Skip to content

Cloud computing grows up with Amazon EC2 Reserved Instances


Amazon just announced a new feature in its EC2 cloud computing infrastructure: Reserved Instances. Reserved Instances enable Amazon Web Services users to reserve EC2 capacity with a one-time advance payment and pay less for ongoing usage, rather than relying entirely on the existing pay-as-you-go model, which the announcement calls a “spot market” for computing capacity.

This is great news for AWS customers for a couple of reasons. For one, they could save quite a bit on the cost of running an EC2 instance—one of the commentators at the original blog post above works this out to be 33% for a one-year commitment. Customers aren’t obligated to run a reserved EC2 instance full time and aside from the one time payment will pay for usage at a lower rate. What then does the one-time payment buy customers? A guarantee from Amazon that the launch of an EC2 reserved instance will succeed. When combined with EC2 availability zones, this gives enterprises a way of doing cloudbursted disaster recovery, which Amazon indeed cites as one of the motivations for EC2 Reserved Instances.

On a somewhat related note, there have been some interesting conversations lately about the effect of the fine-grained pricing models enabled by cloud computing infrastructure on application architecture. Pay-per-use models are breaking the cost impact of application architecture decisions down to levels of detail scarcely seen before in enterprise computing. It used to be that cost-benefit analyses of certain IT architecture decisions could be meaningfully done only in business-critical settings like financial services or telecom, and that too only at a coarse-grained level. With growing comfort around fine-grained costing and usage models (for a recent example, see Diomede Storage’s offering), we’re effectively looking at a future where the CIO and CFO functions in a large enterprise will converge.

All these developments are great for the innovation ecosystem around cloud computing, because it indicates that enterprises are getting more comfortable with a model of computing rather unlike anything that has come before, both on technological and economic grounds. The gold rush to build out cloud infrastructure may only have a few winners, but as enterprises move large swathes of business workloads to the cloud, the Levis of cloud computing are likely to see big business. We are excited about the possibilities this raises in areas like cloud management, offerings for SLA-based IT service providers and cloud costing, among others. Entrepreneurs, rev up your engines and get in touch if we can help you!


Virtual reality: Look at the market today


As we have seen via announcements from the major virtualization vendors over the last year, the virtualization platform is becoming a zero-ticket item, and the focus of innovation is moving to the management layer above the platform. We’ve recently been trying to wrap our heads around the virtualization management market, and what an illuminating exercise it has been!

Right before I joined Longworth, I was an enterprise IT industry analyst at The 451 Group, where virtualization was one of my coverage areas. To be sure, virtualization is turning out to have a truly transformative effect on enterprise infrastructure for a number of reasons. As an IT industry analyst, I was part of the class that was shaping the narrative that would define future conversations in enterprise computing. The heady conversations I was part of had to do with management issues never before seen on the x86 platform before the advent of virtualization. It was important, however, not to lose sight of the fact that virtualization is only just entering mainstream adoption, with an average of 10-20% of business workloads now virtualized.

During recent conversations with virtualization customers of varying sizes, we’ve come to realize that among several small and medium businesses virtualization of new servers has come to be the rule rather than the exception. This enthusiastic uptake of virtualization undoubtedly brings along its own set of problems; some of them are reincarnations of management problems from the physical world, whereas others are centered on new possibilities raised specifically by virtualization, such as resource pooling and enhanced automation.

Even just those areas of virtualization management that have counterparts in physical systems management constitute a large market today in dollar terms with several sizeable niches that would be lucrative to an entrepreneur. The existence of several closely-related niches  like backup/HA/DR, capacity management, VM optimization etc. may make virtualization management look like a crowded market, but individual niches often don’t have more than a couple of vendors serving them. Moreover, this market exhibits classic signs of an early market, as evidenced by a puzzled user base that isn’t always able to articulate fine functional distinctions. Note that we aren’t even talking here about future management issues raised specifically by virtualization, which we also think will be substantial because of the transformational nature of virtualization. In fact, the IT analyst firm Gartner projects the overall server virtualization market size to reach $6.8bn by 2013.

So what does this mean for an entrepreneur looking to enter the virtualization management market today? Only that it’s hard to overstate the importance of that old business maxim: ‘listen to your customer’. Whereas it is important to be aware of conversations in the analyst community, which raise issues that will shape the future of your market, it is just as important, if not more, to listen to your customers and prospectives and see if there isn’t a problem you could be solving for them today both to their advantage and your profit. And if we could help you scale your business, we’d love to hear from you.

Virtualization and new business models


At Longworth, we take an active interest in virtualization, which is one of the hottest markets in systems software today. My role at Longworth is to stay on top of trends and interesting companies in systems software. I recently attended a talk by Mendel Rosenblum at MIT titled The Impact of Virtualization on Modern Computing Environments. I didn’t necessarily go there to learn anything new about virtualization, but I wanted to hear what the father of the dominant player in x86 virtualization had to say on the subject.

As expected, I didn’t learn anything new, but Prof. Rosenblum tersely and elegantly reasoned about virtualization before an audience of computer science academics. In addition to hearing him describe virtualization without industry jargon, I also came away with an interesting way to view ongoing shifts in enterprise software delivery through the lens of virtualization. 

Prof. Rosenblum detailed five distinct roles in how software is consumed today:

  • Computer Hardware Procurer
  • Application Developer
  • Application Configurator
  • Application Maintainer
  • Application User

When software is delivered as packaged software, one organization is responsible for all the above functions except the Application Developer function. This organization buys hardware, configures it, maintains an application and provides it to an internal user community. When software is delivered as a service—as in the SaaS model, by Google or Salesforce—one entity takes care of all but the Application User function by procuring hardware, developing software, configuring an application and maintaining it on an ongoing basis.

Now, Prof. Rosenblum said that these two are but two extremes of a spectrum. Other points in the space defined by these roles can be accessed via virtualization, because it decouples different layers of infrastructure. One example he advanced was Platform as a Service (PaaS), where Application Developer and Application User may be one organization whereas the grid on which the application runs belongs to another organization. Other combinations are also possible. He also raised the possibility, via the emergence of virtual appliances, that new roles may be created in the software delivery value chain, including Virtual Appliance Builder, Virtual Appliance Maintainer and Execution Platform Provider.

Desktops as a service. Picture credit: © 2009 Desktone, Inc.

Prof. Rosenblum’s explanation struck me as a particularly elegant way of partitioning the space of software delivery. Additionally, I thought it was a particularly succinct way of explaining why we at Longworth are interested in virtualization. The decoupling of different layers of infrastructure creates new opportunities for product vendors and service providers where none used to exist before. For an example, see the above graphic from desktop virtualization vendor Desktone, which enables a 3rd party service provider to deliver desktops as a service to enterprise end users. Furthermore, these vendors and service providers can take advantage of new business models born from the technological changes that virtualization enables.

We are very interested in hearing about emerging business models in infrastructure enabled by virtualization, and we believe—based on our own market opportunity estimates—that what we see out there today is just scratching the surface. Virtualization has been around since the 1960s when computers (mainframes) were rare and expensive but viewed through today’s lens, it represents a significant platform shift for commodity hardware. We believe the best is yet to come from startups and independent vendors in terms of possibilities. If you’re an entrepreneur playing around with an idea in this broad segment, we’d love to hear from you. Leave a comment or drop me a line at vishy at longworth dot com if you want to bounce an idea off me.

Welcome to the Longworth Blog


Welcome to the blog of Longworth Venture Partners! Make yourself at home here, learn more about us and find answers to your most common questions about working with us.

Watch out for our thoughts on various IT markets on this blog in the coming weeks.