Cloud conf2012

Cloudnomics:The Power of Cloud
Clouds “game changing” attributes are revolutionizing industry
value chains, forcing companies to embrace new business models

Cezar Taurion
IM AR
Technical Evangelist © 2012 IBM Corporation

What are general trends in the IT industry?

IBM Horizon
Gartner Forrester IDC Ovum Watch 2012
Cloud Computing Smart Computing Cloud IT Security Cloud
Mobile Empowerment Computing in the Data Computing
Applications & Cloud Computing Datacenter Management Virtualization
Media Tablets IT as Business Public Cloud Business Social Business
Next-Generation Technology Services Analytics Mobile
Analytics Mobile Enterprise Platform-as-a- Mobility Computing
Social Analytics Apps Service Datacenter Big Data
Social Disruption-as-a- Enterprise Transformation Analytics
Communications Service Mobility Cloud IBM Watson
& Collaboration HW-SW- Free SW, Open Computing Human /
Video Appliances Source Collaboration Computer
Context-Aware Next-Gen BPM Platforms IT and Interaction
Computing Analytics BI and Analytics Sustainability Security
Ubiquitous IT and Enterprise Data Drive IT as Sustainability &
Computing Sustainability Social Media Business Green IT
Storage Class Social Media Smart Devices Context-Aware Consumerization
Memory Computing of IT
Fabric-Based
Infrastructure and
Computers

Source: Gartner, cio.de, IBM MD Germany, IBM MI, HorizonWatch

2 IM AR © 2012 IBM Corporation

Cloud is widely recognized as an increasingly important technology;
adoption is expected to accelerate rapidly in the coming years
What is Your Organization’s Level of The Global Cloud Computing Market is
Cloud Adoption? Forecast to Grow 22% per year through 2020
% of Respondents
91% $250B $241B

Piloting
21%
72% $200B

$150B
Adopting $150B
38% 28%

+33% $100B

Substantially
21% Implemented $50B
41%
+215% $41B
13%
$0B
Today 3 yrs
2011 2015 2020
Source: Sizing the cloud, Forrester Research, Inc., April 21, 2011
Nearly half (48%) of CIOs surveyed evaluate cloud options first, over
traditional IT approaches, before making any new IT investments
Source: (1) 2011 joint IBV/EIU Cloud-enabled Business Model Survey of 572 business & IT leaders; Q4. Which of the following most accurately describes your organisation’s level of
cloud technology adoption today and which do you expect will best describe it in three years?
Sizing the cloud , Forrester Research, April 21, 2011; http://www.cio.com/article/684338/Survey_CIOs_Are_Putting_the_Cloud_First

Today, at least two thirds of companies of all sizes are actively
either experimenting with or implementing cloud

What is Your Organization’s Level of Cloud Adoption?
% of Respondents; Today
82%
76%

67%

43% Piloting
44%
32%

21% Adopting
22% 34%

14% 10%
Substantially
5% Implemented

<$1B $1B - $20B >$20B
Company Annual Revenues

Source: (1) 2011 joint IBV/EIU Cloud-enabled Business Model Survey of 572 business & IT leaders, Q4, n=363


IT and Business are attracted to cloud for different reasons.

IT is drawn to cloud’s cost, efficiency and control…

of CIOs plan to use cloud—
up from 33% two years ago.

Transformation
Efficiency

of business executives believe cloud
enables business transformation and
leaner, faster, more agile processes.

…while business users are drawn to cloud’s simplified,
self-service experience and new service capabilities.
2011 IBM CIO Study, London School of Economics, December 2010


Major factors driving cloud

Virtualization of
Infrastructure

Drives lower capital
Leverage

Hardware requirements

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

Reduced complexity, increased
Standardization of automation possible; reduced
Workloads admin burden
Leverage
Labor

Automation of Take repeatable tasks and
Management automate

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

Envisioning the full potential of cloud requires organizations to
challenge existing approaches in their business and industry

Reflecting on your business, question yourself – “What you would do if…

… you could reach hitherto
… you had access to
unaddressed customers or
unlimited computing
markets and target them based on
resources to scale your
their individualized preferences
business?
through analytical insights?

