Posts Tagged 'Lessons'

September 30, 2013

The Economics of Cloud Computing: If It Seems Too Good to Be True, It Probably Is

One of the hosts of a popular Sirius XM radio talk show was recently in the market to lease a car, and a few weeks ago, he shared an interesting story. In his research, he came across an offer he came across that seemed "too good to be true": Lease a new Nissan Sentra with no money due at signing on a 24-month lease for $59 per month. The car would as "base" as a base model could be, but a reliable car that can be driven safely from Point A to Point B doesn't need fancy "upgrades" like power windows or an automatic transmission. Is it possible to lease new car for zero down and $59 per month? What's the catch?

After sifting through all of the paperwork, the host admitted the offer was technically legitimate: He could lease a new Nissan Sentra for $0 down and $59 per month for two years. Unfortunately, he also found that "lease" is just about the extent of what he could do with it for $59 per month. The fine print revealed that the yearly mileage allowance was 0 (zero) — he'd pay a significant per-mile rate for every mile he drove the car.

Let's say the mileage on the Sentra was charged at $0.15 per mile and that the car would be driven a very-conservative 5,000 miles per year. At the end of the two-year lease, the 10,000 miles on the car would amount to a $1,500 mileage charge. Breaking that cost out across the 24 months of the lease, the effective monthly payment would be around $121, twice the $59/mo advertised lease price. Even for a car that would be used sparingly, the numbers didn't add up, so the host wound up leasing a nicer car (that included a non-zero mileage allowance) for the same monthly cost.

The "zero-down, $59/mo" Sentra lease would be a fantastic deal for a person who wants the peace of mind of having a car available for emergency situations only, but for drivers who put the national average of 15,000 miles per year, the economic benefit of such a low lease rate is completely nullified by the mileage cost. If you were in the market to lease a new car, would you choose that Sentra deal?

At this point, you might be wondering why this story found its way onto the SoftLayer Blog, and if that's the case, you don't see the connection: Most cloud computing providers sell cloud servers like that car lease.

The "on demand" and "pay for what you use" aspects of cloud computing make it easy for providers to offer cloud servers exclusively as short-term utilities: "Use this cloud server for a couple of days (or hours) and return it to us. We'll just charge you for what you use." From a buyer's perspective, this approach is easy to justify because it limits the possibility of excess capacity — paying for something you're not using. While that structure is effective (and inexpensive) for customers who sporadically spin up virtual server instances and turn them down quickly, for the average customer looking to host a website or application that won't be turned off in a given month, it's a different story.

Instead of discussing the costs in theoretical terms, let's look at a real world example: One of our competitors offers an entry-level Linux cloud server for just over $15 per month (based on a 730-hour month). When you compare that offer to SoftLayer's least expensive monthly virtual server instance (@ $50/mo), you might think, "OMG! SoftLayer is more than three times as expensive!"

But then you remember that you actually want to use your server.

You see, like the "zero down, $59/mo" car lease that doesn't include any mileage, the $15/mo cloud server doesn't include any bandwidth. As soon as you "drive your server off the lot" and start using it, that "fantastic" rate starts becoming less and less fantastic. In this case, outbound bandwidth for this competitor's cloud server starts at $0.12/GB and is applied to the server's first outbound gigabyte (and every subsequent gigabyte in that month). If your server sends 300GB of data outbound every month, you pay $36 in bandwidth charges (for a combined monthly total of $51). If your server uses 1TB of outbound bandwidth in a given month, you end up paying $135 for that "$15/mo" server.

Cloud servers at SoftLayer are designed to be "driven." Every monthly virtual server instance from SoftLayer includes 1TB of outbound bandwidth at no additional cost, so if your cloud server sends 1TB of outbound bandwidth, your total charge for the month is $50. The "$15/mo v. $50/mo" comparison becomes "$135/mo v. $50/mo" when we realize that these cloud servers don't just sit in the garage. This illustration shows how the costs compare between the two offerings with monthly bandwidth usage up to 1.3TB*:

Cloud Cost v Bandwidth

*The graphic extends to 1.3TB to show how SoftLayer's $0.10/GB charge for bandwidth over the initial 1TB allotment compares with the competitor's $0.12/GB charge.

Most cloud hosting providers sell these "zero down, $59/mo car leases" and encourage you to window-shop for the lowest monthly price based on number of cores, RAM and disk space. You find the lowest price and mentally justify the cost-per-GB bandwidth charge you receive at the end of the month because you know that you're getting value from the traffic that used that bandwidth. But you'd be better off getting a more powerful server that includes a bandwidth allotment.

