The Cloud Cat and Mouse Papers – The Primer


Cat and Mouse with Multi-national infrastructure –The Participants to date

There is an ever-changing, game of cat and mouse developing in the world of cloud computing.   Its not a game that you as a consumer might see, but it is there.  An undercurrent that has been there from the beginning.   It pits Technology Companies and multi-national infrastructure against local and national governments.  For some years this game of cat and mouse has been quietly played out in backrooms, development and technology roadmap re-works, across negotiation tables, and only in the rarest of cases – have they come out for industry scrutiny or visibility.  To date the players have been limited to likes of Google, Microsoft, Amazon, and others who have scaled their technology infrastructure across the globe and in large measure those are the players that governments have moved against in an ever intricate chess game.  I myself have played apart in the measure/counter-measure give and take of this delicate dance.

The primary issues in this game have to do with realization of revenue for taxation purposes, Safe Harbor and issues pertaining to personally identifiable information, ownership of Big Data, the nature of what is stored, how it is stored, and where it is stored, the intersection where politics and technology meet.   A place where social issues and technology collide.   You might call them storm clouds, just out of sight, but there is thunder on the horizon that you the consumer and/or potential user of global cloud infrastructure will need to be aware of because eventually the users of cloud infrastructure will become players in the game as well. 

That is not to say that the issues I tease out here are all gloom and doom.  In fact, they are great opportunities for potential business models, additional product features, and even cloud eco-system companies or niche solutions unto themselves.  A way to drive significant value for all sides.   I have been toying with more than a few of these ideas myself here over the last few months.

To date these issues have mostly manifested in the global build up of infrastructure for the big Internet platforms.  The Products and Services the big guys in the space use as their core money-making platforms or primary service delivery platforms.  Rarely if ever do these companies use this same infrastructure for their Infrastructure as a service (IAAS) or Platform as a Services (PAAS) offerings.  However, as you will see, the same challenges will and do apply to these offerings as well.  In some cases they are even more acute and problematic in a situation where there may be a multi-tenancy with the potential to put even more burden on future cloud users.

If I may be blunt about this there is an interesting lifecycle to this food chain whereby the Big Technology companies consistently have the upper hand and governmental forces through the use of their primary tools – regulation and legislation – are constantly playing catch up.  This lifecycle is unlikely to change for at least five reasons.

  • The Technology Companies will always have the lens of the big picture of multi-national infrastructure.   Individual countries, states, and locales generally only have jurisdiction or governance over that territory, or population base that is germane to their authority.
  • Technology Companies can be of near singular purpose on a very technical depth of capability or bring to bear much more concentrated “brain power” to solve for evolutions in the changing socio-political landscape to continually evolve measures and counter-measures to address these changes.
  • By and large Governments rely upon technologies and approaches to become mainstream before there is enough of a base understanding of the developments and impacts before they can act.  This generally places them in a reactionary position. 
  • Governmental forces generally rely upon “consultants” or “industry experts” to assist in understanding these technologies, but very few of these industry experts have ever really dealt with multi-national infrastructure and fewer still have had to strategize and evolve plans around these types of changes. The expertise at that level is rare and almost exclusively retained by the big infrastructure providers.
  • Technology Companies have the ability to force a complete game-change to the rules and reality by completely changing out the technology used to deliver their products and services, change development and delivery logic and/or methodology to almost affect a complete negation of the previous method of governance, making it obsolete. 

That is not to say that governments are unwilling participants in this process forced into a subservient role in the lifecycle.  In fact they are active participants in attracting, cultivating, and even subsidizing these infrastructural investments in areas of under their authority and jurisdiction.  Using tools like Tax breaks, real estate and investment incentives, and private-public partnerships do have both initial and ongoing benefits for the Governments as well.  In many ways these  are “golden handcuffs” for Technology Companies who enter into this cycle, but like any kind of constraint – positive or negative – the planning and strategy to unfetter themselves begins almost immediately.

