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Enterprise Cloud Computing: Understanding the Costs

Forecasting of cloud computing demand within enterprises is becoming more important
By John Gannon
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October 28, 2008 11:00 PM EDT
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 5,066

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Although cloud computing provides financial benefits like reduction of CAPEX and the ability to pay-as-you-go, organizations will still need a reasonable amount of granularity in the reporting of cloud usage and the ability to map that usage into a financial chargeback model that makes sense.

Amazon has gone live with Windows support in the EC2 cloud while at the same time announcing a private beta for some new scaling and load balancing features. These features will certainly be useful for the smaller customers of EC2, but my guess is that those features were driven by a desire to make the Amazon cloud more “enterprise friendly”. And speaking of enterprise friendly…

In an earlier post I discussed some areas that Amazon and the other cloud providers will need to address before they’ll see mass enterprise adoption. One area I did not discuss, but that is also important, is cloud financial management (cloud “chargeback”).

Chargeback methodologies and technologies are used to help medium-to-large enterprise IT departments meter usage of key IT resources (storage, network, compute) and then allocate usage back to individual business units, applications, etc.

Although cloud computing provides financial benefits like reduction of CAPEX and the ability to pay-as-you-go, organizations will still need a reasonable amount of granularity in the reporting of cloud usage and the ability to map that usage into a financial chargeback model that makes sense. Knowing which applications and departments are driving IT expenses is critical now, and will continue to be critical as cloud computing goes mainstream in the enterprise. Therefore, any cloud chargeback solution should integrate with the chargeback framework that the company uses to manage their physical assets.

I can also see forecasting of cloud computing demand within enterprises becoming more important as greater usage variability drives expense variability. Avoiding CAPEX is a great thing, but if you’re unable to predict OPEX, you’re going to have other problems. Traditionally, capacity planning and demand forecasting has been a dark art (at least in the distributed systems world), but I think the industry as a whole needs to think about new ways to address the problem in a hybrid cloud/non-clouded world.

Published October 28, 2008 – Reads 5,066
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John Gannon is an Associate at L Capital Partners, a $165-million fund looking to advance companies with the potential to take groundbreaking products to market. He blogs at http://johngannonblog.com. Prior to joining L Capital Partners, John worked with Highland Capital Partners and Chart Venture Partners to identify and evaluate new opportunities in the enterprise IT sector. He also served as a consultant advising startup companies on business development, product strategy and venture capital fundraising. He currently sit on the board of advisers of VAlign Software.

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