Cloud Computing:

Power & Frailty

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Part 4: Filling the Void Between Cloud and Finance

Like any industry, cloud computing and its users will inevitably evolve. We like to employ an (admitted overly-simplified) analogy, but it makes a point:

 

You and your neighbors all go to work far away from home. Initially you all walked to work. Everyone was equally inefficient as far as commute goes. Then one day, the automobile was invented and you buy one to get to work, saving a lot of time. Even though you have added gas, insurance, and purchasing costs, in the long run you can use the saved time to take on more side jobs and make more money. You're better off compared to your neighbors. But the automobile is commoditizing and soon everyone in your neighborhood is driving to work. Suddenly that competitive edge you had gets eroded. But cars do break down, and so every time that happens you're screwed until you take it to the shop, or get towed, and you have to wait for the mechanic to get it back in working condition. So you decide to buy a second car as your back up. But your neighbors all face the same problem, and they also buy backup vehicles. Everyone starts to spend more money, but the problem is nobody is getting protected from the loss of money, time, and opportunities when cars eventually break down anyway. 

The takeaway here should be obvious: business advantages that stem from using the cloud will eventually converge and at that point, it won't be a game of who uses cloud computing. It will be a game of who optimizes the use of cloud computing in terms of expenditures and risks.

And that's the point of COPA (Cloud Outage Payout Agreements). COPAs are derivative instruments grounded in technical and financial reality. They help to flexibly cover exposure to cloud outage risk while not adding extraneous expenses to your overall infrastructure. Because COPA payouts are directly correlated with hours of downtimes experienced, you never have to over spend for HA and DR. Businesses only need to make absolutely necessary redundancy and failover preparations from a cloud architectural standpoint, and then rely on COPA to cover them the rest of the way for additional cloud outage risks.

 

And what about traditional business continuity insurance? Let's look at an example. Your mobile payments platform makes $100,000/hr on average. But the cloud compute service you rely on fails for 5 hours. Would insurance protect you? No. Why not? Because technically you didn't "lose" anything. Through the lens of traditional insurance, you didn't incur damages because you can't lose what you didn't earn (yet). However, you know from operational experience and financial analysis that had the cloud service not failed and not disrupted your transactions platform, you would have earned an additional $500,000. Instead, the downtime cost you that much business opportunity. Ouch. But business continuity insurance isn't going to pay up.

 

Does that make sense? We don't think so. 

That's why we created COPA - Cloud Outage Payout Agreements. These are straightforward over-the-counter (OTC) contracts that are designed to compensate your business in the event that it's disrupted from cloud service outages. COPAs employ data-driven mechanics, ensuring that your business receives payments on the basis of measurable technical metrics verifying disruption correlated with downtime hours. There's no claims process, no adjustments, no guess work involved. The payments are intelligent in that they trigger automatically when a cloud service outage is detected to have impacted your operations. COPA are forward-looking, meaning they can compensate you for value that you expect to capture and not only remunerate you for losses that you directly incur in the past. Learn more about COPA.

COPA (Cloud Outage Payout Agreements) helps businesses optimize spending on best-practice cloud architecture, by mitigating costs deriving from outages. Savings are generated when they reduce unnecessary over-spend on HA/DR.

HA/DR Expenditures

Exposure to Outage

COPA Effect

COPA payouts directly reduce the financial risks deriving from cloud outages when they actually occur. There is no need to overpay exorbitant upfront fixed costs of designing unwarranted HA and DR, which is wasteful spending in the event that outages don't actually occur. 

Overall Costs

Optimal

Costs of Outage

Inefficiencies

Overall Costs

Hedged Risk

Costs of Outage

Savings

Savings

Premium

Over Exposure

Overall Costs

Costs of Outage

Over-spend on HA/DR

Under-spend on HA/DR

Optimized Spending with COPA

Inefficiencies

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