Watson, The Game is Afoot

Governments, Social Justice, Privacy, and Environmental forces have already begun to force changes in the Technology landscape for those engaged in multi-national infrastructure.  There are tons of articles freely available on the web which articulate the kinds of impacts these forces have had and will continue to have on the Technology Companies.  The one refrain through all of the stories is the resiliency of those same Technology Companies to persevere and thrive despite what might be crucial setbacks in other industries.

In some cases the technology changes and adapts to meet the new requirements, in some cases, approaches or even vacating “un-friendly” environs across any of these spectrums becomes an option, and in some cases, there is not an insignificant bet that any regulatory or compulsory requirements will be virtually impossible or too technically complex to enforce or even audit.

Lets take a look at a couple of the examples that have been made public that highlight this kind of thing.   Back in 2009, Microsoft migrated substantial portions of their Azure Cloud Services out of Washington State to its facilities located in San Antonio Texas.  While the article specifically talks about certain aspects of tax incentives being held back, there were of course other factors involved.   One doesn’t have to look far to understand that Washington State also has an B&O Tax (Business and Occupation Tax) which is defined as a gross receipts tax. It is measured on the value of products, gross proceeds of sale, or gross income of the business.  As you can imagine, interpreting this kind of tax as it relates to online and cloud income and the like could be very tricky and regardless would be complex and technical problem  to solve.  It could have the undesired impact of placing any kind of online business at an interesting disadvantage,  or at another level place an unknown tax burden on its users.   I am not saying this was a motivating factor in Microsoft’s decision but you can begin to see the potential exposure developing.   In this case, The Technology could rapidly change and move the locale of the hosted environments to minimize the exposure, thus thwarting any governmental action.  At least for the provider, but what of the implications if you were a user of the Microsoft cloud platform and found yourself with an additional or unknown tax burden.  I can almost guarantee that back in 2009 that this level of end user impact (or revenue potential from a state tax perspective) had not even been thought about.   But as with all things, time changes and we are already seeing examples of exposure occurring across the game board that is our planet.

We are already seeing interpretations or laws getting passed in countries around the globe where for example, a server is a taxable entity.   If revenue for a business is derived from a computer or server located in that country it falls under the jurisdiction of that countries tax authority.    Imagine yourself as a company using this wonderful global cloud infrastructure selling your widgets, products or services, and finding yourself with an unknown tax burden and liability in some “far flung” corner of the earth.   The Cloud providers today mostly provide Infrastructure services.  They do not go up the stack far enough to be able to effectively manage your entire system let alone be able to determine your tax liability.  The burden of proof to a large degree today would reside on the individual business running inside that infrastructure.  

In many ways those adopting these technologies are the least capable to deal with these kinds of challenges.  They are small to mid-sized companies who admittedly don’t have the capital, or operational sophistication to build out the kind of infrastructure needed to scale that quickly.   They are unlikely to have technologies such as robust configuration management databases to be able to to track virtual instances of their products and services, to tell what application ran, where it ran, how long it ran, and how much revenue was derived during the length of its life.   And this is just one example (Server as a taxable entity) of a law or legislative effort that could impact global users.  There are literally dozens of these kinds of bills/legislative initiatives/efforts (some well thought out, most not) winding their way through legislative bodies around the world.

You might think that you may be able to circumvent some of this by limiting your product or services deployment to the country closest to home, wherever home is for you.  However there are other efforts winding their way through or in large degree passed that impact the data you store, what you store, whose data are you storing, and the like. In most cases these initiatives are unrelated to the revenue legislations developing, but balanced they can give an interesting one – two punch.   For example many countries are requiring that for Safe Harbor purposes all information for any nationals of ‘Country X’ must be stored in ‘Country X’ to ensure that its citizenry is properly protected and under the jurisdiction of the law for those users.   In a cloud environment, with customers potentially from almost anywhere how do you ensure that this is the case?  How do you ensure you are compliant?   If you balance this requirement with the ‘server as a taxable entity’ example I just gave above there is an interesting exposure and liability for companies prove where and when revenue is derived.     Similarly there are some laws that are enacted as reactions against legislation in other countries.

