Analytics Slideshow Calculating Cloud ROI

There are "incredible economies of scale in cloud computing" that make it a compelling alternative to traditional enterprise data centers, said Zane Adam, general manager of Microsoft's Windows Azure cloud and middleware.

Adam is one of the first cloud managers to speak out on the specifics of large data center economics. He did so during an afternoon keynote address Tuesday at Interop 2011 in Las Vegas, a UBM TechWeb event.

But Adam ended up emphasizing the cloud as spurring "faster innovation" in companies because of its ability to supply reliable infrastructure, as users concentrate on increasing core business value.

To make his point on economies of scale, he cited Microsoft's new cloud data center outside Chicago, which started operating in September 2009. It hosts Microsoft Bing searches, Microsoft's Dynamics CRM, Sharepoint, and Office Live software as a service, and over 31,000 Microsoft Azure customers.

Microsoft spent $500 million to build a cement floor, warehouse-type facility with trucks able to drive in on the ground level and drop off containers packed with 1,800 to 2,500 blade servers. The 700,000-square foot facility has 56 parking places for containers, and containers in each spot can be double stacked. When each 40-foot container is plugged into the data center's power supply, the servers inside start humming. They can be brought into production use in eight hours.

The building has more typical server racks on its upper floor. It was built for a total of 300,000 servers. It is served by 60 megawatts of power and contains 190 miles of conduit.

Adam said building a data center on such a scale is being done by a limited number of cloud computing suppliers, including Google, Amazon Web Services, Rackspace, and Terremark. In contrast, less than 1,000 Microsoft customers are running over 1,000 servers and only "a few" have 10,000 or more, Adam said.

Consequently, there are economies of scale possible in such a setting that are impossible in the more heterogeneous, raised floor, enterprise data center. Although they are rapidly moving away from the practice, enterprise data centers at one time assigned a server administrator to devote much of his time to a single application running on one server.

At the Chicago center, one administrator is responsible for "several thousand servers," Adam said. "It costs an estimated $8,000 a year to run a typical server. For us, the cost goes down to less than $1,000."

If operations is typically 15% of data center costs, Microsoft has driven out 70% of that cost, Adam estimated. Microsoft executives have told the Chicago business press that they operate the facility with just 45 people, including security guards and janitors.

Given the scale at which Microsoft builds, it can negotiate special prices on volume orders of servers. Some are supplied by Dell, which has a container/server manufacturing capability. Microsoft gets tax breaks and commercial credits "that small data centers can't get," when it comes into a suburban community to build such a facility, he added.

The location is known for its low-cost power and access to fiber optic communications. "Special power deals lower our cost of power 90%" over what a more typical industrial customer would have to pay, Adam said.

Microsoft charges between 5 cents and 96 cents an hour for an extra-small to an extra-large instance of Windows Server. Azure opened for pay-for-use computing in February 2010 with a small instance of Windows Server at 12 cents an hour.

But at the end of his delineation of data center costs, Adam said it wasn't its low cost that would drive use of public clouds. "In the cloud, there's no patching or version updating," saving the cloud customer a major headache that eats up IT staff time.

The availability of reliable infrastructure at low prices will enable companies of all sizes to use more computing in the business. In the end, "it's that rapid innovation that will drive acceptance," he said.