Cloudonomics: The Business Value of Cloud Computing, + Website

Utilization Improvements

The larger a container is, the more difficult it would seem to be to fill it up. But between statistical multiplexing effects and dynamic pricing, utilization of consolidated environments can get very high. If the check-in lines in Vegas always seem crowded, perhaps that’s because they are. The MGM Grand Hotel & Casino—still one of the largest hotels in the world—manages to nearly fill over 5,000 rooms on a daily basis, achieving an occupancy rate of 96.8% in a recent quarter.5

The impact of smoother demand is fundamental: improved utilization, which in turn leads to either higher profitability at the same price or maintained profitability at lower prices. Lower prices can mean higher share in markets with intense rivalry or the preservation of share as competitors lower their prices. If demand is smoother, there also can be few payouts or credits on SLAs at a given level of resourcing or less uncaptured revenue, which improves the bottom line directly and, by enhancing customer satisfaction, reduces churn and increases competitiveness.

Smoother demand increases utilization by reducing the quantity of unused capacity. As can be seen in Exhibit 15.7(a), when the demand is highly variable, utilization is low (the white space under the actual capacity line) and lost revenues or SLA payouts are substantial. If the capacity is increased, say from 15 to 25, the SLA violations or lost revenues drop, but the utilization goes even lower. However, in Exhibit 15.7(b) ...