In the post-911 era within the United States, the US Congress enacted a series of laws called the Patriot Act.   Due to some of the information search and seizure aspects of the law, Canada forbade that Canadian citizens data be stored in the United States in response.   To the best of my knowledge only a small number of companies actually even acknowledge this requirement and have architected solutions to address it, but the fact remains they are not in compliance with Canadian law.  Imagine you are a small business owner, using a cloud environment to grow your business, and suddenly you begin to grow your business significantly in Canada.  Does your lack of knowledge of Canadian law excuse you from your responsibilities there?  No.  Is this something that your infrastructure provider is offering to you? Today, no.  

I am only highlighting certain cases here to make the point that there is a world of complexity coming to the cloud space.  Thankfully these impacts have not been completely explored or investigated by most countries of the world, but its not hard to see a day/time where this becomes a very real thing where companies and the cloud eco-system in general will have to address.  At its most base level these are areas of potential revenue streams for governments and as such increase the likelihood of their eventual day in the sun.    I am currently personally tracking over 30 different legislative initiatives around the world (read as pre-de-facto laws) that will likely shape this Technology landscape for the big providers and potential cloud adopters some time in the future.

What is to come?

This first article was really just to bring out the basic premise of the conversation and topics I will be discussing and to lay the groundwork to a very real degree.  I have not even begun to touch on the extra-governmental impacts of social and environmental impacts that will likely change the shape even further.  This interaction of Technology, “The Cloud”, Political and Social Issues, exists today and although largely masked by the fact that eco-system of the cloud is not fully developed or matured, is no less a reality.   Any predictions that are made are extensions of existing patterns I see in the market already and do not necessarily represent a forgone conclusion, but rather the most likely developments based upon my interactions in this space.  As this Technology space continues to mature, the only certainty is uncertainty modulated against the backdrop of a world where increasingly geo-political forces will continue to shape the Technology of tomorrow.


Cloud Détente – The Cloud Cat and Mouse Papers


Over the last decade or so I have been lucky enough to be placed into a fairly unique position to work internationally deploying global infrastructure for cloud environments.  This work has spanned across some very large companies with a very dedicated focus on building out global infrastructure and managing through those unique challenges.   Strategies may have varied but the challenges faced by them all had some very common themes.   One of the more complex interactions when going through this process is what I call the rolling Cat and Mouse interactions between governments at all levels and these global companies.  

Having been a primary player in these negotiations and the development of measures and counter measures as a result of these interactions, I have come to believe there are some interesting potential outcomes that cloud adopters should think about and understand.   The coming struggle and complexity for managing regulating and policing multi-national infrastructure will not solely impact the large global players, but in a very real way begin to shape how their users will need to think through these socio-political  and geo-political realities. The potential impacts on their business, their adoption of cloud technologies, their resulting responsibilities and measure just how aggressively they look to the cloud for the growth of their businesses.

These observations and predictions are based upon my personal experiences.  So for whatever its worth (good or bad)  this is not the perspective of an academic writing from some ivory tower, rather they are  the observations of someone who has been there and done it.  I probably have enough material to write an entire book on my personal experiences and observations, but I have committed myself to writing a series of articles highlighting what I consider the big things that are being missed in the modern conversation of cloud adoption.  

The articles will highlight (with some personal experiences mixed in) the ongoing battle between Technocrats versus Bureaucrats.  I will try to cover a different angle on many of the big topics out there today such as :

  • Big Data versus Big Government
  • Rise of Nationalism as a factor in Technology and infrastructure distribution
  • The long struggle ahead for managing, regulating, and policing clouds
  • The Business, end-users, regulation and the cloud
  • Where does the data live? How long does it live? Why Does it Matter?
  • Logic versus Reality – The real difference between Governments and Technology companies.
  • The Responsibilities of data ownership
    • … regarding taxation exposure
    • … regarding PII impacts
    • … Safe Harbor

My hope is that this series and the topics I raise, while maybe a bit raw and direct, will cause you to think a bit more about the coming impacts on Technology industry at large, the potential coming impacts to small and medium size businesses looking to adopt these technologies, and the developing friction and complexity at the intersection of technology and government.


