students and nearly 8,000 faculty and staff. Growing demand for academic computing resources meant the school needed to fundamentally change the way it managed these resources in order to deliver the service levels that its key user populations required.

SolutionIBM adapted high-performance computing into a virtualization model enabling NC State to deliver more resource support across the university at lower cost. The new “cloud computing” model for provisioning technology offers the school a quantum improvement in access, efficiency and convenience over the traditional computer labs it had relied on.


  • Projected savingsin software licensing costs of up to 75 percent
  • 150 percent increase in students served per application license
  • Increased flexibility to shift computing capacity between instructional, research and administrative needs

“Our goal was to rethink the way we met the academic computing needs…By collaborating with IBM, we are now better able to deliver on that mission.”

– Mladen Vouk,

Department Head

Computer Science

NC State University

Cloud Computing

UNIFEM/USNC, Women’s International Non-ProfitImproves fundraising initiatives using LotusLive and Cloud Computing
  • The Business
  • UNIFEM is a non-profit organization dedicated to ending violence, poverty and inequality for women.

The Challenge

  • Improve efficiency of distributed fund raising teams
  • Connect 28 volunteers from different chapters across 8 states to national organization and to each other
  • Reduce volunteer time spent on administration to increase time spent on fundraising


  • Use Files to create central repository to store and share documents (e.g., sponsor contracts, planning documents, fundraising forms)
  • Use Activities to:
    • Plan and coordinate events (e.g., walkathons)
    • Ensure 24 hr access to current materials for events
    • Capture and share meeting notes, photos, talking points


  • Reduced 10% of weekly hours spent on coordination and administration for volunteers
  • Little training needed for volunteers, they could just use it
  • Worked across multiple environments/firewalls
  • Eliminated version control problems

“Before we started using LotusLive Engage, I would constantly get emails and phone calls asking for information, so I spent a lot of time responding to those requests. Now people know to go to LotusLive. In fact, I personally saved two hours a week, which is 10% of the time I spend volunteering for UNIFEM.”

Younghee Overly, Unifem, North Carolina Chapter President; Member, National Annual Walk Committee

Cloud Computing


IBM Information Protection Services on the IBM cloud

Cloud-based technologies protect your information with professionally managed business continuity and resiliency services

The United States Golf Association depends on IBM cloud services, both the Email Management Express for email recovery and Remote Data Protection to back up their servers.

Jessica Carroll, managing director of IT for the nonprofit governing body of golf, says her existing backup and disaster-recovery plans were well designed for business conditions five years ago.

But they were no longer adequate for today's world in which companies can't afford to be down for even brief periods of time.

She looked for a better option and found a cloud-based business resiliency service from IBM. "IBM's reputation and the services it was offering were enterprise class," Carroll says. "I knew right away this was the way to go. The product was so strong."

Cloud Computing

ibm ips on the ibm cloud remote data protection

Managed Service Provides Reliable Data Protection

IBM IPS on the IBM cloud –remote data protection
  • Automatically backed up via your existing network through the cloud to our security-rich, offsite data centers or onsite to your own data center.
  • Fully managed solution can reduce backup costs by up to 40%.
  • Skilled IBM storage specialists worldwide who provide 24x7 monitoring and management.
  • Quickly implement a best practices–based data protection strategy.

Customer Example:

One of Houston's largest and fastest-growing human services agencies

Serves over 200,000 citizens in Texas.

Depends on IBM cloud services to back-up server and PC data

Tom Comella, chief information officer, Neighborhood Centers Inc. "IBM cloud services were critical in our community recovery efforts following Hurricane Ike. The benefits of cloud services reach far beyond disaster recovery. Better data protection -- demonstrating that we are good stewards of information -- has become a selling point for us in willing contracts."

