April 11

Marmite Economics: The Public Cloud and Private Enterprise

marmiteLast week I read an interesting blogpost by Kit Colbert in our Office of the CTO called “Who feeds Paris? Changing the mindset of IT” – its theme or analogy was about linking the ideas of the free market/competition with the idea of cloud computing. It’s a succinct and well-thought piece – I only wish I could say the same about my own writing – I’m a bit of old wind-bag who likes the sound of his voice too much… I’ve been thinking about this “market” analogy for a while. So in a not so subtle way in my some of my presentations I’ve compared the way we do IT and finance IT is a bit like the old command-control economics of the Soviet Union. You know that yearly or ever two years haggling over budgets – and the way it distorts human behaviour – like having to spend all of your budget before year-end because if you don’t – it will be capped. That kind of thing.

I tried for a while to develop a direct analogy between the “Public Sector” (government, local government, QANGOS) and the “Private Sector” (Pharma, Banking, Construction etc) and the Public Cloud and Private Cloud. Trouble with these terms is the way in English we have used and abused the terms “Public” and “Private”. Let me give you an example. In the UK we call our fee-paying schools that are only open to those who have the money “Public Schools” (they are open to the public who can afford the colossal fees I guess!) and schools funded by the government open to everyone are “State Schools”.

But anyway, as ever I digress. So I have a lot of time for Kit’s view point. And it comes at a timely point when one of the most strongest advocates of the “free market” ethos as espoused by folks like Ayn Rynd and Milton Freedman – recently passed away. I’m speaking, of course of Margret Thatcher. Love her or loathe her, she was the classic “Marmite Politician” before the term was even coined – but you can’t deny the fact that for good or for bad – she had a massive influence in this country, and arguably the world. In case you don’t marmite is this horrible sticky brown substance people spread on their toast. It seems be quite divisive foodstuff with people loving and hating it equal measure. We are currently in a period where remarkably the advocates of the free market ideology are sitting rather comfortably – regardless of the fact that in recent times they global financial system was on the brink of total collapse, and ironically required the intervention of massive amounts of state subsidy (call it what you like re-capitalization, quantitive easing, taxspayers money). It seems there’s still role for Big Government after all – being the last lender of resort when your house of cards made of collatorial debt obligations crumbles.

But anyway, here’s my point – and how it how relates to Kits article and the use of the “market” as analogy for “cloud”. Like all analogies we can only stretch it so far. Like a simile that compares one thing to another (should I compare thee to a Summers Day) – it isn’t the thing your comparing it too. So is the free market really as free as we think it is? Does a totally free laissez-faire market exist? Probably, not – in fact there’s a whole system of local, national and region regulation and governance surrounding it. Why? Well, as Churchill might have said – that capitalism is the worst form of economics except all the others that have been tried. Without systems of governance and regulation – a totally unregulated system can lead to cartels, monopolies, ponzi schemes and in the worst case outright fraud.

And so it I think it will be in the world of cloud. If we are pragmatic enough, and don’t let an ideology blind us. There are something that the private sector does very well. In fact I can’t think of a better way of operating – so the last thing I would be our government distributing food and fuel. It’s worth recognising that some services were/are delivered by the state – because no private company saw a profit or was prepared to take the risk – so things that are now private were originally state-owned – telephone companies, airlines, television stations… Heck, one of the US shinning achievements – landing on the moon – was backed by government body – NASA – funded by the state – and supplied by the private sector. But in the modern period that persists – here in the UK we still have a taxpayer backed television and health-care. It’s rather good actually apart from a few bumps – not at all some sort evil socialist polt as some folks like to think. It’s hardly the fact that the mere privatising of everything the state does leads to a perfect good. Anyone riding our train system will know what I’m talking about. It’s a privatized rail network that is still in receipt of massive government subsidy, and occasionally needs bailing out when a train operator gets into trouble.