…you could redefine your
role in your industry and
change your competitive
positioning?
…you could give any of your
customers access to any of
your products and services
anytime, anywhere, on any
device?

… you could easily and
seamlessly connect and
… you could inexpensively
collaborate with business
and rapidly develop and
partners and customers?
launch new product & service
offerings?


Cloud is a real Paradigm Shift

Value delivered From traditional To cloud
Change management Months Days or hours

Test provisioning Weeks 20 minutes

Install database 1 day 12 minutes
Install of operating system 1 day 30–60 minutes

Provisioning environment ▄ 51% cost savings
Design and deploy business applications Months Days/Weeks


In addition to enhancing internal efficiencies, organizations
clearly intend for cloud to improve their business capabilities

How Important are the Following Objectives for Adopting Cloud?
% of Respondents

Increased collaboration with external partners 35% 27% 62%

Competitive/cost advantages thru vertical integration 28% 29% 57%

New delivery channels/markets 30% 26% 56%

New/enhanced revenue streams 25% 29% 54%

Competitive differentiation thru specialization 29% 22% 51%

Rebalanced mix of products/ services 31% 15% 46%

Flexible pricing models 26% 17% 43%

Business Capabilities Internal Efficiencies Important Very Important

Source: 2011 IBM/EIU Cloud Survey Results, Q5: How Important are the Following Objectives for Adopting Cloud?, n= 572


How is Cloud Substantially Changing
Your Customer Value Proposition?
% of Respondents

61%
Changing
product/service mix 68%

54%
Finding additional
sources of revenue 63%

36%
Developing flexible
pricing models 48%

Today In 3 years

Invention of new customer value propositions comprise ways in which
cloud is used to create new customer needs and form new markets
Source: 2011 IBM/EIU Cloud Survey Results, Q9ac/bc : How do you intend to change your value proposition ? n (today) = 28; n (in 3 years) = 136. The question has a reduced
sample size, since only those respondents were asked this who affirmatively answered Q9a1/b1 (Impact of cloud on value proposition ) with Substantially changing the value
proposition in order to generate additional revenues

What is the Primary Focus of Your
Organization’s Cloud Adoption
Strategy?
% of Respondents

Improve existing capabilities in single area of 47%
our value chain 10%

Improve existing capabilities across multiple 37%
areas of our value chain 48%

8%
Change our role within industry ecosystem
16%

3%
Redesign our industry ecosystem
17%

3%
Enter a new industry
4%

2%
Create a new business model/new industry 5%

Today In 3 years

Creation of new enterprise or industry value chains or
ecosystems can drive value through industry model innovation
Source: 2011 IBM/EIU Cloud Survey Results, Q8: What is the primary focus of your organisation’s cloud technology adoption strategy ? n (today) = 572; n (in 3
years) = 572

Cloud harnesses the capabilities borne out of these trends to
empower six potentially “game changing” business enablers

Cloud’s Business Enablers

Business
2 Scalability
Cost Provides limitless, cost- Market
1 Flexibility effective computing capacity 3 Adaptability
to support growth
Shifts fixed to variable cost Faster time to market
Pay as and when needed Supports experimentation

Ecosystem Masked
6 Connectivity 4 Complexity
New value nets Expands product sophistication
Potential new businesses Context-driven Simpler for customers/users
5 Variability
User defined experiences
Increases relevance

Source: IBV Analysis

Cloud enables businesses to reduce fixed IT costs and shift to
a more variable, “pay-as-you-go” cost structure

1 Cost Flexibility

Characteristics
Shifts CapEx to OpEx, when and as
needed
Shifts cost from fixed to variable
Generates faster payback and higher
ROI

Finding
31% of executives see cloud’s ability
to provide pay-as-you go, cost
flexibility as a top benefit1

