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Cloud Exchanges: Ready for Prime Time

By Casimer DeCusatis

Cloud Computing and Optical Networking

Cloud computing is only one of the many ways that optical networking will continue to drive disruptive change across multiple industries.  Optical networking has become a key enabler for all types of cloud computing (public, private, and hybrid).  And the cloud has many far reaching business implications.  Consider the impact on software development, a field that you might not associate with optical communications at first glance.  According to industry analysts, 84% of all new software purchase this year will be in the form of Software as a Service (SaaS) rather than more conventional channels. Or perhaps you’re interested in the high reliability, availability, and serviceability of enterprise computing; nearly half of large enterprises will be running hybrid cloudwithin the next two years.  Because cloud computing is becoming so popular, many organizations want to share their business among different cloud service providers (CSPs).  This would help drive down costs, while promoting interoperability and innovative new feature development from CSPs who don’t want to compete only on the basis of price.  Just as the telecommunications industry developed local, regional, and national exchanges to seamlessly complete your calls to any part of the world, CSPs are turning to cloud exchanges as an emerging business model.  Judging by the huge number of technical and business presentations at OFC, it seems that the cloud exchange is here to stay, and is ready for prime time business. 

The Need for On-demand Network Provisioning

A little math shows why cloud exchanges and CSPs need the flexibility of on-demand optical network provisioning.  Consider a typical enterprise computing application, which might require live migration for tens of virtual machines (VMs) and associated data bursting into a CSP exchange.  A set of 50 VMs might easily take up a terabyte of data by themselves and including the associated data, can swell this number to 10 terabytes or more.  Some workloads can be deferred or scheduled over time, so if we’re lucky perhaps we’ll have an hour to move all this data to the cloud; that still requires a sustained data rate of around 20 Gbit/second.  This is simply beyond the capacity of existing service level agreements (SLAs) for IP/MPLS services, most of which can only guarantee individual traffic flows under a few hundred megabit/second.  Oversubscribed links with statistical multiplexing are available, and can do a little better, but for mission critical applications you’ll want a committed bit rate from the CSP, and perhaps a private virtual tunnel dedicated to your application. Some of the analysts involved with OFC have suggested that using SDN for dynamic provisioning can deliver the traffic rates required for a cloud exchange at roughly half the cost of statically overprovisioned links.  

Spot Pricing

Dynamic optical provisioning also means that cloud exchanges can implement “spot pricing”, which allows you to bid for unused cloud resources and enable real time price comparisons between multiple CSPs.  Several large clouds are implementing this now.  If your workload can be deferred to different times of day or days of the month, this is a game changing opportunity. Instead of buying hardware, waiting for it to be installed, and paying maintenance/depreciation, you simply tell multiple CSPs on the exchange that they’ll get your business if their unit price meets your target. This type of competition is good for everyone, and is generating a lot of interest across multiple industries. In recent surveys, 77% of IT decision makers said they’d be implementing multi-cloud services in 2015.  But of course you know that because you’ve been following the market watch sessions at OFC, right?

Cloud Exchanges Present Opportunity for the OFC Community

A regional cloud exchange helps address the current shortage of WAN skills at many enterprise data centers. This is a real opportunity for regional cloud exchanges to provide on demand services through local providers, including last mile services.  Many key technologies at OFC will make this possible, including SDN and NFV.  Some vendors can offer multi-layer controllers, which can be programmed for automatic, contention-free protection switching.  Open, REST APIs from optical networking equipment allow CSPs to develop their own service applications, or request services from cloud orchestration engines.  For example, cloud exchanges might provide pretested applications through a self-service portal, or service chained NFVs married with Ethernet virtual connections over an optical WAN.  Some applications might deploy virtual CPE (simple Ethernet at the client premises, with appliances like firewalls running in the CSP data center).  Others are more properly instantiated at the physical WAN demark, such as encryption (which must be implemented on links extending to the CSP in order to provide full end-to-end protection).  Whatever the business model, cloud exchanges represent a potential $9B opportunity over the next few years, assuming that as little as 5-10% of the market moves to on-demand services. That translates into a major business opportunity for SDN, NFV, and optical transport equipment providers…to see just how much, make your plans to attend OFC this year, and maybe you’ll be the one quoting statistics on the importance of optical networking in the cloud.  

Want to discuss your theories about the future of cloud exchanges?  Drop me a line on Twitter (@Dr_Casimer) and I’ll look forward to speaking with you. 

Posted: 4 March 2016 by Casimer DeCusatis | with 0 comments

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The views expressed in this blog are those of the authors and do not necessarily reflect the views or policies of The Optical Fiber Communication Conference and Exposition (OFC)  or its sponsors.