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Case Study: On-demand's early adopters

Early adopters are using on-demand computing to help them meet peaks of demand.

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Seasonal business spikes sparked the movement toward on-demand computing for many early adopters. In the case of two pay-as-you-go pioneers, each required a 100 per cent increase in processing capacity for only a few months of the year. And each braved uncharted territory by choosing reputable vendors and cutting seemingly win-win deals. For them, on-demand computing is paying off -- although not everyone is convinced.

Retailer takes on holiday sales spikes
Holidays and furniture sales go hand in hand. At US furniture retailer R.C. Willey Home Furnishings, holidays require three to four times the IT processing capacity of a regular business day to handle the influx of orders and all the related back-end functions. That used to mean "emergency mode" for the IT staff, according to Ned Jones, information systems director. When product-ordering applications slowed, end users at the retail stores would complain, and only then did the IT staff purchase and install new processors. What's more, IT was paying for a hot standby server that mostly stood idle.

The retailer's old V Series servers that supported the company's applications were no longer equipped to meet peak demands and a growing business. In 2002, Jones reached a crossroads: buy upgraded servers with more processors, or try one of the new pay-as-you-go programs. "In the past, we noticed we probably upgraded or added to our computers every two to four years because of demand," he recalls. So Jones signed on with HP's pay-per-use lease programme through HP Financial Services.

Today, R.C. Willey leases two midrange RP8400 servers, with one serving as a hot standby. Each holds eight processors. During regular business days, IT infrastructure runs between 25 per cent and 75 per cent of total capacity. At peak sales times, Jones turns on all eight processors, and he turns them off when they're no longer needed. The company saves 20 per cent on the combined server lease compared with the cost of traditional purchasing.

"We wouldn't have purchased an eight-processor system," says Jones. "We would've skimped and probably bought six. [Pay per use] prevents us from buying extra processors in a hurry."

As an early adopter of HP's pay-per-use programme, Jones was sceptical at first, but the numbers were convincing. "We figured on the production server, we really weren't going to save a lot," he says. "At five processors, you're paying what you would've paid on a normal lease, then after six, seven, eight processors [at peak times], you're actually paying more."

HP calculates payments based on average monthly CPU usage. The retailer pays a baseline price for the standby server. "We're saving a lot of money there," Jones says.

HP offered to refund the difference if the cost of R.C. Willey's three-year lease exceeded the cost of a standard outsourcing agreement. "There was nothing to lose," Jones adds.

Travel site drives down costs
Each year, 96 million leisure travellers flock to the Internet looking for flights, hotel rooms and maps, especially during the summer months, according to the Travel Industry Association of America. The seasonal nature of travel poses some challenges for the IT staff at Mobil Travel Guide.

In the winter, Mobiletravelguide.com, which caters exclusively to road travellers, receives a few hundred thousand monthly visitors. In August, that number doubles. And when the company posts its annual ratings of hotels, restaurant and spas each fall, Web traffic increases tenfold.

Such wild fluctuations in capacity requirements led Paul Mercurio, senior vice president and CIO, to on-demand computing services in October 2002. "I saw an opportunity to go to a model where I had much more operational flexibility. I could make tactical changes without a lot of forewarning," Mercurio says.

Under an agreement with IBM, Mobil Travel Guide pays a base price for use of IBM's largest mainframe complex with z990 servers, and it can add capacity for processing, storage, memory and network connectivity as needed for an additional monthly charge. For instance, when the site suddenly required additional storage space for backup and recovery early one day, "all I did was make a phone call [to IBM], and I pay a little more for my service that month," he says. "No capital dollars involved."

Mercurio estimates that the five-year on-demand computing agreement will cost 25 to 30 per cent less than a traditional contract where hardware is purchased and then outsourced. What's more, IT staffing costs remain low. The director of system operations solely manages the IBM engagement, and IBM handles the database administration work.

Mobil Travel Guide was one of the first three adopters of IBM's Linux Virtual Services in 2002. Mercurio says the risk was mitigated by working with a well-known company. He was also familiar with Linux -- his company had built a database in a Linux/Oracle environment several months earlier.

Mercurio's team went live with the new system on 28 October 2002, a week before the annual ratings announcement. The Web site handled the increased traffic without a hitch. In February, when business slows, "I could cut my capacity in half and the bill would drop," he says. "We're happy."


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