Site Selection,Data Center Clustering and their Interaction

I have written many times on the importance of the site selection for data centers and its growing importance when one considers the regulatory and legislative efforts underway globally.   Those who make their living in this space know that this is going to have a significant impact on the future landscape of these electronic bit factories.   The on-going long term operational costs over the life of the facility,  their use of natural resources (such as power) and what they house and protect (PII data or Personally Identifiable Information) are even now significantly impacting this process for many large global firms, and is making its way into the real estate community.  This is requiring a series of crash courses in information security, power regulation and rate structures, and other complex issues for many in the Real Estate community. 

In speaking to a bunch of friends in the Real Estate side of the business, I thought it might be interesting to take a few of these standard criteria head on in an open discussion.   For this post I think I will take on two of the elemental ones in data center site selection. We will look at one major item, and one item that is currently considered a minor factor that is quickly on the rise in terms of its overall importance.  Namely Power and Water, respectively.

Watts the Big Deal?

Many think that power cost alone is the primary driver for data centers, and while it is always a factor there are many other facets that come into play underneath that broader category of Power.   While Site Selection Factors are always considered highly confidential I thought it might highlight some of the wider arcs in this category.

One such category getting quite a bit of attention is Power  Generation Mix.   The Generation mix is important because it is essentially the energy sources responsible how that area or region gets its energy.  Despite what politicians would lead you to believe, once an electron is on the grid it is impossible to tell from which source it came.   So ‘Green Energy’ and its multitude of definitions is primarily determined by the mix of energy sources for a given region.   A windmill for example does not generate an electron with a tiny label saying that is sourced from ‘green’ or ‘renewable’ sources.   Understanding the generation mix of your power will allow you to forecast and predict potential Carbon output as a result of Data Center Carbon production.   The Environmental Protection Agency in the US, produces a metric called the Carbon Emission Factor which can be applied to your consumption to assist you in calculating your carbon output and is based upon the generation mix of the areas you are looking to site select in.   Whether you are leasing or building your own facility you will likely find yourself falling into a mandatory compliance in terms of reporting for this kind of thing.

So you might be thinking, ‘Great, I just need to find the areas that have cheap power and a good Carbon Emission Factor right?’  The answer is no.  Many Site Selection processes that I see emerging in the generic space start and stop right at this line.   I would however advocate that one takes the next logical step which is to look at the relationship of these factors together and over a long period of time.

Generation Mix has long been considered to be a ‘Forever’ kind of thing.  The generation sources within a region, rarely changed, or have rarely changed over time.   But that is of course changing significantly in the new era that we live in.

Lets take the interplay (both historical and moving forward) of the Power Cost and its relationship with the Generation Mix.  As humans we like to think in simplistic terms.  Power costs for a specific region are ‘so many cents per kilowatt hour’ this changes based upon whether you are measured at a residential, commercial, or industrial rate schedule.   The rate schedule is a function of how much power you ultimately consume or promise to consume to the local utility.   The reality of course is much more complicated than that.   Power rates fluctuate constantly based upon the overall mix.   Natural disasters, regulation, etc. can have a significant impact on power cost over time.   Therefore its generally wise to look at the Generation Mix Price Volatility through the longer term lens of history and see how a region’s power costs oscillate between these types of events.     However you decide to capture or benchmark this it is a factor that should be considered. 

This is especially true when you take this Volatility factor and apply it the changing requirements of Carbon Reporting and impacts.  While the United States is unlikely to have a law similar to the CRC in the UK (Carbon Reduction Commitment), it will see legislation and regulation impacting the energy producers.  

