Tuesday, June 12, 2007

Amazon and the CIO Nightmare

If you watch the behavior of tech-savvy consumers closely enough, you will garner clues regarding the hot trends that will hit the world of enterprise computing in the next 1 – 3 years. It happened with Microsoft, as individuals brought their PC mentality from home to work to enable desktop publishing productivity long before the IT department agreed to support the PC. It happened with Linux, as computer geeks brought Linux to work to enable web infrastructure long before the IT department acknowledged the benefit of Linux. In fact, Red Hat created a $20M business selling boxes of CDs and documentation at CompUSA and Frye's before the first IT customer paid a single dollar to the company. I think Amazon is now driving the vision for the future of enterprise computing, and the digital consumer is declaring that they have got it right.

With it's Simple Storage Service (S3) and Elastic Compute Cloud (EC2), Amazon is demonstrating that it is possible to dramatically lower the cost and complexity of “web scale” computing to a price point where even a kid can get into the game. With S3, storage is only $.43/gigabyte*month, with an interface that is simple to use. Likewise with EC2, computing infrastructure costs only $.10/CPU*hour, and there is no litany of complicated rules for promoting your application to production (there are some rules, but relative to the promotion process in most enterprises, they are an order of magnitude less complex). Imagine the difficult conversation between the CIO and the CEO of a company when the CEO realizes what Amazon has accomplished:

CEO: Remind me again what we charge our business units for storage and computing in order to fund your department?

CIO: Well, for storage, we charge the business units about $12/gigabyte/month, and for computing it is about $9/CPU*hour. We re-coup about 60% of the IT budget with these chargebacks.

CEO: So I see these credit card charges from Amazon on my statement, and I asked my 14 year old kid what he was doing to rack up this bill. He tells me that he is running a wiki on Amazon where all the kids in his soccer league post information, stats, links, etc. regarding their teams. I take a look, and this site has everything, including full streaming video, forums, etc. He tells me it is $.43/gigabyte/month for storage, and $.10/CPU*hr for computing. He tells me not to worry about the charges, because they are running a hot dog stand at the games these days to pay me back for the Amazon bill. And the hot dog stand is going to turn a profit to boot. What do you think we should do about this situation?

CIO: Uuuhhhhh, I don't know? Maybe we should open a hot dog stand?

Bottom line, the CIO's that are not getting prepared to be the “Amazon” for their company are getting prepared to be a hot dog vendor. They must simplify the cost and complexity of delivering compute infrastructure to the business units by at least an order of magnitude, or the business units are going to take their business to Amazon or some other provider that “gets it.” I am not saying that Amazon has everything the enterprise needs today, but they have the right idea about what it should cost and how simple it should be to use.

The suppliers see it, because their business is threatened by Amazon. EMC is talking about it in USA Today, and Sun is promoting black box computing. The future of the datacenter is a “simple storage service” and an “elastic compute cloud.” The days of impossible complexity and “wait 6 months to get a server provisioned for your application” are definitely numbered.


At 3:08 AM, Blogger Randy Bias said...


A thoughtful post. Unfortunately, it overlooks the major cost involved with maintaining enterprise systems: labor. Your example seems to include those costs on the Enterprise side, but not on the EC2/S3 side.

The reason that an Enterprise pays $50,000 for a NetApp storage device with 2TB of storage instead of purchasing two $400 1TB drives is to reduce the costs involved with owning that storage. This is about TCO ultimately, not about raw resources. And Amazon does not change the story around TCO for server management one iota.

More can be found here in my more detailed response

At 2:09 PM, Blogger Billy Marshall said...

We are a significant customer for the Amazon S3 service. We store all of the rBuilder system images there (over 2 Tbytes). Amazon does not send me a separate bill for the labor costs they incur to provision, monitor, and maintain storage servers. Nor do they charge extra labor for replicating data worldwide for DR and download performance reasons. So, in fact, the Amazon costs absolutely DO INCLUDE all of the labor costs for the storage.

Welcome to the new world of what IT should cost when done correctly. What's it going to be? Amazon's approach? Or a hot dog stand?


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