A great article I ran across this morning from Joe Weinman - Strategic Solutions Sales VP for AT&T Global Business Services. This is follow-up to a article he wrote in '08 about the 10 Laws of Cloudonomics. For anyone who is still trying to wrap their heads around why more companies aren't clamoring to join the cloud band wagon - this is a must read: Enjoy!
Lazy, Hazy, Crazy: The 10 Laws of Behavioral Cloudonomics
A couple of years ago, I proposed the 10 Laws of Cloudonomics, an attempt to address the economics of cloud computing. Beyond the cloud, though, neo-classical economics has been augmented in recent years by behavioral economics, where psychological anomalies modulate pure rationality. Indeed, purchasing and adoption of clouds are no less subject to human behavior, hence I offer the 10 Laws of Behavioral Cloudonomics.
Under expected utility and rational choice theories, Homo sapiens is assumed to weigh probability-adjusted costs and benefits in a cold and calculating fashion and select the option with the highest expected payoff. However, Nobel laureate Daniel Kahneman and others have demonstrated that the real world is different, that the Earth is not Vulcan. Although not their terms, one might describe human behavior as lazy, hazy and crazy. Lazy, as in minimizing physical, cognitive, emotional and real dollar costs; hazy, as in using heuristics or rules of thumb rather than precise calculations; and crazy, or, as MIT’s Dan Ariely says in his book of the same name, “Predictably Irrational.”
With that in mind, I’d like to review some cognitive biases most relevant to cloud computing. These should be of interest to cloud service providers, as they can be intangible barriers to cloud computing acceptance, and to customers, who can recognize these behaviors and moderate their impact. The interests of both will be discussed in great detail later this month at the GigaOM Network’s annual cloud computing conference, Structure, where I will be hosting a panel titled “Cloudonomics: The Value of the Cloud.”
- Risk and Loss Aversion — There are emotional and perceptual asymmetries between losses and gains. A loss is more painful than a commensurate gain is pleasurable: losing a $10 bill can be more irritating than finding one is joyful. Certainly CIOs must exercise due diligence regarding proposed cloud initiatives, but should also be aware that these asymmetries may cause some concerns to be overweighted relative to benefits such as total cost reduction and enhanced agility.
- Flat-Rate Bias — One effect of loss aversion is that consumers often prefer flat-rate plans (PDF) even when pay-per-use would cost less. With flat rates or up-front capital expenditures, the charges are never in doubt. The cloud’s pay-per-use pricing for on-demand resources typically reduces total cost while enhancing scalability, but the pleasure of a dollar saved may not outweigh the fear of loss from auto-scaling gone awry. Flat-rate buckets, monitoring and reporting, and auto-scaling policy management with maximum capacity limits can help.