Cloud Economics.
The financial reasons for the huge growth of cloud services seem crystal clear: cloud computing simply allows us to pay for what we need only when we need it, right?
But the truth is, companies adopting cloud computing often miss the risk and depth of change needed to embrace a cloud economics model as they embrace cloud services. It turns out that the financial model for cloud computing has far more nuances for both a company and its cloud services provider than many people understand up front.
Many people assume it’s all about moving to a “pay-as-you-go” (PAYG) model and while this is certainly a big piece of it, it also involves operating versus capital expenses, subscriptions to services, and customers paying for outcomes (not technology). The good news is that these models are already familiar to most businesses.
Thinking Beyond CapEx vs. OpEx
Most enterprises have hardware utilization rates significantly below 20% because of the excess capacity required to handle peak demand. As such, many companies carry up to 5 times the required hardware, networking, and data center space during steady state business cycles. If their computing demand is spiky, utilization rates outside of peak cycles are commonly below 10%. As a result, enterprises are spending much more on compute and storage than is required.
Defining ROI and TCO in the Cloud:
Return on Investment (ROI): The financial gain from an investment in cloud divided by the cost of that investment.
Total Cost of Ownership (TCO): The sum of all direct and indirect costs of the IT estate including all application development, maintenance and support, operations, data center, network, and BC/DR.
How much does human error cost you?
A key savings that is often overlooked is cost avoidance. You may notice that cost avoidance is not listed in the grid above. This is because cost avoidance can land in either hard or soft savings. Some mistakes are easier to quantify (such as having your e-commerce platform go down for an hour on Black Friday), but others, such as an impact to your reputation, are much harder.
The cloud’s ability to help enterprises avoid costs is extremely powerful. For example, many of our clients are using various levels of cloud and DevOps to improve uptime and make operations, development and deployment much more efficient.
If you do not take the time to understand how much a lack of automation (and ensuing human error) is costing your company, you are missing a major opportunity to reduce future costs.
To help quantify the value of agility for your organization, start by breaking down its 4 components:
1) Your degree of change over time.
2) Your ability to adapt to change.
3) Your relative value of change.
4) Your individual perspective on agility.
Cloud provides the perfect opportunity to change the way your organization runs IT. With cloud, IT has a much more positive influence on the business and is better aligned with strategic goals. IT will no longer be a drain on company resources, and many enterprises will find that the newfound efficiency and agility of cloud adds huge value to their bottom line. After all, IT is there to serve the business, not the other way around.
What should companies do in order to take advantage of the cloud?
First, you have to look what is core and non-core to your company; and, not just in today’s context but say five years from now. Why? Because, what companies define as core might be completely non-core as we go along. Remember, we agreed that technology can be a great disintermediary. So, companies need to re-evaluate their models to identify what they want to hold on to, from a competitive advantage standpoint, and — leverage the forces of advanced technologies like social, cloud, mobility and analytics to make their organizations more agile, more dynamic and more responsive. A key aspect here is to look business process downwards to applications and then infrastructure. If you do not optimize your business processes, there is a high probability that you would fall into what Robert Solow calls productivity paradox.
— Few stats are from open source journal available in publication houses.