Source: (1) 2011 joint IBV/EIU Cloud-enabled Business Model Survey of 572 business & IT leaders; Q6a3-Q6b3(1): Expected benefits of cloud – Greater cost flexibility (today and next
three years), N=572

Cloud enables businesses to reduce fixed IT costs and shift to
a more variable, “pay-as-you-go” cost structure
Example: Etsy – the world’s handmade marketplace
1 Cost Flexibility

Characteristics
Shifts CapEx to OpEx, when and as
needed Etsy is an online marketplace to buy and sell
Shifts cost from fixed to variable handmade goods. In addition to bringing buyers
Generates faster payback and higher and sellers together, Etsy offers product
ROI recommendations based on analysis of buyer
preferences
Finding Etsy uses cloud based analytics capabilities for
31% of executives see cloud’s ability its targeted marketing approach by renting
to provide pay-as-you go, cost
hundreds of computers every night to analyze
flexibility as a top benefit1 data from a billion views of its website.
Cost flexibility of the cloud allows Etsy access to
tools and compute power that only large
retailers like Gap or Ikea could previously afford.

The cloud frees up capital by significantly
reducing the need for IT investment
Source: (1) 2011 joint IBV/EIU Cloud-enabled Business Model Survey of 572 business & IT leaders; Q6a3-Q6b3(1): Expected benefits of cloud – Greater cost flexibility (today and next
three years), N=572

Cloud enables businesses to grow efficiently, expanding the
range of business options

2 Business Scalability

Characteristics
Rapid / elastic provisioning of resources
No scale limitations
Benefit from scale economics without
achieving large volumes on your own

Finding
32% of executives see business
scalability as a top cloud benefit1

Source: (1) 2011 joint IBV/EIU Cloud-enabled Business Model Survey of 572 business & IT leaders,; Q6a2-Q6b2(1): Expected benefits of cloud – More scalable and flexible services
(today and next three years), N=572; Source: (2) http://radar.oreilly.com/2011/05/netflix-cloud.html


Cloud enables businesses to grow efficiently, expanding the
range of business options
Example: Netflix
2 Business Scalability

Characteristics
Rapid / elastic provisioning of resources
No scale limitations
Benefit from scale economics without Netflix streams movies on-demand with large
achieving large volumes on your own surges of capacity required at peak times.
Use of cloud allowed Netflix to rapidly scale
Finding up its business without having to buy, support
32% of executives see business and operate infrastructure and resources to
scalability as a top cloud benefit1 meet its growth requirements

Cloud’s ubiquitous and nearly unlimited computing
power drives scale economics and enables self-
provisioning and peak/non-peak responsiveness
Source: (1) 2011 joint IBV/EIU Cloud-enabled Business Model Survey of 572 business & IT leaders,; Q6a2-Q6b2(1): Expected benefits of cloud – More scalable and flexible services
(today and next three years), N=572; Source: (2) http://radar.oreilly.com/2011/05/netflix-cloud.html


Escalability + Cost Flexibility

50.000 core cloud utility supercomputer in the AWS cloud
that was projected 12.5 years of computing time with a US$ 21 million
cost, to a 3 hour simulation with a cost of US$ 4.828,85 per hour to run.
AWS built the 42°fastest supercomputer in the world.


Cloud business enablers are already driving innovation across
company/industry value chains and customer value propositions

What is my role in the value chain?
What to do and when to rely on
others?

Value Chain
Where to specialize and how
to set up interdependent networks? Cloud Enablement
Framework
How will I do what I do?
What kind of delivery structures?
Which operating model?
What is the cost structure?
Customer Value Proposition

What is my customer value Which customers am I serving? How do I generate revenue?
proposition? Which customer segments? Which pricing models?
What mix of products and What type of relationships to How and where to capture
services? maintain? value?
Which customer needs are
Which channels?
being satisfied?

