Cloudonomics: The Business Value of Cloud Computing, + Website

Summary

There are numerous drivers of variable and unpredictable demand, which cause the capacity conundrum: how to deploy capacity to respond to the demand. If capacity is too high, money is wasted. Either capital expenditures tie up funds that could be used elsewhere, or an expense stream is not generating any useful returns. If capacity is too low, however, revenue can be lost, labor productivity impaired, and customer experience degraded. There also may be secondary effects, such as impact to reputation and loss of existing customers or future prospects.

Depending on assumptions regarding the relative cost of overcapacity and undercapacity and the probability distribution of demand, some fixed capacity solutions may be better than others, but there will not be a perfect solution that minimizes the total cost, without relying on the on-demand, pay-per-use nature of the cloud, which we examine in the coming chapters, beginning in Chapter 10 with an exploration of the relative cost of such capacity relative to fixed capacity.