Abstract—Cloud Computing (CC) has been on the rise. Its pervasiveness has tremendous effects on both CC users and CC providers as well as on governments. The latter purports to regulate the industry to increase its security and users’ confidence. Shannon’s channel and “rational inattention” may explain the remarkable rise of this industry. But the switch from a CAPEX to an OPEX model that CC entails has significant impacts on firm valuation and wealth creation. This shift in management strategy may increase risks and the latter have negative effects on firms’ performance. The existing financial models cannot capture entirely these characteristics of the CC industry. New models are needed which take into account the CC business practices, particularly the SLA (service level agreements) and evaluate the impact of CC deployment on firms’ performance. This paper presents the EVA financial model and applies it to the CC industry. It divides risks in various subcomponents and proposes new methods for their quantification. It is argued that the EVA model is better suited to analyze the CC industry than other competing financial models.
Index Terms—cloud computing, EVA financial analysis, new business models, pay-as-you-go principle, rational inattention.
A. Gentzoglanis is with the University of Sherbrooke, Sherbrooke, Quebec, Canada, J1K-2R1. He is affiliated with the CIRST and CEREF research centers and the Grefa research group at the University of Sherbrooke (e-mail: anastassios.gentzoglanis@USherbrooke.ca).
Cite: A. Gentzoglanis, "EVATM and the Cloud: An Integrated Approach to Modeling of Cloud Computing," International Journal of Modeling and Optimization vol. 1, no. 4, pp. 321-326, 2011.
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