Enterprises are leveraging cloud to enhance, extend and invent
new customer value propositions

Cloud Enablement
Framework


Enhance Extend Invent

Improve current value Extend value proposition to Construct radically different value
proposition to retain/attract attract customers to different proposition to create a new
customers for existing products products and services “need” and own the market
and services Attract existing or adjacent Form new customer segments
Appeal to existing customer customer segments Generate entirely new revenue
segments Generate significant new streams
Garner incremental revenue revenues

Invent: Some organizations are using cloud to invent entirely
new customer experiences by creating new offerings

Situation
Apple’s iOS platform enables
anyone to create an application –
around gaming, productivity or
entertainment – for use on an Apple
mobile device. The best apps are
sold through the AppStore.
Value Created
A completely new ecosystem of
professional and amateur developers
A radically different value proposition
that dominates the market

Invention of new customer value propositions comprise ways in which
cloud is used to create new customer needs and form new markets
Source: 2011 IBM/EIU Cloud Survey Results, Q9ac/bc : How do you intend to change your value proposition ? n (today) = 28; n (in 3 years) = 136. The question has a reduced
sample size, since only those respondents were asked this who affirmatively answered Q9a1/b1 (Impact of cloud on value proposition ) with Substantially changing the value
proposition in order to generate additional revenues

Cloud is also being leveraged to improve, transform and create
new organization and industry value chains

Create

Create
Build a new industry value chain or
disintermediate an existing one
Radically change industry economics

Value Chain
Transform
Cloud Enablement
Transform
Framework
Change organizational role within the industry or
enter a different industry value chain
Develop new operating capabilities

Improve
Enter adjacent industries

Improve
Increase efficiency and effectiveness of the
organization
Increase partnering, sourcing, and collaboration


Create: Organizations expecting to use cloud to redesign their
business model or industry, will quadruple over the next 3 years

Situation
Salesforce.com radically altered the
traditional software industry by offering a
cloud-based, managed solution that
automated the critical function of marketing,
sales and customer relationship management
Value Created
Rules for delivery, usage, support and
licensing of critical business software were
radically rewritten
Balance of power in the industry is now shifting
from the traditional software licensing model to
a software-as-a-service model

Creation of new enterprise or industry value chains or
ecosystems can drive value through industry model innovation
Source: 2011 IBM/EIU Cloud Survey Results, Q8: What is the primary focus of your organisation’s cloud technology adoption strategy ? n (today) = 572; n (in 3
years) = 572

We classify organizations according to the extent to which their
use of cloud impacts value chains and value propositions
Cloud Enablement Framework

Disruptors create radically different value
Disruptors
Create

propositions, generate new customer needs
and segments. They disintermediate existing
industries or even create new ecosystems

Innovators significantly extend customer
Value Chain
Transform

Innovators value propositions resulting in new revenue
streams and transform their role within their
industry or enter a different industry
ecosystem

Optimizers
Improve

Optimizers use the cloud to incrementally
enhance their customer value propositions
while improving their organization’s efficiency



Organizations should determine how and to what degree
cloud can be used to enable their business model

These categories map closely to IBM’s innovation classifications,
which characterize the spectrum of business innovation

IBM’s Innovation Classifications

Disruptors
Industry Model
Business Model

Innovation
Innovation

Revenue Model Innovation
Innovators
Enterprise Model Innovation
Product and Service
and Operational
Innovation

Product and Service Innovation
Optimizers
Operational Innovation


Organizations generally fall into one of the three categories:
optimizers, innovators or disruptors

Positioning of an organization’s cloud-
enabled initiative within the CeBM framework
Create

Disruptors involves understanding the impact of the
business model, not merely the intent.