You might be asking yourself, ‘Who cares if they go after those big bad energy companies and force them to put more ‘green power in their mixes’.  Well lets think about the consequences of these actions to you the user, and why its important to your site selection activity.

As the energy producers are regulated to create a more ‘green’ mix into their systems, two things will happen.  The first of course is that rates will rise.  The energy producers will need to sink large amounts of capital to invest into these technologies, plants, research and development, etc to come to alignment with the legal requirements they are being regulated to.   This effect will be uneven as many areas around the globe have quite a disparate mix of energy from region to region.   This will also mean that ‘greener’ power will likely result in ‘more expensive power’.   Assessing an area for the potential impacts to these kinds of changes is definitely important in a data center build scenario as you likely have a desire to ensure that your facility has the longest possible life which could span a couple of decades.  The second thing which may be a bit harder to guess at, is ‘which technology’ is a given region or area likely to pick and its resulting carbon output impact.   While I have a definite approach to thinking through such things, this is essentially the beginning of the true secret sauce to site selection expertise and the help you may require if you don’t have an internal group to go through this kind of data and modeling.  This is going to have an interesting impact on the ‘clustering’ effect that happens in our industry at large.

We have seen many examples like Quincy, Washington and San Antonio, Texas where the site selection process has led to many Data Center providers locating in the same area to benefit from this type of analysis (even if not directly exposed to the criteria).  There is a story (that I don’t know if its true or not) that in the early days when a new burger chain was looking to expand where it would place its restaurants, it used the footprint of its main competitor as its guide. The thinking was that they probably had a very scientific method for that selection and they would receive that same ancillary benefit without the cost and effort.   Again, not sure if that is true or not, but its definitely something likely to happen in our industry. 

In many markets these types of selections are in high demand.   Ascent Corporation out of St. Louis is in the process of building a modern facility just down the street from the Microsoft Mega-Facility near Chicago.   While Ascent was a part of the original Microsoft effort to build at that location, there has been an uptick in interest for being close to that facility for the same reasons as I have outlined here.  The result is their CH2 facility is literally a stones throw from the Microsoft Behemoth.  The reasons? Proximity to power, fiber, and improved water infrastructure are already there in abundance.  The facility even boasts container capabilities just like its neighbor.   The Elmhurst Electrical Substation sits directly across the highway from the facility with the first set of transmission poles within easy striking distance.  

Elmhurst Electrical Yard

The Generation mix of that area has a large nuclear component which has little to no carbon impact, and generates long term stability in terms of power cost fluctuations.   According to Phil Horstmann, President of Ascent, their is tremendous interest in the site and one of the key draws is the proximity of its nearby neighbor.  In the words of one potential tenant ‘Its like the decision to go to IBM in the 80s.  Its hard to argue against a location where Microsoft or Google has placed one of its facilities.’

This essentially dictates that there will be increasing demand on areas where this analysis is done or has been perceived to be done.   This is especially true where co-location and hosting providers can align their interests with those commercial locations where there is market demand.  While those that follow first movers will definitely benefit from these decisions (especially those without dedicated facility requirements), first movers continue to have significant advantage if they can get this process correct.

Tying into the power conversation is that of water.  With the significant drive for economization (whether water based or air-based)  water continues to be a factor.  What many people don’t understand is that in many markets the discharge water is clean to dump into the sewage system and to ‘dirty’ to discharge to retention ponds.  This causes all kinds of potential issues and understanding the underlying water landscape is important.   The size of the metropolitan sewage environments, ability to dig your own well efforts, the local water table and aquifer issues, your intended load and resulting water requirements, how the local county, muncipality, or region views discharge in general and which chemicals and in what quantities is important to think about today.  However, as the use of water increases in terms of its potential environmental scrutiny – water is quickly rising on the site selection radar of many operators and those with long term holds.

I hope this brief talk was helpful.  I hope to post a few other key factors and a general discussion in the near future.