As a buyer, it's important that you make your buying decisions based on your specific use case. Are you going to spin up and spin down instances throughout the month or are you looking for a cloud server that is going to stay online the entire month? From there, you should estimate your bandwidth usage to get an idea of the actual monthly cost you can expect for a given cloud server. If you don't expect to use 300GB of outbound bandwidth in a given month, your usage might be best suited for that competitor's offering. But then again, it's probably worth mentioning that that SoftLayer's base virtual server instance has twice the RAM, more disk space and higher-throughput network connections than the competitor's offering we compared against. Oh yeah, and all those other cloud differentiators.

-@khazard

July 8, 2010

Scams

So I’m sitting at my desk pondering deep, legal thoughts: “What is more boring to read – a patent or a real property lease?” “Why does our CFO like to wear pink?” “I wonder if we left food on the counter, and if The Dog ate it?” And then I think, “Can a lawyer be scammed?” As in scammed by the Nigerian email scam? (Rest easy - this is a hypothetical as far as your lawyer is concerned. The answer is a resounding “No!” At least, not yet, to date…..) After all, the lawyer is the one to sue people when you fall for the scams. And the lawyer is generally cynical and wary and suspecting.

But, alas – in general, the lawyer can be scammed. One Texas lawyer was approached by a Japanese client to do collections work. He agreed and was in the process of initiating the process when the client indicated that one of the companies that owed it money had paid. So the client sent the check to the law firm to deposit and indicated that the firm should deduct their fee and wire the rest of the money back, and then proceed with the remainder of the collections. The Texas lawyer had his staff check to see if the check cleared, and it was allegedly confirmed by the bank that it had cleared. So the fee was deducted and the rest of the money ($182,500.00) was wired back to the Japanese client. Shortly after the wire transfer took place, it was determined that the check was fraudulent, and they tried to stop the transfer, but it was too late. After realizing he had been scammed, the lawyer declared, “I’m a capital ‘D’ Dumbass.” http://www.law.com/jsp/article.jsp?id=1202427717175. Other attorneys have fallen for this, or slight variations, as well. http://www.law.com/jsp/article.jsp?id=1202448356229.

Another attempt at scamming that we in-house attorney types see quite often involves a company’s trademarks or domain names. The email typically reads as follows:

Dear Manager

We are a professional intellectual property rights consultant organiz-ation, mainly deal with the global domain name registration and in-ternet intellectual property rights protection. On March. 22th, 2010, we formally received an application from KangShen Technology Lim-ited, they applied to register the internet brand (softlayer) and some in China and Asia's domain name.

During our preliminary investigation, we found that these domain names' keyword is fully identical with your trademark. Therefore, we need to confirm with you, whether you consigned KangShen Techno-logy Limited to register these domain names with us or not? Or, is KangShen Technology Limited your business partner or distributor?

If you have no relationship with this company, we assume that they have other purposes to obtain these domain names.

Currently, we have already suspended this company's application temporarily due to the seriousness of this isuue. In order to avoid the vicious domain name grabbing, please let the relevant person make a confirmation with me via email as soon as possible. Thank you for your support to our work!

Best Regards!

Well, that doesn’t seem like a scam. Those nice people are letting us know that some other company is wrongfully trying to register our domain name in China and Asia. How can that be a scam? Here’s what happens:

Dear Nice Chinese Registrar Company:

Thank you for alerting us to this evil deed. No – KangShen Technology Limited is not our business partner or distributor. They are trying to usurp our valuable trademark and domain names in China and Asia. Please do not allow this registration to go forward. Thanks again for being so alert!

Dear SoftLayer:

You are so welcome! We are so glad we prevented them from illicitly using your domain name. In order to protect your rights to these domain names that they tried to register, we will register all of them for you in China and Asia for $3,800.00 USD. Please let us know when to proceed.

So then you wire your money to the Nice Chinese Registrar Company, and you never hear from them again, and your money is long gone. So what seems to be a Registrar trying to help you out, turns out to be a scam.

Lessons: Lawyers can be scammed. Trust no one on the Internets. Do not share any personal information or credit card information with anyone (or any entity) that asks for it in an email. No one is just going to give you money. If you just want to give your money away, play the lottery or give it to me. CFO’s who like pink appear to be inherently evil.

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