Organization
Value Chain

North Carolina State University
Transform

Innovators
Virtual Computing Lab
Xerox
Mobile Print
3M
Optimizers Visual Attention Service
Improve

Animoto
Custom Presentations
Force.com
Application Platform
Apple



Create


Organization
Value Chain

Transform

Innovators
Xerox
Mobile Print
3M
Improve

Animoto
Force.com
Apple


3M Visual Attention Service



Create


Organization
Value Chain

Transform

Innovators
Xerox
Mobile Print
3M
Improve

Animoto
Force.com
Apple


In the next three years, disruptors expect to significantly
outperform both innovators and optimizers
Percentage of respondents expecting to significantly or somewhat outperform peers

Anticipated over the next 3 years

Disrupters 68%

Innovators 57%

Optimizers 54%

Q9bc1-4(1): Changes to Value Proposition to increase revenue in three years (N=67) q1- How would you describe your organization’s financial performance compared
with your peers? (over the next 3 years) (Percentage of responses) N= (next 3 years) : Optimizers: 193; Innovators: 335; Disruptors: 44
Source: (1) 2011 joint IBV/EIU Cloud-enabled Business Model Survey of 572 business & IT leaders

Cloud’s business enablers are fuelling innovation and empowering
organizations to optimize, innovate and disrupt business models

…that are fuelling innovations …empowering organizations to
Cloud offers six “game changing” across enterprise value chains and optimize, innovate or disrupt
business enablers … customer value propositions… business models

Disruptors
Cloud’s Business Enablers

Create
Business
2
Scalability
Cost Value Chain
1

Value Chain
Flexibility Market

Transform
3
Adaptability Cloud Enablement Innovators
Framework

6
Ecosystem
Masked

Improve
Connectivity 4 Optimizers
Complexity

Context-driven Customer Value Proposition
5
Variability


Organizations need to assess themselves using the Cloud Enablement Framework
and examine the potential to innovate by leveraging the cloud’s business enablers

Establish shared responsibility for cloud strategy and
governance across the Business and IT

Place a senior executive Business leader,
in partnership with the CIO, in charge of
your firm’s cloud adoption. This
collaboration should: Cloud’s Business Enablers
Business
– Clearly communicate and drive cloud as a top 2
Scalability
business priority
Cost
1
– Ensure that infrastructure and operational Flexibility Market
3
efficiencies are optimized as well as business Adaptability
objectives are met
Establish a governing committee of
Business and IT leaders to oversee cloud 6
Ecosystem
Masked
business strategy development Connectivity 4
Complexity

– Determine which cloud business enablers should
Context-driven
be leveraged and how they will be used 5
Variability
– Clearly link your cloud adoption strategy with
your business and marketing strategies
– Architect and oversee the implementation of
business changes (e.g., processes, outcomes)
that cloud will enable within your organization
and throughout your industry ecosystem


Bechtel’s New Benchmarks

COMPANY TECHNOLOGY BENCHMARK WHAT BECHTEL LEARNED

COMPANY BECHTEL

Data Centers located where there is
Wide-Area Network $10-$15 per megabit $500 per megabit
already a lot of bandwidth lowers
cost and bring data to the network

1 System 1 System
Built whatever, whenever, wherever
Servers Administrator per Administrator per business wanted. Google
20,000 servers 100 servers
standardized server infrastructure

Storage costs 15 Storage costs $3.75 Storage was 'cheap' because storage
Virtualization cents per gigabyte per gigabyte per was virtualized and more highly
per month month utilized

230 Applications up
1 Application for 1 Converting 50 most heavily used
to 5 versions each;
million users. applications into single instance
Applications Upgrades and
Upgraded 4 times software as a service apps run from
training were
per year a Google like portal
constant

Source: CIO Computing, November 2008


Look beyond your organization’s borders to maximize value
derived from your cloud adoption

• Determine how your cloud strategy can impact
your industry eco-system
• Determine how cloud can help your industry eco-
system sustain competitive advantage
• Identify new partners that cloud can help draw into your

Value Chain
eco-system
Cloud Enablement
• Evaluate whether cloud can change your role in your Framework
industry’s ecosystem
• Use cloud to respond to your industry’s end
customers more effectively Customer Value Proposition

• Explore whether cloud can help enhance your value
proposition with your current customers
• Examine whether you can reach other customer
segments by leveraging the cloud