Cloud Computing

vntt telco services cloud for businesses

IBM Cloudburst

VNTT: Telco Services Cloud for Businesses


  • Become a leading Telco provider of IT cloud services
  • Support a powerful eco system for innovation
  • Incubator for new business models
  • Transform how IT is consumed in Vietnam

Pain Points:

  • Efficiently provide resources & services to surrounding companies


  • Accelerates time to market - rapid access to applications services and virtual resources
  • Provides business flexibility and lower costs with a “pay per use” model to its clients
  • Rapidly established a cloud based data center

Vietnam Technology & Telecommunications - State owned telecom joint venture

“IBM’s Blue Cloud solution is the key connection between the two success factors of business model innovation and strong technological infrastructure”

- Nguyen Minh Tan, General Director, VNTT

Cloud Computing

platform application service a mobile cloud for bop applications
Platform/Application/Service: A Mobile Cloud for BoP Applications

Government officials enters district, state and national level information

  • Kiosk-operator gathers local information
  • from various sources:
  • Makes phone calls to get train schedule
  • Gets movie list for today
  • Gets blackout timings from electricity office
  • Gets weather information through internet
  • Gets visitor list (doctors, etc.) by officials from panchayat

Kiosk-operator uploads information

through a phone

Spoken Web

Govt. Voice sites organized in a distributed nation-wide cloud

Villagers call the VoiceSite to get local as well as district, state and national level information.

Service delivery to villagers through (mobile) phones by a voice interface


Cloud Computing

Mobile Cloud IBM Confidential


application service cloud b2b collaboration for an asian department store



Managed Remotely

Application/Service Cloud: B2B Collaboration for an Asian Department Store


  • Thousands of suppliers need efficient operation & effective collaboration with a department store


  • A retail B2B solution on a low cost, scalable & secure platform ( >2000 suppliers so far)
  • Cloud platform with scalability, security, process monitoring dashboard, data transmission
  • ISV’s Retail B2B app for biz info exchange, order & inv. mgmt, sales data analysis

Business benefits:

  • Enables suppliers to operate business independently w/ lower cost w/o IT operations
  • Provides dept store with common order and inventory mgmt across suppliers
  • Allows ISVs to join w/ core knowledge in the app w/o worrying about scalability and security


2000 of Retail Group’s suppliers

Client Rel’n Owner

Large Int’l

Retail Group

Ind Service Vendor





Cloud Platform

Cloud Computing


IBM Computing On Demand

Benchmark Centers

Common Location Project

IT transformation includes Cloud Computing within IBM. Yielding a cumulative benefit to IBM in excess of $4B

IBM Technology Adoption Program (TAP)Saving IBM over $2.5M per year

(Case Study on IBM TAP)

Self-service, on demand IT delivery solutionfor 3,000 IBM researchers across 8 countries

(Case Study on IBM Research Cloud)

Enterprise class utility computing solution for clients

Systems platform testing for Enterprise Clients, SMBs, & ISVs

Cloud computing solution for IBM Learning Centers in Europe

(Case Study on IBM Learning Cloud )

Cloud Computing

  • IBM and Dubuque IA partnership

Cloud Computing


Getting started with cloud computing IBM can help you…

  • Develop cloud strategy and roadmap
    • Assess cloud deployment models, service options and workloads
    • ROI Analysis
    • Choose initial project
  • Condition existing infrastructure for cloud
    • Virtualize and automate existing systems
    • Add service management, service catalog

Plan and Prepare

  • Start with an isolated private cloud deployment
    • Architect and implement low-risk workloads such as test and development for cloud
    • Standardize applications and systems
    • Deploy self-service portal

Pilot and


  • Roll out cloud across the enterprise
    • Enable additional workloads on private cloud
    • Add new users
    • Use trusted public cloud services to supplement business and IT workloads

Extend and


Cloud Computing


In Summary … there is opportunity in the shift to a smarter planet.

  • Growth of instrumentation, interconnection and intelligence in the world will drive the emergence of IT and business services ... and the requirement for service management systems.
  • New IT consumption and delivery models are very compelling for some workloads today – and will position your enterprise for the future.
  • IBM offers new choices to:
    • Reduce infrastructure and operational costs.
    • Accelerate service deployment and return on investment.
    • Deliver consistent, secure services.

Cloud Computing