Cost Savings of Cloud in Retail

November 24, 2015 § Leave a comment

I recently came across an article that contained five predictions around the sale of televisions from Consumer Reports for Black Friday: (http://www.consumerreports.org/cro/lcdtvs/5-predictions-for-black-friday-2015). While reading these predictions, a few caught my interest (especially price matching and pricing transparency). These predictions underline one of the driving forces in retail – how do retailers improve their margins and still remain competitive?   While we commonly talk a lot about cloud being the platform to bring innovative capabilities to touch new clients and keep existing clients in retail, I’d like to focus on another benefit related to the cost savings that cloud can bring to retailers.

Let’s look at two dimensions related to cost: initial cost (to setup) and the ongoing costs or workloads. Most people understand that the initial costs should be lower leveraging cloud solution (e.g. a public cloud from IBM, Amazon, or Microsoft) versus investing in infrastructure in a traditional data center.   However, many consider the ongoing costs for cloud to be more expensive. I’d like to explore this angle for a moment.

Looking at the traditional data center, there are four areas to explore related to ongoing costs and how they might change with cloud:

  • Peak traffic and variability
  • Cost of power/electricity usage
  • Infrastructure labor costs
  • Homogeneity vs. heterogeneity

 

Almost all retailers face the challenge around how to best handle peak traffic or huge variations in traffic. Whether it is black Friday, Valentine’s day, Mother’s day, or a movie lets out, many retailers have to plan how to handle these variations in traffic. Many organizations address this challenge by using the “high-water mark” principle. With this principle, you allocate the maximum computing capacity to deal with the maximum traffic and make this available all year long.   With this approach, there are significant costs associated with keeping the infrastructure available whether it is being used or not. Being able to scale up capacity during these peak times and scale down afterwards is a classic cloud usage scenario that does result in reduced costs.

The cost of power is a metric we sometimes forget. Electricity usage is rising to the point where it is becoming the largest element of TCO for most data centers. It was estimated in 2013 that over 10% of the world’s electricity is consumed by IT. (http://www.theregister.co.uk/2013/08/16/it_electricity_use_worse_than_you_thought/). Many organizations use the PUE metric (power usage effectiveness) as a way to measure power efficiency in data centers. Unfortunately, much of the infrastructure in today’s data centers are obsolete, outdated, or unused and so power usage effectiveness tends to be much lower in traditionally owned data centers. Moving to a cloud based environment removes the burden of you having to measure PUEs, reduce your electricity consumption, and have a positive impact in the environment.

Have you looked at the infrastructure labor costs in your organization? I recently had the opportunity to look at a few cloud based data centers. One thing that impressed me was how few people you see. In the traditional data center, you typically see around 150 servers being managed by a single administrator. In a cloud based data center, the ratio changes to around 1000 servers per administrator. Automation is clearly a critical factor in optimizing labor and work and using your human resources for other activities.

A famous quote about the Model T from Henry Ford was that “any customer can have a car painted any color that he wants, so long as it is black.” Why did he say this? The Model T only came in black because the production line would slow down and have a negative impact on efficiency. There are similarities in cloud. With cloud, homogeneity has an impact in reducing cost. Think about the amount of costs expended because of differences in environments, platforms, and applications that run in your data center. Cloud offers great efficiency due to standardization, which will translate into cost savings. One will need to do the work to move these workloads so they can be executed on common platforms and detailed workload assessments can help.

My final thought struck me when I was in a shopping mall last week. I was making a purchase at a store that was using old point of sale devices. With retailers that have physical stores scattered across many locations, the associated costs for managing the IT infrastructure in each store represents an opportunity to leverage cloud to reduce costs as well as provide buyers a more delightful client experience.

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