Strategize whether your organization will be an Optimizer,
Innovator or Disruptor

• Consider organizational and market factors –
Illustrative Potential
corporate strategy, competitive dynamics, customer cloud Strategies
strategy, your firm’s risk profile, how empowered
your customers are – that impact your cloud
Disruptors

Create
strategy
• Determine where your organization is positioned on
the Cloud Enablement Framework today

Value Chain
Transform
• Determine whether your organization should be an Innovators

Optimizer, Innovator, or Disruptor in the next three
years

Improve
• Determine whether your cloud strategy should Optimizers
involve becoming an consumer or a provider of
cloud-based offerings – or include elements of both
• Identify your organization’s operating model Customer Value Proposition

requirements, including skills and capabilities, to
action your cloud strategy


The realities of cloud versus hype

Reality Today Cloud Hype Future Reality
So, no “BIG BANG” !

≠
Trad. SO Trad. SO

Everything in the
Internal IT plus 3rd party cloud and all at once Sourcing mixture -
for some things retain legacy, plus
private/hybrid, public
Source: Market Insights and Gartner

People tend to overestimate what will happen two years from now and
underestimate what will happen in 10.


Cloud Computing deployment became part of the
existing Business & IT optimization strategy and
roadmap
Dynamic
Standardize
and automate
Standardize services
Virtualize Reduce deployment
cycles
Remove physical Enable scalability
Consolidate resource boundaries Flexible delivery
Increase hardware
Reduce infrastructure utilization
complexity Reduce hardware
Reduce staffing costs
requirements Simplify deployments
Manage fewer things better
Lower operational costs
Cost

IM AR
= Flexibility

39 © 2012 IBM Corporation

Some workloads are ready for cloud delivery

Sensitive Analytics
Data Information
Intensive Ready
Infrastructure
Storage for Cloud
Highly
Customized Isolated Industry
Workloads Applications

Not yet Collaboration
Virtualized Mature
Workloads Development
3rd Party SW
& Test
May not yet
be ready Workplace, Desktop
Complex Pre-Production & Devices
for migration Processes & Systems
Transactions Business
Processes
Batch
Regulation Infrastructure
Processing
Sensitive Compute

Cloud Computing has moved beyond the hype. It is a highly
disruptive trend that brings with it new opportunities
Disruption
“Cloud services are interconnected with and accelerated by other disruptive technologies, including
mobile devices, wireless networks, big data analytics, and social networking. As during the
mainframe and PC eras, the new platform promises to radically expand the users and uses of
information technology, leading to a wide and entirely new variety of intelligent industry solutions.” –
IDC

Opportunity
“What supply chain models did to manufacturing is what cloud computing is doing to in-house data
centers. It is allowing people to optimize around where they have differentiated capabilities.” – Gartner

Mobile Cloud Services
“In 2012, mobile workers and consumers will embrace tablets, mobile content, mobile video and personal
cloud services at unprecedented levels. Nearly 1 in 5 professionals with three or more devices will adopt a
personal cloud service for online storage, backup and synching.” – Yankee Research


What is coming?

In 2021, cloud computing is simply computing,
corporate office parks are senior housing facilities and
the IT organization of the future has been absorbed by
the business.
Internal IT becomes an internal cloud.
IT becomes a services broker.
IT will become a function of the business.
Gartner, 2011


IT Strategy for the next decade:
an evolution of today‘s focus topics

IT Service Provider “IT as a function of the business“

Data ...
Management
SOA
Service Appliances Big Data
Management
on demand Virtualization Cloud Analytics
Consolidation Mobility
Collaboration
Automation
Cost Pressure Operational Excellence
Service Quality
Open Source Cyber Crime Social Media
Data Center
Optimization Prevention
IT Security Smart Devices
...


Obrigado!

ctaurion@br.ibm.com
www.ibm.com/developerworks/blogs/page/ctaurion
@ctaurion
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