Thursday, August 27, 2009

Amazon Aims for Enterprises - Poo Poos Internal Clouds

Amazon's announcement yesterday regarding an enterprise feature for linking existing datacenter operations to Amazon's AWS via a Virtual Private Network feature did not surprise me. It is an obvious extension of their value proposition, and folks had already been accomplishing a similar capability with work-arounds that were simply a bit more cumbersome than Amazon's integrated approach. The more surprising piece of news, in my opinion, is the subtle racheting up of the rhetoric by Amazon regarding their disdain for the notion of “internal” cloud. Werner Vogels blog post explaining the rationale for the new VPN features is a case in point. Here are a few tasty excerpts:

Private Cloud is not the Cloud

These CIOs know that what is sometimes dubbed "private [internal] cloud" does not meet their goal as it does not give them the benefits of the cloud: true elasticity and capex elimination. Virtualization and increased automation may give them some improvements in utilization, but they would still be holding the capital, and the operational cost would still be significantly higher. . . .

What are called private [internal] clouds have little of these benefits and as such, I don't think of them as true clouds. . .

[Cloud benefits are]

* Eliminates Cost. The cloud changes capital expense to variable expense and lowers operating costs. The utility-based pricing model of the cloud combined with its on-demand access to resources eliminates the needs for capital investments in IT Infrastructure. And because resources can be released when no longer needed, effective utilization rises dramatically and our customers see a significant reduction in operational costs.

* Is Elastic. The ready access to vast cloud resources eliminates the need for complex procurement cycles, improving the time-to-market for its users. Many organizations have deployment cycles that are counted in weeks or months, while cloud resources such as Amazon EC2 only take minutes to deploy. The scalability of the cloud no longer forces designers and architects to think in resource-constrained ways and they can now pursue opportunities without having to worry how to grow their infrastructure if their product becomes successful.

* Removes Undifferentiated "Heavy Lifting."The cloud let its users focus on delivering differentiating business value instead of wasting valuable resources on the undifferentiated heavy lifting that makes up most of IT infrastructure. Over time Amazon has invested over $2B in developing technologies that could deliver security, reliability and performance at tremendous scale and at low cost. Our teams have created a culture of operational excellence that power some of the world's largest distributed systems. All of this expertise is instantly available to customers through the AWS services.

Elasticity is one of the fundamental properties of the cloud that drives many of its benefits. While virtualization has tremendous benefits to the enterprise, certainly as an important tool in server consolidation, it by itself is not sufficient to give the benefits of the cloud. To achieve true cloud-like elasticity in a private cloud, such that you can rapidly scale up and down in your own datacenter, will require you to allocate significant hardware capacity. While to your internal customers it may appear that they have increased efficiency, at the company level you still own all the capital expense of the IT infrastructure. Without the diversity and heterogeneity of the large number of AWS cloud customers to drive a high utilization level, it can never be a cost-effective solution.

OK. Let's examine Werner's sales proposition without the pressure to sell anything (as I am not currently trying to sell anyone anything). Clearly, Amazon is now attacking the vendors such as VMware that seem intent on attacking them by proclaiming that Amazon cannot give you enterprise features. Not only is Amazon delivering features targeted at the enterprise, but they are also scaling up the war of words by poo pooing the value proposition of these classic vendors – namely the notion of an internal cloud. Werner makes two assertions in dissing internal clouds:

First, he asserts that an internal cloud is not elastic. Well, why not? Just because your IT department has historically been labeled the NO department doesn't mean that it always must be that way. Indeed, the very pressure of Amazon providing the terrific services they provide without the mind-numbing procurement and deployment friction of your IT department is going to lead to massive changes on the part of IT. They are going to virtualize, provide self provisioning tools, and more closely align business application chargebacks to actual application usage. If the application owners are thoughtful about their architecture, they will be able to scale up and scale back based upon the realities of demand, and their IT transfer costs will reflect their thoughtfulness. Other business units will benefit from the release of resources, and server hoarding will be a thing of the past. All this is not to say that an IT department should “own” every bit of compute capacity they use. They don't. They won't. And there will probably be an increasing shift toward owning less.

But Werner claims that ownership is generally a bad thing in his second assertion that capex is bad and opex is good. Werner writes that cloud eliminates costs by eliminating capital spending. Well, it might - depending on the scenario. But his insinuation that capex is bad and opex is good is silliness. They are simply different, and the measurement that any enterprise must take is one relating to risk of demand and cost of capital. For a capital constrained startup with high risk associated with application demand, laying out precious capital for a high demand scenario in the face of potential demand failure makes no sense at all. However, for a cash rich bank with years of operating history relative to the transaction processing needs associated with servicing customer accounts, transferring this burden from capital expense to operating expense is equally senseless. Paying a premium for Amazon's gross profit margin when demand is fairly deterministic and your cost of capital is low is certainly a losing proposition.

The challenge and the opportunity of cloud for any enterprise is moving applications to an architecture that can exercise the cloud option for managing demand risk while simultaneously striking the right balance between capex and opex relative to the cost of capital. I find it funny that Amazon's new VPN feature is designed to make this opportunity a reality, while the blog post of their CTO announcing the feature proclaims that internal operations are too costly. Maybe they are viewing the VPN as a temporary bridge that will be burned when capex to opex nirvana is attained. Personally, I see it as the first of many permanent linkages that will be built to exercise the cloud option for managing demand risk. Lower costs associated with a proper portfolio balance of capex and opex is just icing on the cake.


  1. Great summary Billy! Good analysis of the variables involved in the Cloud vs. Interal Cloud debate, marketing rhetoric, and the capex vs. opex discussion which is many times missed...
    Don Langley

  2. Billy
    Nice to see you telling it's the thing, all this really obscures 3 big trends I see, 1) Service providers blur with enterprises 2) Terms have meaning, not just terms 3) Federation of everything.