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External Clouds 2009-2011 – Cost Dimension

Talking about the future is always a combinations of calculations, predictions and believes. In the following I share my believes and knowledge on SAP customers leveraging cloud computing.

So again, the following are not SAP statements, but opinions on how the future might be looking like.


I intend to write a sequence of postings. This first one is about the cost dimension of clouds today and tomorrow.

Future posting will focus on SLAs, Security, Integration, our Proof of Concepts Learning’s and other aspects.


At SAP I am driving the enablement of On Premise SAP Solutions for Clouds, primarily focusing on external clouds.

Cloud Computing at SAP

This activity is part of SAP Cloud Strategy

> 400 SAP employees used us for provisioning > 6000 non mission critical SAP systems in the Cloud, most of which in the Amazon Cloud. We achieved a cost saving > 50% due to IaaS in combination with automation of SAP services.

Let me repeat again, that we only have non-mission critical cloud usage at SAP, right now. We will see certain clouds maturing, so that they can be used for mission critical usage as well. In our customer base the non-mission critical use cases represent >50% of IT costs and >75% of all systems.


We further on changed IT provisioning paradigms. Essentially we removed the approval process pattern for new systems. In the domain of cloud computing it often costs more to go through an approval, than accepting the risk that an employee produces costs, he/she is not supposed to. (We actually never had that situation in the last 2 years.)

We meter the usage on a per user, per system, per department level and charge a particular department at the month end with the occurred cost.


We have presented our work to >1000 customers & partners and had >40 cloud strategy discussions with our customers. The interest in our customer base in POCs is very high. It comes from almost all industries, all business sizes and almost all regions.
We are running a few selected POCs with our customers and partners. I would like to apologize here that we focus our attention very, very selectively at this point. I hope that we can launch volume POC program in the near future.


Before talking about cloud infrastructure costs …

It is important to understand that not every cloud can be recommended for every use case. Clouds will always be different. They have and will have their strength and weaknesses.

Further on a Higher system availability, leads to higher costs. Higher Machine IO Throughput leads to higher costs. etc. This characteristics has always been there and will not change. (In the times of Quantum Computing I might have to revise my statement.)

Comparing different cloud providers to each other has to be done in a very careful manner. SAP will not recommend one cloud infrastructure provider over the other, but rather support and enable the customer’s choice.


Cloud Infrastructures today

There is a lot of buzz in the industry on how profitable “low cost” & large scale cloud infrastructure providers , such as Amazon & Rackspace are.

Known organizations make statements that those still need to reach the break even.

Back in 2007 also I sat down and used our experience with latest hardware, virtualization, Data Center costs etc. in order to calculate on where the point of break even can be, in case automation is leveraged to its maximum extend. I came to the conclusion that already in 2007 large scale cloud providers could realize a very good margin. Moore’s law implies that hardware costs in the last 2 years fell by 50%. In addition hypervisors and CPUs have become much more efficient in providing virtual systems.

Only partially those savings have been passed on to the customer. The margin might have improved further.

At the same time large cloud infrastructure providers are low cost options for many consumers and non mission critical use cases.


Cost Future
I believe that the costs of IaaS will fall in the coming years significantly.

Required for that is transparent competition enabling our customers to choose a particular cloud at any given point in time. This competition is enabled by true cloud standards and a number of cloud providers implementing the same standards. SAP has no particular preference for one of the competing standardization organizations in that regards. Driven by our customers it is important for us, that there will be one or maybe at least a few standards the entire industry is following.


Internal vs. External Clouds

The statements so far focused on external clouds. I usually avoid the terms private and public clouds, as the same terms are used in different ways. Sometimes a private cloud refers to the cloud enabling of a corporate data center, sometimes it refers to an exclusive corporate resource segment in a 3rd party data center. Therefore I am using here the terms internal and external clouds.

Also internal clouds promise significant cost savings. At SAP different resource consuming departments have in effect developed several internal clouds, comprising of Automated Virtualized Hardware. The ROI is clearly existing.

Also our SAP Managed Services organization is working on their vision for a cloud infrastructure in order to increase the efficiency in our Data Centers, focusing on SAP internal consumption.


Summary: As of today, certain use cases are only possible or most cost effective in internal clouds. A number of use cases are most cost effective in external clouds.

How this ratio of internal to external consumption will develop over the next months and years is a matter of how fast external clouds are maturing (security, HA …) and how fast the related prices will fall.

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