So how does this Devils Advocate (I’m strange concoction – I’m former Company Director who’s Father is former Trade Union leader – and no I wasn’t rebelling!) argument play out in cloud. Well, I personally think we will end up with a couple of clouds – Private Cloud, Enterprize Public Cloud and Commodity Public Cloud. There are somethings I feel will be best left on your Terra Firma because of governance reasons. This isn’t some egregious horrible red-tape caused by “Big Government” but the natural course of the business needing an audit trail that is sufficient enough to meet its obligations to the Board, The Investors and the Shareholders. I’ve sometimes been tempted to call this a “Boutique Cloud” (a term I stole from a VMware employee in Frimley, UK – I forget your name sorry!). The “Boutique Cloud” is rather like a branch of D&G, Louis Vuitton, or Dior – that offers a bespoke “Saville Row” style experience an external supplier could never supply – or if they could it would be SO exorbitant it wouldn’t make financial sense. In our “Boutique Cloud” we lovingly wrap our VMs/vApps up in the cotton wool of backup, DR, clustering capabilities with the very best hardware we can afford to offer blistering performances to applications that historically don’t scale as native cloud application should.

The next best option is Enterprise Public Cloud. This is compute resources outside of your business – but its particular focused on support a narrow set of technologies that fit perfectly with your operations. The Boutique Cloud cannot survive without being surrounded by supply-chain of world class service providers who support its business – such as transportation, packaging, marketing and so on. By offloading or outsourcing these functions to the Enterprise Public Cloud the business is freed up to spend it time on the functions where it can clearly add-value whilst at the same time being reassured that just because its offload the functions elsewhere the quality of service doesn’t take a nose-dive. A good example of this from a business perspective is how many companies now outsource their payroll and even their email. These services used to take up massive compute and human resources.

Finally, commodity cloud – the folks over at Amazon and such like. These are the Walmarts of Cloud. That might sound like a dismissive statement. It’s not intended to be. My analogy doesn’t intend to create an image of Mr Snootyvilles in their Boutique Clouds looking down their noses at the Commodity Cloud.

In away this transition is happening already. The vast majority of workloads in Amazon EC2 are developer boxes where the enterprise has not being fast-enough to the market. So the developer has taken a company credit card out and gone online instead. I don’t see the developers who do this as being bad or naughty people. In fact I rather admirer the clinical decision and their entrepreneurial spirit. They saw a solution to a problem, and fixed it. The trouble is that does rather creates a iceberg affect from both financial and governance perspective. Can the business “see” it exposure both financially and from a compliance perspective when this happens – that’s why I think tools like VMware’s own vCloud Automation Center are going to be the gateway to computer resources in the future.

These tools will allow us to see there’s a development box in the commodity cloud – but it just happens to contain valuable IP which is worth millions of dollars. I think its also worth while to remember that massive scale doesn’t necessarily bring commodity pricing models as it has in the world of the supermarkets where there is such aggressive competition. So it would be dangerous to see commodity cloud as always being ‘cheaper’ and more ‘cost-effective’. Massive scale doesn’t necessarily bring massive efficiencies – it can just mean more profit for the supplier. That’s something that Chad Sakac recently made very clear in his blogpost – What is the real thing stopping “Cloud in the Enterprise?” – RANT.

To conclude this “market lead” analogy to cloud is helpful. But I don’t think we should think that market lead approach is some benign model that when left to its own devices finds some natural equilibrium.  I don’t think anyone seriously thinks the financial crisis we recently avoided (and exchanged for a different financial crisis – as private blackhole has been converted in government back blackhole) was caused by surfeit of governance and regulation – in fact you could if you wished argue that the liberalisation of the market lead to insufficient oversight. The same is true of cloud computing – our existing IT models are in dire need of great efficiencies that only a more market-led approach can deliver. But that won’t happen in a bubble, in outer-space where Laws of Gravity don’t apply…

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Posted April 11, 2013 by Michelle Laverick in category "Cloud Journal